SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1 TO FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(b) OR 12(g) OF
THE SECURITIES EXCHANGE ACT OF 1934
American Public Holdings, Inc.
----------------------------------
(Exact name of registrant as specified in its charter)
Mississippi 64-0874171
- -------------------------------- --------------------------------------
(State or other jurisdiction of (I.R.S. employer identification no.)
incorporation or organization)
2305 Lakeland Drive, Jackson, Mississippi 39208
- --------------------------------------- --------------------------
(Address of principal executive office) (Zip code)
Registrant's telephone number, including area code: (601) 936-6600
--------------------
Securities to be registered pursuant to Section 12(b) of the Act:
None
Securities to be registered pursuant to Section 12(g) of the Act:
<PAGE>
Common Stock, no par value
------------------------------------------
(Title of each class)
<PAGE>
Item 1. Business.
American Public Holdings, Inc. (the "Company") is a Mississippi
business corporation organized on December 21, 1995 by American Public Life
Insurance Company ("American Public Life"), also a Mississippi corporation. The
Company was formed to serve as a holding company for American Public Life.
On February 20, 1996 the Mississippi Commissioner of Insurance approved
an Agreement and Plan of Exchange (the "Plan of Exchange") pursuant to which
American Public Life would become a wholly-owned subsidiary of American Public
Holdings, Inc., and each share of outstanding American Public Life Common Stock
would be converted into one share of Company Common Stock. The Plan of Exchange
was approved by the stockholders of American Public Life at a Special Meeting
held on October 29, 1996 and became effective on November 30, 1996.
The Company has no significant assets other than the stock of American
Public Life. The assets and liabilities of the Company on a consolidated basis
are not materially different from the assets and liabilities of American Public
Life. As a holding company, the Company may make investments and engage in
businesses not permitted for an insurance company, but there are no present
plans to engage in additional activities or to make additional investments.
American Public Life is a Mississippi life and health insurance
company, which began operations in 1945. It is licensed to do business in
twenty-one (21) states. American Public Life specializes in supplemental health
insurance products, including cancer, accident, intensive care, heart
attack/stroke and dental insurance policies. American Public Life also offers
whole life and term life insurance contracts.
The following table sets forth earned premiums by product line for the
<PAGE>
last three years ended December 31.
<TABLE>
Year ended December 31,
----------------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Premium revenue:
Cancer $18,154,674 $18,300,716 $17,360,977
Life insurance 552,908 578,342 614,700
Accident 1,149,841 1,202,815 1,241,577
DentaCare (Dental) 4,906,975 4,296,655 3,889,010
Group Accident & Health 993,026 693,629 778,103
Other Accident & Health 312,424 313,814 288,523
---------- ---------- ---------
$26,069,848 $25,385,971 $24,172,890
=========== ============ ===========
1
<PAGE>
Underwriting income:
Life insurance $ (346,527) $ (269,699) $ (324,671)
Accident & Health (1,719,138) (2,901,606) (1,473,144)
Investment income 2,387,010 2,300,624 2,214,311
Other income 26,067 28,129 38,594
Realized investment gains (80,291) (82,117) (5,235)
--------- ----------- ---------
Income (loss) before income tax provision $ 267,121 $ (924,669) $ 449,855
============ ============= ===========
</TABLE>
The following is a discussion of the characteristics of the categories of
insurance currently marketed or in force. Products are described in general
terms as there are many variations resulting principally from differing state
laws and regulations.
Life Insurance
American Public Life conducts its life insurance business on a
non-participating basis. American Public Life is licensed to write insurance in
21 states. The Company markets life insurance business utilizing individual
policies written on both a direct and a payroll deduction basis. Plans available
include 1, 5, & 10 year renewable term insurance issued up to $1,000,000
(Maximum Retention by company $50,000). Rates for these three products are male
and female non tobacco use and standard basis. Underwriting requirements vary by
age and amount of insurance applied for. Issue ages are 20-70. The following
table indicates those states which accounted for 5% or more of the total direct
life insurance premiums collected by American Public Life during 1996.
<TABLE>
<S> <C> <C>
Alabama $32,188 5.30%
Arkansas 47,697 7.85%
Louisiana 106,105 17.46%
Mississippi 242,276 39.86%
<PAGE>
Oklahoma 40,810 6.71%
Texas 63,929 10.52%
Others 74,871 12.30%
-------- ------
Total 607,876 100.00%
======= ======
</TABLE>
American Public Life offers a simplified issue whole life policy with
face amounts based on monthly payroll deduction amounts of $5-$20. The maximum
issue amount is $40,134. Rates are uni-sex and do not distinguish between smoker
and non smoker. A spouse rider is available with up to $10,000 coverage. The
children's protection rider provides up to $5,000 to age 25 where it may then be
converted to permanent coverage not to exceed $25,000. This product is issued to
ages 15-65 either individually or by payroll deduction.
The family life protector is a decreasing term plan renewable to age
70. Issue ages are 15 to age 60. Coverage is provided individually or on the
entire family. Maximum issue on the primary insured per unit is $15,000. Family
coverage maximums are spouse $3,000 and children $1,000. Accidental death and
dismemberment coverage is included on the primary insured and spouse. Premiums
may be paid individually or by payroll deduction.
The Company is in the process of developing a voluntary group term life
plan that will compliment its existing portfolio of voluntary payroll deduction
accident and health products.
Term life insurance policies provide death benefits if the insured's
death occurs during the specific premium paying term of the policy and generally
do not include a savings or investment element in the policy premium. Whole life
insurance policies provide death benefits which are payable under effective
policies regardless of the time of the insured's death and have a savings and
investment element which may result in the accumulation of a cash surrender
value.
2
<PAGE>
The following table sets forth certain information concerning the
development of American Public Life's life insurance business.
<TABLE>
Year Ended December 31,
1996 1995 1994
(in thousands)
<S> <C> <C> <C>
Life insurance in force at the end of period:
Ordinary - whole life $35,285 $33,144 $33,804
-term 15,390 18,476 22,624
Industrial 0 0 0
Other 0 0 0
----------- ----------- -----------
Total $50,675 $51,620 $56,428
======= ======= =======
New life insurance issued:
Ordinary - whole life 3,191 2,474 2,649
- term 678 2,692 3,038
Industrial 0 0 0
Other 0 0 0
------------ ------------ ------------
Total $ 3,869 $ 5,166 $ 5,687
========== ========== ==========
Premium Income $ 553 $ 578 $ 615
======== ======== ========
</TABLE>
<PAGE>
Accident and Health Insurance (A&H)
<PAGE>
American Public Life is licensed to write accident and health insurance
in 21 states. The following table indicates those states which accounted for 5%
or more of the total direct A&H premiums collected by American Public Life
during 1996.
<TABLE>
<S> <C> <C>
Alabama $1,267,179 4.96%
Louisiana 8,374,791 32.77%
Mississippi 5,973,363 23.38%
Oklahoma 2,699,177 10.56%
Texas 4,154,750 16.26%
Others 3,083,401 12.07%
--------- ------
Total $25,552,661 100.00%
==========
======
</TABLE>
3
<PAGE>
American Public Life's A&H portfolio includes plans that may be marketed
either on an individual basis or by payroll deduction. The bulk of new sales are
by payroll deduction with American Public Life taking advantage of the
popularity of this distribution method. The Company's Supplemental Cancer plans,
once the Company's lead products, have been restructured and as a result,
Voluntary Group Dental, Denta Care (American Public Life's PPO Dental Plan),
Disability Income, both group and guaranteed renewal along with medical
supplement plans have become the Company's leading products. Accident, Heart
Disease, and Intensive Care are also being successfully marketed on a payroll
deduction basis.
American Public Life's marketing structure consist of 53 general agents
and 725 soliciting agents. The Company has expanded its general agent network
with the contracting of four general agent's. Three of these new general agent's
will give the Company activity in states where there has been no significant
production in the past.
As it increases its product base and general agent network, the Company
will continue to grow along with the popularity of payroll deduction as a means
of
<PAGE>
distribution. It is expected that American Public Life's knowledge and
experience in this distribution method will give it a significant advantage in
the future.
Investments
American Public Life is regulated as to the types of investments which it
can make and the amount of funds which it may maintain in any one type of
investment. American Public Life's investment policy emphasizes investment grade
corporate bonds, political subdivision bonds, mortgage backed securities issued
by government agencies and United States Treasury securities. Investment real
estate and mortgage loans are gradually being liquidated as markets present
themselves.
The following table sets forth certain information concerning American
Public Life's investments at the dates shown.
As of December 31, 1996 the maturity schedule for all bonds and notes
held by American Public Life at amortized cost was as follows:
<TABLE>
Year Ended December 31,
1996 1995 1994
<S> <C> <C> <C>
Securities:
Available for sale $32,720,388 --- ---
Held to maturity --- $31,084,657 $28,200,395
Mortgage loans on real estate 1,075,268 1,257,771 1,397,586
Investment real estate 781,542 710,326 741,430
Policy loans 1,600,398 1,641,192 1,782,211
Short-term investments --- 15,000 890,000
----------------- -------------- -------------
Total investments $36,177,596 $34,708,946 $33,011,622
=========== =========== ===========
The results with respect to the foregoing investments are as follows:
Net investment income $2,387,010 $2,300,624 $2,214,311
Net realized losses on investments
(before income taxes) (80,291) (82,117) (5,235)
Average yield on investments 6.73% 6.79% 6.91%
Economic yield on investments
(includes realized and unrealized capital gains) 6.51% 6.55% 6.89%
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
Maturity Schedule
Amortized
Maturity Cost Percentage of Total
<S> <C> <C>
Due in one year or less $ 500,000 1.54%
Due in one to five years 399,979 1.24%
Due in five to ten years 4,057,443 12.52%
Due after ten years 5,243,585 16.18%
----------- ---------
10,201,007 31.48%
Mortgage-backed securities 22,205,121 68.52%
----------- ---------
$32,406,128 100.00%
=========== =========
</TABLE>
Actual maturities may differ from contractual maturities because of the
borrowers' right to call or prepay obligations.
The Company's supplemental health insurance coverages have a relatively
short duration. The Company's investment policy directs that bond investments be
made with an average duration of five to ten years. This policy is based on the
recommendation of an invetment consultant and the Company's independent
actuaries. A majority of the Company's government agency, mortgage-backed
securities were purchased with an anticipated average maturity falling within
these guidelines.
The Company's investment policy is to invest in state and federal
obligations as well as corporate obligations with a Standard & Poors rating of
"BBB" or greater. In 1996 the Company discontinued the purchase of government
agency, mortgage-backed securities and disposed of a significant
amount of government agency, mortgage-backed securities, and shifted these
funds into bonds with short to medium maturities. Such government agency,
mortgage-backed securities continue to be the largest component of the
portfolio. Because of prepayments, such securities present a greater interest
rate risk than traditional fixed income securities. The intent of the effort to
change the mix of the portfolio is to reduce the risk, volatility and active
management required of the portfolio since a change in market interest rates
results in a related change in such securities' prepayment risk.
Marketing and Distribution
American Public Life's insurance products are marketed through an
independent field force of 53 general agents and 725 producing agents. The
American Public Life marketing department provides training support to its field
force on a periodic basis throughout the year. Agents are compensated through
the payment of commissions which are calculated as a percentage of collected
premium revenue.
The following agencies have accounted for more than 10% of the new
<PAGE>
coverage issued in 1994, 1995, and 1996.
<TABLE>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Clinton %, Ruston, LA 11% 12% 9%
Benoit %, Kenner, LA 31% 23% 13%
MGM %, Plano, TX 23% 29% 27%
</TABLE>
These percentages generally reflect the percentage of distribution of premium
income. The Clinton agency has exceeded 10% for eight years, excluding 1994, the
Benoit agency has exceeded 10% for three years, and the MGM agency has exceeded
10% for twenty-one years.
Reserve Liabilities
American Public Life maintains reserves for future policy benefits to
meet future obligations under outstanding policies. These reserves are
calculated by an independent actuarial firm, Wakely and Associates, and are
certified to be sufficient to meet policy and contract obligations as they
mature. Liabilities for future policy benefits are calculated using assumptions
for interest, mortality, morbidity, expense and withdrawals determined at the
5
<PAGE>
time the policies were issued. As of December 31, 1996, the total reserves of
American Public Life were $34,653,694. American Public Life believes that such
reserves for future policy benefits were calculated in accordance with generally
accepted actuarial methods and that such reserves are adequate to provide for
future policy benefits with respect to American Public Life.
Underwriting Activities
American Public Life maintains an underwriting department which seeks
to evaluate the risks associated with the issuance of an insurance policy.
<PAGE>
American Public Life's underwriting and policy issue department is staffed by 7
employees. The department is responsible for data entry, underwriting and policy
issue. Underwriters determine whether an application is accepted or declined.
The underwriting process consists of a review of the information contained in
the application in conjunction with information obtained through the medical
information bureau (MIB), and through its review of medical histories furnished
upon request.
American Public Life conducts some telephone interviews to verify the
information on the application and to obtain such additional information as to
enable American Public Life to make an assessment of the applicant's functional
and cognitive capacities. American Public Life does not require physical
examinations as part of the underwriting process, as this is not generally
required for the type of coverages offered.
Claims Administration
Claims under American Public Life's policies are administered by a
claims department comprised of 15 employees. The claim adjudication process
principally includes verification of coverage, analysis of medical records,
interpretation of policy language and computation and payment of benefits.
American Public Life utilizes a physician who provides advice and direction with
regard to medical matters as they relate to American Public Life's claim
adjudication process.
Reinsurance
American Public Life's maximum retention on any one life is $50,000 for
life insurance and waiver of premium benefits. All accidental death benefits are
reinsured. The total reinsurance credits (i.e., reductions in reserve
liabilities) taken on life insurance in 1996 was $32,195. There is minimal risk
because of the reinsurers used and the relatively low amount of reinsurance
credits taken. The principal reinsurers of American Public Life are as follows:
Business Men's Assurance
Life Reassurance Corp.
Lincoln National Life
Munich American
Swiss Re
CNA
American Public Life also has a small amount of reinsurance on its
accident and health insurance. Lonestar Life Insurance Company reinsures 25% of
a small block of cancer insurance that was assumed from another company in 1992.
<PAGE>
Additionally, the heart transplant benefit on the heart attack-stroke policy is
reinsured 100% with Cologne Life Reinsurance Company.
Regulation
American Public Life is subject to regulation by the insurance
departments of those states in which it is licensed to conduct business.
Although the extent of regulation varies from state to state, the insurance laws
of the various states generally establish supervisory departments having broad
administrative powers with respect to, among other matters, the granting and
revocation of licenses to transact business, the licensing of agents, the
establishment of standards of financial solvency, including reserves to be
maintained, the nature of investments and, in most cases, premium rates, the
approval of forms and policies and the form and content of financial statements.
These regulations have as their primary purpose the protection of policyholders
and do not necessarily confer a benefit upon stockholders.
6
<PAGE>
Most states in which American Public Life operates have laws which
require that insurers become members of guaranty associations. These
associations guarantee that benefits due policyholders of insurance companies
will continue to be provided even if the insurance company which wrote the
business is financially unable to fulfill its obligations. To provide these
benefits, the associations assess the insurance companies licensed in a state to
write that type of insurance for which coverage is guaranteed. The amount of an
insurer's assessment is generally based on the relationship between that
company's premium volume in the state and the premium volume of all of the
companies writing the particular type of insurance in the state.
American Public Life is subject to periodic financial and market
conduct examinations. The last completed financial examination of American
Public Life was conducted by the Mississippi Insurance Department for the period
ended December 31, 1992. American Public Life is currently under examination for
the three-year period ended December 31, 1995. In addition, American Public Life
is subject to state imposed mandatory annual audits by independent certified
public accountants. These are conducted by the Company's independent public
accounting firm in conjunction with its audit of the Company's financial
statements.
<PAGE>
Payment of dividends by American Public Life is restricted by law to
available net surplus computed on a statutory basis. In addition, without the
prior approval of the Mississippi Commissioner of Insurance, the size of any
dividend by American Public Life during any one year is limited to the lesser of
(i) 10% of surplus; or (ii) net gain from operations for the past three years,
less dividends paid in the past two years.
Premiums
Premium rates for all of American Public Life's products are generally
subject to state regulation. Premium regulations vary greatly among
jurisdictions and product lines. Rates are established by American Public Life's
consulting actuary and are reviewed by the regulatory authorities in most
states. Rate changes must generally be filed and approved by these authorities.
Competition
American Public Life is engaged in highly competitive businesses and
competes with many insurance companies of substantially greater financial
resources, including stock and mutual insurance companies. Mutual insurance
companies return profits, if any, to policyholders rather than stockholders;
therefore, mutual insurance companies may be able to charge lower net premiums
than those charged by stock insurers. Accordingly, stock insurers such as
American Public Life must attempt to achieve competitive premium rates through
greater volume, efficiency of operation and control of expenses. A large number
of insurance companies are licensed to sell accident and health insurance,
cancer insurance, and dental insurance. These include substantially all of the
major carriers in the United States. A number of these companies specialize in
supplemental health insurance and may have
7
<PAGE>
considerably greater financial resources and larger networks of agents than
American Public Life.
American Public Life competes with insurers which offer similar
policies in attracting new agents and attempts to attract and maintain agents
through a combination of competitive products, competitive agent commission
rates and quality underwriting and claims service. Management believes that
<PAGE>
flexibility and sensitivity to changes in the marketplace are a major
consideration in competing for business.
Number of Employees
The Company employs a total of 91 persons as follows:
Accounting 15
Financial & Data Processing 7
Marketing 12
Legal & Compliance 9
Claims 15
Policy Service 25
All Other 9
----
91
Business Acquisitions
The Company's growth strategy includes the investigation and evaluation
of acquisition opportunities with respect to existing blocks of insurance
business underwritten by other companies. It is anticipated that these
acquisitions will allow the Company to increase business in force without
incurring high first year commission and administrative expenses associated with
business produced directly by agents. No such acquisitions have been completed
recently. Management intends to continue to evaluate acquisition opportunities
as they arise. However, there can be no assurance that any acquisition
opportunities will arise or that the Company will be successful in completing
any such acquisitions.
8
<PAGE>
Item 2. Financial Information.
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA
For the year ended December 31,
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
Revenues:
<S> <C> <C> <C> <C> <C>
Premiums $26,069,848 $25,385,971 $24,172,890 $19,713,300 $21,300,631
Net investment income 2,387,010 2,300,624 2,214,311 2,338,180 2,351,929
Realized investment gains (losses) (80,291) (82,117) (5,235) 869 339,381
Other income 26,067 28,129 38,594 31,249 35,071
Benefits and expenses:
Benefits, claims, losses and
settlement expenses 17,650,892 18,025,211 16,957,140 12,238,126 12,756,312
Expenses 10,484,621 10,532,065 9,013,565 8,522,253 8,863,845
Income (loss) before income tax
provision (benefit) 267,121 (924,669) 449,855 1,323,219 2,406,855
Income tax provision (benefit) 17,328 (337,013) (105,545) 432,430 763,050
Net income (loss) 249,793 (587,656) 555,400 899,789 1,643,805
Net income (loss) per share 4.65 (10.67) 10.03 16.26 29.69
Other selected financial data:
Stockholders' equity 16,229,497 16,597,309 17,663,109 16,048,507 17,407,462
Book value per share 307.13 303.51 319.07 289.92 314.46
Dividends per share 4.70 4.70 5.59 0.00 5.32
Total assets 52,277,519 51,724,155 51,281,469 47,444,179 50,015,268
</TABLE>
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION
AND RESULTS OF OPERATIONS
Overview
Net income from operations has been in decline since 1992. The decline
is attributed to increased benefit costs on cancer products, specifically
chemotherapy and radiation treatment. Also, policy terminations have exceeded
new issues the last five years as the Company's volume of new sales has remained
fairly level. Additionally, the Company has been implementing rate increases on
its unlimited chemotherapy cancer policies, and this has contributed to the
decline in our in force policy inventory.
In 1992, sales of cancer insurance were consistent with prior year
results. However, the Company had announced its intentions to withdraw unlimited
chemotherapy products from the market. As a result of the announcement of the
proposed withdrawal of unlimited chemotherapy cancer insurance from the market,
the sales of cancer insurance began to drop in 1993. The Company had already
begun looking for alternative products and in the fourth quarter of 1993 it
acquired an existing block of preferred provider dental insurance.
In 1994, sales of the new dental plan replaced the lost sales of cancer
<PAGE>
insurance. Benefit costs rose significantly because of increased treatment cost
on cancer insurance and also the higher benefit costs related to dental
insurance. The Company implemented a rate increase on cancer policies in
December, 1994. Operating expenses increased in 1994 over 1993 primarily because
of the overhead required to administer the new dental insurance product.
The Company incurred a net loss in 1995, as a result of higher benefit
costs on its cancer insurance. Rate increases on cancer insurance and sales of
dental insurance provided the increase in premium income over 1994. Benefit
costs increased as sales of dental insurance progressed, in addition to the
increase in cancer claims. Operating expenses continued to rise in 1995 as the
Company continued developing new products to market to replace the declining
sales of cancer insurance.
Net income improved in 1996 as new group insurance products were
introduced. Additionally, benefits were down, as the Company received fewer
cancer claims as compared to the previous year. Premium growth was attributable
to additional rate increases on cancer insurance, sales of dental insurance,
group disability, group dental insurance and group hospital indemnity insurance,
all of which are supplemental health products.
Known Trends
The Company's marketing strategy has been transformed from primarily a
single product offering, specifically cancer insurance, to a more diversified
product mix, which includes various group insurance products and dental
insurance. During this change in marketing strategy, unlimited chemotherapy
cancer products have been removed from the product mix. Sales of alternative
cancer products have been weak. However, sales of our dental and group insurance
products have filled the void left by the departure of cancer sales.
The Company is attempting to manager its existing block of cancer
policies with additional rate increase assessments each year and by also
offering a conversion option which "freezes" or reduces the policyholders
premium in exchange for a reduced annual maximum chemotherapy benefit of
$10,000. At the present time, approximately 20% of the unlimited chemotherapy
cancer policyholders have elected to convert to the annual $10,000 limit. The
Company is attempting to further diversity its product mix with the introduction
of new individual hospital indemnity and individual disability income insurance.
The Company has recently become licensed in two additional states, Kansas and
Indiana, and is filing for acceptance in additional states.
Results of Operations
<PAGE>
The following table sets forth the Company's condensed statement of
operations for the years ended December 31, 1992 through 1996, expressed as a
percentage of total revenues.
<TABLE>
Year ended December 31,
1996 1995 1994 1993 1992
------ ------ ------ ------ -----
Revenues:
<S> <C> <C> <C> <C> <C>
Premiums 91.8% 91.9% 91.5% 88.7% 89.3%
Net investment income 8.4% 8.3% 8.4% 9.8% 10.6%
Other (.2)% (.2)% .1% 1.5% .1%
-------- -------- -------- -------- -------
Total revenues 100.0% 100.0% 100.0% 100.0% 100.0%
------ ------ ------ ------ ------
Benefits and expenses:
Benefits, claims, losses and
settlement expenses 62.1% 65.2% 64.2% 53.1% 55.4%
Commission expense 8.3% 8.3% 9.1% 9.8% 9.5%
Salaries and benefits 9.1% 8.2% 8.0% 8.1% 8.6%
Amortization of deferred policy
acquisition costs 11.0% 13.1% 9.2% 12.0% 13.6%
Other operating expenses 8.6% 8.5% 7.8% 7.0% 6.9%
------- ------- ------- -------- --------
Total benefits and
expenses 99.1% 103.3% 98.3% 90.0% 94.0%
------- ------ ------- ------- -------
Income before income taxes .9% (3.3)% 1.7% 10.0% 6.0%
Provision for federal income taxes .1% (1.2)% (.4)% 3.2% 1.9%
------- ------ ----- ------- -------
Net income .8% (2.1)% 2.1% 6.8% 4.1%
======= ====== ==== ======= =======
</TABLE>
Premium income has shown an increase in each year illustrated. Prior to
1994, cancer insurance was the only significant product sold in volume by the
agents of the Company. In the fourth quarter of 1993, the Company acquired an
existing block of dental business, and this acquisition contributed to premium
growth in the years 1994, 1995, and 1996. Rate increases on cancer insurance
have also contributed to the increase in premium income. The components of
annualized premiums in force are summarized below:
10
<PAGE>
<TABLE>
<CAPTION>
Annualized Premiums In Force
(In thousands)
Year ended December 31, Percentage change
1996 1995 1994 1993 1996 vs. 1995 1995 vs. 1994 1994 vs. 1993
------ ------ ------ ------ ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Cancer $19,694 $19,271 $19,159 17,600 2.20% .58% 8.86%
Denta Care 5,466 4,132 4,075 4,000 32.28 1.40 1.88
Accident 1,130 1,195 1,256 1,389 (5.44) (4.86) (9.58)
Life insurance 415 442 479 563 (6.11) (7.72) (14.92)
Other 284 281 157 190 1.07 78.98 (17.37)
Group 1,513 1,109 764 884 36.43 45.16 (13.57)
------ ------ ------- ---- ----- ------- --------
Total annualized
premium
in force $28,502 $26,430 $25,890 24,626 7.84% 2.09% 5.13%
======= ======= ======= ====== ===== ===== =====
</TABLE>
As the above table illustrates, annualized cancer premium has continued to rise,
but this is primarily attributed to rate increases assessed on policyholders. In
1995 the Company discontinued sales of unlimited chemotherapy cancer products
due to higher claim costs. As a result, the sales of cancer products plummeted.
The void created by lower cancer sales has been replaced with sales of dental
insurance and supplemental group health insurance, such as group dental and
group disability.
Total new business premiums are summarized by line of business below:
<TABLE>
<CAPTION>
New Business Summary
(In thousands)
Year ended December 31, Percentage change
----------------------------------------------- ----------------------------
1996 1995 1994 1993 1996 vs. 1995 1995 vs. 1994
------ ------ ------ ------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Cancer $ 708 $1,785 $2,990 $2,791 (60.34)% (40.30)%
Denta Care 2,095 1,590 1,268 83 31.76 25.39
Accident 364 520 432 694 (30.00) 20.37
Life insurance 45 46 57 62 (2.17) (19.30)
Other 163 245 248 270 (33.47) (8.15)
Group 1,372 372 283 602 268.82 (53.00)
------- ------- ------- ------- ----------- ----------
Total annualized $4,747 $4,558 $5,278 $4,502 4.15% (13.64)%
====== ====== ====== ====== ========== ========
premium solicited
</TABLE>
Net investment income has increased each year, with the exception of
1994. The Company's purchase of a new home office in the first quarter of 1994
caused a significant reduction in availability of funds for short term
investment. The increases in investment income are attributable to investment
yields on additional cash flow made available each year from operations.
The Company's investment policy is to invest in state and federal
obligations as well as corporate obligations with a Standard & Poors rating of
"BBB" or greater. In 1996 the
11
<PAGE>
Company discontinued the purchase of government agency, mortgage-backed
securities and disposed of a significant amount of government agency,
mortgage-backed securities, and shifted these funds into bonds with short to
medium maturities. Such government agency, mortgage-backed securities continue
to be the largest component of the portfolio. Because of prepayments, such
securities present a greater interest rate risk than traditional fixed income
<PAGE>
securities. The intent of the effort to change the mix of the portfolio is to
reduce the risk, volatility and active management required of the portfolio
since a change in market interest rates results in a related change in such
securities' prepayment risk.
The Company experienced realized investment losses in the years 1996,
1995, and 1994. The investment losses are the result of partial liquidations of
non-performing real estate holdings. The realized gains from 1993 are the result
of a one-time exchange of government backed mortgage securities.
Benefits, claims, losses and settlement expenses which is the sum of
claims paid and changes in reserves for claims and future policy benefits, has
shown increases each year, with the exception of 1996. The components of
benefits, claims, losses and settlement expenses are as follows:
<TABLE>
<CAPTION>
Benefits To Policyholders
(In thousands)
Year ended December 31, Percentage change
-----------------------------------------------------------------------------------
1996 1995 1994 1993 1996 vs. 1995 1995 vs. 1994
---- ------ ------ ------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Paid claims $16,672 $16,185 $15,620 $12,417 3.0% 3.6%
Reserve increase 979 1,840 1,337 339 (46.8)% 37.6%
--------- -------- -------- ---------
Total benefits $17,651 $18,025 $16,957 $12,756 (2.1)% 6.3%
======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
Benefits to Policyholders
As a % of Total Premium
1996 1995 1994 1993
------ ----- ------ -----
<S> <C> <C> <C> <C>
Paid claims 63.95% 63.75% 64.62% 58.29%
Reserve increase 3.76% 7.25% 5.53% 1.59%
---------- ---------- ---------- ----------
Total benefits 67.71% 71.00% 70.15% 59.88%
========= =========== =========== ===========
</TABLE>
Claims have increased due to increased costs in cancer treatments such
as chemotherapy. Also, the Company's expansion into other products such as
dental insurance has exposed it to products with high claim utilization costs.
The Company's de-emphasis of cancer insurance over the last several years has
resulted in a drop in policies in force and policy reserves in 1996.
12
<PAGE>
Commission expense has increased in proportion to the increase in
premium income. However, the percentage of commission expense to premium income
has decreased because the Company does not pay commission on cancer premium rate
increases and also the Company has shifted its focus to product lines which pay
lower commissions.
Salaries and benefits have increased due to the staffing requirements
needed to service the block of dental coverages acquired in 1993. Additionally,
the Company is attempting to increase the level of employee compensation to be
<PAGE>
more competitive in its recruitment of qualified personnel. The Company's salary
costs is somewhat high due to its shrinking volume of policies in force and the
labor intensive methods utilized in administrative procedures.
The amortization of deferred acquisition costs (DAC) is comprised of
two components, as shown in the following table:
<TABLE>
1996 1995 1994 1993
<S> <C> <C> <C> <C>
Amortization of DAC 3,129,605 3,627,023 2,430,081 2,888,690
Current year deferred costs 2,049,305 2,872,745 2,772,789 2,543,504
Net change in DAC 1,080,300 754,278 (342,708) 345,186
</TABLE>
The current year deferred costs represent the costs of acquisition of
new business in the current year. The amortization of DAC represents the annual
charge off against the asset and also all of the unamortized deferred expenses
on current year lapses.
The Company discontinued marketing unlimited chemotherapy cancer
products in 1995. Consequently, the Company has changed its marketing focus to
other product lines, specifically group accident and health insurance and dental
insurance. The amount of current year deferred costs for 1996 is lower than 1995
because our 1996 new business was less than 1995 (and prior years) and because
our new product mix is sold at significantly lower commission rates.
The amortization of DAC has risen in 1996 and 1995 as compared to prior
years due to an increasing decline in our inforce cancer policies. Because of
the discontinued sales of unlimited chemotherapy cancer policies, policy lapses
have exceeded new business. In addition, rate increases assessed on cancer
policies have also attributed to increases in lapsed policies. As the number of
lapsed policies rise, the amount of amortization of DAC also rises.
Other operating expenses decreased $76,650 in 1996 and increased
$294,325 in 1995. In 1996 the Company closed its off-site dental administration
office. In 1995 the Company incurred significant expenses related to a limited
benefit offer made to policyholders as opposed to a rate increase. These costs
are somewhat high due to the shrinking volume of policies in force.
Liquidity and Capital Resources
The Company's primary sources of cash are premiums and investment
income. Its primary uses of cash are benefit payments, policy acquisition costs
and operating expenses. At December 31, 1996 and 1995, 100% of the
Company's investments were in fixed maturity securities, mortgage loans,
investment real estate, policy loans and short-term certificates of deposit.
Total
<PAGE>
investments, combined with cash and cash equivalents, increased to $36,780,066
at December 31, 1996, compared to $35,010,048 at December 31, 1995, due to
increases in operational cash flow.
The Company typically generates excess cash flow each year from
operations. Should an occasion arise where additional resources are needed, the
Company can liquidate its bond holdings, which are primarily high grade
government backed mortgage securities.
Prior to consummation of the Plan of Exchange,
American Public Life paid annual cash dividends to stockholders of $4.70 per
share in 1996 and 1995. In March, 1997, the Board of Directors of the Company
declared an annual cash dividend for 1997 of $4.70 per share which was paid in
May, 1997. In 1996 and 1995, the Company repurchased shares of its common stock
for an aggregate cost of $1,629,445. The Company also issued shares of common
stock in 1996 and 1995 for aggregate consideration of $787,250.
The Company's ability to pay dividends is limited by the amount of
dividends it receives from American Public Life. Payment of dividends by
American Public Life is
13
<PAGE>
restricted by law to available net surplus computed on a statutory basis. In
addition, without the prior approval of the Mississippi Commissioner of
Insurance, the size of any dividend by American Public Life during any one year
is limited to the lesser of (i) 10% of surplus; or (ii) net gain from operations
for the past three years, less dividends paid in the past two years.
Pursuant to the laws and regulations of the State of Mississippi,
American Public Life is required to maintain minimum statutory capital of
$400,000 and additional minimum statutory surplus of $600,000. Other states have
similar restrictions for licensing purposes, the largest being a minimum capital
requirement of $2,000,000 in the State of Georgia.
The National Association of Insurance Commissioners ("NAIC") measures
the adequacy of a company's capital by its risk-based capital ratio (the ratio
<PAGE>
of its total capital, as defined, to its risk-based capital). These requirements
provide a measurement of minimum capital appropriate for an insurance company to
support its overall business operations based upon its size and risk profile
which considers (i) asset risk, (ii) insurance risk, (iii) interest rate risk,
and (iv) business risk. An insurance company's risk-based capital is calculated
by applying a defined factor to various statutory based assets, premiums and
reserve items, wherein the factor is higher for items with greater underlying
risk.
The NAIC has provided levels of progressively increasing regulatory
action for remedies when an insurance company's risk-based capital ratio falls
below a ratio of 1:1. As of December 31, 1996, American Public Life was in
compliance with these minimum capital requirements as follows:
Total adjusted capital $9,805,000
Authorized control level risk-based capital $1,588,000
Ratio of adjusted capital to risk-based capital 6.17:1
The Company has no outstanding material commitments for capital
expenditures as of the end of the latest fiscal period.
Item 3. Properties.
American Public Life owns its principal executive offices located at
2305 Lakeland Drive, Jackson, Mississippi. The building consists of
approximately 30,000 square feet, and was constructed in 1985. The Company also
owns a building on 480 E. Woodrow Wilson Drive, Jackson, Mississippi, the old
home office, which has recently been leased. The building consists of
approximately 15,000 square feet. There are no encumbrances on these properties.
Management believes the buildings are in good condition and adequate for the
Company's foreseeable needs.
Item 4. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth information as of April 15, 1997, as to
the number of shares of Company Common Stock beneficially owned by each of the
Company's directors, including the Company's CEO, and by the Company's directors
and executive officers as a
<PAGE>
14
<PAGE>
group. The following table also includes those persons who beneficially owned,
as of April 15, 1997, five percent (5%) or more of the Company Common Stock.
<TABLE>
Name and Address Number of Shares Percentage of
Beneficially Class Beneficially
Owned Owned
<S> <C> <C>
Warren I. Hammett 1,379 2.6%
2000 Old Leland Road
Greenville, MS 38701
Garry V. Hughes 1,000 1.9%
Post Office Box 30
Louisville, MS 39339
F. Harrell Josey, D.V.M. 1,163 2.2%
Post Office Box 231
Starkville, MS 39759
Frank K. Junkin, Jr. 1,422 2.7%
262 Quitman Road
Natchez, MS 39120
David A. New, Sr. 29,475(1) 55.8%
Chairman of the Board
Post Office Box 1487
Natchez, MS 39121
David A. New, Jr. 1,717(1) 3.3%
David New Drilling Co.,
Inc.
Post Office Box 1487
Natchez, MS 39121
Paul H. Watson, Jr. 3,282 6.2%
Vice Chairman of the Board
Post Office Box 5487
Greenville, MS 38701
Johnny H. Williamson 572 1.1%
President & CEO of APL
104 Pine Court
Brandon, MS 39042
15
<PAGE>
All Directors and Executive 40,014 75.7%
Officers as a Group (16
Persons)
</TABLE>
(1) Mr. New, Sr. and Mr. New, Jr. share voting and investment power with
respect to 1,400 shares held by David New Operating Company and 14,256 shares
held by David New Drilling Company. These shares are reflected only in Mr.
New, Sr.'s beneficial ownership in the table above.
Item 5. Directors and Executive Officers.
Directors
The Board currently consists of eight (8) directors who serve one-year
terms. The following persons are currently serving as directors of the Company.
Except as otherwise noted, each director has held an executive position with the
firm or company indicated for at least five (5) years.
<PAGE>
Warren I. Hammett. Age 70. Mr. Hammett is Director and President of
H. K. Hammett & Sons, Inc., W. W. Farms, Inc. and Oakland Company. He has
served as a director of American Public Life since 1979, and of the Company
since its organization in December, 1995.
Garry V. Hughes. Age 62. Mr. Hughes is President and Chairman of the
Board of Hughes Construction Co., Inc. and has numerous other
business interests. He was elected to the Board of American Public Life in
1996, and he has served as a director of the Company since its organization
in December, 1995.
F. Harrell Josey, D.V.M. Age 72. Dr. Josey is a veterinarian and the
director of Josey Animal Medical Center, Inc. He has served as a director of
American Public Life since 1974 and of the Company since its organization in
December, 1995.
Frank K. Junkin, Jr. Age 46. Mr. Junkin is Senior Vice President,
Marketing of American Public Life. He has served as a director of American
Public Life since 1987 and of the Company since its organization in December,
1995.
David A. New, Sr. Age 69. Mr. New is Chairman and Director of David
New Operating Co., Inc., David New Oil Co., Inc. and David New Drilling Co.,
Inc. He also is Chairman of the Board of American Public Life and the
Company. He has served as a director of American Public Life since 1979
and of the Company since its organization in December, 1995.
16
<PAGE>
David A. New, Jr. Age 40. Mr. New is Director and President of David
New Operating Co., Inc., David New Oil Co., Inc. and David New Drilling Co.,
Inc. David A. New, Jr. is the son of David A. New, Sr. He has served as a
director of American Public Life since 1983 and of the Company since its
organization in December, 1995.
Paul H. Watson, Jr. Age 58. Mr. Watson is President of Farmers
Tractor Company, Inc., a farm equipment dealer. Mr. Watson serves as Director
of Trustmark Corp, Jackson, Mississippi. He has served as a director of
American Public Life since 1979 and of the Company since its organization in
<PAGE>
December, 1995.
Johnny H. Williamson. Age 63. Mr. Williamson was President of
American Public Life until his retirement in August, 1995. Mr. Williamson
then served as a consultant to American Public Life until July, 1996, when he
was reappointed President of American Public Life. He has served as a director
of American Public Life since 1974, and of the Company since its organization
in December, 1995.
Executive Officers
In addition to Mr. New, Sr., Mr. Williamson and Mr. Junkin, who are
discussed above under the subheading "Directors," the following persons serve
as executive officers of the Company. Except as otherwise indicated, each
officer has been employed by American Public Life for at least five (5) years.
Dianne D. Aycock. Age 36. Ms. Aycock is Vice President-Claims of
American Public Life, a position she has held since April 1, 1997. From
January 1, 1995 to April 1, 1997, she was Vice President - Adminstration. From
March 1, 1994 to January 1, 1995, she was a Director of Administration. Prior
to March 1, 1994, she was Manager of Policy Owner Services.
E. Ray Hampton. Age 44. Mr. Hampton is Vice President-Data
Processing of American Public Life, a position he has held since October 1,
1995. From July 1, 1995 to October 1, 1995, he was a Manager - Data Processing.
From March 7, 1994 to July 1, 1995, he worked as a systems analyst with
American Public Life and prior to that time, he was director of information
services for a hospital.
Joseph C. Hartley, Jr. Age 55. Mr. Hartley is Senior Vice President,
Counsel and Secretary/Treasurer of American Public Life, and Secretary of the
Company. He has been employed in a senior position with American Public Life
since December, 1993. Prior to December, 1993, Mr. Hartley was employed as an
attorney with David New Oil Company.
Alison James, Jr. Age 51. Mr. James is a Vice President and Agency
Director of American Public Life.
17
<PAGE>
<PAGE>
Richard K. Mills. Age 54. Mr. Mills is Vice President-Manpower
Development of American Public Life, a position he has held since January,
1997. He was employed by American Public Life in January, 1994, and prior
to that time was self-employed in the insurance business.
Sharon D. Starnes. Age 33. Ms. Starnes is Vice President-Customer
Service of American Public Life, a position she has held since February 1, 1997.
From August 15, 1996 to February 1, 1997, she was a Senior Manager -
Accounting. Prior to that time she was a Manager - Accounting.
Jerry C. Stovall. Age 60. Mr. Stovall is Executive Vice President of
American Public Life, a position he has held since October, 1996. Until May,
1995, when he retired, Mr. Stoval was President of Lamar Life Insurance
Company.
William F. Weems. Age 40. Mr. Weems is a Vice President - Financial
of American Public Life and Treasurer of the Company. Mr. Weems has been
employed by American Public Life in a senior position since November, 1993.
Prior to November, 1993, he was employed as an accountant with The Andrew
Jackson Life Insurance Company.
Item 6. Executive Compensation.
The following table sets forth the total compensation paid by the
Company or American Public Life for the last fiscal year to each person who
served as CEO of the Company or American Public Life. No executive officer had
total compensation in excess of $100,000 in 1996.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
- --------------------------------------------------------------------------------------------------------------------
Annual Base Compensation
Name and Principal Position Year
Salary ($)
<S> <C> <C>
Johnny H. Williamson 1996 92,690(1)
President & Chief Executive
Officer of American Public Life
(February, 1981 to August, 1995;
July, 1996 to December, 1996)
<PAGE>
Consultant (September, 1995 to
July, 1996)
Ralph B. Plummer 1996 73,614
President & Chief Executive
Officer of American Public Life
(September, 1995 to July, 1996)
<FN>
(1) Includes consulting fees paid prior to reappointment as President and CEO.
</FN>
</TABLE>
Except as set forth in the table above, no compensation was paid to Mr.
Williamson or Mr. Plummer in 1996.
Director Compensation
18
<PAGE>
In 1996 directors received $1,500 for each monthly meeting attended. In
1997 directors will receive $750 for each monthly meeting attended.
Item 7. Certain Relationships and Related Transactions.
On August 30, 1995, American Public Life entered into several
agreements with Johnny H. Williamson in connection with his resignation from the
position of President of the Company. Pursuant to a Severance Agreement between
Mr. Williamson and American Public Life, Mr. Williamson resigned from the
position of President effective August 31, 1995 and American Public Life paid
him a $43,620 severance payment. Mr. Williamson also entered into a Consulting
Agreement with American Public Life pursuant to which he was to provide
consulting services to American Public Life until he reached age 65. As
compensation under the Consulting Agreement, Mr. Williamson was to be paid $100
per hour with a minimum payment of $1,000 per month. This consulting arrangement
<PAGE>
was suspended when Mr. Williamson was reappointed to serve as President and CEO
in July, 1996. American Public Life also entered into a Stock Purchase Agreement
with Mr. Williamson in August, 1995, pursuant to which American Public Life
purchased 858 shares of American Public Life Common Stock from Mr. Williamson
for an aggregate purchase price of $287,430. The Company has agreed to purchase
an additional 572 shares of Company Common Stock at a purchase price of $335 per
share, when he ceases to be a director of the Company. Mr. Williamson entered
into an agreement with Company stockholders holding a controlling interest in
the Company providing that such stockholders will vote for his election to the
Board of Directors until he reaches age 65.
In November, 1996 American Public Life purchased 2,361 shares of
American Public Life Common Stock from Paul Watson, a director of the Company
and American Public Life, for $790,935 or $335 per share.
Item 8. Legal Proceedings.
American Public Life is involved in litigation arising in the normal
course of business. Management of the Company, based on the advice of counsel,
is of the opinion that American Public Life's ultimate liability, if any, which
may result from the litigation, will not have a material adverse effect on the
financial condition of the Company and American Public Life.
Item 9. Market Price of and Dividends on the Registrant's Common
Equity and Related Stockholder Matters.
Market Information
There is no established public trading market for the Company's shares.
Management of the Company is not aware of any trades occurring since the Plan of
Exchange became effective. Prior to consummation of the Plan of Exchange,
American Public Life's Common Stock was traded on a limited and sporadic basis
in the over-the-counter market. The
19
<PAGE>
<PAGE>
following table sets forth the range of high and low bid prices of American
Public Life's Common Stock for 1995 and 1996 and is based on information
provided by the National Quotation Bureau. The prices reported by the National
Quotation Bureau reflect inter-dealer prices and do not include retail mark-ups,
mark-downs or commissions and may not have represented actual transactions.
<TABLE>
<CAPTION>
Bid Prices
Low High
1995
<S> <C> <C>
First Quarter 98.00 106.00
Second Quarter 103.00 113.00
Third Quarter 123.50 123.50
Fourth Quarter 137.00 144.00
1996
First Quarter 143.00 150.50
Second Quarter 151.00 160.00
Third Quarter 161.50 161.50
Fourth Quarter 162.25 162.25
</TABLE>
Prior to the consummation of the Plan of Exchange, American Public Life
purchased and sold shares of American Public Life Common Stock for a purchase
price of $335 per share. See "Item 7. Certain Relationships and Related
Transactions." and "Item 10. Recent Sales of Unregistered Securities."
Holders
As of March 31, 1997, there were 1,576 holders of record of Common
Stock of the Company.
Dividends
In 1996 and 1995, prior to its acquisition by the Company, American
Public Life paid annual cash dividends to its stockholders of $4.70 per share.
<PAGE>
In March, 1997, the Board of Directors of the Company declared an annual cash
dividend for 1997 of $4.70 per share which will be paid in May, 1997.
20
<PAGE>
The Company's ability to pay dividends is limited by the amount of
dividends its receives from American Public Life. Payment of dividends by
American Public Life is restricted by law to available net surplus computed on a
statutory basis, which, as of December 31, 1996, was $6,941,370. In addition,
without the prior approval of the Mississippi Commissioner of Insurance, the
size of any dividend by American Public Life during any one year is limited to
the lesser of (i) 10% of surplus; or (ii) net gain from operations for the past
three years, less dividends paid in the past two years. Under this test,
American Public Life has $694,137 available for the payment of dividends to the
Company in 1997.
Item 10. Recent Sales of Unregistered Securities.
The Company issued one share of Common Stock to American Public Life on
December 21, 1996, pursuant to the private offering exemption under Section 4(2)
of the Securities Act of 1933. This share was canceled upon consummation of the
Plan of Exchange.
The issuance of Company Common Stock pursuant to the Plan of Exchange
was exempt from registration under Section 3(a)(10) of the Securities Act of
1933. The Mississippi Commissioner of Insurance approved the fairness of the
terms and conditions of the proposed issuance of stock under the Plan of
Exchange after a public hearing required by Mississippi statute. Notice of the
public hearing was given to all stockholders of the Company at least ten days
prior to the hearing.
In November, 1996 American Public Life sold 1,500 shares of Common
Stock to six purchasers at a purchase price of $335 per share pursuant to the
private placement exemption provided by Section 4(2) of the Securities Act of
1933. The purchasers were persons who have personal or business relationships
with Mr. David A. New, Sr., the Company's principal shareholder. The proceeds
from these sales were $502,500. The $335 per share purchase price was based on
the price the Company had paid in purchasing stock from Mr. Williamson as
described under Item 7.
<PAGE>
On September 1, 1995 American Public Life sold 1,000 shares of Company
Common Stock to Garry V. Hughes, who is currently a director of the Company,
pursuant to the private placement exemption provided by Section 4(2) of the
Securities Act of 1933. The proceeds of this sale were $335,000.
Item 11. Description of Registrant's Securities to be Registered.
The Company's authorized capital stock consists of 50,000,000 shares of
Common Stock, no par value ("Company Common Stock"), and 25,000,000 shares of
Preferred Stock, par value of $1.00 per share ("Company Preferred Stock").
Presently, 52,844 shares of Company Common Stock are issued and outstanding and
no shares of Company Preferred Stock are issued and outstanding. Although the
Company is authorized to issue Company Preferred Stock, the Board of Directors
does not presently have plans to issue any shares of Preferred Stock. It is not
possible to state the actual effect of any issuance of Preferred Stock upon the
rights of holders of Company Common Stock since the issuance price and rights of
any future holders of Preferred Stock are not yet determined, but such effects
might include (i)
21
<PAGE>
restrictions on Company Common Stock dividends if preferred cumulative stock
dividends have not been paid; (ii) dilution of voting power and equity interest
of holders of Company Common Stock; (iii) preferences of holders of Company
Preferred Stock upon liquidation; or (iv) required approval of holders of
Company Preferred Stock on matters such as mergers or amendments to the Articles
of Incorporation.
Holders of Company Common Stock do not have preemptive rights and
Company Common Stock does not have any redemption provisions applicable thereto.
Company Common Stock is fully paid and nonassessable.
In the event of liquidation, holders of Company Common Stock will be
entitled to receive pro rata any assets distributable to stockholders with
respect to the shares held by them, after payment of indebtedness and such
preferential amounts as may be required to be paid to the holders of any
<PAGE>
Preferred Stock issued hereafter by the Company.
Holders of Company Common Stock have one vote per share on any matter
presented for a vote of stockholders. Under the Company Articles of
Incorporation, holders of Company Common Stock do not have cumulative voting
rights.
The Company may pay dividends unless after giving effect to the payment
(i) the Company would not be able to pay its debts as they come due in the
ordinary course of business; or (ii) the Company's total liabilities would
exceed its total assets. For the foreseeable future, however, the Company's
ability to pay dividends will be limited by the amount of dividends its receives
from American Public Life. Thus, the more restrictive provisions applicable to
American Public Life will indirectly limit the Company's ability to pay
dividends. Payment of dividends by American Public Life is restricted by law to
available net surplus computed on a statutory basis. In addition, without the
prior approval of the Mississippi Commissioner of Insurance, the size of any
dividend during any one year is limited to the lesser of: (i) 10% of surplus; or
(ii) net gain from operations for the past three years, less dividends paid in
the past two years.
Item 12. Indemnification of Directors and Officers.
The Company is incorporated under the laws of Mississippi. Subarticle E
of Article 8 of the Mississippi Business Corporation Act prescribes the
conditions under which indemnification may be obtained by a present or former
director or officer of the Company who incurs expenses or liabilities as a
consequence of matters arising out of his activities as a director or officer.
The Company Articles of Incorporation provide that the board of directors of the
Company shall have power to make any indemnity, including advance of expenses,
to, and to enter into contracts of indemnity with, any director, officer, or
employee, except an indemnity against his gross negligence or willful
misconduct. The Company bylaws provide for mandatory indemnification of an
officer or director if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interest of the Company,
22
<PAGE>
<PAGE>
and, with respect to any criminal action or proceeding, had no reasonable cause
to believe his conduct was unlawful.
The Company Articles of Incorporation provide that a director of the
Company will not be liable to the Company or to its stockholders for monetary
damages for any action taken, or any failure to take action, as a director,
except liability for: (i) the amount of a financial benefit received by a
director to which he is not entitled; (ii) an intentional infliction of harm on
the Company or the stockholders; (iii) approving an unlawful distribution by the
Company as provided under the Mississippi Business Corporation Act; or (iv) an
intentional violation of criminal law. The Company Articles of Incorporation
also provide that if the Mississippi Business Corporation Act is amended to
authorize corporate action further eliminating or limiting the personal
liability of directors, then the liability of a director of the Company shall be
eliminated or limited to the fullest extent permitted by the Mississippi
Business Corporation Act, as so amended.
Item 13. Financial Statements and Supplementary Data.
For information concerning the financial statements filed as part of
this Registration Statement, see "Item 15. Financial Statements and Exhibits."
Item 14. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
Not applicable.
Item 15. Financial Statements and Exhibits.
(a) Financial Statements
AmericanPublic Holdings, Inc. and Consolidated Subsidiaries
Independent Auditors' Report Consolidated Balance Sheets -
December 31, 1996 and 1995 Consolidated Statements of
Operations - Years Ended December 31, 1996, 1995 and 1994
Consolidated Statements of Changes in Stockholders'
Equity--Years Ended December 31, 1996, 1995, and 1994
Consolidated Statements of Cash Flows--Years Ended December 31,
1996, 1995, and 1994 Notes to Consolidated Financial
Statements--Years Ended December 31, 1996, 1995, and 1994
<PAGE>
23
<PAGE>
Financial Statement Schedules
II - Consolidated Financial Information of Registrant
V - Valuation and Qualifying Accounts
All other schedules are omitted because they are not applicable or
the required information is shown in the Financial Statements or Notes thereto.
(b) Exhibits Required by Item 601 of Regulation S-K
*2 Agreement and Plan of Exchange
*3(a) Articles of Incorporation of American Public Holdings,
Inc.
*3(b) Bylaws of American Public Holdings, Inc.
*10 Consulting Agreement between American Public Life
Insurance Company and Johnny Williamson.
*21 Subsidiaries of Registrant
*27 Financial Data Schedule
* Previously filed.
24
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities
Exchange Act of 1934, the Registrant has duly caused this Amendment No. 1 to
Registration Statement to be
<PAGE>
signed on its behalf by the undersigned, thereunto duly authorized.
American Public Holdings, Inc.
(Registrant)
Date: June 27, 1997 By:
/s/ Johnny H. Williamson, President
25
<PAGE>
AMERICAN PUBLIC
HOLDINGS, INC.
Consolidated Balance Sheets as of December 31, 1996 and 1995, and Related
Consolidated Statements of Operations, Changes in Stockholders' Equity and Cash
Flows for Each of the Three Years in the Period Ended December 31, 1996, and
Independent Auditors' Report
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of American Public Holdings, Inc.:
We have audited the consolidated balance sheets of American Public Holdings,
Inc. and subsidiary as of December 31, 1996 and 1995, and the related
consolidated statements of operations, changes in stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1996. Our
audits also included the financial statement schedules listed in the Index at
Item 15 (a). These financial statements and financial statement schedules are
<PAGE>
the responsibility of the Company's management. Our responsibility is to express
an opinion on the financial statements and financial statement schedules based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the consolidated financial position of American Public
Holdings, Inc. and subsidiary as of December 31, 1996 and 1995, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1996, in conformity with generally accepted accounting
principles. Also, in our opinion, such financial statement schedules, when
considered in relation to the basic consolidated financial statements taken as a
whole, present fairly in all material respects the information set forth
therein.
/s/ DELOITTE & TOUCHE LLP
Jackson, Mississippi
March 5, 1997
<PAGE>
<TABLE>
<CAPTION>
AMERICAN PUBLIC HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
- ----------------------------------------------------------------------------------------------- -------------------
1996 1995
Assets
<S> <C> <C>
Investments:
Securities:
Available for sale, at fair value $ 32,720,388 $ 31,084,657
(amortized cost of $32,406,128)
Held to maturity, at amortized
cost (fair value of $31,913,000)
Mortgage loans 1,075,268 1,257,771
Investment real estate - net 781,542 710,326
Policy loans 1,600,398 1,641,192
Short-term investments 15,000
Total investments 36,177,596 34,708,946
Cash and cash equivalents 602,470 301,102
Accrued investment income 424,805 319,769
Accounts and notes receivable, net of allowance for
uncollectible accounts of $46,000 (1996) and $102,000 512,906 789,759
(1995)
Deferred policy acquisition costs 11,317,490 12,397,790
Property and equipment - net 2,205,019 2,357,866
Real estate acquired in satisfaction of debt 583,393 695,143
Deferred income tax asset 357,272 145,356
Other 96,568 8,424
TOTAL ASSETS $ 52,277,519 $ 51,724,155
================ ===========
See notes to consolidated financial statements.
</TABLE>
<TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1995
<S> <C> <C> <C>
LIABILITIES:
Future policy benefits $ 32,918,172 $ 32,034,811
Unpaid claims 856,085 906,837
Unearned premiums 879,437 796,915
Policyholders' dividend accumulations 396,952 383,569
Accounts payable and other liabilities 997,376 1,004,714
--------------- ------------
Total liabilities 36,048,022 35,126,846
COMMITMENTS AND CONTINGENCIES
(Notes 5, 8 and 11)
STOCKHOLDERS' EQUITY:
Preferred stock, $1 par value, authorized 25,000,000
shares
Common stock, $1 stated value, authorized
50,000,000 shares, issued 57,250 shares 57,250 57,250
Additional paid-in capital 2,232,750 2,232,750
Unrealized gain on available for sale securities, net of
deferred taxes of $63,000 251,408
Retained earnings 14,702,498 14,705,318
--------------- ----------
17,243,906 16,995,318
Less cost of treasury stock - 4,407 (1996) and 2,566 (1,014,409) (398,009)
--------------- ----------
(1995) shares
Total stockholders' equity 16,229,497 16,597,309
---------------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' $ 52,277,519 $ 51,724,155
============== =============
EQUITY
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AMERICAN PUBLIC HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
- ---------------------------------------------------------------------------------------------------------------------------
1996 1995 1994
<S> <C> <C> <C>
REVENUE:
Premiums $ 26,069,848 $ 25,385,971 $ 24,172,890
Net investment income 2,387,010 2,300,624 2,214,311
Realized investment losses (80,291) (82,117) (5,235)
Other income 26,067 28,129 38,594
----------------- ------------- -------------
28,402,634 27,632,607 26,420,560
BENEFITS AND EXPENSES:
Benefits, claims, losses and settlement 17,650,892 18,025,211 16,957,140
expenses
Commission expense 2,346,428 2,301,863 2,405,062
Salaries and benefits 2,584,925 2,265,737 2,125,891
Amortization of deferred policy 3,129,605 3,627,023 2,430,081
acquisition costs
Insurance taxes, licenses and fees 1,019,295 856,424 865,838
Other operating expenses 1,404,368 1,481,018 1,186,693
----------------- ------------ -----------
28,135,513 28,557,276 25,970,705
----------------- ----------- -----------
INCOME (LOSS) BEFORE INCOME
TAX PROVISION (BENEFIT) 267,121 (924,669) 449,855
INCOME TAX PROVISION (BENEFIT) 17,328 (337,013) (105,545)
----------------- ----------- -----------
NET INCOME (LOSS) $ 249,793 $ (587,656) $ 555,400
=================== =============== ==============
NET INCOME (LOSS) PER SHARE $ 4.65 $ (10.67) $ 10.03
==================== =============== ===============
See notes to consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
AMERICAN PUBLIC HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
- --------------------------------------------------------------------------------------------------------------------------
Unrealized
Gain on
Available
Common Stock Additional for
-------------------------
Paid-in Sale Retained
Shares Amount Capital Securities Earnings
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1994 57,250 $ 57,250 $2,232,750 $15,289,776
Treasury stock reissued
Dividends paid to stockholders
($5.59 per share) (299,853)
Net income ________ _________ ___________ 555,400
----------
BALANCE, DECEMBER 31, 1994 57,250 57,250 2,232,750 15,545,323
Treasury stock acquired
Treasury stock reissued
Dividends paid to stockholders
($4.70 per share) (252,349)
Net loss (587,656)
BALANCE, DECEMBER 31, 1995 57,250 57,250 2,232,750 14,705,318
Change in net unrealized gain $251,408
Treasury stock acquired
Treasury stock reissued
Dividends paid to stockholders
(4.70 per share) (252,613)
Net income 249,793
BALANCE, DECEMBER 31, 1996 57,250 $57,250 $2,232,750 $251,408 $14,702,498
========== ========== ========== ========== ===========
See notes to consolidated financial statements.
</TABLE>
<PAGE>
- ---------------------------------------------------------------------------
<TABLE>
Total
Treasury Stockholders'
Stock Equity
<S> <C> <C>
BALANCE, JANUARY 1, 1994 $ (172,314) $ 17,407,462
Treasury stock reissued 100 100
Dividends paid to stockholders (299,853)
($5.59 per share)
Net income 555,400
------------------- -----------------
BALANCE, DECEMBER 31, 1994 (172,214) 17,663,109
Treasury stock acquired (560,795) (560,795)
Treasury stock reissued 335,000 335,000
Dividends paid to stockholders (252,349)
($4.70 per share)
Net loss (587,656)
------------------ -----------------
BALANCE, DECEMBER 31, 1995 (398,009) 16,597,309
Change in net unrealized gain 251,408
Treasury stock acquired (1,068,650) (1,068,650)
Treasury stock reissued 452,250 452,250
Dividends paid to stockholders (252,613)
($4.70 per share)
Net income 249,793
--------------------- -------------
BALANCE, DECEMBER 31, 1996 $ (1,014,409) $ 16,229,497
============== =============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AMERICAN PUBLIC HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
- ---------------------------------------------------------------------------------------------------------------------------------
1996 1995 1994
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $249,793 $(587,656) $555,400
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Realized investment losses 80,291 82,117 5,235
Amortization of deferred policy acquisition 3,129,605 3,627,023 2,430,081
Depreciation and other amortization 410,970 319,082 286,296
Deferred income tax benefit (274,768) (492,970) (375,306)
Decrease (increase) in receivables 171,817 (80,162) 71,000
Decrease (increase) in other assets (88,144) 41,485 419,414
Policy acquisition costs deferred (2,049,305) (2,872,745) (2,772,789)
Increase in liability for future policy benefits 883,361 1,880,558 (1,305,194)
Increase (decrease) in unpaid claims, accounts (58,090) 15,154 160,988
payable and other liabilities
Increase (decrease) in unearned premiums and
policyholders' dividend accumulations 95,905 (39,615) 31,703
---------- ----------- ----------
Net cash provided by operating activities 2,551,435 1,892,271 2,117,216
INVESTING ACTIVITIES:
Proceeds from sale of real estate 59,326 160,948 88,520
Purchase of securities and short-term
investments (22,339,700) (19,910,815) (15,301,653)
Mortgage and policy loan repayments 223,297 280,834 255,642
Proceeds from sales of securities 1,128,156
Proceeds from maturities and calls of
securities and short-term investments 19,890,844 17,919,027 14,934,367
Property and equipment purchased (567,977) (394,387) (1,713,452)
Refund of deposit 225,000
Improvements to real estate acquired in
satisfaction of debt (81,402) (34,875)
---------------- ----------- ------------
Net cash used in investing activities (1,381,054) (2,025,895) (1,771,451)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AMERICAN PUBLIC HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
- ------------------------------------------------------------------------------------------------------------------------
1996 1995 1994
<S> <C> <C> <C>
FINANCING ACTIVITIES:
Dividends paid to shareholders $ (252,613) $ (252,349) $ (299,853)
Proceeds from treasury stock reissued 452,250 335,000 100
Payments to acquire treasury stock (1,068,650) (560,795)
------------------ ---------------- ---------------
Net cash used in financing activities (869,013) (478,144) (299,753)
------------------- ---------------- ----------------
NET INCREASE (DECREASE) IN CASH 301,368 (611,768) 46,012
AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR 301,102 912,870 866,858
-------------------- ------------------ -------------------
CASH AND CASH EQUIVALENTS
AT END OF YEAR $ 602,470 $ 301,102 $ 912,870
=================== =================== ===================
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING AND INVESTING
ACTIVITY-
Unrealized gain on available for sale
securities $ 251,000
=================
SUPPLEMENTAL CASH FLOW
INFORMATION-
Income taxes paid (refunded) $ 270,000 $ 113,000 $ (113,000)
=================== =================== ==================
See notes to consolidated financial statements. (Concluded)
</TABLE>
- 7 -
<PAGE>
<PAGE>
AMERICAN PUBLIC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1. ACCOUNTING POLICIES
a. Nature of Operations and Basis of Presentation - American
Public Holdings, Inc. (the Company) is a Mississippi
corporation organized on December 21, 1995 by American Public
Life Insurance Company (APL). The Company was formed to
serve as a holding company for APL, and, in effect, is a
successor to APL. APL is a stock life insurance company that
insures against risk of loss under various types of
coverages, with the majority of revenue being derived from
cancer policy premiums. The Company is licensed to operate
in twenty-one states but operates primarily in Mississippi
(where it is domiciled), Louisiana and Texas.
In 1996, the Mississippi Commissioner of Insurance and APL
stockholders approved an Agreement and Plan of Exchange (the
"Plan of Exchange") pursuant to which APL became a
wholly-owned subsidiary of the Company, and each share of
outstanding common stock of APL was converted into one share
of common stock of the Company. The exchange was accounted for
like a "pooling of interests" and historical costs are
continued. All prior years have been restated as though the
exchange had occurred at the beginning of the earliest year
presented.
The consolidated financial statements include those of the
Company and its wholly-owned subsidiary, APL, and APL's
wholly-owned subsidiary, DentaCare Marketing and
Administration, Inc. All significant intercompany balances and
transactions have been eliminated.
The accompanying financial statements have been prepared in
conformity with generally accepted accounting principles which
vary in some respects from accounting practices prescribed or
permitted by the Insurance Department of the State of
Mississippi. Prescribed statutory accounting practices include
a variety of publications of the National Association of
Insurance Commissioners (NAIC), as well as state laws,
<PAGE>
regulations, and general administrative rules. Permitted
statutory accounting practices encompass all accounting
practices not so prescribed (see Note 9).
- 8 -
<PAGE>
b. Use of Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could
differ from those estimates.
c. Investment Securities - The Company's investment security
portfolio is comprised of fixed maturity securities and is
classified as available for sale. The portfolio is therefore
carried at fair market value with net unrealized holding gains
carried as a separate component of shareholders' equity. The
portfolio classification was changed in 1996 from held to
maturity (carried at amortized cost) to available for sale to
reflect the change in management intent and to provide greater
flexibility for liquidating securities within the portfolio.
The Company engaged an investment advisor in 1996 and
changed investment strategies, reducing the long-term nature
of the portfolio.
The specific identification method is used to compute gains or
losses on the sale of these assets. Interest earned on these
assets is included in interest income. Securities that reflect
a market decline below cost or amortized cost that is deemed
other than temporary are written down to net realizable value
by a charge to earnings. Investment premiums and discounts are
amortized by a method which approximates the interest method.
d. Mortgage Loans and Real Estate Acquired in Satisfaction of
<PAGE>
Debt - The Company makes investments in mortgage loans
collateralized by real estate. The return on and ultimate
recovery of these loans is generally dependent on the
successful operation, sale or refinancing of the real estate.
The Company monitors the effects of current and expected
market conditions and other factors on the collectibility of
real estate loans. When, in management's judgment, the present
value
of expected future cash flows from a loan is less than the recorded investment
in the loan, an impairment is recognized by creating a valuation allowance with
a corresponding charge to expense. Such estimates of impairment necessarily
include assumptions, including estimates of the following: lease, absorption and
sales rates; real estate values and rates of return; operating expenses;
inflation; and sufficiency of collateral independent of the real estate
including, in limited instances, personal guarantees.
Real estate acquired in satisfaction of debt is recorded at
the lower of loan balance, including accrued interest, if any,
or fair value at acquisition. Additional valuation adjustments
are made when the carrying value exceeds fair market value.
e. Cash and Cash Equivalents - For purposes of the consolidated
statements of cash flows, the Company considers checking
accounts and cash on hand to be cash and cash equivalents.
Certain short-term investments are included in the investments
category in order to conform to insurance company statutory
reporting requirements.
- 9 -
<PAGE>
f. Property and Equipment - Property and equipment is stated at
cost and depreciated and amortized by the straight-line method
over the estimated useful lives of the assets, which for
building and improvements is thirty-nine years and for
furniture and equipment ranges from five to ten years.
g. Deferred Policy Acquisition Costs - Commissions and other
costs that vary with and are primarily related to the
<PAGE>
production of new and renewed insurance business are deferred
and amortized over the anticipated premium paying period of
the related policies on a pro-rata basis.
h. Policy Reserves - The unearned premium reserve recognizes
premiums as earned pro rata over the policy term. The
aggregate reserve for future policy benefits has been
actuarially determined using the following assumptions:
<TABLE>
Life Accident and Health
<S> <C> <C>
Mortality for policies issued 100% of 1965-70 100% of 1965-70
prior to 1982 S&U male mortality Ultimate male
table mortality table
Mortality for policies issued 100% of 1975-80 100% of 1975-80
after 1982 S&U male mortality Ultimate male
table mortality table
Interest rates 5-7% 5-7%
Withdrawals (Lapse Rates) 30% first year graded 30% first year graded
to 5% in year 21 and to 5% in year 21 and
later later
</TABLE>
i. Unpaid Claims - Unpaid claims represent the estimated
liabilities on claims reported to the Company plus provision
for claims incurred but not yet reported. The liabilities for
unpaid claims are determined using both evaluations of each
claim and statistical analyses and represent the estimated
ultimate net cost of all claims incurred through the end of
the reporting period.
j. Income Taxes - Deferred tax liabilities and assets are
<PAGE>
determined based on the differences between the financial
statement and tax bases of assets and liabilities using
enacted tax rates in effect in the years in which the
differences are expected to reverse. The Company files a
consolidated income tax return with its wholly-owned
subsidiary. Income taxes are allocated based on each company's
separate taxable income.
- 10 -
<PAGE>
k. Revenue Recognition - Life insurance premiums are recognized
as revenue when due from policyholders. Accident and health and dental
insurance premiums are recognized as revenue over the policy period in a
pro-rata manner. Policy benefits and expenses are
deferred or accrued to result in a matching of costs with the
earned premiums over the life of the insurance contracts. This
matching is accomplished by accrual of the liability for
future policy benefits on insurance in force and the
amortization of deferred policy acquisition costs.
l. Profit Sharing Plan - Employees are eligible to participate in
a profit sharing plan covering substantially all employees
with more than one year of service. Contributions to the plan
are made at the discretion of the Board of Directors.
Contributions made to the plan were approximately $ - 0 - in
1996, $31,000 in 1995, and $21,000 in 1994.
m. Income (Loss) Per Share - The income (loss) per share is based
on the weighted average number of common shares outstanding
during each year. The weighted average number of shares
outstanding was 53,764 in 1996, 55,099 in 1995 and 55,358 in
1994.
2. INVESTMENTS
The amortized cost and related approximate fair value of fixed maturity
<PAGE>
securities were as follows:
<TABLE>
Amortized Unrealized Unrealized Fair
1996 Cost Gains Losses Value
<S> <C> <C> <C> <C>
U. S. Treasury and government
corporations and agencies $ 2,801,365 $ 47,351 $ 38,949 $ 2,809,767
States and political subdivisions 3,322,717 318,517 13,214 3,628,020
Public utility bonds 846,744 8,999 5,088 850,655
Industrial and miscellaneous 3,230,181 16,810 31,051 3,215,940
Mortgage-backed securities 22,205,121 370,787 359,902 22,216,006
---------------- ----------- ------------
$32,406,128 $ 762,464 $ 448,204 $ 32,720,388
=============== ========== ===========
1995
U. S. Treasury bonds $ 1,450,547 $ 114,453 $ 1,565,000
States and political subdivisions 1,406,505 $ 6,505 1,400,000
Public utility bonds 699,701 8,369 70 708,000
Industrial and miscellaneous 1,452,056 8,000 18,056 1,442,000
Mortgage-backed securities 26,075,848 816,535 94,383 26,798,000
-------------- --------- ------------
$ 31,084,657 $ 947,357 $ 119,014 $ 31,913,000
================= ========== ============
</TABLE>
- 11 -
<PAGE>
<TABLE>
<CAPTION>
Net realized gains (losses) are summarized as follows:
1996 1995 1994
<S> <C> <C> <C>
Calls, maturities and principal receipts of held
to maturity securities $ 5,423
Investment security sales $ (25,392)
Real estate acquired in satisfaction of debt (54,899) $ (82,117) (10,656)
-------------- --------- ----------
$ (80,291) $ (82,117) $ (5,235)
============= ========== =========
</TABLE>
Bonds with an approximate carrying value of $2,689,000 in 1996 and
$2,418,000 in 1995 and certificates of deposit with a carrying value
of $15,000 in 1995 were pledged to the respective states in which the
Company transacts business for the security and benefit of
policyholders. At December 31, 1996, assets on deposit met minimum
statutory requirements.
The following is an analysis of the amortized cost and fair value of
investments in fixed maturities at December 31, 1996 by contractual
maturity:
<TABLE>
Amortized Fair
Cost Value
<S> <C> <C>
Due in one year or less $ 500,000 $ 512,970
Due in one to five years 399,979 403,400
Due in five to ten years 4,057,443 4,033,064
Due after ten years 5,243,585 5,554,948
------------------- ------------
10,201,007 10,504,382
Mortgage-backed securities 22,205,121 22,216,006
------------------ -----------
$ 32,406,128 $32,720,388
================= ===========
</TABLE>
Actual maturities may differ from contractual maturities because of
the borrowers' right to call or prepay obligations.
- 12 -
<PAGE>
<TABLE>
<CAPTION>
The components of net investment income were as follows:
1996 1995 1994
<S> <C> <C> <C>
Fixed maturities $ 2,405,619 $ 2,271,250 $ 1,980,475
Mortgage loans 106,630 118,286 128,850
Investment real estate 78,770
Policy loans 83,878 87,850 89,765
Short-term investments 20,701 63,222 240,163
Real estate acquired in satisfaction of debt 18,299 18,341 19,255
----------------- ------------- -----------
Total investment income 2,713,897 2,558,949 2,458,508
Investment expenses 326,887 258,325 244,197
------------------ ------------- -----------
Net investment income $ 2,387,010 $ 2,300,624 $ 2,214,311
================ ============ ===========
</TABLE>
3. INVESTMENT REAL ESTATE AND PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
Investment real estate and property and equipment were as follows:
Investment Real Estate Property and Equipment
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Land $ 170,000 $ 170,000 $ 322,447 $ 322,447
Buildings and improvements 1,057,399 943,710 1,312,752 1,301,799
Furniture and equipment 1,967,848 1,774,337
----------------- ----------------- ------------- -----------
1,227,399 1,113,710 3,603,047 3,398,583
Less accumulated depreciation (445,857) (403,384) (1,398,028) (1,040,717)
------------ ------------ --------- ------------
Property and equipment, net $ 781,542 $ 710,326 $ 2,205,019 $ 2,357,866
============== ============== ============== ==============
</TABLE>
4. PARTICIPATING POLICIES
APL had in force approximately $2,717,000 in 1996 and $2,779,000 in
1995 in face amount of annual dividend participating policies.
Dividends on such policies are based on mortality, interest and
expense experience, and are payable only upon declaration by the
Board of Directors. All amounts allocable to policyholders have been
accrued and none of APL's retained earnings was allocable to
participating policies.
- 13 -
<PAGE>
<PAGE>
5. REINSURANCE
The maximum amount of risk that APL retains on any one life is
$50,000 ($40,000 before 1995) of life insurance and waiver of premium
benefits (all accidental death benefits are reinsured), depending on
age and classification of risk.
The reserves for life and accident and health policies were stated
after deduction for reinsurance with other companies. A contingent
liability exists with respect to such reinsurance, which could become
a liability of APL in the event that such reinsurance companies are
unable to meet their obligation under the existing reinsurance
agreements. The reinsured portion of life reserves deducted in
developing the net liability was approximately $32,000 in 1996 and
$37,000 in 1995 relating to insurance in force of $4,302,000 in 1996
and $4,782,000 in 1995. The reinsurance portion of accident and
health reserves deducted in developing the net liability was
approximately $24,000 in 1996 and $25,000 in 1995.
6. POLICY CLAIMS
<TABLE>
<CAPTION>
Activity in the liability for unpaid policy claims is summarized as follows:
1996 1995
<S> <C> <C> <C>
Balance at January 1 $ 906,837 $ 889,926
Less reinsurance recoverables 470 30,143
------------- --------------
Net balance at January 1 906,367 859,783
----------- -------------
Incurred related to:
Current year 13,698,234 13,088,542
Prior years 2,727,849 2,678,782
------------- -----------
Total incurred 16,426,083 15,767,324
------------- ------------
Paid related to:
Current year 13,057,102 12,158,555
Prior years 3,420,623 3,562,188
------------ ---------
Total paid 16,477,725 15,720,740
------------ -----------
Net balance at December 31 854,725 906,367
Plus reinsurance recoverables 1,360 470
------------- -----------
Balance at December 31 856,085 $ 906,837
=============== ============
</TABLE>
The liability for unpaid policy claims is composed of claims incurred
but not reported and claims reported and in course of settlement. The
accident and health policy
- 14 -
<PAGE>
reserve includes a claim reserve of $3,682,000 in 1996 and
$4,121,000 in 1995 which represents the present value of future
claims.
7. INCOME TAXES
<TABLE>
<CAPTION>
The components of the provision for income taxes were as follows:
1996 1995 1994
<S> <C> <C> <C>
Current provision $ 292,096 $ 155,957 $ 269,761
Deferred benefit (274,768) (492,970) (375,306)
-------------- ------------ -------------
Income tax provision (benefit) $ 17,328 $ (337,013) $ (105,545)
============== ============= ============
</TABLE>
<TABLE>
<CAPTION>
The significant components of the deferred income tax benefit are as
follows:
1996 1995 1994
<S> <C> <C> <C>
Deferred policy acquisition costs $ (432,418) $ (414,287) $ (105,731)
Future policy benefit liabilities (19,961) (155,384) (257,735)
Capital losses deducted (carried forward) (42,955) (82,085) (8,184)
Alternative minimum tax (74,862) (36,737) (51,422)
Valuation allowance applicable to
deferred tax assets 267,199 138,486 51,422
Other 28,229 57,037 (3,656)
-------------- ------------- --------------
Deferred income tax benefit $ (274,768) $ (492,970) $ (375,306)
============= ============= =============
</TABLE>
- 15 -
<PAGE>
<TABLE>
<CAPTION>
The tax effects of significant items comprising the net deferred tax asset
are as follows:
1996 1995
<S> <C> <C>
Deferred tax liabilities:
Unrealized gain on available for sale securities $(106,848)
Deferred policy acquisition costs (2,286,550) $ (2,718,968)
Total deferred tax liabilities (2,393,398) (2,718,968)
Deferred tax assets:
Unrealized loss on real estate acquired in satisfaction of debt 81,106 96,763
Future policy benefit liabilities 2,721,345 2,701,384
Capital loss carryforward 133,224 90,268
Alternative minimum tax credits 293,916 219,054
Other 65,085 77,658
---------------- -----------
Total deferred tax assets 3,294,676 3,185,127
Valuation allowance:
Reduction of alternative minimum tax
credits (293,916) (219,054)
Reduction of remaining net asset
to alternative minimum tax rate
of 20% (250,090) (101,749)
--------- ---------
(544,006) (320,803)
--------------- -----------
Net deferred tax asset $ 357,272 $ 145,356
============== ============
</TABLE>
The valuation allowance increased by approximately $223,000 in 1996 and
$138,000 in 1995 and results from the Company computing the tax effects
of temporary differences using the alternative minimum tax rate, which
the Company believes it will be subject to over the foreseeable future.
At December 31, 1996, the Company had accumulated untaxed policyholders'
surplus of approximately $1,923,000. The Company is not required to pay
tax on the balance in the surplus account unless distributions to
stockholders exceed accumulated taxed earnings.
- 16 -
<PAGE>
<TABLE>
<CAPTION>
The effective income tax rate on earnings (loss) before federal income
taxes differed from the statutory federal income tax rate for the
following reasons:
1996 1995 1994
<S> <C> <C> <C>
Statutory federal income tax rate 35.0 % (35.0)% 35.0 %
Add (deduct): Small life insurance company deduction (112.6) (18.4) (71.1)
Valuation allowance on deferred tax assets 100.0 15.0 11.4
Other (15.9) 02.0 01.2
-------- -------- --------
Effective income tax rate 6.5 % ( 36.4)% ( 23.5)%
========= ========= ========
</TABLE>
The alternative minimum tax credit carryover approximated $ 294,000 at
December 31, 1996.
8. STOCKHOLDERS' EQUITY
The Company's ability to pay dividends is limited by the amount of
dividends its receives from APL. Payment of dividends by APL is
restricted by law to available net surplus computed on a statutory
basis. In addition, without the prior approval of the Mississippi
Commissioner of Insurance, the size of any dividend by APL during any
one year is limited to the lesser of (i) 10% of surplus; or (ii) net
gain from operations for the past three years, less dividends paid in
the past two years.
Pursuant to the laws and regulations of the State of Mississippi, APL
is required to maintain minimum statutory capital of $400,000 and
additional minimum statutory surplus of $600,000. Other states have
<PAGE>
similar restrictions for licensing purposes, the largest being a
minimum capital requirement of $2,000,000 in the State of Georgia.
APL entered into a Stock Purchase Agreement with the President and
CEO of APL in August 1995, pursuant to which APL purchased 858 shares
of APL Common Stock from the President and CEO of APL for an
aggregate purchase price of $287,430. The Company has agreed to
purchase an additional 572 shares of Company Common Stock, at a
purchase price of $335 per share, when he ceases to be a director of
the Company.
In November, 1996 APL purchased 2,361 shares of APL Common Stock
from
a director of the Company and APL, for $790,935 or $335 per share.
- 17 -
<PAGE>
The National Association of Insurance Commissioners measures the
adequacy of a company's capital by its risk-based capital ratio (the
ratio of its total capital, as defined, to its risk-based capital).
These requirements provide a measurement of minimum capital
appropriate for an insurance company to support its overall business
operations based upon its size and risk profile which considers (i)
asset risk, (ii) insurance risk, (iii) interest rate risk, and (iv)
business risk. An insurance company's risk-based capital is
calculated by applying a defined factor to various statutory based
assets, premiums and reserve items, wherein the factor is higher for
items with greater underlying risk.
The NAIC has provided levels of progressively increasing regulatory
action for remedies when an insurance company's risk-based capital
ratio falls below a ratio of 1:1. As of December 31, 1996, APL was in
compliance with these minimum capital requirements as follows:
Total adjusted capital $ 9,805,000
<PAGE>
Authorized control level risk-based capital $ 1,588,000
Ratio of adjusted capital to risk-based capital 6.17:1
- 18 -
<PAGE>
9. STATUTORY FINANCIAL INFORMATION
Generally accepted accounting principles differ in certain respects
from the accounting practices prescribed or permitted by insurance
regulatory authorities (statutory basis). A reconciliation between
consolidated net income and stockholders' equity as reported under
generally accepted accounting principles (GAAP basis) and statutory
net income and stockholders' equity of APL follows:
<TABLE>
1996 1995 1994
---------------- ------------------- -------------------------------------------------------
Net Stockholders' Net Income Stockholders' Net
Income Equity (Loss) Equity Income
<S> <C> <C> <C> <C> <C>
GAAP basis $ 249,793 $ 16,229,497 $ (587,656) $ 16,597,309 $ 555,400
Adjustments to:
Policy reserves (476,697) 6,380,953 557,013 6,857,650 919,814
Non-admitted assets (1,392,981) (1,479,035)
Deferred acquisition costs 1,080,300 (11,317,490) 754,277 (12,397,790) (342,708)
Deferred income taxes (274,768) (357,272) (492,970) (145,356) (375,306)
Unrealized gain on
invested securities (314,260)
Other 38,167 153,196 (109,130) 181,845 (48,840)
-------------
Statutory basis $ 616,795 $ 9,381,643 $ 121,534 $ 9,614,623 $ 708,360
============= ============= ============== ============= =============
</TABLE>
10. FAIR VALUES OF FINANCIAL INSTRUMENTS
In accordance with FAS Statement No. 107, "Disclosures about Fair
Value of Financial Instruments", information is provided about the
fair value of certain financial instruments for which it is
practicable to estimate that value. The fair value amounts disclosed
represent management's best estimates of fair value. In accordance
with FAS No. 107, this disclosure excludes certain insurance
policy-related financial instruments and all nonfinancial
instruments. The aggregate fair value amounts presented are not
intended to represent the underlying aggregate fair value of the
Company.
The estimated fair values are significantly affected by assumptions
used, principally the timing of future cash flows, the discount rate,
judgments regarding current economic conditions, risk characteristics
of various financial instruments and other factors. Because
assumptions are inherently subjective in nature, the estimated fair
values cannot be substantiated by comparison to independent quotes
and, in many cases, the estimated fair values could not necessarily
be realized in an immediate sale
- 19 -
<PAGE>
<PAGE>
or settlement of the instrument. Potential tax ramifications related
to the realization of unrealized gains and losses that would be
incurred in an actual sale and/or settlement have not been taken into
consideration.
The methods and assumptions used to estimate fair value are as
follows:
o Fair value for securities is determined from quoted market
prices, where available. For securities not actively traded,
fair value is estimated using quoted market prices for similar
securities.
o Fair value for mortgage loans is estimated by discounting cash
flows and using current interest rates on similar real estate
loans considering credit ratings and the remaining terms to
maturity.
o Fair value for short-term investments and accrued investment
income approximates the carrying amount. Fair value for
guaranteed interest and supplementary contract liabilities also
approximates the carrying amount since those contracts are
carried at redemption values and there are no applicable
surrender or mortality charges.
o Policy loans have no stated maturity dates and are an integral
part of the related insurance contract. Accordingly, it is not
practicable to estimate a fair value.
The estimated fair value of the Company's financial instruments for
which it is practicable to estimate that value, is as follows:
<TABLE>
1996 1995
------------------- ------------------ --------------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
<S> <C> <C> <C> <C>
Securities $ 32,720,388 $ 32,720,388 $ 31,084,657 $ 31,913,000
Mortgage loans 1,075,268 1,107,000 1,257,771 1,314,000
</TABLE>
11. COMMITMENTS AND CONTINGENCIES
The Company is required to participate in certain guaranty funds and
involuntary pools of insurance and is therefore exposed to undeterminable
future assessments resulting from the insolvency of other insurers.
- 20 -
<PAGE>
The Company leases various land, buildings and operating equipment under
monthly lease arrangements. Expenses incurred under all operating leases
approximated $163,000 (1996), $91,000 (1995) and $112,000 (1994).
Future
minimum lease commitments for non-cancelable operating leases are as
follows:
1997 $ 135,000
1998 131,000
1999 124,000
2000 112,000
-------------
$ 502,000
The Company is involved in litigation incurred in the normal course of business.
Management of the Company, based upon the advice of legal counsel, is of the
<PAGE>
opinion that the Company's ultimate liability, if any, which may result from the
litigation will not have a material adverse effect on the financial condition or
results of operations of the Company.
* * * * * *
- 21 -
ARTICLE 7, SCHEDULE II - CONDENSED FINANCIAL INFORMATION OF
REGISTRANT
<TABLE>
<CAPTION>
CONDENSED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
1996 1995
ASSETS:
<S> <C> <C>
Investment in American Public Life Insurance $16,293,957 $16,547,309
Company
Organizational costs and other deferred costs 92,909
-------------
Total assets $16,386,866 $16,597,309
=========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY -
Due to American Public Life Insurance Company $ 157,369
STOCKHOLDER'S EQUITY 16,229,497 $16,597,309
------------ -----------
TOTAL LIABILITIES AND STOCKHOLDER'S
EQUITY $16,386,866 $16,597,309
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1996 1995 1994
<S> <C> <C> <C>
EQUITY IN EARNINGS (LOSS) OF
SUBSIDIARY $314,253 $(587,656) $555,400
COSTS AND EXPENSES:
Professional fees 41,233
Amortization 23,227
64,460
NET INCOME (LOSS) $249,793 $(587,656) $555,400
======== ========== ========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF CASH FLOW
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss) $249,793 $(587,656) $555,400
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Equity in (earnings) loss of subsidiary (314,253) 587,656 (555,400)
Increase in organizational costs and
other deferred costs (92,909)
Increase due to stockholder 157,369
NET CASH USED IN OPERATING
ACTIVITIES $ 0 $ 0 $ 0
=========== ============== =============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ARTICLE 7, SCHEDULE V - VALUATION AND QUALIFYING ACCOUNTS
Col. A Col. B Col. C Col. D Col. E
Description Balance at Additions Deductions -- Balance at
----------------------------------
Beginning (1) (2) End of
of Period Charged Charged Describe Period
to Costs to Other
and Accounts --
Expenses Describe
<S> <C> <C> <C>
1996
Allowance for real
estate acquired in
satisfaction of debt $284,596 $ 46,050 $238,546
(sales)
Allowance for
uncollectible agent
balances 101,939 55,564 46,375
(write-offs/
collections)
Valuation allowance for
deferred tax assets 320,803 $223,203 544,006
--------- -------- ------------- ---------
$707,338 $223,203 $101,614 $828,927
======== ======== ======== ========
1995
Allowance for real
estate acquired in
satisfaction of debt $443,904 $159,308 $284,596
(sales)
Allowance for
uncollectible agent
balances 62,296 $39,643 101,939
Valuation allowance for
deferred tax assets 182,317 138,486 320,803
--------- --------- ------------- ---------
$688,517 $178,129 $159,308 $707,338
======== ======== ======== ========
</TABLE>
