SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 2 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:
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
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
<PAGE>
Other Accident & Health 312,424 313,814 288,523
-------------- -------------- --------------
$26,069,848 $25,385,971 $24,172,890
=========== =========== ===========
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 $ 174,212 $ (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.
Alabama $32,188 5.30%
Arkansas 47,697 7.85%
Louisiana 106,105 17.46%
Mississippi 242,276 39.86%
Oklahoma 40,810 6.71%
Texas 63,929 10.52%
Others 74,871 12.30%
---------- ----------
<PAGE>
Total 607,876 100.00%
======= =======
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.
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
<PAGE>
======= ======= =======
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>
Accident and Health Insurance (A&H)
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.
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%
=========== =======
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
<PAGE>
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 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.
<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>
209188.2/07964.00996
<PAGE>
As of December 31, 1996 the maturity schedule for all bonds and notes
held by American Public Life at amortized cost was as follows:
Maturity Schedule
Amortized
Maturity Cost Percentage of Total
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%
=========== =======
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 investment 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
209188.2/07964.00996
<PAGE>
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
coverage issued in 1994, 1995, and 1996.
1996 1995 1994
Clinton %, Ruston, LA 11% 12% 9%
Benoit %, Kenner, LA 31% 23% 13%
MGM %, Plano, TX 23% 29% 27%
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, Inc., 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
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.
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.
209188.2/07964.00996
<PAGE>
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.
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
209188.2/07964.00996
<PAGE>
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.
Numerous proposals to reform the current health care system have been
introduced in Congress and state legislatures. Proposals have included, among
other things, modifications to the existing employer-based insurance system, a
quasi-regulated system of "managed competition" among health plans, and a
single-payer, public program. A number of states have passed or are considering
legislation that would limit the differentials in rates that insurers could
charge for health care coverages between new business and renewal business for
similar demographic groups. State legislation has also been adopted or is being
considered that would make health insurance available to all small groups by
requiring coverage of all employees and their dependents, by limiting the
applicability of pre-existing conditions exclusions, by requiring insurers to
offer a basic plan exempt from certain benefits as well as a standard plan, or
by establishing a mechanism to spread the risk of high risk employees to all
small group insurers.
Changes in regulation of health insurance could adversely affect
American Public Life's business. Changes in regulation of health insurance could
also benefit American Public Life's business by increasing the demand for
supplemental insurance products.
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.
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 twelve-month period 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.
209188.2/07964.00996
<PAGE>
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 a highly competitive business 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 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
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 80 persons as follows:
New Business 8
Accounting 11
Financial & Data Processing 8
Marketing 5
Legal, Compliance & Services 11
Claims 15
Policy Service 9
DentaCare Services 8
All Other 5
------
80
209188.2/07964.00996
<PAGE>
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.
209188.2/07964.00996
<PAGE>
Item 2. Financial Information.
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA
For the three months For the year
ended March 31, ended December 31,
1997 1996 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Premiums $6,750,791 $6,461,717 $26,069,848 $25,385,971 $24,172,890 $21,300,631 $19,713,300
Net investment income 634,702 576,214 2,387,010 2,300,624 2,214,311 2,351,929 2,338,180
Realized investment gains
(losses) (12,521) 976 (80,291) (82,117) (5,235) 339,381 869
Other income 17,437 5,469 26,067 28,129 38,594 35,071 31,249
Benefits and expenses:
Benefits, claims, losses and
settlement expenses 4,797,367 4,239,253 17,650,892 18,025,211 16,957,140 12,756,312 12,238,126
Expenses 2,598,667 2,656,819 10,577,530 10,532,065 9,013,565 8,863,845 8,522,253
Income (loss) before income
tax provision (benefit) (5,625) 148,304 174,212 (924,669) 449,855 2,406,855 1,323,219
Income tax provision (benefit) 12,292 51,570 17,328 (337,013) (105,545) 763,050 432,430
Net income (loss) (17,917) 96,734 156,884 (587,656) 555,400 1,643,805 899,789
Net income (loss) per share (0.34) 1.83 2.92 (10.67) 10.03 29.69 16.26
December 31,
March 31, 1997 1996 1995 1994 1993 1992
Other selected financial data:
Stockholders' equity 15,453,035 16,136,588 16,597,309 17,663,109 17,407,462 16,048,507
Book value per share 292.43 300.14 303.51 319.07 314.46 289.92
Dividends per share 4.70 4.70 5.59 5.32 0.00
Total assets 51,539,416 52,184,610 51,724,155 51,281,469 50,015,268 47,444,179
</TABLE>
209188.2/07964.00996
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS FOR THE
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
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
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
209188.2/07964.00996
<PAGE>
group insurance products and dental insurance. During this change in marketing
strategy, unlimited chemotherapy cancer products were 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 manage its existing block of cancer
policies with additional rate increase assessments each year and by also
offering a conversion option which "freezes" 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 diversify 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
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
<S> <C> <C> <C> <C> <C>
Revenues:
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 8.9% 8.5% 7.8% 7.0% 6.9%
-------- -------- -------- --------- --------
Total benefits and
expenses 99.4% 103.3% 98.3% 90.0% 94.0%
-------- --------- -------- -------- --------
209188.2/07964.00996
<PAGE>
Income before income taxes .6% (3.3)% 1.7% 10.0% 6.0%
Provision for federal income taxes .1% (1.2)% (.4)% 3.2% 1.9%
------- --------- -------- --------- -------
Net income .5% (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:
<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:
209188.2/07964.00996
<PAGE>
<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 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.
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:
209188.2/07964.00996
<PAGE>
<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>
Benefits to Policyholders
As a % of Total Premium
1996 1995 1994 1993
------ ----- ------ -----
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%
====== ====== ===== =====
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.
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
more competitive in its recruitment of qualified personnel. The Company's salary
costs is somewhat high due to its shrinking volume
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<PAGE>
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 increased $16,259 in 1996 and increased
$294,325 in 1995. In 1996 the Company incurred substantial expenses in
connection with the acquisition of American Public Life Insurance Company by the
Company. In 1996 the Company reduced expenses by reducing the staff of 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 insurance operations provide the primary source of
liquidity for the Company. The Company needs liquidity for benefit payments,
policy acquisition costs and operating expenses on a recurring basis. The
Company currently is not aware of any other short-term or long-term liquidity
needs, although it is possible that additional demands for liquidity will arise
in the future.
The Company's principal sources of cash to meet its liquidity needs are
premiums and investment income. The Company typically generates excess cash flow
each year from
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<PAGE>
operations. Should an occasion arise where additional resources are needed, the
Company's investments provide an additional source of liquidity. 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 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.
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 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
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
209188.2/07964.00996
<PAGE>
The Company has no outstanding material commitments for capital
expenditures as of the end of the latest fiscal period.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS FOR THE
QUARTERS ENDED MARCH 31, 1997 AND 1996
Financial Condition - March 31, 1997 Compared to December 31, 1996
Total stockholder's equity decreased by $689,360 or 4.2% from
$16,136,588 December 31, 1996 to $15,453,035 at March 31, 1997. This decrease
was caused by a $414,171 unrealized loss on available for sale securities at
March 31, 1997 compared to a $251,408 unrealized gain on available for sale
securities at December 31, 1996, and by a net loss of $17,917 for the first
quarter. The change in unrealized gain (loss) on available for sale securities
was the result of a sizable swing in the government bond market at the end of
the quarter.
Total assets decreased by $645,194 or 1.2% at March 31, 1997 compared
to December 31, 1996. Securities increased by $366,908 (net of a market value
adjustment of $800,000) or 1.1% as a result of the investment of cash provided
by operations and of cash on hand at the end of the prior year. Deferred policy
acquisition costs decreased by $370,472 or 3.3% 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 by
$197,175 or 55.2% due to increases in policy reserves.
Total liabilities remained level at March 31, 1997 compared to December
31, 1996. Future policy benefits and unpaid claims increased by $202,609 or .6%
because of the aging of inforce policies.
Results of Operations - First Quarter 1997 Compared to First Quarter 1996
The Company experienced a net loss in the first quarter of 1997 of
$17,917 compared to net income of $96,734 in the first quarter of 1996,
primarily due to an increase of $558,114 or 13.2% increase in benefits and
claims and by a $43,134 or 16.1 % increase in insurance taxes, licenses and
fees. The impact of the increase in benefits and claims was offset by a $289,074
increase in premiums, by a $58,488 increase in investment income, and by a
decrease of $86,916 in operating expenses.
Revenue increased by 4.9% from $7,044,376 in the first quarter of 1996
to $7,390,409 in the first quarter of 1997. The increase was primarily due to a
4.5% increase in premiums and a 10.2% increase in investment income. The
increase in premiums is the result of increased sales of group insurance, but
this increase has been limited by the decrease in cancer premiums due to policy
lapses caused by rate increases and low sales of limited chemotherapy cancer
products.
209188.2/07964.00996
<PAGE>
Net investment income increased primarily as a result of rental income from
investment property that was idle in 1996.
Benefits and expenses increased by $499,962 in the first quarter of
1997 compared to the first quarter of 1996, a 7.2% increase. This increase was
due to a $558,114 increase in benefits and claims. Benefits and claims increased
because of increased claims exposure on cancer policies, and from the
introduction of new products such as group dental. Insurance taxes, licenses and
fees increased by $43,134 due to cost related to the triennial examination by
the Mississippi Insurance Department. The impact of the increases in benefits
and claims and insurance taxes, licenses and fees was offset by a decrease in
other operating expenses resulting from cost cutting measures implemented by
management in the first quarter of 1997.
Net income in the first quarter of 1997 compared to the first quarter
of 1996 was also impacted by a 76.2% decrease in the income tax expense that
resulted from an decrease in taxable income compared to the first quarter of
1996.
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 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.
Name and Address Number of Shares Percentage of
Beneficially Class Beneficially
Owned Owned
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. 29,523(1) 55.9%
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. 1,006 1.9%
Vice Chairman of the Board
Post Office Box 5487
Greenville, MS 38701
Johnny H. Williamson 582 1.1%
President & CEO of APL
104 Pine Court
Brandon, MS 39042
Chester C. Montgomery 0 0%
2200 Ocean Drive South
Jacksonville, Florida 32250
All Directors and Executive 37,796 71.5%
Officers as a Group (16
Persons)
(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.
<PAGE>
Item 5. Directors and Executive Officers.
Directors
The Board currently consists of nine (9) directors who serve one-year
terms. The following persons are currently serving as directors of the Company.
Warren I. Hammett. Age 70. Mr. Hammett has been involved in the
operation and ownership of family farming operations for more than five years.
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 has been President and Chairman
of the Board of Hughes Construction Co., Inc. for more than five years and has
numerous other business interests. Hughes Construction Co. builds apartment
complexes and other commercial and residential structures. 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 has been a veterinarian
and the director of Josey Animal Medical Center, Inc. for more than five years.
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 has been Senior Vice
President, Marketing of American Public Life for more than five years. He has
served as a director of American Public Life since 1987 and of the Company
since its organization in December, 1995.
Chester C. Montgomery. Age 60. Mr. Montgomery was President and CEO of
Professional Insurance Corporation, a life insurance company based in
Jacksonville, Florida from 1986 until his retirement in October, 1995. He was
Executive Vice President of PennCorp Financial Group, an insurance holding
company with its principal offices in New York, New York which acquired
ownership of Professional Insurance Corporation, from January, 1995 until
October, 1995. He is currently retired.
David A. New, Sr. Age 69. Mr. New has been Chairman and Director of
David New Operating Co., Inc., David New Oil Co., Inc. and David New Drilling
Co., Inc. for more than five years. These companies are engaged in oil and gas
drilling and exploration. He also has been Chairman of the Board of American
Public Life for more than five years and of the Company since its organization
in December, 1995. He has served as a director of American Public Life since
1979 and of the Company since its organization in December, 1995.
David A. New, Jr. Age 40. Mr. New has been Director and President of
David New Operating Co., Inc., David New Oil Co., Inc. and David New Drilling
Co., Inc. for more than five years. These companies are engaged in oil and gas
drilling and exploration. David A. New,
209188.2/07964.00996
<PAGE>
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 has been President of Farmers
Tractor Company, Inc., a farm equipment dealer, for more than five years. 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 December, 1995.
Johnny H. Williamson. Age 63. Prior to his retirement in August,
1995, Mr. Williamson was President of American Public Life for more than five
years. 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 - Administration.
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.
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.
209188.2/07964.00996
<PAGE>
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 $100,000 in 1996.
SUMMARY COMPENSATION TABLE
- ------------------------------------------------------------------------------
Annual Base Compensation
Name and Principal Position Year
Salary ($)
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)
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)
(1) Includes consulting fees paid prior to reappointment as President and CEO.
209188.2/07964.00996
<PAGE>
Except as set forth in the table above, no compensation was paid to Mr.
Williamson or Mr. Plummer in 1996.
Director Compensation
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
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
209188.2/07964.00996
<PAGE>
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 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.
Bid Prices
Low High
1995
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
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.
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.
The Company's ability to pay dividends is limited by the amount
of dividends it
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<PAGE>
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.
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
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<PAGE>
Stock are not yet determined, but such effects might include (i) 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
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,
209188.2/07964.00996
<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
American Public Holdings, Inc. and Consolidated Subsidiaries
Consolidated Balance Sheets - March 31, 1997 (unaudited) and
December 31, 1996 Consolidated Statements of Operations - Three
Months Ended March 31, 1997 and March 31, 1996 (unaudited)
Consolidated Statements of Changes in Stockholders'
Equity--Three months Ended March 31, 1997 (unaudited) and Year
Ended December 31, 1996 Consolidated Statements of Cash Flows-
Three Months Ended March 31, 1997 and March 31, 1996
(unaudited) Notes to Consolidated Financial Statements-Three
Months Ended March 31, 1997 and March 31, 1996 (unaudited)
American Public Holdings, Inc. and Consolidated Subsidiaries
Independent Auditors' Report
Consolidated Balance Sheets - December 31, 1996 and 1995
Consolidated Statements of Operations - Years Ended December
209188.2/07964.00996
<PAGE>
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
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 Revised Financial Data Schedule
* Previously filed.
209188.2/07964.00996
<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 signed on its behalf by the undersigned, thereunto duly
authorized.
American Public Holdings, Inc.
(Registrant)
Date: August 13, 1997 By: /s/ Johnny H. Williamson
-------------------------------------
Johnny H. Williamson, President
209188.2/07964.00996
<PAGE>
AMERICAN PUBLIC HOLDINGS, INC.
Unaudited Quarterly Financial Statements for
March 31, 1997 and March 31, 1996
209188.2/07964.00996
<PAGE>
<TABLE>
<CAPTION>
American Public Holdings, Inc.
Consolidated Balance Sheets
As of March 31, 1997 and December 31,1996
March 31, December 31,
1997 1996
---------- ----------
<S> <C> <C>
ASSETS
Investments:
Securities:
Available for sale $33,087,296 $32,720,388
Mortgage loans 1,052,707 1,075,268
Investment real estate, net 768,081 781,542
Policy loans 1,567,017 1,600,398
-------------- --------------
Total investments $36,475,101 $36,177,596
OTHER ASSETS:
Cash and cash equivalents (28,267) 602,470
Accrued investment income 378,189 424,805
Accounts and notes receivable net of allowance
for uncollectible accounts of $43,000 (1997)
and $46,000 (1996) 430,575 512,906
Deferred policy acquisition costs 10,947,018 11,317,490
Property and equipment - net 2,226,406 2,205,019
Real Estate acquired in satisfaction of debt 552,541 583,393
Deferred income tax asset 554,447 357,272
Other 3,406 3,659
--------------- ----------------
TOTAL ASSETS $51,539,416 $52,184,610
--------------- ---------------
LIABILITIES AND STOCKHOLDER'S EQUITY
LIABILITIES:
Future policy benefits $33,004,214 $32,918,172
Unpaid claims 972,652 856,085
Unearned premiums 903,815 879,437
Policyholders' dividend accumulations 400,688 396,952
Accounts payable and other liabilities 805,012 997,376
-------------- ---------------
Total liabilities $36,086,381 $36,048,022
=========== ==========
209188.2/07964.00996
<PAGE>
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS'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
Unrealized gain (loss) on available for sale
securities, net of deferred tax benefit of
$103,500 for 1997 and ($62,852) for 1996 (414,171) 251,408
Retained earnings 13,225,006 14,609,589
-------------- ---------------
15,453,035 17,150,997
Less cost of treasury stock - 4,406 shares (1996) 0 (1,014,409)
-------------- ---------------
Total stockholders' equity 15,453,035 16,136,588
-------------- ---------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $51,539,416 $52,184,610
============= ===========
See notes to consolidated financial statements.
</TABLE>
209188.2/07964.00996
<PAGE>
<TABLE>
<CAPTION>
American Public Holdings, Inc.
Consolidated Statements of Operations
For Three Months Ended March 31, 1997 and 1996
March 31, March 31,
1997 1996
----------- ------------
<S> <C> <C>
REVENUE:
Premiums $ 6,750,791 $ 6,461,717
Net investment income 634,702 576,214
Realized investment gains (losses) (12,521) 976
Other Income 17,437 5,469
------------- -------------
7,390,409 7,044,376
BENEFITS AND EXPENSES:
Benefits and claims 4,797,367 4,239,253
Commissions expense 564,289 596,915
Salaries and benefits 634,901 604,223
Amortization of deferred policy acquisition
costs 884,841 897,263
Insurance taxes, licenses and fees 310,273 267,139
Other operating expenses 204,363 291,279
-------------- -------------
7,396,034 6,896,072
-------------- -------------
INCOME (LOSS) BEFORE INCOME TAX
PROVISION (5,625) 148,304
INCOME TAX PROVISION 12,292 51,570
------------ ------------
NET INCOME (LOSS) $ (17,917) $ 96,734
===== =====
NET INCOME (LOSS) PER SHARE $ (0.34) $ 1.83
===== =====
See notes to consolidated financial statements.
</TABLE>
209188.2/07964.00996
<PAGE>
<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> <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) (665,579) (665,579)
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 (17,917) (17,917)
Dividend paid to Stockholders (57) (57)
----------- ---------- ----------- ------------- ------------- ----------- ------------
BALANCE, MARCH 31, 1997 52,844 $ 52,844 $ 2,589,356 $ (414,171) $ 13,225,006 $ 0 $ 15,453,035
====== ======== ========== =========== ============ ===== ============
See notes to consolidated financial statements.
</TABLE>
209188.2/07964.00996
<PAGE>
<TABLE>
<CAPTION>
American Public Holdings, Inc.
Consolidated Statements of Cash Flows
For The Three Months Ended March 31, 1997 and March 31, 1996
March 31, March 31,
1997 1996
---------- -----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ (17,917) $ 96,734
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Realized loss (gain) of sale of assets 12,521 (976)
Depreciation 89,892 81,777
Amortization of deferred policy acquisition costs 884,841 897,263
Deferred income tax expense (benefit) (30,780) (5,143)
Decrease (increase) in receivables 128,947 10,681
Decrease (increase) in other assets 253 581
Policy acquisition costs deferred (514,369) (547,698)
Increase in liability for future policy benefits 86,042 315,177
Increase in unpaid claims, accounts pay
and other liabilities (75,797) 542,195
Increase (decrease) in unearned premiums and
policyholders' dividend accumulations 28,114 (784)
----------- -----------
Net cash provided by operating activities 591,747 1,389,807
INVESTING ACTIVITIES:
Proceeds from sale of real estate 18,331 8,118
Purchase of fixed maturity and short-term investments (4,830,000) (5,638,770)
Mortgage and policy loan repayments 55,942 55,405
Proceeds from maturities and calls of fixed-maturity
and short-term investments 3,631,118 4,710,666
Property and equipment purchased (97,818) (82,946)
----------- -----------
Net cash used in investing activities (1,222,427) (947,527)
FINANCING ACTIVITIES:
Dividends paid to shareholders (57) (250,235)
Payments to acquire treasury stock 0 (273,025)
----------- -----------
Net cash used in financing activities (57) (523,260)
209188.2/07964.00996
<PAGE>
----------- -----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (630,737) (80,980)
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD 602,470 301,102
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ (28,267) $ 220,122
===== =====
SUPPLEMENTAL CASH FLOW INFORMATION
Income taxes paid (refunded) $ 0 $ 0
===== =====
See notes to consolidated financial statements.
</TABLE>
209188.2/07964.00996
<PAGE>
AMERICAN PUBLIC HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS THREE
MONTHS ENDED MARCH 31, 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. ln 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 March 31, 1997 and 52,844 for the
quarter ended March 31, 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.
209188.2/07964.00996
<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
209188.2/07964.00996
<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
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
209188.2/07964.00996
<PAGE>
AMERICAN PUBLIC HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
- -----------------------------------------------------------------------------
1996 1995
ASSETS
Investments:
Securities:
Available for sale, at fair value
(amortized cost of $32,406,128) $ 32,720,388
Held to maturity, at amortized
cost (fair value of $31,913,000) $ 31,084,657
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 (1995) 512,906 789,759
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 3,659 8,424
209188.2/07964.00996
<PAGE>
TOTAL ASSETS $ 52,184,610 $ 51,724,155
============ ============
See notes to consolidated financial statements.
LIABILITIES AND STOCKHOLDERS'
EQUITY 1996 1995
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 14,609,589 14,705,318
------------ ------------
17,150,997 16,995,318
Less cost of treasury stock - 4,407 (1996)
and 2,566 (1995) shares (1,014,409) (398,009)
------------ ------------
Total stockholders' equity 16,136,588 16,597,309
------------ ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 52,184,610 $ 51,724,155
============ ============
209188.2/07964.00996
<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 1,497,277 1,481,018 1,186,693
------------- ------------ -------------
28,228,422 28,557,276 25,970,705
------------- ------------- -------------
INCOME (LOSS) BEFORE INCOME
TAX PROVISION (BENEFIT) 174,212 (924,669) 449,855
INCOME TAX PROVISION (BENEFIT) 17,328 (337,013) (105,545)
------------- ------------- --------------
NET INCOME (LOSS) $ 156,884 $ (587,656) $ 555,400
======== ======== ========
NET INCOME (LOSS) PER SHARE $ 2.92 $ (10.67) $ 10.03
======== ======== ========
See notes to consolidated financial statements.
</TABLE>
209188.2/07964.00996
<PAGE>
<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 156,884
BALANCE, DECEMBER 31, 1996 57,250 $57,250 $2,232,750 $251,408 $14,609,589
======== ======= ======== ========= ============
See notes to consolidated financial statements.
</TABLE>
209188.2/07964.00996
<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 156,884
-------------------- --------------------
BALANCE, DECEMBER 31, 1996 $ (1,014,409) $ 16,136,588
============ ===========
</TABLE>
209188.2/07964.00996
<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) $156,884 $(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 in other assets 4,765 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>
209188.2/07964.00996
<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>
209188.2/07964.00996
<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, regulations, and
general administrative rules. Permitted statutory accounting
practices encompass all accounting practices not so prescribed
(see Note 9).
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.
209188.2/07964.00996
<PAGE>
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 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.
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.
209188.2/07964.00996
<PAGE>
g. Deferred Policy Acquisition Costs - Commissions and other costs
that vary with and are primarily related to the 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:
Life Accident and Health
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
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 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.
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.
209188.2/07964.00996
<PAGE>
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 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>
209188.2/07964.00996
<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:
Amortized Fair
Cost Value
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
=========== ==========
Actual maturities may differ from contractual maturities because of
the borrowers' right to call or prepay obligations.
209188.2/07964.00996
<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
209188.2/07964.00996
<PAGE>
Board of Directors. All amounts allocable to policyholders have been accrued and
none of APL's retained earnings was allocable to participating policies.
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
Activity in the liability for unpaid policy claims is summarized as
follows:
1996 1995
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
209188.2/07964.00996
<PAGE>
------------- ------------
Net balance at December 31 854,725 906,367
Plus reinsurance recoverables 1,360 470
------------- ------------
Balance at December 31 $ 856,085 $ 906,837
======== ========
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 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)
======== ======== ========
The significant components of the deferred income tax benefit are as
follows:
1996 1995 1994
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>
209188.2/07964.00996
<PAGE>
The tax effects of significant items comprising the net deferred tax
asset are as follows:
<TABLE>
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 deferred tax 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.
The effective income tax rate on earnings (loss) before federal income
taxes differed from the statutory federal income tax rate for the following
reasons:
209188.2/07964.00996
<PAGE>
<TABLE>
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 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.
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
209188.2/07964.00996
<PAGE>
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
Authorized control level risk-based capital $ 1,588,000
Ratio of adjusted capital to risk-based capital 6.17:1
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 $ 156,884 $ 16,136,588 $ (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 131,076 178,001 (109,130) 181,845 (48,840)
--------------- -------------- --------------- ---------------- -------------
Statutory basis $ 616,795 $ 9,313,539 $ 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
209188.2/07964.00996
<PAGE>
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 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:
209188.2/07964.00996
<PAGE>
1996 1995
--------------------------------- ----------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
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
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.
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 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.
* * * * * *
ARTICLE 7, SCHEDULE II - CONDENSED FINANCIAL INFORMATION OF
REGISTRANT
CONDENSED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
209188.2/07964.00996
<PAGE>
<TABLE>
1996 1995
<S> <C> <C>
ASSETS:
Investment in American Public Life Insurance $16,293,957 $16,547,309
Company --------------- ---------------
Total assets $16,293,957 $16,597,309
========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY -
Due to American Public Life Insurance Company $ 157,369
STOCKHOLDER'S EQUITY 16,136,588 $16,597,309
-------------- ---------------
TOTAL LIABILITIES AND STOCKHOLDER'S
EQUITY $16,293,957 $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 134,142
Amortization 23,227
---------------
157,369
--------------- -------------- -------------
NET INCOME (LOSS) $156,884 $(587,656) $555,400
======== ======== ========
</TABLE>
209188.2/07964.00996
<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) $156,884 $(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 due to stockholder 157,369
--------------- --------------- ---------------
NET CASH USED IN OPERATING
ACTIVITIES $ 0 $ 0 $ 0
======== ======== ========
</TABLE>
209188.2/07964.00996
<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 ----------------------- Describe End of
of Period (1) (2) Period
Charged Charged
to Costs to Other
and Accounts --
Expenses Describe
<S> <C> <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>
<TABLE> <S> <C>
<ARTICLE> 7
<CIK> 0001037559
<NAME> American Public Holdings, Inc.
<S> <C> <C> <C>
<PERIOD-TYPE> 3-mos year year
<FISCAL-YEAR-END> Dec-31-1997 DEC-31-1996 DEC-31-1995
<PERIOD-START> Jan-01-1997 Jan-01-1996 Jan-01-1995
<PERIOD-END> Mar-31-1997 Dec-31-1996 Dec-31-1995
<DEBT-HELD-FOR-SALE> 33087296 32720388 0
<DEBT-CARRYING-VALUE> 0 0 31084657
<DEBT-MARKET-VALUE> 0 0 31913000
<EQUITIES> 0 0 0
<MORTGAGE> 1052707 1075268 1257771
<REAL-ESTATE> 768081 781542 710326
<TOTAL-INVEST> 36475101 36177596 34708946
<CASH> (28267) 602470 301102
<RECOVER-REINSURE> 0 0 0
<DEFERRED-ACQUISITION> 10947018 11317490 12397790
<TOTAL-ASSETS> 51539416 52184610 51724155
<POLICY-LOSSES> 33004214 32918172 32034811
<UNEARNED-PREMIUMS> 903815 879437 796915
<POLICY-OTHER> 972652 856085 906837
<POLICY-HOLDER-FUNDS> 400688 396952 383569
<NOTES-PAYABLE> 0 0 0
0 0 0
0 0 0
<COMMON> 52844 57250 57250
<OTHER-SE> 15400191 16079338 16540059
<TOTAL-LIABILITY-AND-EQUITY> 51539416 52184610 51724155
6750791 26069848 25385971
<INVESTMENT-INCOME> 634702 2387010 2300624
<INVESTMENT-GAINS> (12521) (80291) (82117)
<OTHER-INCOME> 17437 26067 28129
<BENEFITS> 4797367 17650892 18025211
<UNDERWRITING-AMORTIZATION> 884841 3129605 3627023
<UNDERWRITING-OTHER> 1713826 7447925 6905042
<INCOME-PRETAX> (5625) 174212 (924669)
<INCOME-TAX> 12292 17328 (337013)
<INCOME-CONTINUING> (17917) 156884 (587656)
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> (17917) 156884 (587656)
<EPS-PRIMARY> (.34) 2.92 (10.67)
<EPS-DILUTED> (.34) 2.92 (10.67)
<RESERVE-OPEN> 0 0 0
<PROVISION-CURRENT> 0 0 0
<PROVISION-PRIOR> 0 0 0
<PAYMENTS-CURRENT> 0 0 0
<PAYMENTS-PRIOR> 0 0 0
<RESERVE-CLOSE> 0 0 0
<CUMULATIVE-DEFICIENCY> 0 0 0
</TABLE>
