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Previous: STRATESEC INC, 10-K405, 2000-03-30 |
Next: CROSSWALK COM, DEF 14A, 2000-03-30 |
MISSISSIPPI 64-0874171
(State or other jurisdiction of incorporation of organization) (I.R.S. Employer Identification Number)
2305 Lakeland Drive, Jackson, Mississippi 39208
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (601-936-6600)
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange on
Title of Each Class Which Registered
None None
Securities registered pursuant to section 12(g) of the Act:
Common Stock, no par value
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act if 1934 during the preceding 12 months (or for such shorted period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES ( X ) NO ( )
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
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 March 20, 2000
Common stock, no par value 1,099,278 Shares
Based on the closing price for shares of common stock on March 20, 2000, the aggregate market value of the voting stock held by nonaffiliates of the Registrant was $3,764,232.75.
AMERICAN PUBLIC HOLDINGS, INC.
FORM 10-K
INDEX
PAGE
PART I
ITEM 1. BUSINESS....................................................................................................1
ITEM 2. PROPERTIES.................................................................................................10
ITEM 3. LEGAL PROCEEDINGS..........................................................................................10
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS........................................................10
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS..................................................................................10
ITEM 6. SELECTED FINANCIAL DATA....................................................................................11
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS............................................................................12
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA................................................................18
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.....................................................................38
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.........................................................38
ITEM 11. EXECUTIVE COMPENSATION.....................................................................................41
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT..........................................................................................42
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............................................................43
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-K.................................................................................................44
SIGNATURES ........................................................................................................49
EXHIBIT INDEX.......................................................................................................52
In addition to historical information, this report contains statements which constitute forward-looking statements and information are based on management's beliefs, plans, expectations and assumptions and on information currently available to management. The words "may," "should," "expect," "anticipate," "intend," "plan," "continue," "believe," "seek," "estimate," and similar expressions used in this report that do not relate to historical facts are intended to identify forward-looking statements. These statements appear in a number of places in this report, including, but not limited to, statements found in Item 1 "Business" and in Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations." All phases of the Company's operations are subject to a number of risks and uncertainties. Investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and that actual results may differ materially from those projects in the forward- looking statements. Among the factors that could cause actual results to differ materially are the risks and uncertainties discussed in this report, including, without limitation, the portions referenced above, and the uncertainties set forth from time to time in the Company's other public reports and filings and public statements, many of which are beyond the control of the Company, and many of which, or a combination of which, could materially affect the results of the Company's operations and whether forward-looking statements made by the Company ultimately prove to be accurate.
ITEM 1. BUSINESSAmerican Public Holdings, Inc. (the "Company") is a Mississippi 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 became a wholly-owned subsidiary of the Company, and each share of outstanding American Public Life common stock was converted into one share of the Company's 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-five (25) states. American Public Life specializes in supplemental health insurance products, including cancer, accident, intensive care, heart attack/stroke, dental insurance and supplemental group insurance products such as group dental, group disability and group hospital. 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 (3) years ended December 31.
Year ended December 31,
-----------------------
1999 1998 1997
---- ---- ----
Premium revenue:
Cancer $16,070,176 $16,671,263 $17,309,712
Life insurance 725,148 653,941 532,294
Accident 1,013,902 1,073,187 1,105,802
DentaCare (Dental) 6,686,540 6,469,047 5,705,409
Group Accident & Health 4,255,371 4,514,499 2,377,267
Other Accident & Health 634,963 638,396 325,027
------- ------- -------
$29,386,100 $30,020,333 $27,355,511
=========== =========== ===========
Underwriting income:
Life insurance (659,815) $ (149,541) $(31,870)
Accident & Health (4,473,015) (1,419,473) (3,404,419)
Net Investment income 2,427,689 2,523,875 2,536,674
Other income 18,180 29,331 34,711
Realized investment gains (losses) (45,804) 65,807 (24,118)
------- ------ -------
Income (loss) before income tax
provision (benefit) $(2,732,765) $ 1,049,999 $(889,022)
=========== =========== =========
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.
American Public Life conducts its life insurance business on a non-participating basis. American Public Life is licensed to write insurance in twenty-five (25) states. The Company markets life insurance business utilizing individual policies written on both a direct and a payroll deduction basis. Plans available include one (1), five (5) and ten (10) year renewable term insurance issued up to $1,000,000 (Maximum Retention by company $50,000). Rates for these three products are based on male and female non-tobacco use and standard basis. Underwriting requirements vary by age and amount of insurance. Issue ages are twenty (20) through seventy (70). The following table indicates those states which accounted for four percent (4%) or more of the total direct life insurance premiums collected by American Public Life during 1999.
($) (%)
Alabama 169,529 22.29%
Arkansas 31,332 4.12%
Louisiana 108,641 14.28%
Mississippi 321,043 42.21%
Texas 36,837 4.85%
Others 93,186 12.25%
Total 760,568 100.00%
American Public Life offers a simplified issue whole life policy with face amounts based on monthly payroll deduction amounts of between $5 and $20. The maximum issue amount is $40,000. Rates are uni- sex and do not distinguish between smokers and non-smokers. A spouse rider is available with up to $10,000 coverage. The children's protection rider provides up to $5,000 coverage up to age twenty-five (25) at which time it can be converted to permanent coverage not to exceed $25,000. This product is issued to persons aged fifteen (15) through sixty-five (65) either individually or by payroll deduction.
The family life protector product is a decreasing term plan renewable to age seventy (70). Issue ages are fifteen (15) through sixty (60). Coverage is provided individually or on the entire family. The maximum issue amount on the primary insured per unit is $15,000. Family coverage maximums are $3,000 for a spouse and $1,000 for children. Accidental death and dismemberment coverage is included on the primary insured and spouse. Premiums may be paid individually or by payroll deduction.
The Company has developed a Basic and Voluntary Group Term Life Policy which will compliment its existing portfolio of voluntary payroll deduction accident and health products. The Basic Policy offers coverage up to $150,000 for the insured and the Voluntary Policy offers coverage up to $100,000. A spouse rider is available with both policies, with $5,000 on the Basic Policy and $10,000 on the Voluntary Policy. Children can be insured for up to $2,500 under the Basic Policy and $10,000 under the Voluntary Policy. The maximum retention by the Company is $50,000, with the remainder being reinsured by another company.
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.
Year Ended December 31,
-----------------------
1999 1998 1997
---- ---- ----
(in thousands)
Life insurance in force at the end of period:
Ordinary - whole life $38,432 $44,233 $34,772
- term 14,442 10,387 12,657
Group life 13,950 6,960 0
------ ----- ------
Total $66,824 $61,580 $47,429
======= ======= =======
New life insurance issued:
Ordinary - whole life $ 5,883 $11,537 $ 3,411
- term 0 326 819
Group life 6,990 6,960 0
----- ----- -------
Total $12,873 $18,823 $ 4,230
======= ======= =======
Premium Income $ 725 $ 654 $ 532
======= ======= =======
American Public Life is licensed to write accident and health ("A&H") insurance in twenty-five (25) states. The following table indicates those states which accounted for four percent (4%) or more of the total direct A&H premiums collected by American Public Life during 1999.
Alabama 1,386,479 4.85%
Arkansas 1,481,044 5.18%
Louisiana 9,412,706 32.90%
Mississippi 5,985,824 20.92%
Oklahoma 2,362,335 8.26%
Texas 4,819,915 16.84%
Others 3,163,610 11.05%
Total 28,611,913 100.00%
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, DentaCare (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 products are also being successfully marketed on a payroll deduction basis.
As the Company increases its product base and general agent network, together with the popularity of payroll deduction as a means of distribution, it is anticipated that the Company will continue to grow and it is expected that American Public Life's knowledge and experience in this distribution method will give it a significant advantage over its competitors in the future.
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.
December 31,
-----------------------
1999 1998 1997
---- ---- ----
Securities:
Available for sale $32,347,108 $35,780,591 $34,626,186
Mortgage loans on real estate 621,201 683,649 989,859
Investment real estate 620,017 673,858 727,700
Policy loans 1,370,692 1,419,072 1,490,154
Short-term investments 0 0 0
----------- ----------- -----------
Total investments $34,959,018 $38,557,170 $37,833,899
=========== =========== ===========
The results with respect to the foregoing investments are as follows:
Net investment income 2,427,689 2,523,875 2,536,674
Realized investment gains (losses)
(before income taxes) (45,804) 65,807 (24,118)
Average yield on investments 6.81% 6.72% 6.64%
Economic yield on investments
(includes realized and unrealized capital gains) .81% 7.39% 6.69%
As of December 31, 1999 the maturity schedule for all available for sale securities held by
American Public Life at market vlaue and amortized cost was as follows:
Maturity Schedule
Market Amortized
Maturity Value Cost Percentage of Total
-------- ----- ---- -------------------
Due in one year or less $ 0 $ 0 0.00%
Due in one to five years 2,893,137 2,950,266 8.81%
Due in five to ten years 2,965,312 3,028,552 9.04%
Due after ten years 13,097,454 13,825,371 41.28%
---------- ---------- -----
18,955,903 19,804,189 59.13%
Mortgage-backed securities 13,391,205 13,689,425 40.87%
---------- ---------- -----
$32,347,108 $33,493,614 100.00%
=========== =========== ======
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.
American Public Life's insurance products are marketed through an independent field force of one hundred thirty-three (133) managing general agents and seven hundred (700) 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 ten percent (10%) of the new coverage issued in 1997, 1998 and 1999.
1999 1998 1997
Clinton, Ruston, LA 10% 9% 8%
Benoit, Kenner, LA 20% 19% 18%
MGM, Plano, TX 17% 24% 26%
These percentages generally reflect the percentage of distribution of premium income. The Clinton agency has exceeded ten percent (10%) for ten (10) years, excluding 1997 and 1998, the Benoit agency has exceeded ten percent (10%) for seven (7) years, and the MGM agency has exceeded ten percent (10%) for twenty-five (25) years.
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, 1999, the total reserves of American Public Life were $35,139,608. 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.
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 five (5) 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, and through its review of medical histories furnished upon request.
In certain instances American Public Life conducts telephone interviews to verify the information on the application and to obtain additional information necessary 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 under American Public Life's policies are administered by a claims department comprised of eighteen (18) employees. The claims 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 claims adjudication process.
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. 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.
Optimum Re
Munich American
CNA
American Public Life also has a small amount of reinsurance on its accident and health insurance. Lonestar Life Insurance Company reinsures twenty-five percent (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 one hundred percent (100%) reinsured with Cologne Life Reinsurance Company.
American Public Life is subject to regulation by the insurance departments of those states in which it is licensed to conduct business. Although the extent of regulation varies from state to state, the insurance laws of the various states generally establish supervisory departments having broad administrative powers with respect to, among other matters, the granting and revocation of licenses to transact business, the licensing of agents, the establishment of standards of financial solvency, including reserves to be maintained, the nature of investments and, in most cases, premium rates, the approval of forms and policies and the form and content of financial statements. These regulations have as their primary purpose the protection of policyholders and do not necessarily confer a benefit upon stockholders.
Numerous proposals to reform the current health care system have been introduced in Congress and state legislatures. 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 six-year period ended December 31, 1998. 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 (12) month period is limited to the lesser of (i) ten percent (10%) of surplus; or (ii) net gain from operations for the past three (3) years, less dividends paid in the past two (2) years.
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.
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.
The Company employs a total of seventy-two (72) persons, all of whom are full-time, as follows:
New Business - 5
Customer Service - 18
Financial & Data Processing - 6
Marketing - 7
Legal, Compliance & Services - 5
Claims - 18
DentaCare Services - 5
All Other - 8
The year 2000 computer issue was of concern to companies because many older computer programs were written using two (2) digits rather than four (4) to identify the applicable year. Because of this there was concern that many systems would identify January 1, 2000 as January 1, 1900. In 1996 the Company decided to replace its existing software, which had been developed in 1985, because of the age of the system and the need to implement system enhancements to deal with a growing and changing business which still handled many functions manually. This decision had the collateral benefit of addressing Year 2000 problems. An outside consultant was hired who, beginning in January 1996, developed new software for all material automated functions, though some important functions are still handled manually. New hardware was purchased to support the new software. The new systems are designed to accommodate a four-digit year. Component testing began January 1998 and system testing began June 1998. The new system was implemented on January 4, 1999 and is currently in use by the Company. The Company’s system did not experience any significant problems with the transition from 1999 to 2000.
The cost incurred in replacing the Company's system will be capitalized and amortized over the useful life of the system. Costs incurred in 1999 were not material to the Company's financial statements.
The Company outsources one significant function, payroll processing, to a third party which certified its Year 2000 readiness to the Company. Certifications of Year 2000 readiness were received from all significant business partners identified by the Company, including its actuary, the manger of its investment portfolio and its primary bank. The Company did not experience any problems with the payroll processing or any other functions provided by third parties with the transition from 1999 to 2000.
American Public Life owns its principal executive offices located at 2305 Lakeland Drive, Jackson, Mississippi. The building consists of approximately thirty thousand (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 is being leased. The building consists of approximately fifteen thousand (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 3. LEGAL PROCEEDINGSAmerican 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERSThere were no matters submitted to the Company's shareholders during the fourth quarter of 1999.
Because there is very little trading of the Company's stock, bid prices for the Company's common stock are only sporadically available. The high and low sales price for each quarter is as set forth on the following chart,
which is based on information provided by the National Quotation Bureau from the OTC Bulletin Board.1998 Low High First Quarter 14.75 14.75 Second Quarter 14.25 15.75 Third Quarter 12.00 14.75 Fourth Quarter 10.25 12.00 1999 Low High First Quarter 10.75 10.75 Second Quarter 10.75 13.50 Third Quarter 11.00 13.50 Fourth Quarter 11.00 12.25
As of March 20, 2000, there were 1,581 holders of common stock of the Company.
In 1997, the Company paid an annual cash dividend of $.22 (restated for March, 1998 twenty-for-one Company stock dividend). The Company did not pay any dividends in 1998 or 1999.
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, which, as of December 31, 1999, was $3,496,832 (as reported to the State). 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 no funds available for the payment of dividends to the Company in 2000. As a result, the Company does not intend to pay a cash dividend in 2000. The payment of future cash dividends will depend on a variety of factors, including the net income of the Company and the Company's capital needs.
ITEM 6. SELECTED FINANCIAL DATA
-------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
-------------------------------------------------------------------------------------------------------------
Revenues:
Premiums $29,386,100 $30,020,333 $27,355,511 $26,069,848 $25,385,971
Net investment income 2,427,689 2,523,875 2,536,674 2,387,010 2,300,624
Realized investment gains (losses) (45,804) 65,807 (24,118) (80,291) (82,117)
Other income 18,180 29,331 34,711 26,067 28,129
Benefits and expenses:
Benefits, claims, losses and
Settlement expenses 24,064,454 21,073,775 20,117,037 17,650,892 18,025,211
Expenses 10,454,476 10,515,572 10,674,763 10,577,530 10,532,065
Income (loss) before income
Tax provision (benefit) (2,732,765) 1,049,999 (889,022) 174,212 (924,669)
Income tax provision (benefit) 64,941 128,227 (146,371) 17,328 (337,013)
Net income (loss) (2,797,706) 921,772 (742,651) 156,884 (587,656)
Net income (loss) per share* (2.55) .84 (.67) .14 (.51)
Other selected financial data:
Stockholders' equity 11,689,441 16,551,231 15,623,802 16,136,588 16,597,309
Book value per share* 10.63 15.05 14.07 14.29 14.34
Dividends per share* .00 .00 .22 .22 .22
Total assets 48,494,413 52,697,924 52,346,775 52,184,610 51,724,155
*based upon the number of shares after giving retroactive effect for a 20 for 1 stock
dividend in March, 1998. Actual dividends paid in 1996 and 1995 were $4.70, and
$4.70 respectively.The Company experienced a net loss in 1999, a net gain in 1998, and a net loss in 1997. The fluctuation in operations is attributable to increased costs on unlimited benefit cancer products, specifically chemotherapy and radiation treatment cancer policies. Additionally, the Company has had negative profit margins in several supplemental group insurance product lines, specifically group disability and group dental policies. In an effort to control the losses the Company continues to implement rate increases on its unlimited chemotherapy cancer policies. Supplemental group insurance premium rates are increased on the plan anniversary dates.
The Company's net loss in 1997 was due to increased claims on unlimited benefit cancer insurance policies. The Company has discontinued sales of unlimited benefit policies. Also contributing to the loss was a decrease in in force policies due to rate increases on cancer products and the Company's efforts to diversify its product mix in order to dilute the amount of cancer insurance that is in force. Although the Company's decision to discontinue the sale of unlimited benefit cancer policies had a negative effect on the Company's sales force, it has been able to attract new agents with new products. As a result, the Company experienced increased sales of new business in 1997 to a record level of approximately $7,000,000 on annualized premium.
Net income for 1998 showed dramatic improvement over the net loss for 1997. The gain was the result of increased revenues, significant lapses of in-force cancer policies, and growth in new issues of final expense life insurance. The Company's 1998 sales of new business increased slightly over 1997, from $7,000,000 to $7,300,000 in annualized premium. Cash provided by operations decreased $441,000. This decrease in cash flow was the result of higher loss ratio requirements for supplemental group insurance products. However, the reduction in cash flow was offset by a large decrease in liability for future policy benefits, which was the result of increases in lapses of cancer policies with unlimited chemotherapy and radiation benefits. Additionally, the amount of policy acquisition costs deferred in 1998 over 1997 increased approximately $1,000,000.
The large net loss for 1999 was the result of several factors. Policy claims increased dramatically in 1999 over prior years. The volume of reported cancer claims was the highest in the history of the Company. The Company's poor cancer claim experience was also affected by a significant number of claims which were received more than fifteen months after the date of service. The Company also experienced increased claims on a large block of group disability insurance which was ultimately terminated in mid 1999 and dental insurance policies. In addition to an increase in claims, policy sales in 1999 decreased significantly compared to 1998. The Company believes that this decrease can be attributed to an increase in competition and agents' concern following the June 10, 1999 announcement that the Company was involved in negotiations for the sale of the Company. It was announced on September 30, 1999 that these negotiations had ended without an agreement. The Company's total inforce policy count declined in 1999 as the result of lower volumes of new sales and cancellations as a result of rate increases.
The Company's marketing strategy is to continue to shift from primarily a single product offering, specifically cancer insurance, to a more diversified product mix, which includes various group insurance products and dental insurance. As part of this change in marketing strategy, unlimited chemotherapy cancer products were removed from the product mix.
The Company believes that sales of the Company's alternative cancer products will improve because fewer unlimited chemotherapy cancer products are available from the Company's competitors. The Company is attempting to manage its existing block of cancer policies with rate increase assessments and by continuing to offer a conversion option.
In an effort to attract additional marketing groups, the Company is revising and/or enhancing the benefit packages of several existing products to make them more attractive in the market place. Also, the Company is filing all of its products in licensed states in which it has had minimal sales growth.
The following table sets forth the Company's condensed statement of operations for the years ended December 31, 1995 through 1999, expressed as a percentage of total revenues.
Years ended December 31
-----------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Revenues:
Premium 92.4% 92.0% 91.5% 91.8% 91.9%
Net investment income 7.6% 7.7% 8.5% 8.4% 8.3%
Other .0% .3% .0% (.2)% (.2)%
----------------------------------------------------
Total revenues 100.0% 100.0% 100.0% 100.0% 100.0%
----------------------------------------------------
Benefits and expenses:
Benefits, claims, losses and
settlement expenses 75.7% 64.6% 67.3% 62.1% 65.2%
Commission expense 7.6% 6.8% 7.54% 8.3% 8.3%
Salaries and benefits 8.4% 7.8% 8.1% 9.1% 8.2%
Amortization of deferred policy
Acquisition costs 7.8% 11.9% 13.0% 11.0% 13.1%
Other operating expenses 9.1% 5.7% 7.1% 8.9% 8.5%
-----------------------------------------------------
Total benefits and
expenses 108.6% 96.8% 103.0% 99.4% 103.3%
------------------------------------------------------
Income (loss) before income taxes (8.6)% 3.2% (3.0)% .6% (3.3)%
Provision for federal income taxes .2 % .4% (.5)% .1% (1.2)%
-----------------------------------------------------
Net Income (loss) (8.8%) 2.8% (2.5)% .5% (2.1)%
=====================================================
Premium income has shown an increase in each year illustrated, except 1999. Prior to 1994, cancer insurance was the only significant product sold in volume by agents of the Company. In the fourth quarter of 1993, the Company acquired an existing block of dental business, and this acquisition has contributed to premium growth in each subsequent year. Rate increases on cancer insurance and supplemental group insurance products (less lapses) have also contributed to the increase in premium income. The decrease in 1999 was the result of increased lapses as a result of continued rate increases and lower sales of new business.
The components of annualized premiums in force are summarized below:
Annualized Premium In Force
Years ended December 31, Percentage change
-------------------------------------------------------------------------------------
1999 1998 1997 1999 vs. 1998 1998 vs. 1997
-------------------------------------------------------------------------------------
Cancer $15,573 $17,142 $17,826 (9.15)% (3.84)%
Dental Care 7,036 7,654 6,310 (8.07) 21.30
Accident 1,016 1,054 1,072 (3.61) (1.68)
Life insurance 829 277 375 199.28 (26.13)
Other 669 629 419 6.36 50.12
Group 3,819 4,792 3,468 (20.30) 38.18
------------------------------- --------------------------------------
Total annualized
premium in force $28,942 $31,548 $29,470 (8.26)% 7.05%
=============================== ======================================
As the above table illustrates, annualized cancer premium is decreasing due to lapses attributable to rate increases assessed on policyholders. In 1995 the Company discontinued sales of unlimited chemotherapy cancer products due to higher claims 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. The Company experienced a decrease in group insurance, as a result of rate increases and cancellations initiated by the Company because of bad claims experience. In 1999, 1998 and 1997 the Company experienced limited success with sales of individual health products such as hospital indemnity, heart attack stroke and disability income.
Total new business premiums are summarized by line of business below:
New Business Summary
(In thousands)
Years ended December 31, Percentage change
---------------------------------------------------------------------------------------------------------
1999 1998 1997 1999 vs. 1998 1998 vs. 1997
---------------------------------------------------------------------------------------------------------
Cancer $749 $950 $730 (21.12)% 30.14%
Dental Care 1,963 2,353 2,249 (16.58) 4.62
Accident 271 280 385 ( 3.21) (27.27)
Life insurance 194 388 95 (50.00) 308.42
Other 147 457 435 (67.85) 5.06
Group 2,463 2,854 3,086 (13.71) (7.52)
----- ----- ----- ------ -----
Total annualized
premium solicited $5,787 $7,282 $6,980 (20.53)% 4.33%
====== ====== ====== ====== ====
Net investment income has increased each year, with the exceptions of 1999 and 1998. The prior year increases in investment income are attributable to an increase in the volume of investments made from cash flow from operations. The current year decrease in investment income is due to the drop in invested assets during 1999 because the Company's operations expenses caused a drain in cash flow. The 1998 decrease in investment income is the result of a significant number of higher yield bond calls during the first part of the year and a reduction in mortgage loans yielding ten percent that were paid in full during that year.
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. Additional dispositions of these securities were done in the first quarter of 1998. 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 1999 and 1997, and a realized investment gain in 1998. The 1999 and 1997 realized investment losses are the result of partial liquidations of non-performing real estate holdings. The 1998 realized investment gain was the result of gains from the sale of mortgage-backed securities and the liquidation of several bonds that were called during the year. The Company continues to liquidate the non-performing assets as opportunities present themselves.
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. The components of benefits, claims, losses and settlement expenses are as follows:
Benefits To Policyholders
(In thousands)
Years ended December 31, Percentage change
----------------------------------------------------------------------------------------------------------
1999 1998 1997 1999 vs. 1998 1998 vs. 1997
----------------------------------------------------------------------------------------------------------
Paid Claims $23,743 $21,822 $19,669 8.8% 10.9%
Reserve increase 321 (748) 448 142.9% (266.9)%
--- ---- --- ----- ------
Total benefits $24,064 $21,074 $20,117 14.2% 4.8%
======= ======= ======= ==== ===
Benefits To Policyholders
As a % of Total Premium
------------------------------------------------------------------------------
1999 1998 1997 1996
------------------------------------------------------------------------------
Paid Claims 80.80% 72.69% 71.90% 63.95%
Reserve increase 1.09% (2.49)% 1.64% 3.76%
------------------------------------------------------------------
Total benefits 81.89% 70.20% 73.54% 67.71%
==================================================================
Claims in 1999 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 claims utilization costs.
Commission expense has increased in proportion to the increase in premium income. However, the percentage of commission expense to premium has decreased because the Company does not pay commissions on cancer premium rate increases and the Company has shifted its focus to product lines which pay lower commissions.
Salaries and benefits increased each year due to salary adjustments and changes and additions in administrative personnel The Company continues to reduce staffing each year through attrition. The Company's salary costs are somewhat high relative to the volume of policies in force.
The net change in deferred acquisition costs (DAC) is comprised of two components, as shown in the following table:
1999 1998 1997 1996
---- ---- ---- ----
Amortization of DAC 2,489,566 3,884,512 3,899,794 3,129,605
Current year deferred costs 2,152,129 3,372,217 2,380,598 2,049,305
Net change in DAC 337,437 512,295 1,519,196 1,080,300
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 each year except 1999 has increased as the result of increases in sales. Current year deferred costs for 1999 are lower than the prior two years due to a significant decrease in new sales in 1999. The increase in 1998 is the result of sales of several individual accident and health products with higher commission rates, specifically hospital indemnity, disability income, and heart attack stroke products. The company also experienced significant growth in sales of its final expense life insurance products, which typically have high deferrable expenses.
The amortization of DAC has been relatively steady from 1995 through 1998 due to the steady decline in our in force cancer policies, due to discontinued sales and lapses which are attributable to annual rate increase assessments. As the number of lapsed policies remains constant, the amount of amortization of DAC also remains
about the same. Lower volumes of sales of group insurance in 1999 have had an impact on the amortization of DAC because deferred expenses on these products are also amortized in the same year.
Other operating expenses increased by $751,546 in 1999 as compared to a decrease of $107,710 in 1998, and compared to a decrease of $540,431 in 1997. In 1997 the Company implemented cost saving measures, including staff reductions through attrition, to reduce administrative expenses. These measures continued to be effective in 1998. The increase in 1999 is the result of fewer expenses being deferred due to lower volume of sales.
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 operations. Should an occasion arise where additional resources are needed, the Company's investments provide an additional source of liquidity. At December 31, 1999 and 1998, 100% of the Company's investments were in available for sale fixed maturity securities, mortgage loans, investment real estate, and policy loans. Total investments, combined with cash and cash equivalents,
decreased to $35,601,584 at December 31, 1999 compared to $39,324,250 at December 31, 1998 and $38,442,333 at December 31, 1997. The increases in prior years were due to increases in operational cash flow. The Company was required to liquidate various investments in 1999 to meet negative cash flow needs.
Prior to the establishment of the Company as a holding company for American Public Life, 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 (or $.22 per share, post stock dividend in March 1998) 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. Additional repurchases of shares of common stock were made in 1998 at a cost of $191,620. The Company also issued shares of common stock in 1997, 1996 and 1995 for an aggregate consideration of $812,375.
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 year, less dividends paid in the past two years. Under this test, American Public Life has no funds available for the payment of dividends to the Company in 2000. As a result, the Company does not intend to pay a cash dividend in 2000. The payment of future cash dividends will depend on a variety of factors, including the net income of the Company and the Company's capital needs.
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 Commissions ("NAIC") measures the adequacy of a company's capital by its risk-based capital ratio (the ratio of its 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 for items with greater underlying risk.
The NAIC has provided levels of progressively increasingly regulatory action for remedies when an insurance company's risk-based capital ratio falls below a ratio of 1:1. As of December 31, 1999, American Public Life was in compliance with these minimum capital requirements as follows:
Total adjusted capital as reported to the State $6,377,954
Authorized control level risk-based capital as reported to the State $1,822,520
Ratio of adjusted capital to risk-based capital 3.50:1
The Company has no outstanding material commitments for capital expenditures as of the end of the latest fiscal period.
We have audited the consolidated balance sheets of American Public Holdings, Inc. and subsidiary as of December 31, 1999 and 1998, and the related consolidated statements of operations and comprehensive income (loss), of changes in stockholders’ equity and of cash flows for each of the three years in the period ended December 31, 1999. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. 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, 1999 and 1998, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States of America.
DELOITTE & TOUCHE LLP Jackson, Mississippi March 10, 2000
ASSETS 1999 1998
Investments:
Available for sale securities, at fair value; amortized cost of
approximately $33,494,000 (1999) and $34,638,000 (1998) $ 32,347,108 $ 35,780,591
Mortgage loans 621,201 683,649
Investment real estate - net 620,017 673,858
Policy loans 1,370,692 1,419,072
--------- ---------
Total investments 34,959,018 38,557,170
Cash and cash equivalents 642,565 767,080
Accrued investment income 581,664 545,855
Accounts and notes receivable, net of allowance for
uncollectible accounts of $29,000 (1999 and 1998) 563,842 464,461
Deferred policy acquisition costs 8,948,562 9,285,999
Property and equipment - net 2,038,947 2,322,711
Real estate acquired in satisfaction of debt 276,935 427,185
Deferred income tax asset 419,566 255,624
Other 63,314 71,839
------ ------
TOTAL ASSETS $ 48,494,413 $ 52,697,924
================= ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Future policy benefits $ 33,129,469 $ 32,743,852
Unpaid claims 1,333,416 1,145,909
Unearned premiums 676,723 735,161
Policyholders' dividend accumulations 420,587 415,214
Accounts payable and other liabilities 1,244,777 1,106,557
--------- ---------
Total liabilities 36,804,972 36,146,693
COMMITMENTS AND CONTINGENCIES (Notes 5 and 11)
STOCKHOLDERS' EQUITY:
Preferred stock, $1 par value, authorized 25,000,000 shares - -
Common stock, no stated value, authorized 50,000,000
shares, issued and outstanding 1,099,287 shares 52,347 52,347
Additional paid-in capital 2,257,800 2,257,800
Accumulated other comprehensive income (loss) -
Unrealized gain (loss) on available for sale securities, net of
deferred tax liability of $228,000 in 1998, none in 1999 (1,146,506) 913,943
Retained earnings 10,525,800 13,327,141
---------- ----------
Total stockholders' equity 11,689,441 16,551,231
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 48,494,413 $ 52,697,924
================= ====================
See notes to consolidated financial statements.
1999 1998 1997
REVENUE:
Premiums $ 29,386,100 $ 30,020,333 $ 27,355,511
Net investment income 2,427,689 2,523,875 2,536,674
Realized investment gains (losses) (45,804) 65,807 (24,118)
Other income 18,180 29,331 34,711
------ ------ ------
31,786,165 32,639,346 29,902,778
BENEFITS AND EXPENSES:
Benefits, claims, losses and settlement expenses 24,064,454 21,073,775 20,117,037
Commission expense 2,430,398 2,220,908 2,242,620
Salaries and benefits 2,680,487 2,548,957 2,409,323
Amortization of deferred policy acquisition costs 2,489,566 3,884,512 3,899,794
Insurance taxes, licenses and fees 1,253,343 1,012,059 1,166,180
Other operating expenses 1,600,682 849,136 956,846
--------- ------- -------
34,518,930 31,589,347 30,791,800
---------- ---------- ----------
INCOME (LOSS) BEFORE INCOME TAX
PROVISION (BENEFIT) (2,732,765) 1,049,999 (889,022)
INCOME TAX PROVISION (BENEFIT) 64,941 128,227 (146,371)
------ ------- --------
NET INCOME (LOSS) (2,797,706) 921,772 (742,651)
OTHER COMPREHENSIVE INCOME (LOSS),
NET OF TAX:
Increase (decrease) in unrealized gain (loss)
on investment securities (2,097,092) 260,270 435,617
Reclassification of losses (gains) included in
net income (loss) 36,643 (52,646) 19,294
------ ------- ------
COMPREHENSIVE INCOME (LOSS) $ (4,858,155) $ 1,129,396 $ (287,740)
================= ============== ===============
NET INCOME (LOSS) PER SHARE $ (2.55) $ 0.84 $ (0.67)
================= ============== ===============
See notes to consolidated financial statements.
Accumulated
Common Stock Additional Other Comp- Total
--------------------- Paid-in rehensive Retained Treasury Stockholders'
Shares Amount Capital Income Earnings Stock Equity
BALANCE, JANUARY 1, 1997 1,202,250 $ 57,250 $ 2,232,750 $ 251,408 $ 14,609,589 $ (1,014,409) $ 16,136,588
Change in net unrealized gain 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
Dividends paid to stockholders
($.22 per share) (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 207,624 207,624
Treasury stock retired (12,012) (572) (191,048) (191,620)
Fractional share dividends paid (10,347) (10,347)
Net income 921,772 921,772
---------- ------- --------- -------- ----------- --------- -----------
BALANCE, DECEMBER 31, 1998 1,099,287 52,347 2,257,800 913,943 13,327,141 0 16,551,231
Change in net unrealized gain (2,060,449) (2,060,449)
Fractional share dividends paid (3,635) (3,635)
Net loss (2,797,706) (2,797,706)
---------- -------- ----------- ----------- -------------- -------- --------------
BALANCE, DECEMBER 31, 1999 1,099,287 $ 52,347 $ 2,257,800 $ 1,146,506 $ 10,525,800 $ 0 $ 11,689,441
========= ======== =========== =========== ============= ======== =============
See notes to consolidated financial statements.
1999 1998 1997
OPERATING ACTIVITIES:
Net income (loss) $ (2,797,706) $ 921,772 $ (742,651)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Realized investment losses (gains) 45,804 (65,807) 24,118
Amortization of deferred policy acquisition costs 2,489,566 3,884,512 3,899,794
Depreciation and other amortization 427,220 423,449 422,617
Deferred income tax provision (benefit) 64,941 91,630 (155,616)
Decrease (increase) in receivables (135,190) (113,854) 41,249
Decrease (increase) in other assets 8,525 40,864 (109,044)
Policy acquisition costs deferred (2,152,129) (3,372,217) (2,380,598)
Increase (decrease) in liability for future
policy benefits 385,617 (649,257) 474,937
Increase in other liabilities 272,265 72,977 200,014
------- ------ -------
Net cash provided by (used in)
operating activities (1,391,087) 1,234,069 1,674,820
INVESTING ACTIVITIES:
Proceeds from sale of real estate 68,009 51,885 47,222
Purchase of securities and short-term investments (47,974,702) (55,747,848) (36,675,342)
Mortgage and policy loan repayments 110,828 377,292 195,653
Proceeds from maturities, redemptions, and calls of
securities and short-term investments 49,135,139 54,956,152 35,353,646
Property and equipment purchased (69,067) (510,937) (364,989)
------- -------- --------
Net cash provided by (used in)
investing activities 1,270,207 (873,456) (1,443,810)
FINANCING ACTIVITIES:
Dividends paid to shareholders (3,635) (10,347) (250,171)
Proceeds from stock issued 25,125
Payments to acquire treasury stock (191,620)
-------- --------- ---------
Net cash used in financing activities (3,635) (201,967) (225,046)
------ -------- --------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (124,515) 158,646 5,964
CASH AND CASH EQUIVALENTS:
AT BEGINNING OF YEAR 767,080 608,434 602,470
------- ------- -------
AT END OF YEAR $ 642,565 $ 767,080 $ 608,434
============== =============== ==============
SUPPLEMENTAL CASH FLOW INFORMATION-
Income taxes paid $ - $ - $ 137,000
============== ============== ==============
See notes to consolidated financial statements.
1. ACCOUNTING POLICIES
a. Nature of Operations and Basis of Presentation - American Public Holdings, Inc. (the
Company) is a Mississippi corporation organized in December 1995 by American Public Life
Insurance Company (APL). APL is a stock life insurance company that insures against risk of
loss under various types of coverages, with the majority of revenue derived from cancer and
other health policy premiums. APL is licensed to operate in twenty-five states but operates
primarily in Mississippi (where it is domiciled), Louisiana and Texas.
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 Company operates as a life and health insurance company, with substantially all of its
premium revenue derived from accident and health insurance. Therefore, the Company
reports one operating segment.
The accompanying consolidated 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. Actual results could differ from those estimates.
c. Available for Sale 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 value with net unrealized gains (losses) carried as a separate component of
stockholders' equity. 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 operations. 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, which may include anticipated improvements in market conditions for real
estate, which may or may not occur. The more significant assumptions management considers
involve 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 the 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.
Short-term investments are included in the investments category in order to conform to
insurance company 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. At each balance sheet date the Company evaluates the recoverability of
long-lived assets based upon expectations of nondiscounted cash flows and operating income.
g. Deferred Policy Acquisition Costs - Commissions and other costs that both 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 table Ultimate male mortality table
Mortality for policies issued 100% of 1975-80 100% of 1975-80
after 1982 S & U male mortality table Ultimate male mortality table
Interest rates 5-7% 5-7%
Withdrawals (lapse rates) 30% first year graded to 5% 30% first year graded to 5%
in year 21 and later in year 21 and 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 or loss.
k. Revenue Recognition - Premiums are recognized as revenue when due from policyholders.
Policy benefits and expenses are deferred or accrued to result in a matching of costs with the
earned premiums over the life of the insurance contracts. This matching is accomplished by
accrual of the liability for future policy benefits on insurance in force and the amortization of
deferred policy acquisition costs.
l. Profit Sharing Plan - Employees are eligible to participate in a 401(k) savings plan covering
substantially all employees with more than one year of service. Contributions made to the
plan were approximately $33,000 in 1999, $30,000 in 1998 and $29,000 in 1997.
m. Accounting Standard to be Adopted in the Future - In June 1998, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 133,
"Accounting for Derivative Instruments and Hedging Activities" which is effective, after
amendment, for fiscal years beginning after June 15, 2000. SFAS 133 requires, among other
things, that derivatives be recorded on the balance sheet at fair value. Changes in the fair
value of derivatives may, depending on circumstances, be recognized in earnings or deferred
as a component of shareholders' equity until a hedged transaction occurs. The Company has
not determined what impact, if any, the adoption of SFAS 133 will have on its financial
position or results of operations.
n. Net Income (Loss) Per Share - Net income (loss) per share is based on the weighted average
number of common shares outstanding during each year after restating prior years as though
the 20 for 1 stock split-up in 1998 (Note 8) had occurred at the beginning of the earliest year
presented. The weighted average number of shares outstanding was 1,099,487 in 1999 and
1998, and 1,110,459 in 1997.
o. Reclassifications - Certain reclassifications have been made in the 1998 financial statements
to conform to the 1999 method of presentation.
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
1999
U. S. Treasury and government
corporations and agencies $ 6,435,636 $ 21,255 $ 380,327 $ 6,076,564
States and political subdivisions 3,314,518 57,117 41,249 3,330,386
Public utility bonds 1,012,618 86,108 926,510
Industrial and miscellaneous 9,041,417 36,871 455,845 8,622,443
Mortgage-backed securities 13,689,425 78,960 377,180 13,391,205
---------- ------ ------- ----------
$ 33,493,614 $ 194,203 $ 1,340,709 $ 32,347,108
================= =========== ============ =============
1998
U. S. Treasury and government
corporations and agencies $ 5,595,670 $ 287,911 $ 5,883,581
States and political subdivisions 3,317,554 258,902 3,576,456
Public utility bonds 703,954 9,262 $ 1,295 711,921
Industrial and miscellaneous 8,225,027 219,876 20,106 8,424,797
Mortgage-backed securities 16,795,957 408,620 20,741 17,183,836
---------- ------- ------ ----------
$ 34,638,162 $ 1,184,571 $ 42,142 $ 35,780,591
============= =========== ============ =============
Net realized gains (losses) are summarized as follows:
1999 1998 1997
Investment security sales $ 36,437 $ 91,039 $ 7,393
Real estate acquired in satisfaction of debt (82,241) (25,232) (31,511)
------- ------- -------
Net realized gain (loss) $ (45,804) $ 65,807 $ (24,118)
============= ============= ============
The following is an analysis of the amortized cost and fair value of available for sale securities at
December 31, 1999 by contractual maturity:
Amortized Fair
Cost Value
Due in one to five years $ 2,950,266 $ 2,893,137
Due in five to ten years 3,028,552 2,965,312
Due after ten years 13,825,371 13,097,454
---------- ----------
19,804,189 18,955,903
Mortgage-backed securities 13,689,425 13,391,205
---------- ----------
$ 33,493,614 $ 32,347,108
============== ==============
Actual maturities may differ from contractual maturities because of the borrower's right to call or prepay
obligations.
The components of net investment income were as follows:
1999 1998 1997
Fixed maturities $ 2,364,882 $ 2,496,808 $ 2,485,844
Mortgage loans 54,767 76,047 90,686
Investment real estate 160,380 168,740 168,108
Policy loans 73,225 72,816 78,640
Short-term investments 15,835 26,453 20,015
Real estate acquired in satisfaction of debt 18,851 19,244 17,102
------ ------ ------
Total investment income 2,687,940 2,860,108 2,860,395
Investment expenses 260,251 336,233 323,721
------- ------- -------
Net investment income $ 2,427,689 $ 2,523,875 $ 2,536,674
=========== ============ ==============
Securities with an approximate carrying value of $2,704,000 in 1999 and $2,679,000 in 1998
were pledged to the respective states in which the Company transacts business
for the security and benefit of policyholders. At December 31, 1999, assets on
deposit met minimum statutory requirements.
Investment real estate and property and equipment were as follows:
Investment Real Estate Property and Equipment
--------------------------------------------- ---------------------------------------------
1999 1998 1999 1998
Land $ 170,000 $ 170,000 $ 322,477 $ 322,477
Buildings and improvements 1,057,399 1,057,399 1,341,532 1,312,752
Furniture and equipment 2,845,764 2,820,244
--------- --------- --------- ---------
1,227,399 1,227,399 4,509,773 4,455,473
Less accumulated depreciation (607,382) (553,541) (2,470,826) (2,132,762)
-------- -------- ---------- ----------
$ 620,017 $ 673,858 $ 2,038,947 $ 2,322,711
============= ============= =============== ===============
APL had in force approximately $2,420,000 in 1999 and $2,534,000 in 1998 in face
amount of annual dividend participating policies. Dividends on such policies are
based on mortality, interest and expense experience, and are payable only upon
declaration by the Board of Directors. All amounts allocable to policyholders
have been accrued and none of APL’s retained earnings was allocable to
participating policies.
Activity in the liability for unpaid policy claims is summarized as follows:
1999 1998
Balance at January 1 $ 1,145,909 $ 1,086,795
Less reinsurance recoverable 8,436 12,703
----- ------
Net balance at January 1 1,137,473 1,074,092
- --------- ---------
Incurred related to:
Current year 18,253,928 17,794,652
Prior years 5,115,227 3,689,286
--------- ---------
Total incurred 23,369,155 21,483,938
---------- ----------
Paid related to:
Current year 17,548,359 17,122,689
Prior years 5,624,853 4,297,868
--------- ---------
Total paid 23,173,212 21,420,557
---------- ----------
Net balance at December 31 1,333,416 1,137,473
Plus reinsurance recoverable 0 8,436
---------- -----
Balance at December 31 $ 1,333,416 $ 1,145,909
=============== ===============
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 $4,499,000 in 1999 and
$4,057,000 in 1998 which represents the present value of future claims.
The components of the income tax provision (benefit) were as follows:
1999 1998 1997
Current provision $ - $ 36,597 $ 9,245
Deferred provision (benefit) 64,941 91,630 (155,616)
------ ------ --------
Income tax provision (benefit) $ 64,941 $ 128,227 $ (146,371)
============== ============== ===============
Refundable income taxes of $63,000 (1999 and 1998) are included in other assets.
The tax effects of significant items comprising the net deferred tax asset are as follows:
1999 1998
Deferred tax liabilities:
Unrealized gain on available for sale securities $ - $ (388,426)
Deferred policy acquisition costs (1,393,449) (1,512,919)
Total deferred tax liabilities (1,393,449) (1,901,345)
Deferred tax assets:
Unrealized loss on available for sale securities 389,812
Unrealized loss on real estate acquired
in satisfaction of debt 32,250 45,502
Future policy benefit liabilities 2,025,522 2,080,042
Operating loss carryforward 865,167
Capital loss carryforward 183,470 183,252
Alternative minimum tax credits 87,158 287,158
Other 48,938 55,718
Total deferred tax assets 3,832,317 2,651,672
Valuation allowance (2,019,302) (494,703)
Net deferred tax asset $ 419,566 $ 255,624
The valuation allowance increased approximately $1,525,000 in 1999 and decreased
approximately $123,000 in 1998. The deferred provision in 1999 includes approximately
$90,000 of expense relating to an increase in the beginning of year balance in the valuation
allowance held for capital losses because of the change in market value of the investment
portfolio. Management is of the opinion that the Company will remain in the alternative
minimum tax posture for the foreseeable future, and thus a valuation allowance is held for
all operating loss and alternative minimum tax credits and the benefit from other temporary
differences has been reduced, through the valuation allowance, to the 20% alternative
minimum tax rate.
At December 31, 1999, APL had accumulated untaxed policyholders' surplus of
approximately $1,923,000. APL is not required to pay tax on the balance in the surplus
account unless distributions to stockholders exceed accumulated taxed earnings.
The income tax provision (benefit) differed from the statutory federal income tax rate of
35% for the following reasons:
1999 1998 1997
Federal income tax (benefit) at statutory rates $ (936,245) $ 367,500 $ (311,158)
Small life insurance company deduction (95,496)
Utilization of operating loss carryforward (35,262)
Valuation allowance on deferred tax assets 1,003,455 (86,246) 152,885
Other (2,269) (22,269) 11,902
Income tax provision (benefit) $ 64,941 $ 128,227 $ (146,371)
At December 31, 1999, the Company has a net operating loss carryover of approximately $2,545,000 that will expire in 2019; a capital loss carryforward of approximately $540,000, of which approximately $225,000 will expire in year 2000, $127,000 in year 2001, $103, 000 in year 2002 and $85,000 will expire in year 2004; and an alternative minimum tax credit carryover, available indefinitely, of approximately $287,000.
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. At December 31, 1999, there were no dividends
available for payment without prior approval of the Commissioner of Insurance.
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.
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. The split did not change the
value of common stock or 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.
The Company repurchased 12,012 shares of its common stock in 1998 from a former
officer and director and other directors of the Company at $15.95 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 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, 1999, APL was in compliance with these minimum capital requirements as
follows:
Total adjusted capital $ 6,323,174
Authorized control level risk-based capital 1,822,520
Ratio of adjusted capital to risk-based capital 3.47:1
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 (loss) and stockholders' equity as reported under
generally accepted accounting principles (GAAP basis) and statutory net income and stockholders' equity of
APL follows:
1999 1998 1997
--------------------------------------------- ---------------------------------- ---------------
Net Stockholders' Net Stockholders' Net
Loss Equity Income Equity Loss
GAAP basis $ (2,797,706) $ 11,689,441 $ 921,772 $ 16,551,231 $ (742,651)
Adjustments to:
Policy reserves (432,343) 3,804,307 (1,081,801) 4,236,650 (1,062,502)
Non-admitted assets (932,500) (1,455,322)
Deferred acquisition costs 337,437 (8,948,562) 512,295 (9,285,999) 1,519,196
Deferred income taxes 64,941 (419,566) 91,630 (255,624) (155,616)
Unrealized gain on
invested securities 1,146,506 (1,142,429)
Other 55,940 (93,324) (45,408) 57,296 (40,551)
Statutory basis $ (2,771,731) $ 6,246,302 $ 398,488 $ 8,705,803 $ (482,124)
The estimated fair value amounts of certain financial instruments have been determined by
the Company using available market information and appropriate valuation methodologies.
However, considerable judgment is necessarily required to interpret market data to develop
the estimates of fair value.
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 aggregate fair value amounts presented are not intended to represent the
underlying aggregate fair value of the Company.
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. Fair value approximates the carrying market.
o Fair value for short-term investments, receivables, unearned premiums,
accounts payable and accrued investment income approximates the carrying
amount as the assets are readily redeemable and the liabilities are short-term in
nature. 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.
o Fair value for future policy benefits and unpaid claims approximates the
carrying amount as all insurance liabilities have been discounted to estimated
present value using generally accepted actuarial assumptions for the insurance
industry.
The estimated fair value of the Company's financial instruments for which it is practicable to
estimate that value, is as follows:
1999 1998
----------------------------------------------------- -----------------------------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
Securities $ 32,347,108 $ 32,347,108 $ 35,780,591 $ 35,780,591
Mortgage loans 621,201 621,201 683,649 660,000
APL 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.
APL leases various land, buildings and operating equipment under monthly lease
arrangements. Expenses incurred under all operating leases approximated $198,000 (1999),
$159,000 (1998) and $185,000 (1997). The Company also receives rent payments under
an operating lease relative to investment real estate held. Future minimum lease
commitments and receipts for non-cancelable operating leases are as follows:
Lessee Lessor
Commitments Receipts
2000 $ 166,000 $ 156,000
2001 54,000 52,000
2002 54,000
2003 38,000
$ 312,000 $ 208,000
The directors and executive officers of the Company, including their positions with the Company, their ages and their principal occupations for the last five (5) years are as set forth below. All director's terms will expire at the next annual meeting of the shareholders of the Company and all executive officer's terms will expire at the next annual meeting of the board of directors of the Company.
DirectorsWarren I. Hammett. Age 73. 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 Insurance Company ("American Public Life"), the Company's subsidiary, since 1979 and of the Company since November 1996.
F. Harrell Josey, D.V.M. Age 75. 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 November 1996.
Frank K. Junkin, Jr. Age 49. 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 November 1996.
David A. New, Sr. Age 72. Mr. New has been Chairman and Director of David New Operating Company, David New Oil Company and David New Drilling Company for more than five years. These companies are engaged in oil and gas drilling and exploration. David A. New, Sr. is the father of David A. New, Jr. He has served as director of American Public Life since 1979 and Chairman of the Board for more than five years and as Chairman of the Board of the Company since November 1996.
David A. New, Jr. Age 43. Mr. New has been Director and President of David New Operating Company, David New Oil Company and David New Drilling Company and Director of W.T. Drilling Company for more than five years. These companies are engaged in oil and gas drilling and exploration. David A. New, Jr. is the son of David A. New, Sr. He has served as a director of American Public Life since 1983 and of the Company since November 1996.
Jerry C. Stovall. Age 63. Mr. Stovall was elected President and Chief Executive Officer of the Company and American Public Life effective September 2, 1997. Mr. Stovall was Executive Vice President of American Public Life from October, 1996 through August, 1997. Until May, 1995, when he retired, Mr. Stovall was President of Lamar Life Insurance Company.
Paul H. Watson, Jr. Age 61. 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 November 1996. Mr. Watson serves as Vice Chairman of the Board of Directors of American Public Life.
Non-Director Executive OfficersDianne D. Aycock. Age 39. 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.
Chippy V. Barton. Age 59. Mr. Barton is Vice President-Underwriting/New Business, a position he has held since July 1998. Prior to July 1998, he was employed as a Vice President of New Business Administration with Southern Farm Bureau Life Insurance Company.
Joseph C. Hartley, Jr. Age 58. Mr. Hartley is Senior Vice President, Counsel and Secretary 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 54. Mr. James is a Vice President and Agency Director of American Public Life, a position he has held for more than five (5) years.
Richard K. Mills. Age 57. Mr. Mills is Vice President-Sales 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.
Lawrence Powers. Age 46. Mr. Powers is Executive Vice President and Chief Operating Officer of American Public Life Insurance Company. He has been employed in a senior position at American Public Life Insurance Company since September 1998. Prior to September 1998, Mr. Powers was a Division Vice President of Owens & Minor, Inc.
Sharon D. Starnes. Age 36. 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 with American Public Life and prior to that time she was a Manager-Accounting with American Public Life.
William F. Weems. Age 43. Mr. Weems is 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.
The Company had two (2) Board meeting(s) in 1999. No director attended less than seventy- five percent (75%) of the Board meetings held in 1999. The Board of Directors of the Company does not have an audit, compensation or nominating committee.
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's directors, executive officers and persons who own more than ten percent (10%) of Company Common Stock (collectively, "Reporting Persons") to file with the Securities and Exchange Commission initial reports of ownership and reports of changes in ownership of Common Stock of the Company. Reporting Persons are required by Securities and Exchange Commission Regulations to furnish the Company with copies of all Section 16(a) forms they file. To the Company's knowledge, based solely on a review of the copies of such reports furnished to the Company and written representations that no other reports were required, during the fiscal year ended December 31, 1999 all Section 16(a) filing requirements applicable to the Company's Reporting Persons were complied with.
The following table sets forth the totalcompensation paid by the Company for the last fiscal year to each person who served as CEO of the Company and the executive officers, other than Mr. Stovall, who had total compensation in excess of $100,000 in 1999.
SUMMARY COMPENSATION TABLE
Long-Term
Annual Compensation Compensation
Awards Payouts
All
Restricted Securities Other
Other Annual Stock Underlying LTIP Compen-
Name & Principal Position Year Salary ($)(1) Bonus ($) Compensation($) Award(s)($)Options(#) Payouts($) sation($)
Jerry C. Stovall ..................... 1999 $162,750(1) 75 0 0 0 0 0
President and Chief Executive 1998 147,500(1) 28,359 0 0 0 0 0
Officer of the Company and 1997 103,325(1) 0 0 0 0 0 0
American Public Life 1996 20,000(2) 0 0 0 0 0 0
Insurance Company
Frank Junkin, Jr. .................... 1999 $123,276(1) 75 0 0 0 0 0
Vice Chairman and Secretary 1998 101,461(1) 30,656 0 0 0 0 0
of American Public Life 1997 79,203(1) 0 0 0 0 0 0
Insurance Company 1996 78,788(1) 0 0 0 0 0 0
Lawrence Powers. ..................... 1999 $119,895 75 0 0 0 0 0
Executive Vice President and 1998 33,014(3) 0 0 0 0 0 0
Chief Operating Officer of
American Public life Insurance
Company
(1) Includes directors' fees.
(2) Mr. Stovall joined the Company on October 1, 1996.
(3) Mr. Powers joined the Company in September, 1998.
The Company has agreed to pay Mr. Stovall at least $135,000 a year in salary, plus an automobile allowance of $500 per month and standard benefits until March 1, 2002, if Mr. Stovall is asked to resign or is terminated.
All directors of American Public Life received $1,500.00 for each monthly meeting attended in 1999. No additional compensation is paid for attendance at the Company's Board meetings.
The following table sets forth information as of March 20, 2000, as to the number of shares of Company Common Stock beneficially owned by each of the nominees for director, including the Company's CEO, and by the Company's directors and executive officers as a group.
Amount and
Nature of Percentage of
Beneficial Outstanding
Name Ownership Common Stock
Warren I. Hammett 30,009 2.73%
F. Harrell Josey, D.V.M. 24,423 2.22%
Frank K. Junkin, Jr. 29,862 2.72%
David A. New, Sr. 619,983(1) 56.40%
David A. New, Jr. 364,833(1)(2) 33.19%
Jerry C. Stovall 0 0.00%
Paul H. Watson, Jr. 20,376 1.85%
15 Directors and Executive
Officers as a Group
760,920 69.22%
The following table sets forth information as to persons beneficially owning more than five percent (5%) of the Company's Common Stock.
Amount and
Nature of Percentage of
Beneficial Outstanding
Name Ownership Common Stock
New Family and 656,040(3)(4) 59.68%
Affiliated Interests
P. O. Box 1487
Natchez, MS 39121
Not applicable
--------
(1) Mr. New, Sr. and Mr. New, Jr. share voting and investment power with respect to 29,400 shares held by David New Operating
Company and 299,376 shares held by David New Drilling Company. Mr. New, Sr. and his spouse share voting and investment
power with respect to 291,207 shares held by New Partners, L.P.
(2) Mr. New, Jr. owns 36,057 shares directly.
(3) Mr. New, Sr. and Mr. New, Jr. share voting and investment power with respect to 29,400 shares held by David New
Operating Company and 299,376 shares held by David New Drilling Company. Mr. New, Sr. and his spouse share voting and
investment power with respect to 291,207 shares held by New Partners, L.P.
(4) Mr. New, Jr. owns 36,057 shares directly.
We have audited the consolidated financial statements of American Public Holdings, Inc. as of December 31, 1999 and 1998, and for each of the three years in the period ended December 31, 1999, and have issued our report thereon dated March 10, 2000; such report is included elsewhere in this Form 10-K. Our audits also included the financial statement schedules of American Public Holdings, Inc., listed in Item 14. These financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. 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. DELOITTE & TOUCHE LLP Jackson, Mississippi March 10, 2000
1999 1998
ASSETS:
Cash $ 13,788 $ 21,139
Investment in American Public Life Insurance Company 11,679,991 16,749,553
Total assets $ 11,693,779 $ 16,770,692
LIABILITIES AND STOCKHOLDERS' EQUITY:
Due to American Public Life Insurance Company $ 213,651
Dividends payable $ 4,338 5,810
4,338 219,461
STOCKHOLDERS' EQUITY 11,689,441 16,551,231
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 11,693,779 $ 16,770,692
CONDENSED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
----------------------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------
1999 1998 1997
EQUITY IN EARNINGS (LOSS) OF SUBSIDIARY $ (2,791,478) $ 934,510 $ (714,299)
COSTS AND EXPENSES -
Professional and administrative fees 6,228 12,738 28,352
NET INCOME (LOSS) $ (2,797,706) $ 921,772 $ (742,651)
CONDENSED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
1999 1998 1997
OPERATING ACTIVITIES:
Net income (loss) $ (2,797,706) $ 921,772 $ (742,651)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Equity in (earnings) loss of subsidiary 2,791,478 (934,510) 714,299
Dividends received from American Public Life
Insurance Company 217,635 10,347 415,000
Increase (decrease) in liabilities (215,123) 181,984 (136,417)
Net cash provided by (used in)
operating activities (3,716) 179,593 250,231
FINANCING ACTIVITIES:
Dividends paid (3,635) (3,444) (238,746)
Treasury stock acquired and retired (191,620)
Common stock issued 25,125
Net cash used in financing activities (3,635) (195,064) (252,613)
INCREASE (DECREASE) IN CASH (7,351) (15,471) 36,610
CASH, BEGINNING OF YEAR 21,139 36,610
CASH, END OF YEAR $ 13,788 $ 21,139 $ 36,610
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 End of
of Period (1) (2) Period
Charged Charged
to Costs to Other
and Accounts --
Expenses Describe
1999
Allowance for real estate
acquired in satisfaction of
debt $ 133,828 $ 38,974 $ 94,854
(sales)
Allowance for uncollectible
agent balances 28,828 $ 726 29,554
Valuation allowance for
deferred tax assets 494,703 974,847 $ 549,752 2,019,302
(unrealized gain)
$ 657,359 $ 975,573 $ 549,752 $ 38,974 $2,143,710
1998
Allowance for real estate
acquired in satisfaction of
debt $ 159,349 $ 25,521 $ 133,828
(sales)
Allowance for uncollectible
agent balances 41,269 12,441 28,828
(collections)
Valuation allowance for
deferred tax assets 617,281 122,578 494,703
(recovery)
$ 817,899 $ 160,540 $4,944,779
A-1. 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.
**10.1 Form of Bonus Arrangement
*21 Subsidiaries of Registrant
27 Financial Data Schedule
* These Exhibits were originally filed as exhibits to the Registrant's Form 10 filed April
30, 1999, (File No. 000-22479) and are incorporated herein by reference.
** Filed as an exhibit to the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1998 and incorporated by reference herein.
B. Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
BY:/s/___________________________________________
JERRY C. STOVALL
PRESIDENT AND
CHIEF EXECUTIVE OFFICER
(PRINCIPAL EXECUTIVE OFFICER)
By: /s/__________________________________________
WILLIAM F. WEEMS
VICE PRESIDENT FINANCIAL
(PRINCIPAL FINANCIAL OFFICER AND
PRINCIPAL ACCOUNTING OFFICER)
DATE: March 29, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated:
DATE: March 29, 2000 BY
/S/_____________________________
F. Harrell Josey, D.V.M., Director
DATE: March 29, 2000 BY:
/S/_____________________________
David A. New, Sr., Director
DATE: March 29, 2000 BY:
/S/_____________________________
David A. New, Jr., Director
DATE: March 29, 2000 BY:
/S/_____________________________
Paul H. Watson, Jr., Director
DATE: March 29, 2000 By: /S/_____________________________
Jerry C. Stovall, Director
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