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For the quarter ended March 31, 2000 Commission File Number 0-22479 AMERICAN PUBLIC HOLDINGS, INC. (Exact name of registrant as specified in its charter) Mississippi 64-0874171 (State or other jurisdiction of (I.R.S. Employer incorporation of organization) Identification No.) Registrant's telephone number: (601) 936-6600 ext. 201 No Change Former name, former address and former fiscal year, if changed since last report Indicate by check mark whether the registrant (1) has filed all reports required by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for shorter period that the registrant was required to file such report), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date. Class Outstanding at March 31, 2000 Common stock (no par value) 1,099,287 shares
AMERICAN PUBLIC HOLDINGS, INC. Unaudited Quarterly Financial Statements Page Consolidated Balance Sheets 1 March 31, 2000 and December 31, 1999 Consolidated Statements of Operations 2 Three Months Ended March 31, 2000 and 1999 Changes in Stockholders' Equity 3 Twelve Months Ended December 31, 1999 Three Months Ended March 31, 2000 Consolidated Statements of Cash Flows 4 Three Months Ended March 31, 2000 and 1999 Notes To Consolidated Financial Statements 5
American Public Holdings, Inc. Consolidated Balance Sheets As of March 31, 2000 (Unaudited) and December 31, 1999 2000 1999 ASSETS Investments: Available for sale securities, at fair value: amortized cost of approximately $34,005,000 (2000) and $33,494,000 (1999) $ 32,993,885 $ 32,347,108 Mortgage loans 608,258 621,201 Investment real estate - net 606,556 620,017 Policy loans 1,285,846 1,370,692 ------------------ -------------------- Total investments 35,494,545 34,959,018 OTHER ASSETS: Cash and cash equivalents 479,069 642,565 Accrued investment income 440,910 581,664 Accounts and notes receivable net of allowance for uncollectible accounts of $21,000 (2000) and $29,000 (1999) 801,833 563,842 Deferred policy acquisition costs 8,594,476 8,948,562 Property and equipment - net 2,003,426 2,038,947 Real estate acquired in satisfaction of debt 240,223 276,935 Deferred income tax asset 453,077 419,566 Other - 63,314 ------------------ -------------------- TOTAL ASSETS $ 48,507,559 $ 48,494,413 ================== ==================== LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES: Future policy benefits $ 32,496,766 $ 33,129,469 Unpaid claims 1,559,059 1,333,416 Unearned premiums 802,170 676,723 Policyholders' dividend accumulations 413,915 420,587 Accounts payable and other liabilities 1,054,281 1,244,777 ------------------ -------------------- Total liabilities 36,326,191 36,804,972 COMMITMENTS AND CONTINGENCIES 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 52,347 52,347 Additional paid-in capital 2,257,800 2,257,800 Accumultated other comprehensive income (loss) - Unrealized gain (loss) on available for sale securities, net of (1,011,086) (1,146,506) Retained earnings 10,882,307 10,525,800 ------------------ -------------------- Total stockholders' equity 12,181,368 11,689,441 ------------------ -------------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 48,507,559 $ 48,494,413 ================== ==================== See notes to consolidated financial statements.
American Public Holdings, Inc. Consolidated Statements of Operations - GAAP Basis - Unaudited For Three Months Ended March 31, 2000 and 1999 Three Months Ended March 31 2000 1999 REVENUE: Premiums $ 7,613,746 $ 7,331,720 Net investment income 608,042 651,812 Realized investment gains (losses) (13,878) (13,923) Other Income 1,972 4,216 ----------------------- ------------------------ 8,209,882 7,973,825 BENEFITS AND EXPENSES: Benefits, claims, losses and settlement expenses 4,855,032 5,473,681 Commissions expense 621,743 592,505 Salaries and benefits 677,025 665,428 Amortization of deferred policy acquisition costs 830,238 833,553 Insurance taxes, licenses and fees 350,339 263,507 Other operating expenses 448,765 331,394 ----------------------- ------------------------ 7,783,142 8,160,068 ----------------------- ------------------------ INCOME (LOSS) BEFORE INCOME TAX PROVISION (BENEFIT) 426,740 (186,243) INCOME TAX PROVISION (BENEFIT) 70,233 (29,513) ----------------------- ------------------------ NET INCOME (LOSS) 356,507 (156,730) OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX: Increase (decrease) in unrealized gain on investment securities 124,318 (490,216) Reclassification of losses included in net income 11,102 11,138 ----------------------- ------------------------ COMPREHENSIVE INCOME (LOSS) $ 491,927 $ (635,808) ======================= ======================== NET INCOME (LOSS) PER SHARE $ 0.32 $ (0.14) ======================= ======================== See notes to consolidated financial statements.
American Public Holdings, Inc. Consolidated Statements of Changes in Stockholders' Equity - GAAP Basis - Unaudited For Periods Indicated Accumulated Common Stock Additional Other Comp- Total --------------------------- Paid-in rehensive Retained Stockholders' Shares Amount Capital Income (Loss) Earnings Equity ------ ------ ------- ------------- -------- ------ BALANCE, January 1, 1999 1,099,287 $ 52,347 $ 2,257,800 $ 913,943 $ 13,327,141 $ 16,551,231 Change in net unrealized gain(loss) (2,060,449) (2,060,449) Fractional share dividends paid (3,635) (3,635) Net income (2,797,706) (2,797,706) 0 --------------------------- ------------------------------- ----------------- ------------- BALANCE, DECEMBER 31, 1999 1,099,287 52,347 2,257,800 (1,146,506) 10,525,800 11,689,441 Change in net unrealized gain(loss) 135,420 135,420 Net income (loss) 356,507 356,507 0 -------------- ----------- ---------------- -------------- ------------------ ------------ BALANCE, MARCH 21, 2000 1,099,287 $ 52,347 $ 2,257,800 $(1,011,086) $ 10,882,307 $ 12,181,368 ============== =========== ================ ============== ================== ============= See notes to consolidated financial statements.
American Public Holdings, Inc. Consolidated Statements of Cash Flows For The Three Months Ended March 31, 2000 and March 31, 1999 March March 2000 1999 ---- ---- OPERATING ACTIVITIES: Net income (loss) $ 356,507 $ (156,730) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Realized loss of sale of assets 13,878 13,923 Depreciation and other amortization 95,099 99,140 Amortization of deferred policy acquisition costs 830,238 833,553 Deferred income tax expense (33,511) (50,761) Increase in receivables (97,237) (7,825) Decrease in other assets 63,314 29,287 Policy acquisition costs deferred (476,152) (584,411) Decrease in liability for future policy benefits (632,703) (286,681) Increase in other liabilities 153,922 55,433 ----------------------- ---------------------- Net cash (used) provided by operating activities 273,355 (55,072) INVESTING ACTIVITIES: Proceeds from sale of real estate 22,835 24,256 Purchase of fixed maturity and short-term investments (15,057,703) (13,212,289) Mortgage and policy loan repayments 97,789 14,899 Proceeds from maturities and calls of fixed-maturity and short-term investments 14,546,345 14,367,688 Property and equipment purchased (46,117) (44,289) ----------------------- ---------------------- Net cash (used) provided in investing activities (436,851) 1,150,265 FINANCING ACTIVITIES: Dividends paid to shareholders 0 (24) ----------------------- ---------------------- Net cash used in financing activities 0 (24) NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (163,496) 1,095,169 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 642,565 767,080 ----------------------- ---------------------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 479,069 $ 1,862,249 ======================= ====================== SUPPLEMENTAL CASH FLOW INFORMATION: Income taxes paid $ - $ - ======================= ====================== See notes to consolidated financial statements.
AMERICAN PUBLIC HOLDINGS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS QUARTER ENDED MARCH 31, 2000 AND 1999 (Unaudited) 1. BASIS OF PRESENTATION The consolidated financial statements include those of American Public Holdings, Inc., and its wholly owned subsidiary, American Public Life Insurance Company (APL), and APL's wholly owned subsidiary, DentaCare Marketing and Administration, Inc. All significant inter-company balances and transactions have been eliminated. These interim financial statements have been prepared on the basis of accounting principles used in the annual financial statements ended December 31, 1999, and must be read in conjunction with the 1999 statements. In the opinion of management, the accompanying interim unaudited consolidated financial statements contain all adjustments necessary for a fair statement of consolidated financial position and results of operations of the Company for the interim periods. 2. STOCKHOLDERS' EQUITY In January 1998 the Company acquired and retired 12,012 shares of common stock, which were purchased from a former director and past president of the Company. In February 1998 the Board of Directors approved a 20 for 1 stock split-up effected in the form of a stock dividend of the Company's common stock payable on March 31, 1998. The split did not change the value of paid-in capital and is reflected in the accompanying financial statements as though the split had occurred at the beginning of the earliest year presented. 3. EARNINGS (LOSS) PER COMMON SHARE Earnings (loss) per common share are based on net income (loss) and the weighted average number of shares outstanding during each interim period. The number of shares used in computing the earnings per share was 1,099,287 for the quarter ended March 31, 2000, and 1999. 4. COMMITMENTS AND CONTINGENCIES The Company is required to participate in certain guaranty funds and involuntary pools of insurance and is therefore exposed to undeterminable future assessments resulting from the insolvency of other insurers. The Company is involved in litigation incurred in the normal course of business. Management of the Company, based upon the advice of legal counsel, is of the opinion that the Company's ultimate liability, if any, which may result from the litigation, will not have a material adverse effect on the consolidated financial condition or results of operations of the Company.
Total stockholders equity increased by $491,927 or 4.21% from $11,689,441 at December 31, 1999, to $12,181,368 at March 31, 2000. This increase was due to a net gain of $356,507 for the first quarter and also from a $135,420 change in the unrealized loss on available for sale securities.
Total assets increased by $13,146 or .03% at March 31, 2000 compared to December 31, 1999. Securities increased by $646,777 (net of a market value adjustment of $135,420) or 2.00% as the result of reinvestments of cash flow from operations, cash on hand, and principal repayments on other investments. Deferred policy acquisition costs decreased by $354,086 or 3.96% due to fewer writings of new business and a higher volume of policy terminations.
Total liabilities decreased $478,781 at March 31, 2000 compared to December 31, 1999. Future policy benefits and unpaid claims decreased $407,060 or 1.18% because of the accelerated policy terminations due to implementations of rate increases on unlimited benefit cancer policies. Accounts payable and other liabilities decreased $71,721 as a result of payments accrued at year-end.
The Company experienced a net gain in the first quarter of 2000 of $356,507 compared to net loss of $156,730 in the first quarter of 1999, primarily due to an increase of $282,026 in premium income and a decrease of $618,649 in benefits and claims.
Revenue increased by 2.96% from $7,973,825 in the first quarter of 1999 to $8,209,882 in the first quarter of 2000. The increase was due to a 3.85% increase in premiums. The increase in premiums is the result of improved efficiency in billing and collection in the first quarter of 2000 as compared to the same quarter for 1999. The Company implemented a major system conversion in the first quarter of 1999 and collections were down due to delays in billing as a result of the conversion.
Net investment income is less than the prior year because of a smaller investment portfolio in 2000 as compared to the same period in 1999. The decline in the investment portfolio was the result of the reduced funds available for investment throughout 1999 because of high claims.
Benefits and expenses decreased by $376,926 in the first quarter of 2000 compared to the first quarter of 1999, a 4.6% decrease. This decrease was due to a $618,649 decrease in benefits and claims. Benefits and claims incurred in 2000 decreased over 1999 levels because of lower volumes of reported claims and fewer occurrences of large benefit claims.
Commissions expense increased because of the increase in collected premium income in the first quarter.
Amortization of deferred policy acquisition costs (DPAC) remained level with the prior year, as cancer policies continue to terminate due to rate increases at a rate similar to last year.
Salaries and benefits increased due to rising costs for medical coverage for employees. Other operating expenses have increased due to the printing of additional sales materials related to new products, and also expenses related to the on going negotiations for the sale of the Company.
Taxes, licenses and fees have increased over the prior year as a result of increased premium tax due to higher premium collections and also costs related to the triennial examination.
The Companys 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 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 Companys 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 Companys investments provide an additional source of liquidity. The Company was required to liquidate various investments in 1999 to meet negative cash flow needs.
The Companys ability to pay dividends is limited by the amount of dividends it receives from American Public Life. Payment of dividends by American Public Life is restricted by law to available net surplus computed on a statutory basis. In addition, without the prior approval of the Mississippi Commissioner of Insurance, the size of any dividend by American Public Life during any one year is limited to the lesser of (I) 10% of surplus: or (ii) net gain from operations for the past three years, less dividends paid in the last two years.
Pursuant to the laws and regulations of the State of Mississippi, American Public Life is required to maintain statutory capital of $400,000 and additional minimum statutory surplus of $600,000. Other states have similar restrictions for licensing, the largest being a minimum capital requirement of $2,000,000 in the State of Georgia.
The National Association of Insurance Commissioners (NAIC) measures the adequacy of a companys 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 profile which considers (I) asset risk, (ii) insurance risk, (iii) interest rate risk and (iv) business risk. American Public Lifes ratio of adjusted capital to risk-based capital is more than three times the minimum ratio of 1:1.
The Company's Board of Directors signed a definitive agreement for the sale of the Company to American Fidelity Corporation on April 25, 2000.
Item 6 - Exhibits and Reports on Form 8-K (a) Exhibits Exhibit 27: Financial data schedule (b) No reports on Form 8-K were filed during the quarter ended March 31, 2000. A report on Form 8-K was filed on April 27, 2000, disclosing that the Company had entered into an agreement to be acquired by American Fidelity Corporation.
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
AMERICAN PUBLIC HOLDINGS, INC. (Registrant) DATE: May 15, 2000 BY: /s/ Joseph C. Hartley, Jr ---------------------------------- Joseph C. Hartley, Jr., Secretary DATE: May 15, 2000 BY: /s/ William F. Weems ---------------------------------- William F. Weems Chief Accounting Officer
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