AMERICAN PUBLIC HOLDINGS, INC.
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20459
FORM 10-Q
Quarterly Report Under Section 13 or 15 (d) of the
Securities Exchange Act of 1934
For the quarter ended June 30, 1997 Commission File Number 0-22479
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
incorporation of organization) Identification No.)
Registrant's telephone number: (601) 936-6600 ext. 201
No Change
Former name, former address and former fiscal year,
if changed since last report
Indicate by check mark whether the registrant (1) has filed all reports required
by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for shorter period that the registrant was required to
file such report), and (2) has been subject to such filing requirements for the
past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
Class Outstanding at July 31, 1997
Common stock (no par value) 53,069 shares
<PAGE>
PART I: FINANCIAL INFORMATION
Item 1 - Financial Statements
Consolidated Balance Sheets
June 30, 1997 and December 31, 1996
Consolidated Statements of Operations
Three Months Ended June 30, 1997 and 1996
Six Months Ended June 30, 1997 and 1996
Changes in Stockholders' Equity
Twelve Months Ended December 31, 1996
Six Months Ended June 30, 1997
Consolidated Statements of Cash Flows
Six Months Ended June 30, 1997 and 1996
Notes To Consolidated Financial Statements
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<TABLE>
<CAPTION>
American Public Holdings, Inc.
Consolidated Balance Sheets
As of June 30, 1997 and December 31, 1996
June 30, December 31,
1997 1996
------ ------
ASSETS
<S> <C> <C>
Investments:
Securities:
Available for sale $33,205,530 $32,720,388
Mortgage loans 1,032,006 1,075,268
Investment real estate, net 754,620 781,542
Policy loans 1,527,704 1,600,398
---------- ----------
Total investments 36,519,860 36,177,596
OTHER ASSETS:
Cash and cash equivalents 480,028 602,470
Accrued investment income 441,470 424,805
Accounts and notes receivable net of allowance
for uncollectible accounts of $42,000 (1997)
and $46,000 (1996) 422,936 512,906
Deferred policy acquisition costs 10,742,450 11,317,490
Property and equipment - net 2,236,854 2,205,019
Real Estate acquired in satisfaction of debt 529,477 583,393
Deferred income tax asset 417,576 357,272
Other 3,228 3,659
---------- ----------
TOTAL ASSETS $51,793,879 $52,184,610
========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
LIABILITIES:
Future policy benefits $33,242,533 $32,918,172
Unpaid claims 985,917 856,085
Unearned premiums 791,189 879,437
Policyholders' dividend accumulations 401,085 396,952
Accounts payable and other liabilities 751,074 997,376
---------- ----------
Total liabilities 36,171,798 36,048,022
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER'S EQUITY
Preferred stock, $1 par value, authorized
25,000,000 shares
Common stock, $1 stated value, authorized
50,000,000 shares, issued 52,844 shares 52,844 57,250
Additional paid-in capital 2,589,356 2,232,750
<PAGE>
Unrealized gain (loss) on available for
sale securities, net of deferred tax
expense of ($53,572) for 1997 and
($62,852) for 1996 214,288 251,408
Retained earnings 12,765,593 14,609,589
---------- ----------
15,622,081 17,150,997
Less cost of treasury stock - 4,406 shares
(1996) 0 (1,014,409)
---------- ----------
Total stockholders' equity 15,622,081 16,136,588
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $51,793,879 $52,184,610
========== ==========
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
American Public Holdings, Inc.
Consolidated Statements of Operations
For Six Months Ended June 30, 1997 and 1996
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
----------------------------- -----------------------------
<S> <C> <C> <C> <C>
REVENUE:
Premiums $6,662,056 $6,517,187 $13,412,847 $12,978,904
Net investment income 667,412 560,406 1,302,114 1,136,620
Realized investment
gains (losses) (14,804) 678 (27,325) 1,654
Other income 7,425 7,997 24,862 13,466
--------- --------- --------- ---------
7,322,089 7,086,268 14,712,498 14,130,644
BENEFITS AND EXPENSES:
Benefits and claims 5,123,314 4,383,094 9,920,681 8,622,347
Commissions expense 559,470 612,230 1,123,759 1,209,145
Salaries and benefits 560,396 579,018 1,195,297 1,183,241
Amortization of
deferred policy
acquisition costs 719,548 746,975 1,604,389 1,644,238
Insurance taxes,
licenses and fees 309,579 205,796 619,852 472,935
Other operating expenses 277,871 509,652 482,234 800,931
-------- -------- --------- ----------
7,550,178 7,036,765 14,946,212 13,932,837
--------- --------- ---------- ----------
INCOME (LOSS) BEFORE INCOME
TAX PROVISION (BENEFIT) (228,089) 49,503 (233,714) 197,807
INCOME TAX PROVISION
(BENEFIT) (17,502) 26,393 (5,210) 77,963
--------- --------- --------- ----------
NET INCOME (LOSS) $(210,587) $23,110 $(228,504) $119,844
========= ========= ========= ==========
NET INCOME (LOSS) PER SHARE $(3.99) $0.44 $(4.32) $2.27
========= ========= ========= ==========
See notes to consolidated financial statements.
</TABLE>
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<TABLE>
<CAPTION>
American Public Holdings, Inc.
Consolidated Statements of Changes in Stockholders' Equity
For Periods Indicated
Unrealized
Additional Gain on Total
Common Stock Paid-in Available for Retained Treasury Stockholders'
Shares Amount Capital Sale Securities Earnings Stock Equity
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1995 57,250 $57,250 $2,232,750 $0 $14,705,318 $(398,009) $16,597,309
Change in net unrealized gain(loss) 251,408 251,408
Treasury Stock acquired (1,068,650) (1,068,650)
Treasury Stock reissued 452,250 452,250
Net Income 156,884 156,884
Dividend paid to Stockholders (252,613) (252,613)
------ ------ --------- -------- ---------- ---------- ----------
BALANCE, DECEMBER 31, 1996 57,250 57,250 2,232,750 251,408 14,609,589 (1,014,409) 16,136,588
Change in net unrealized gain(loss) (37,120) (37,120)
Treasury Stock liquidated (4,406) (4,406) (1,010,003) 1,014,409 0
Adjust exchange price 1,366,609 (1,366,609) 0
Net loss (228,504) (228,504)
Dividend paid to Stockholders (248,883) (248,883)
------ ------ --------- -------- ---------- ---------- ----------
BALANCE, JUNE 30, 1997 52,844 $52,844 $2,589,356 $214,288 $12,765,593 $0 $15,622,081
====== ====== ========= ======== ========== ========== ==========
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
American Public Holdings, Inc.
Consolidated Statements of Cash Flows
For The Six Months Ended June 30, 1997 and June 30, 1996
June 30, June 30,
1997 1996
------ ------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $(228,504) $119,844
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Realized loss (gain) of sale of assets 27,325 (1,654)
Depreciation and other amortization 179,784 165,038
Amortization of deferred policy
acquisition costs 1,604,389 1,644,238
Deferred income tax expense (benefit) (51,024) (77,225)
Decrease (increase) in receivables 73,305 70,527
Decrease (increase) in other assets 431 5,847
Policy acquisition costs deferred (1,029,349) (1,071,001)
Increase in liability for future
policy benefits 324,361 576,837
Increase (decrease) in unpaid claims,
accounts pay and other liabilities (116,470) 57,903
Increase (decrease) in unearned
premiums and policyholders' dividend
accumulations (84,115) 70,341
----------- -----------
Net cash provided by operating
activities 700,133 1,560,695
INVESTING ACTIVITIES:
Purchase of real estate (5,000)
Proceeds from sale of real estate 31,591 18,734
Purchase of fixed maturity and short-term
investments (10,748,557) (9,147,216)
Mortgage and policy loan repayments 115,956 85,619
Proceeds from maturities and calls of
fixed-maturity and short-term investments 10,217,015 7,521,804
Property and equipment purchased (184,697) (175,914)
Refund of deposit 0 225,000
---------- ----------
Net cash used in investing
activities (573,692) (1,471,973)
FINANCING ACTIVITIES:
Dividends paid to shareholders (248,883) (251,495)
Payments to acquire treasury stock 0 (273,025)
---------- ----------
Net cash used in financing
activities (248,883) (524,520)
---------- ----------
<PAGE>
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (122,442) (435,798)
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD 602,470 301,102
---------- ----------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $480,028 $(134,696)
========== ==========
SUPPLEMENTAL CASH FLOW INFORMATION-
Income taxes paid (refunded) $25,000 $75,000
========== ==========
See notes to consolidated financial statements.
</TABLE>
<PAGE>
AMERICAN PUBLIC HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
QUARTERS ENDED JUNE 30, 1997 AND 1996 (Unaudited)
1. BASIS OF PRESENTATION
The consolidated financial statements include those of American Public
Holdings, Inc., and its wholly-owned subsidiary, American Public Life
Insurance Company, and APL's wholly-owned subsidiary, DentaCare
Marketing and Administration, Inc. All significant intercompany
balances and transactions have been eliminated.
These interim financial statements have been prepared on the basis of
accounting principles used in the annual financial statements ended
December 31, 1996, and must be read in conjunction with the 1996
statements. In the opinion of management, the accompanying interim
unaudited consolidated financial statements contain all adjustments
necessary for a fair statement of consolidated financial position and
results of operations of the Company for the interim periods.
2. STOCKHOLDERS' EQUITY
The Company elected to liquidate its treasury stock in 1997, as shown
in the Consolidated Statements of Changes in Stockholders' Equity.
Additionally, paid-in capital has been adjusted to reflect an increase
in contributed capital from $40 per share to $50 per share.
3. EARNINGS (LOSS) PER COMMON SHARE
Earnings (loss) per common share is based on net income (loss) and the
weighted average number of shares outstanding during each interim
period. The number of shares used in computing the earnings per share
was 52,844 for the quarter ended June 30, 1997 and 52,844 for the
quarter ended June 30, 1996.
4. 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.
The Company is involved in litigation incurred in the normal course of
business. Management of the Company, based upon the advise of legal
counsel, is of the opinion that the Company's ultimate liability, if
any, which may result from the litigation will not have a material
adverse effect on the consolidated financial condition or results of
operations of the Company.
<PAGE>
Item 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations
Financial Condition - June 30, 1997 Compared to December 31, 1996
Total stockholders' equity decreased by $514,507 or 3.2% from
$16,136,588 at December 31, 1996, to $15,622,081 at June 30, 1997. This decrease
was caused by a net loss from operations of $228,504 for the first six months of
1997, and a dividend to stockholders in the amount of $248,883. Stockholders'
equity was reduced further by a $37,120 unrealized loss on available for sale
securities during the six months ended June 30, 1997 compared to a $251,408
unrealized gain on available for sale securities during the year ended December
31, 1996.
Total assets decreased by $390,731 or .75% at June 30, 1997 compared to
December 31, 1996. Securities increased by $485,142 or 1.48% as the result of
additional investments made through funds provided by operations. Deferred
policy acquisition costs decreased by $575,040 or 5.08% because of the runoff of
acquisition costs on older lines of business and because a greater proportion of
business written was group business on which fewer costs are deferred compared
to individual insurance products. Deferred income tax asset increased $60,304 or
16.88% due to increases in policy reserves.
Total liabilities remained level at June 30, 1997 compared to December
31, 1996. Future policy benefits and unpaid claims increased $454,193 or 1.34%
because of the aging of inforce policies.
<PAGE>
Results of Operations - Second Quarter 1997 Compared to Second Quarter 1996
The Company experienced a net loss in the second quarter of 1997 of
$210,587 compared to net income of $23,110 in the second quarter of 1996
primarily due to an increase of $740,220, or 16.88%, in benefits and claims. The
impact of the increase in benefits and claims was softened by a $144,869
increase in premiums, a $107,006 increase in investment income, and by a
decrease of $231,781 in operating expenses. Insurance taxes, licenses and fees
increased $103,783 due to the cost of the ongoing triennial examination being
conducted by the Mississippi Department of Insurance.
Revenue increased by 3.33% from $7,086,268 in the second quarter of
1996 to $7,322,089 in the second quarter of 1997. The increase was due to a
2.22% increase in premiums and a 19.9% increase in investment income. The
increase in premiums is the result of increased sales of group insurance, but
this increase has been impacted by the decrease in cancer premiums due to policy
lapses caused by rate increases and low sales of limited chemotherapy cancer
products. Net investment income increased as a result of rental income from
investment property that was idle in 1996.
Benefits and expenses increased by $513,413 in the second quarter of
1997 compared to the second quarter of 1996, a 7.30% increase. This increase was
due to a $740,220 increase in benefits and claims. Benefits and claims increased
because of increased claims exposure on cancer policies, and also from the
introduction of new products such as group dental. Commissions expense decreased
because of the marketing switch to products with lower commission structures.
Insurance taxes, licenses and fees increased due to the costs related to a
triennial examination. Other operating expenses have decreased as a result of
cost cutting measures implemented by management in the first quarter of 1997.
<PAGE>
Results of Operations - Six Months ended June 30, 1997 compared to Six Months
ended June 30, 1996
The Company experienced a net loss in the six months ended June 30,
1997 of $228,504 compared to net income of $119,844 in the six months ended June
30, 1996. The loss is attributed primarily to an increase of $1,298,334, or
15.06%, in benefits and claims.
Revenue increased $581,854 in 1997 as compared to 1996. The increase in
revenue is due to 3.34% increase in premium income and a 14.6% increase in
investment income. The increase in premiums is the result of increased sales of
group insurance, however, this increase has been limited by policy lapses in
cancer products. Net investment income increased as a result of the receipt of
rental income from investment property that was idle in 1996.
Benefits and expenses increased $1,013,375 in 1997 as compared to 1996.
The increase in expenses is due to a 15.06% increase in benefits and claims.
Benefits and claims increased because of increased claims exposure on cancer
policies, and also from the introduction of new products such as group dental,
which have a higher first year claim cost than other products. Management is
implementing steps which should help control future cancer benefits. Unlimited
chemotherapy benefit products are no longer offered for sale. In addition, the
Company is making conversion offers to its policyholders who have unlimited
chemotherapy in exchange for freezes on future rate increases.
The management of the Company believes that the claim costs in the
second six months of 1997 should be lower and that the increase in the first six
months was not the beginning of a trend.
<PAGE>
Commission expense has decreased from 9.3% of premium in first six
months of 1996 to 8.4% in first six months of 1997 due to a marketing switch
from individual sales to group insurance sales. Commission rates on group
insurance are typically lower than individual insurance.
Insurance taxes, licenses and fees increased $146,917 due to the costs
related to a triennial examination. The examination should be concluded in the
third quarter of 1997.
Other operating expenses have decreased $318,697 as a result of cost-
cutting measures implemented by management in the first quarter of 1997. The
Company is developing an improved policy administration system to be implemented
by the end of the fourth quarter of 1997. The new software system should allow
the Company to become more efficient and thus reduce further other operating
expense.
<PAGE>
AMERICAN PUBLIC HOLDINGS, INC.
PART II: OTHER INFORMATION
Item 1 - Legal Proceedings
There have been no material changes to the legal proceedings described in the
Company's Registration Statement on Form 10 (File Number 0-22479).
Item 2 - Changes in Securities
None
Item 3 - Defaults Upon Senior Securities
None
Item 4 - Submission of Matters to a Vote of Security Holders
The Annual Meeting of the Company was held on June 24, 1997. The
following nominees were elected to serve as directors with all of the 43,518
shares present at the meeting voting in favor of the nominees:
Warren I. Hammett
Garry V. Hughes
F. Harrell Josey
Frank K. Junkin, Jr.
Chester C. Montgomery
David A. New, Sr.
David A. New, Jr.
Paul H. Watson, Jr.
Johnny H. Williamson
Item 5 - Other Information
None
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27: Financial data schedule
(b) No reports on Form 8-K were filed during the quarter ended June 30, 1997.
<PAGE>
AMERICAN PUBLIC HOLDINGS, INC.
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMERICAN PUBLIC HOLDINGS, INC.
(Registrant)
DATE: August 13, 1997 /s/ Johnny H. Williamson
---------------------------------------------
Johnny H. Williamson, President
and Chief Executive Officer
DATE: August 13, 1997 /s/ William F. Weems
---------------------------------------------
William F. Weems
Chief Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 7
<CIK> 0001037559
<NAME> American Public Holdings, Inc.
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<DEBT-HELD-FOR-SALE> 33,205,530
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 0
<MORTGAGE> 1,032,006
<REAL-ESTATE> 754,620
<TOTAL-INVEST> 36,519,860
<CASH> 480,028
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 10,742,450
<TOTAL-ASSETS> 51,793,879
<POLICY-LOSSES> 33,242,533
<UNEARNED-PREMIUMS> 791,189
<POLICY-OTHER> 985,917
<POLICY-HOLDER-FUNDS> 401,085
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<COMMON> 52,844
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<INVESTMENT-INCOME> 1,302,114
<INVESTMENT-GAINS> (27,325)
<OTHER-INCOME> 24,862
<BENEFITS> 9,920,681
<UNDERWRITING-AMORTIZATION> 1,604,389
<UNDERWRITING-OTHER> 3,421,142
<INCOME-PRETAX> (233,714)
<INCOME-TAX> (5,210)
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