AMERICAN PUBLIC HOLDINGS, INC.
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20459
FORM 10-Q
Quarterly Report Under Section 13 or 15 (d) of the
Securities Exchange Act of 1934
For the quarter ended June 30, 1998 Commission File Number 0-22479
AMERICAN PUBLIC HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Mississippi 64-0874171
(State or other jurisdiction of (I.R.S. Employer
incorporation of organization) Identification No.)
Registrant's telephone number: (601) 936-6600 ext. 201
No Change
Former name, former address and former fiscal year,
if changed since last report
Indicate by check mark whether the registrant (1) has filed all reports required
by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for shorter period that the registrant was required to
file such report), and (2) has been subject to such filing requirements for the
past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
Class Outstanding at June 30, 1998
-----------------------------
Common stock (no par value) 1,099,287 shares
<PAGE>
AMERICAN PUBLIC HOLDINGS, INC.
Unaudited Quarterly Financial Statements
Page
Consolidated Balance Sheets 1
June 30, 1998 and December 31, 1997
Consolidated Statements of Operations 2
Three Months Ended June 30, 1998 and 1997
Six Months Ended June 30, 1998 and 1997
Changes in Stockholders' Equity 3
Twelve Months Ended December 31, 1997
Six Months Ended June 30, 1998
Consolidated Statements of Cash Flows 4
Six Months Ended June 30, 1998 and 1997
Notes To Consolidated Financial Statements 5
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<TABLE>
<CAPTION>
American Public Holdings, Jnc.
Consolidated Balance Sheets
As of June 30, 1998 and December 31, 1997
1998 1997
---- ----
ASSETS
<S> <C> <C>
Investments:
Available for sale securities - at fair value (amortized cost
of $34,353,989 in 1998 and $33,743,287 in 1997) $ 35,278,924 $ 34,626,186
Mortgage loans 894,815 989,859
Investment real estate - net 700,779 727,700
Policy loans 1,458,212 1,490,154
------------ ------------
Total investments 38,332,730 37,833,899
OTHER ASSETS:
Cash and cash equivalents 583,640 608,434
Accrued investment income 533,962 440,614
Accounts and notes receivable net of allowance for uncollectible
accounts of $48,000 (1998) and $41,000 (1997) 592,464 455,848
Deferred policy acquisition costs 9,747,478 9,798,294
Property and equipment - net 2,362,457 2,193,163
Real estate acquired in satisfaction of debt 485,534 504,660
Deferred income tax asset 231,280 399,160
Other 3,289 112,703
------------ ------------
TOTAL ASSETS $ 52,872,834 $ 52,346,775
============ =============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Future policy benefits $ 33,436,935 $ 33,393,109
Unpaid claims 1,120,376 1,086,795
Unearned premiums 801,725 843,021
Policyholders' dividend accumulations 414,574 406,456
Accounts payable and other liabilities 1,020,328 993,592
------------ ------------
Total liabilities 36,793,938 36,722,973
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $1 par value, authorized 25,000,000 shares
Common stock, $1 stated value, authorized
50,000,000 shares, issued and outstanding 1,099,287
shares in 1998 and 1,111,299 shares in 1997 52,347 52,919
Additional paid-in capital 2,066,752 2,257,800
Unrealized gain on available for sale securities, net of
deferred taxes of $185,000 (1998) and $177,000 (1997) 739,948 706,319
Retained earnings 13,219,849 12,606,764
------------ ------------
Total stockholders' equity 16,078,896 15,623,802
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 52,872,834 $ 52,346,775
============ =============
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
American Public Holdings, Inc.
Consolidated Statements of Operations - GAAP Basis
For Six Months Ended June 30, 1998 and 1997 Three Months Ended June 30 Six Months Ended June 30
-------------------------- ------------------------
1998 1997 1998 1997
---- ---- ---- ----
REVENUE:
<S> <C> <C> <C> <C>
Premiums $ 7,465,585 $ 6,662,056 $ 15,020,412 $ 13,412,847
Net investment income 656,805 667,412 1,285,563 1,302,114
Realized investment gains (losses) 5,023 (14,804) 80,591 (27,325)
Other Income 10,501 7,425 17,825 24,862
----------- ----------- ------------ ------------
8,137,914 7,322,089 16,404,391 14,712,498
BENEFITS AND EXPENSES:
Benefits and claims 5,318,382 5,123,314 10,591,678 9,920,681
Commissions expense 622,496 559,470 1,235,405 1,123,759
Salaries and benefits 608,342 560,396 1,182,543 1,195,297
Amortization of deferred policy acquisition costs 757,305 719,548 1,495,507 1,604,389
Insurance taxes, licenses and fees 274,898 309,579 502,388 619,852
Other operating expenses 259,579 277,871 531,562 482,234
----------- ----------- ------------ ------------
7,841,002 7,550,178 15,539,083 14,946,212
----------- ----------- ------------ ------------
INCOME (LOSS) BEFORE INCOME TAX
PROVISION (BENEFIT) 296,912 (228,089) 865,308 (233,714)
INCOME TAX PROVISION (BENEFIT) 24,554 (17,502) 249,472 (5,210)
----------- ----------- ------------ ------------
NET INCOME (LOSS) $ 272,358 $ (210,587) $ 615,836 $ (228,504)
=========== =========== ============ ============
NET INCOME (LOSS) PER SHARE $ 0.25 $ (0.19) $ 0.56 $ (0.21)
=========== =========== ============ ============
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
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<TABLE>
<CAPTION>
American Public Holdings, Inc.
Consolidated Statements of Changes in Stockholders' Equity - GAAP Basis
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, 1996 1,202,250 $ 57,250 $ 2,232,750 $ 251,408 $ 14,609,589 $(1,014,409) $16,136,588
Change in net unrealized gain(loss) 454,911 454,911
Stock issued 1,575 75 25,050 25,125
Treasury stock retired (92,526) (4,406) (1,010,003) 1,014,409 0
Dividends to stockholders (250,171) (250,171)
Net loss (742,651) (742,651)
0
--------- -------- ----------- ---------- ------------ ----------- -----------
BALANCE, DECEMBER 31, 1997 1,111,299 52,919 2,257,800 706,319 12,606,764 0 15,623,802
Change in net unrealized gain(loss) 33,629 33,629
Stock retired (12,012) (572) (191,048) (191,620)
Dividends to stockholders (2,751) (2,751)
Net income 615,836 615,836
0
--------- -------- ----------- ---------- ------------ ----------- -----------
BALANCE, JUNE 30, 1998 1,099,287 $ 52,347 $ 2,066,752 $ 739,948 $ 13,219,849 $ 0 $16,078,896
========= ======== =========== ========== ============ =========== ============
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
American Public Holdings, Inc.
Consolidated Statements of Cash Flows
For The Six Months Ended June 30, 1998 and June 30, 1997
June June
1998 1997
OPERATING ACTIVITIES:
<S> <C> <C>
Net income (loss) $ 615,836 $ (228,504)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Realized loss (gain) of sale of assets (80,591) 27,325
Depreciation 166,916 179,784
Amortization of deferred policy acquisition costs 1,495,507 1,604,389
Deferred income tax expense (benefit) 159,473 (51,024)
Decrease (increase) in receivables (229,964) 73,305
Decrease (increase) in other assets 109,414 431
Policy acquisition costs deferred (1,444,691) (1,029,349)
Increase (decrease) in liability for future policy benefits 43,826 324,361
Decrease in unpaid claims, accounts pay
and other liabilities 60,317 (116,470)
Increase in unearned premiums and
policyholders' dividend accumulations (33,178) (84,115)
Net cash provided by operating activities 862,865 700,133
INVESTING ACTIVITIES:
Purchase of real estate 0 (5,000)
Proceeds from sale of real estate 23,147 31,591
Purchase of fixed maturity and short-term investments (30,270,045) (10,748,557)
Mortgage and policy loan repayments 126,986 115,956
Proceeds from maturities and calls of fixed-maturity
and short-term investments 29,735,913 10,217,015
Property and equipment purchased (309,289) (184,697)
Net cash used in investing activities (693,288) (573,692)
FINANCING ACTIVITIES:
Dividends paid to shareholders (2,751) (248,883)
Payments to retire common stock (191,620) 0
Net cash used in financing activities(194,371) (248,883)
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (24,794) (122,442)
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD 608,434 602,470
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 583,640 $ 480,028
SUPPLEMENTAL CASH FLOW INFORMATION-
Income taxes paid (refunded) $ (100,000) $ 25,000
<FN>
See notes to consolidated financial statements.
Unaudited
</FN>
</TABLE>
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AMERICAN PUBLIC HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
QUARTER ENDED AND SIX MONTHS ENDED JUNE 30. 1998 AND 1997(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 (APL), and APL's wholly owned subsidiary, DentaCare
Marketing and Administration, Inc. All significant inter-company 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, 1997, and must be read in conjunction with the 1997
statements. In the opinion of management, the accompanying interim
unaudited consolidated financial statements contain all adjustments
necessary for a fair statement of consolidated financial position and
results of operations of the Company for the interim periods.
2. STOCKHOLDERS' EQUITY
In January 1998 the Company acquired and retired 12,012 shares of common
stock, which were purchased from a former director and past president of
the Company.
In February 1998 the Board of Directors approved a 21 for 1 stock split-up
effected in the form of a stock dividend of the Company's common stock
payable on March 31, 1998. The split did not change the value of paid-in
capital and is reflected in the accompanying financial statements as
though the split had occurred at the beginning of the earliest year
presented.
3. EARNINGS (LOSS) PER COMMON SHARE
Earnings (loss) per common share are 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
1,099,687 for the quarter ended June 30, 1998 and 1,109,724 for the
quarter ended June 30, 1997.
4. COMMITMENTS AND CONTINGENCIES
The Company is required to participate in certain guaranty funds and
involuntary pools of insurance and is therefore exposed to undeterminable
future assessments resulting from the insolvency of other insurers.
The Company is involved in litigation incurred in the normal course of
business. Management of the Company, based upon the advise of legal
counsel, is of the opinion that the Company's ultimate liability, if any,
which may result from the litigation will not have a material adverse
effect on the consolidated financial condition or results of operations of
the Company.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS FOR THE QUARTERS ENDED JUNE 30, 1998 AND 1997
Financial Condition - June 30, 1998 Compared to December 31, 1997
Total stockholders' equity increased by $455,094 or 2.91% from
$15,623,802 at December 31, 1997, to $16,078,896 at June 30, 1998. This
increase was due to net income of $615,836 for the first six months, plus an
increase of $33,629 on unrealized gain on available for sale securities.
During the first quarter of 1998, the Company acquired and retired 12,012
shares of common stock, which were purchased from the past president of the
Company. In February 1998 the Board of Directors approved a 21 for 1 stock
split effected in the form of a stock dividend of the Company's common stock
payable on March 31, 1998. The split did not change the value of paid-in
capital and is reflected in the accompanying financial statements as though the
split had occurred at the beginning of the earliest year presented.
Total assets increased by $526,059 or 1.00% at June 30, 1998 compared
to December 31, 1997. Securities increased by $652,738, or 1.89%, as the
result of additional investments made through funds provided by operations and
an adjustment for the increase in unrealized gain of available for sale
securities. Deferred policy acquisition costs decreased by $50,816 or .52% due
to a decrease in new business written during the second quarter. Deferred
income tax asset decreased $167,880 or 42.1% due to decreases in the timing
differences between statutory and GAAP policy reserves.
Total liabilities increased $70,965 at June 30, 1998 compared to
December 31, 1997. Future policy benefits and unpaid claims increased $77,407
or .2 % because of the aging of in force business and increases in group
insurance claims. Accounts payable and other liabilities increased $ 26,736
as a result of increases in amounts due for premium and income taxes.
Results of Operations- Second Quarter 1998 Compared to Second Quarter 1997:
The Company experienced a net gain in the second quarter of 1998 of
$272,358 compared to net loss of $210,587 in the second quarter of 1997,
primarily due to an increase of $803,529 in premium income. The impact of the
increase in premiums was dampened by a $195,068 increase in benefits and claims.
<PAGE>
Operating expenses increased $29,654 over the same period last year.
Insurance taxes licenses and fees decreased $18,292 due to the cost of the
ongoing triennial examination in the prior year.
Revenue increased by 11.14% from $7,322,089 in the second quarter of 1997
to $8,137,914 in the second quarter of 1998. The increase was due to a 12.1%
increase in premiums. The increase in premiums is the result of increased
sales of group insurance, but this growth has been impacted by the decrease
in cancer premiums due to policy lapses caused by rate increases. Net
investment income decreased as a result of bond calls in the first quarter,
which resulted in lower yields on the reinvestment of the called proceeds.
Benefits and expenses increased by $290,824 in the second quarter of
1998 compared to the second quarter of 1997, a 3.85% increase. This increase
was due to a $195,068 increase in benefits and claims. Benefits and claims
increased because of increased claims exposure from new sales of group
supplemental products such as group dental. Commissions expense increased
because of the increase in premium income. Amortization of deferred policy
acquisition costs (DPAC) increased due to increased lapses of in force
policies. The lapses are the result of implementations of rate increases.
Insurance taxes licenses and fees decreased due to the costs related to a
triennial examination in the prior year. Other operating expenses have
increased slightly, because of higher volumes of premium collections and
claims disbursements.
Results of Operations - six months ended June 30, 1998 compared to six months
ended June 30, 1997:
The Company experienced a gain in the six months ended June 30, 1998 of
$615,836 compared to a net loss of $228,504 in the six months ended June 30,
1997. The gain is attributable primarily to an increase in premium income of
$1,607,565 that was derived primarily from new sales of the Company's group
dental product.
Revenue increased $1,691,893 in 1998 as compared to 1997. The increase in
revenue is due to an 11.99% increase in premium income. The increase in
premiums is the result of increased sales of group insurance; however, this
increase has been limited by policy lapses due to the implementation of rate
increases on cancer and group dental products. Net investment income decreased
as the result of decreases in yield brought on by numerous bond calls in the
first quarter.
Benefits and expenses increased $592,871 in 1998 as compared to 1997. The
increase in expenses is due to a 6.76% increase in benefits and claims.
Benefits and claims increased because of policyholder utilization of benefits
provided under our group dental product, which was introduced in the second
half of 1997. Commissions expense increased because of increases in premium
collections. Insurance taxes, licenses and fees decreased compared to the
prior year, due to the triennial examination costs incurred in 1997.
Administrative costs increased due to the increased costs of processing
additional premium collections and disbursing higher volumes of claims.
Commission expense has decreased from 8.38% of premium in 1997 to 8.22%
in 1998 due to a change in marketing focus from individual sales to group
insurance sales. Commission rates on group insurance are typically lower
than individual insurance.
Insurance taxes licenses and fees decreased $117,464 due to costs related
to a triennial examination in the prior year. Typically, taxes would be higher
as the result of increased premium collections.
Other operating expenses have increased $49,328 as a result of increased
administrative costs related to processing premium collections and claim
payments. Salaries and benefits are lower due to staff reductions achieved
through attrition.
<PAGE>
AMERICAN PUBLIC HOLDINGS, INC.
PART II: OTHER INFORMATION
Item 1 - Legal Proceedings
There have been no material changes to the legal proceedings described in the
Company's Annual Report on Form 10-K (File Number 0-22479).
Item 2 - Changes in Securities
None
Item 3 - Defaults Upon Senior Securities
None
Item 4 - Submission of Matters to a Vote of Security Holders
None
Item 5 - Other Information
None
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27: Financial data schedule
(b) No reports on Form 8-K were filed during the quarter ended June 30, 1998.
<PAGE>
AMERICAN PUBLIC HOLDINGS, INC.
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMERICAN PUBLIC HOLDINGS, INC.
------------------------------
(Registrant)
DATE: August 13, 1998
/s/ Joseph C. Hartley, Jr.
-------------------------
Joseph C. Hartley, Jr.
Secretary and Counsel
DATE: August 13, 1998
/s/ William F. Weems
------------------------
William F. Weems
Chief Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 7
<CIK> 0001037559
<NAME> American Public Holdings, Inc.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<DEBT-HELD-FOR-SALE> 0
<DEBT-CARRYING-VALUE> 35,278,924
<DEBT-MARKET-VALUE> 35,278,924
<EQUITIES> 0
<MORTGAGE> 894,815
<REAL-ESTATE> 700,779
<TOTAL-INVEST> 38,332,730
<CASH> 583,640
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 9,747,478
<TOTAL-ASSETS> 52,872,834
<POLICY-LOSSES> 34,557,311
<UNEARNED-PREMIUMS> 801,725
<POLICY-OTHER> 1,020,328
<POLICY-HOLDER-FUNDS> 414,574
<NOTES-PAYABLE> 0
0
0
<COMMON> 52,347
<OTHER-SE> 16,026,549
<TOTAL-LIABILITY-AND-EQUITY> 52,872,834
15,020,412
<INVESTMENT-INCOME> 1,285,563
<INVESTMENT-GAINS> 80,591
<OTHER-INCOME> 17,825
<BENEFITS> 10,591,678
<UNDERWRITING-AMORTIZATION> 1,495,507
<UNDERWRITING-OTHER> 3,451,898
<INCOME-PRETAX> 865,308
<INCOME-TAX> 249,472
<INCOME-CONTINUING> 615,836
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 615,836
<EPS-PRIMARY> 0.56
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