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 September 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 September 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
September 30, 1998 and December 31, 1997
Consolidated Statements of Operations 2
Three Months Ended September 30, 1998 and 1997
Nine Months Ended September 30, 1998 and 1997
Changes in Stockholders' Equity 3
Twelve Months Ended December 31, 1997
Nine Months Ended September 30, 1998
Consolidated Statements of Cash Flows 4
Nine Months Ended September 30, 1998 and 1997
Notes To Consolidated Financial Statements 5
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<TABLE>
<CAPTION>
American Public Holdings, Inc.
Consolidated Balance Sheets
As of September 30, 1998 and December 31, 1997
1998 1997
ASSETS
---- ----
Investments:
Available for sale securities - at fair value (amortized cost of
<S> <C> <C>
$35,121,912 in 1998 and $33,743,287 in 1997) $ 36,812,851 $ 34,626,186
Mortgage loans 875,291 989,859
Investment real estate - net 687,319 727,700
Policy loans 1,454,752 1,490,154
---------- ------------------------
Total investments 39,830,213 37,833,899
OTHER ASSETS:
Cash and cash equivalents 486,550 608,434
Accrued investment income 468,526 440,614
Accounts and notes receivable net of allowance for
uncollectible accounts of $44,000 (1998) and $41,000 532,586 455,848
Deferred policy acquisition costs 9,546,711 9,798,294
Property and equipment - net 2,435,945 2,193,163
Real estate acquired in satisfaction of debt 454,111 504,660
Deferred income tax asset 84,609 399,160
Other 968 112,703
---------- ------------
TOTAL ASSETS $ 53,840,21 $ 52,346,775
========== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Future policy benefits $ 33,543,400 $ 33,393,109
Unpaid claims 1,123,307 1,086,795
Unearned premiums 765,513 843,021
Policyholders' dividend accumulations 420,658 406,456
Accounts payable and other liabilities 1,085,750 993,592
---------- ------------
Total liabilities 36,938,628 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 $338,000 (1998) and $177,000 (1997) 1,352,751 706,319
Retained earnings 13,429,741 12,606,764
---------- ------------
Total stockholders' equity 16,901,591 15,623,802
---------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 53,840,219 $ 52,346,775
========== ============
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
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<TABLE>
<CAPTION>
American Public Holdings, Inc.
Consolidated Statements of Operations - GAAP Basis
For Nine Months Ended September 30, 1998 and 1997 Three Months Ended September 30 Nine Months Ended September 30
------------------------------- ------------------------------
1998 1997 1998 1997
---- ---- ---- ----
REVENUE:
<S> <C> <C> <C> <C>
Premiums $ 7,506,081 $ 6,856,691 $ 22,526,493 $ 20,269,538
Net investment income 650,016 672,496 1,935,579 1,974,610
Realized investment gains (losses) (14,450) (2,146) 66,141 (29,471)
Other Income 4,724 5,741 22,549 30,603
------------ ------------ ---------- -------------
8,146,371 7,532,782 24,550,762 22,245,280
BENEFITS AND EXPENSES:
Benefits and claims 5,240,504 4,978,568 15,832,182 14,899,249
Commissions expense 422,300 536,781 1,657,705 1,660,540
Salaries and benefits 558,691 602,065 1,741,234 1,797,362
Amortization of deferred policy acquisition costs 1,099,875 670,425 2,595,382 2,274,814
Insurance taxes, licenses and fees 260,839 290,935 763,227 910,787
Other operating expenses 297,147 349,776 828,709 832,010
------------ ------------ ---------- -------------
7,879,356 7,428,550 23,418,439 22,374,762
------------ ------------ ---------- -------------
INCOME (LOSS) BEFORE INCOME TAX
PROVISION (BENEFIT) 267,015 104,232 1,132,323 (129,482)
INCOME TAX PROVISION (BENEFIT) 51,534 24,733 301,006 19,523
------------ ------------ ---------- -------------
NET INCOME (LOSS) $ 215,481 $ 79,499 $ 831,317 $ (149,005)
============ ============ ========== =============
NET INCOME (LOSS) PER SHARE $ 0.20 $ 0.07 $ 0.76 $ (0.13)
============ ============ ============ =============
<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
Common Stock Additional Gain on Total
--------------------- Paid-in Available for Retained Treasury Stockholders'
Shares Amount Capital Sale Securities Earnings Stock Equity
------ ------ ------- --------------- -------- ----- ------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 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)
-------------------------- -------------------------- ----------- ------------ ----------
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) 646,432 646,432
Stock retired (12,012) (572) (191,048) (191,620)
Dividends to stockholders (8,340) (8,340)
Net income 831,317 831,317
0
---------- ---------- ---------- ------------- ---------- ----------- ----------
BALANCE, SEPTEMBER 30, 1998 1,099,287 52,347 2,066,752 1,352,751 13,429,741 0 16,901,591
========= ====== ========= ========= ========== ========== ==========
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
American Public Holdings, Inc.
Consolidated Statements of Cash Flows
For The Nine Months Ended September 30, 1998 and September 30, 1997
September September
1998 1997
OPERATING ACTIVITIES:
<S> <C> <C>
Net income (loss) $ 831,317 $ (149,005)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Realized loss (gain) of sale of assets (66,141) 29,471
Depreciation 275,955 287,280
Amortization of deferred policy acquisition costs 2,595,382 2,274,814
Deferred income tax expense (benefit) 152,943 (64,975)
Decrease (increase) in receivables (104,650) 111,276
Decrease (increase) in other assets 111,735 (19,585)
Policy acquisition costs deferred (2,343,799) (1,601,833)
Increase (decrease) in liability for future policy benefits 150,291 490,491
Decrease in unpaid claims, accounts pay
and other liabilities 128,670 104,908
Increase in unearned premiums and
policyholders' dividend accumulations (63,306) (61,829)
-------------- --------------
Net cash provided by operating activities 1,668,397 1,401,013
INVESTING ACTIVITIES:
Purchase of real estate 0 (5,000)
Proceeds from sale of real estate 40,484 41,176
Purchase of fixed maturity and short-term investments (44,477,812) (70,207,396)
Mortgage and policy loan repayments 149,970 161,886
Proceeds from maturities and calls of fixed-maturity
and short-term investments 43,175,393 68,863,966
Property and equipment purchased (478,356) (263,524)
-------------- --------------
Net cash used in investing activities (1,590,321) (1,408,892)
FINANCING ACTIVITIES:
Proceeds form issuance of stock 0 25,125
Dividends paid to shareholders (8,340) (249,020)
Payments to retire common stock (191,620) 0
-------------- --------------
Net cash used in financing activities (199,960) (223,895)
-------------- --------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (121,884) (231,774)
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD 608,434 602,470
-------------- --------------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD 486,550 $ 370,696
$============== ==============
SUPPLEMENTAL CASH FLOW INFORMATION-
Income taxes paid 100,000 $ 75,000
$============== ==============
Income taxes refunded 100,000 $ 0
$============== ==============
<FN>
See notes to consolidated financial statements.
Unaudited
</FN>
</TABLE>
<PAGE>
AMERICAN PUBLIC HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
QUARTER ENDED AND NINE MONTHS ENDED SEPTEMBER 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 20 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 1,099,554 for the quarter ended
September 30, 1998 and 1,110,165 for the quarter ended September 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 SEPTEMBER 30, 1998
AND 1997
Financial Condition - September 30, 1998 Compared to December 31, 1997
Total stockholders' equity increased by $1,277,789 or 8.18% from
$15,623,802 at December 31, 1997, to $16,901,591 at September 30, 1998. This
increase was due to net income of $831,317 for the first nine months, plus an
increase of $646,432 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 20 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.
Total assets increased by $1,493,444 or 2.85% at September 30, 1998
compared to December 31, 1997. Securities increased by $2,186,665, or 6.32%, as
the result of additional investments made with funds provided by operations
and an adjustment for the increase in unrealized gain of available for sale
securities. Deferred policy acquisition costs decreased by $251,583 or 2.57% due
to a decrease of new business written during the second quarter. Deferred income
tax asset decreased $314,551 or 78.8% due to decreases in the timing differences
between statutory and GAAP policy reserves and increases in deferred taxes on
unrealized gain on available for sale securities.
Total liabilities increased $215,655 at September 30, 1998 compared to
December 31, 1997. Future policy benefits and unpaid claims increased $150,291
or .45 % because of the aging of in force business and increases in group
insurance claims. Accounts payable and other liabilities increased $92,158 as a
result of increases in amounts due for premium and income taxes.
Results of Operations-Third Quarter 1998 Compared to Third Quarter 1997:
The Company experienced a net gain in the third quarter of 1998 of $215,481
compared to net income of $79,499 in the third quarter of 1997, primarily due to
an increase of $649,390 in premium income. The impact of the increase in
premiums was dampened by a $261,936 increase in benefits and claims.
Operating expenses decreased $96,003 compared to the same period last year.
Insurance taxes licenses and fees decreased $30,096 due to the cost of the
ongoing triennial examination in the prior year.
<PAGE>
Revenue increased by 8.15% from $7,532,782 in the third quarter of 1997 to
$8,146,371 in the third quarter of 1998. The increase was due to a 9.47%
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 $450,806 in the third quarter of 1998
compared to the third quarter of 1997, a 6.07% increase. This increase was due
to a $261,936 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 decreased due to continued
emphasis on group insurance sales versus sales of individual A&H products in
prior years. Amortization of deferred policy acquisition costs (DPAC) increased
due to increased lapses of in force cancer and group dental policies. The lapses
are the result of implementations of rate increases on cancer and group dental
products. Insurance taxes licenses and fees decreased due to the costs related
to a triennial examination in the prior year. Other operating expenses have
decreased $96,003 because of decreases in current year administrative expenses.
Results of Operations - Nine Months Ended September 30, 1998 Compared to
Nine Months Ended September 30, 1997:
The Company experienced a gain in the nine months ended September 30, 1998
of $831,317 compared to a net loss of $149,005 in the nine months ended
September 30, 1997. The gain is attributable primarily to an increase in premium
income of $2,256,955 that was derived primarily from new sales of the Company's
group dental product.
Revenue increased $2,305,482 in 1998 as compared to 1997. The increase in
revenue is due to an 11.13% increase in premium income. The increase in premiums
is the result of increased sales of group insurance, primarily the Company's
group dental product; however, this increase has been impacted 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 $1,043,677 in 1998 as compared to 1997. The
increase in expenses is due to a 6.26% 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 decreased because of continued emphasis on products that
have lower commissions. Insurance taxes, licenses and fees decreased compared to
the prior year, due to the triennial examination costs incurred in 1997.
Administrative costs decreased due to costs related to the registration in 1997
of American Public Holdings, Inc. under the Securities Exchange Act of 1934.
<PAGE>
Commission expense has decreased from 8.19% of premium in 1997 to 7.36% 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 $147,560 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 decreased $3,301 as a result of decreases in
administrative costs. 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
September 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: November , 1998
-------------------------
Joseph C. Hartley, Jr.
Secretary and Counsel
DATE: November , 1998
------------------------
William F. Weems
Chief Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 7
<CIK> 0001037559
<NAME> American Public Holdings, Inc.
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<DEBT-HELD-FOR-SALE> 0
<DEBT-CARRYING-VALUE> 36,812,851
<DEBT-MARKET-VALUE> 36,812,851
<EQUITIES> 0
<MORTGAGE> 875,291
<REAL-ESTATE> 687,319
<TOTAL-INVEST> 39,830,213
<CASH> 486,550
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 9,546,711
<TOTAL-ASSETS> 53,840,219
<POLICY-LOSSES> 33,543,400
<UNEARNED-PREMIUMS> 765,513
<POLICY-OTHER> 1,123,307
<POLICY-HOLDER-FUNDS> 420,658
<NOTES-PAYABLE> 0
0
0
<COMMON> 52,347
<OTHER-SE> 16,849,244
<TOTAL-LIABILITY-AND-EQUITY> 53,840,219
22,526,493
<INVESTMENT-INCOME> 1,935,579
<INVESTMENT-GAINS> 66,141
<OTHER-INCOME> 22,549
<BENEFITS> 15,832,182
<UNDERWRITING-AMORTIZATION> 2,377,629
<UNDERWRITING-OTHER> 5,208,628
<INCOME-PRETAX> 1,132,323
<INCOME-TAX> 301,006
<INCOME-CONTINUING> 831,317
<DISCONTINUED> 0
<EXTRAORDINARY> 0
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<NET-INCOME> 831,317
<EPS-PRIMARY> 0.76
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