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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE PERIOD ENDED MARCH 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM
TO
-------------------- --------------------
COMMISSION FILE NUMBER 0-11453
AMERICAN PHYSICIANS SERVICE GROUP, INC.
(Exact name of registrant as specified in its charter)
TEXAS 75-1458323
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification No.)
1301 CAPITAL OF TEXAS HIGHWAY AUSTIN, TEXAS 78746 (Address of
principal executive offices) (Zip Code)
(512) 328-0888
(Registrant's telephone number, including area code)
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 of 1934
during the preceding 12 months (or for such shorter 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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
NUMBER OF SHARES
OUTSTANDING AT
TITLE OF EACH CLASS April 30, 1997
-------------------- ----------------
Common Stock, $.10 par value 4,019,695
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<PAGE>
PART I
FINANCIAL INFORMATION
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<PAGE>
AMERICAN PHYSICIANS SERVICE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(In thousands, except per share data)
Three Months Ended
March 31,
1997 1996
---------- ---------
REVENUES:
Financial services $2,041 2,330
Computer systems/software --- 847
Real estate 182 169
Investments and other 184 110
--------- ---------
Total revenues 2,407 3,456
EXPENSES:
Financial service expense 1,846 2,006
Computer systems/software --- 877
Real estate 129 128
General and administrative 259 263
Interest 3 16
--------- ---------
Total expenses 2,236 3,289
---------- ---------
OPERATING INCOME (LOSS) 171 168
Equity in earnings of unconsolidated
affiliates (Note 4) 399 400
--------- ---------
Earnings from continuing operations
before income taxes 570 567
Income tax expense 204 172
NET EARNINGS 366 395
========= =========
Earnings per common share:
PRIMARY $0.09 0.09
========= ==========
FULLY DILUTED $0.09 0.09
========= =========
Primary weighted average shares outstanding 4,256 4,264
========= =========
Fully Diluted weighted average shares outstanding 4,256 4,316
========= =========
See accompanying notes to consolidated financial statements
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<PAGE>
AMERICAN PHYSICIANS SERVICE GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(In thousands)
March 31, December 31,
1997 1996
------------- -------------
ASSETS
CURRENT ASSETS:
Cash and cash investments $4,713 5,770
Marketable securities (Note 2) 20 29
Trading account securities 739 699
Notes receivable - current 3,530 3,447
Management fees and other receivables 943 512
Receivable from clearing broker 65 279
Deferred income tax receivable 603 650
Prepaid expenses and other 379 239
----------- -----------
Total current assets 10,992 11,625
Notes receivable, less current portion 84 179
Property and equipment 1,788 1,781
Investment in Affiliates 10,116 9,657
Other assets 1,363 1,226
----------- -----------
TOTAL ASSETS $24,343 24,468
============ ===========
See accompanying notes to consolidated financial statements
- 4 -
<PAGE>
AMERICAN PHYSICIANS SERVICE GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(In thousands)
March 31, December 31,
1997 1996
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current installments of obligations under
capital leases $--- 542
Accounts payable - trade 176 382
Accrued compensation 58 252
Accrued expenses and other liabs (Note 5) 2,629 2,144
--------- ---------
Total current liabilities 2,864 3,320
LONG-TERM OBLIGATIONS 916 766
--------- ---------
TOTAL LIABILITIES 3,780 4,086
SHAREHOLDERS' EQUITY:
Preferred stock, $1.00 par value, 1,000,000
shares authorized --- ---
Common stock, $0.10 par value, shares
authorized 20,000,000; issued 4,022,965
at 3/31/97 and 4,049,195 at 12/31/96 402 405
Additional paid-in capital 5,190 5,366
Unrealized holding gains/(losses) (17) (11)
Retained earnings 14,988 14,622
----------- -----------
TOTAL SHAREHOLDERS' EQUITY 20,563 20,382
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $24,343 24,468
=========== ===========
See accompanying notes to consolidated financial statements
- 5 -
<PAGE>
AMERICAN PHYSICIANS SERVICE GROUP, INC.
Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
Three Months Ended
March 31,
1997 1996
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers $1,930 3,603
Cash paid to suppliers and employees (2,336) (3,913)
Change in trading account securities (40) 725
Change in receivable from clearing broker 100 (674)
Interest paid (3) (16)
Income taxes paid (7) (598)
Interest, dividends and other investment
proceeds 46 111
---------- ----------
Net cash provided by (used in) operating
activities (309) (762)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sale of marketable securities --- 1,577
Payments for purchase property and equipment (56) (38)
Collection of notes receivable 9 21
Other 21 17
---------- ----------
Net cash provided by (used in) investing
activities (26) 1,577
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long term obligations (542) (67)
Purchase/retire treasury stock (180) ---
Exercise of stock options --- 476
---------- ----------
Net cash provided by (used in) financing
activities (722) 409
---------- ----------
NET CHANGE IN CASH AND CASH EQUIVALENTS ($1,057) 1,224
========== ==========
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 5,770 6,797
---------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $4,713 8,021
========== ==========
See accompanying notes to consolidated financial statements
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<PAGE>
AMERICAN PHYSICIANS SERVICE GROUP, INC.
Consolidated Statements of Cash Flows, continued
(In thousands)
Three Months Ended
March 31,
1997 1996
--------- ----------
Reconciliation of net earnings to net cash from operating activities:
NET EARNINGS $ 366 395
Adjustments to reconcile net earnings to net cash from operating activities:
Depreciation and amortization 87 88
Other miscellaneous gains 133) ---
Undistributed earnings of affiliates (399) (400)
Change in federal income tax payable 47 (643)
Provision for deferred tax asset 150 218
Change in trading securities (40) 725
Change in receivable from clearing broker 100 (674)
Change in management fees & other receivables (431) 256
Change in prepaids & other current assets (140) (88)
Change in other assets (3) ---
Change in trade payables (206) 19
Change in accrued expenses & other liabilities 293 (659)
-------- ---------
NET CASH FROM OPERATING ACTIVITIES ($309) (762)
======== =========
Summary of non-cash transactions:
At March 31, 1997, the Company recognized a gain on the discontinuation of a
lawyer's professional liability insurance exchange resulting from the reversal
of accruals for contingencies which are no longer considered likely. The result
of this transaction was an increase to revenue and an increase to other assets
of $133,000.
See accompanying notes to consolidated financial statements
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<PAGE>
AMERICAN PHYSICIANS SERVICE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1997
(Unaudited)
1. General
The accompanying unaudited consolidated financial statements have been prepared
in conformity with the accounting principles stated in the audited financial
statements for the year ended December 31, 1996 and reflect all adjustments
which are, in the opinion of management, necessary for a fair statement of the
financial position as of March 31, 1997 and the results of operations for the
periods presented. These statements have not been audited or reviewed by the
Company's independent certified public accountants. The operating results for
the interim periods are not necessarily indicative of results for the full
fiscal year.
The notes to consolidated financial statements appearing in the Company's Annual
Report on Form 10-KSB for the year ended December 31, 1996 filed with the
Securities Exchange Commission should be read in conjunction with this Quarterly
Report on Form 10-Q. There have been no significant changes in the information
reported in those notes other than from normal business activities of the
Company.
Certain reclassifications have been made to amounts presented in prior periods
to be consistent with the 1997 presentation.
2. Marketable Securities
Marketable securities include equity securities and investments in bonds that
are intended to be held less than one year. At January 1, 1994, the Company
began recording these securities at fair value, with unrealized holding gains
and losses reported as a separate component of shareholders' equity, per
SFAS-115.
3. Contingencies
In conjunction with a settlement agreement, the Company's broker/dealer
subsidiary, APS Financial, has guaranteed the future yield of a customer's
investment portfolio beginning in November 1994 for up to a five and one-half
year period. Management believes that the Company's financial statements
adequately provide for any loss that might occur under this agreement; however,
as defined in AICPA Statement of Position 94-6, it is reasonably possible that
the Company's estimate of loss could change over the remaining term of the
agreement. Management is unable to determine the range of potential adjustment
since it is based on securities markets, which are beyond its ability to
control.
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<PAGE>
4. Equity in Earnings of Unconsolidated Affiliates
The financial statement line item in this quarterly report combines the equity
in earnings of Syntera Technologies, Inc. ("Syntera"), a computer
systems/software affiliate, and Prime Medical Services, Inc., described below.
At March 31, 1997 the Company owned 16% (3,064,000 shares) of the outstanding
common stock of Prime Medical Services, Inc. ("Prime"). The Company records its
pro-rata share of Prime's results on the equity basis. Prime is in the business
of providing lithotripsy services. The common stock of Prime is traded in the
over-the-counter market under the symbol "PMSI". Prime is a Delaware corporation
which is required to file annual, quarterly and other reports and documents with
the Securities and Exchange Commission, which reports and documents contain
financial and other information regarding Prime. Such reports and documents may
be examined and copies may be obtained from the offices of the Securities and
Exchange Commission.
1st Quarter 1997 earnings/(loss) from the two affiliates are broken out as
follows:
3 Months
Prime (In thousands) 461.8
Syntera (In thousands) (63.0)
5. Accrued Expenses and Other Liabilities
Accrued expenses and other liabilities consists of the following:
Mar Dec
1997 1996
-------- ---------
Taxes payable-other .............................. $ 24,000 74,000
Commissions payable .............................. 39,000 18,000
Deferred income .................................. 858,000 339,000
Health insurance and other claims payable ........ 58,000 87,000
Contractual/legal claims ......................... 1,306,000 1,352,000
Vacation payable ................................. 77,000 77,000
Funds held for others ............................ 32,000 63,000
Other ............................................ 235,000 134,000
---------- ---------
$2,629,000 2,144,000
========== =========
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
REVENUES
Revenues from operations decreased $1,049,000 (30.3%) for the three
month period ended March 31, 1997, compared to the same period in 1996. Real
estate and investments and other increased while financial services and
computer systems and software decreased during the first quarter of 1997
compared to the same period in 1996.
Financial services revenues decreased $289,000 (12.4%) for the three
month period ended March 31, 1997 compared to the same period in 1996. The
decrease in 1997 was due primarily to lower broker/dealer commissions which
were down essentially due to a weakened bond market resulting from inflationary
fears brought about by a robust economy. Barring further weakening of the bond
market, revenues from broker/dealer operations should improve due to the
Company's opening of a branch office in Houston, Texas on March 1, 1997. The
new office currently employs nine brokers.
Revenues from premium-based insurance management fees were down
$32,000 (2.8%) for the first three months of 1997 compared to the same period
in 1996, due primarily to a lower number of insureds brought about by stiffer
competition in the Texas professional liability insurance market
Computer systems and software sales revenues decreased $847,000 for the
three month period ended March 31, 1997 compared to the same period in 1996. The
first quarter decrease was due to the fact that 51% of this subsidiary was sold
on July 1, 1996 so revenues and expenses are no longer consolidated into the
Company's financials. Rather, the 49% equity in the newly formed affiliate is
reported as a single line item on the statement of earnings as "Equity in
earnings of unconsolidated affiliates". Monthly earnings/losses within this line
item are combined with those of Prime Medical Services, Inc.
Real estate revenues rose $13,000 (7.7%) for the three month period
ended March 31, 1997 compared to the same period in 1996. The increase in
revenue was due to rising lease rates. Given the current economic good health of
the Austin real estate market, it is reasonable to expect rental and occupancy
rates to remain favorable throughout 1997.
Investment and other income increased $74,000 (67.3%) for the three
month period ended March 31, 1997 compared to the same period in 1996. The
increase was due to a gain associated with the dissolution of an inactive
insurance entity. Partially offsetting this gain was reduced interest income
arising from a lower investable cash balance. Cash and cash investments was
lower due to the purchase of Exsorbet Industries, Inc. common stock which
subsequently was converted to a note receivable. (See Item 5)
- 10 -
<PAGE>
EXPENSES
Total expenses decreased $1,053,000 (32.0%) for the three month period
ended March 31, 1997 compared to the same period in 1996. Financial services,
computer systems, general and administrative and interest decreased while real
estate services showed an increase for the three month period.
Financial services expense decreased $160,000 (8.0%) for the three month
period ended March 31, 1997 compared to the same period in 1996. The decrease
was primarily the result of lower commissions paid in broker/dealer operations
arising from the lower commission revenues. In addition, legal fees were reduced
at the broker/dealer subsidiary as prior year claims were settled satisfactorily
and no new suits required significant actual or accrued expenditures. Reduced
general and administrative expenses within the broker/dealer subsidiary have
also contributed to the decrease. Expenses at the insurance management
subsidiary increased $95,000 (10.7%) for the three month period ended March 31,
1997 compared to the same period in 1996 due primarily to personnel additions in
the marketing department as well as annual merit increases.
Computer systems/software expense decreased $877,000 for the three month period
ended March 31, 1997 compared to the same period in 1996. The first quarter
decrease was due to the fact that 51% of this subsidiary was sold on July 1,
1996 so revenues and expenses are no longer consolidated into the Company's
financials. Rather, the 49% equity in the newly formed affiliate is reported as
a single line item on the statement of earnings as "Equity in earnings of
unconsolidated affiliates". Monthly earnings/losses within this line item are
combined with those of Prime Medical Services, Inc.
Interest expense decreased $13,000 (81.3%) for the three month period
ended March 31, 1997 compared to the same period in 1996. The decrease was due
to the early payoff of the note payable for the office space owned by the
Company.
EQUITY IN EARNINGS OF UNCONSOLIDATED AFFILIATES
The Company's equity in earnings of Prime Medical Services, Inc.
("Prime") increased $62,000 (15.5%) while its equity in earnings of Syntera
Technologies, Inc. ("Syntera") decreased $63,000. Although earnings at Prime
increased 51% in the 1st quarter of 1997 when compared to the same period in
1996, the Company's ownership percentage decreased from approximately 21% to
approximately 16%. This dilution was primarily the result of common stock issued
to complete a large acquisition by Prime in April, 1996. Syntera's first quarter
loss was due to the fact that the new software product remains under development
so revenues are limited primarily to support and processing fees charged to
existing clients.
- 11 -
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Current assets exceeded current liabilities by $8,128,000 and $8,305,000
at March 31, 1997, and December 31, 1996, respectively. The decrease is
primarily attributable to the puchase and retirement of $180,000 of common stock
of the Company.
Capital expenditures through the quarter ended March 31, 1997 were
approximately $56,000. Total capital expenditures are expected to be
approximately $250,000 in 1997.
Historically, the Company has maintained a strong working capital
position and, has been able to satisfy its operational and capital expenditure
requirements with cash generated from it operating and investing activities.
These same sources of funds have also allowed the Company to pursue investment
and expansion opportunities consistent with its growth plans. The ability of the
Company to borrow against its investment in the common stock of Prime Medical
(market value $29,879,000 at March 31, 1997) gives it significant additional
liquidity.
ADOPTION OF ACCOUNTING STANDARDS
The Financial Accounting Standards Board issued Statement of Accounting
Standards No. 128, Earnings Per Share ("Statement 128") which replaces Primary
EPS and Fully Diluted EPS with Basic EPS and Diluted EPS, respectively.
Statement 128 was issued to simplify the computation of EPS and to make the U.S.
standard more compatible with the EPS standards of other countries and that of
the International Accounting Standards Committee (IASC). Implementation of
Statement 128 is scheduled to begin for fiscal years beginning after December
15, 1997. If the Company had applied Standard 128 for the quarter ended March
31, 1997, the rounded earnings per share calculations for both Basic EPS and
Diluted EPS would have been the same as Primary EPS and Fully Diluted EPS,
respectively.
- 12 -
<PAGE>
PART II
OTHER INFORMATION
- 13 -
<PAGE>
Item 1. Legal Proceedings
The Company is involved in various claims and legal actions that have arisen in
the ordinary course of business. The Company believes that the liability
provision in its financial statements is sufficient to cover any unfavorable
outcome related to lawsuits in which it is currently named. Management believes
that liabilities, if any, arising from these actions will not have a significant
adverse effect on the financial condition of the Company. However, due to the
uncertain nature of legal proceedings, the actual outcome of these lawsuits may
differ from the liability provision recorded in the Company's financial
statements.
Item 5. Other Information
On October 31, 1996, the Company invested $3,300,000 in common stock of Exsorbet
Industries, inc. ("Exsorbet") (NASDAQ:EXSO) with a put option. Exsorbet is a
diversified environmental and technical services company. On November 26, 1996,
the Company exercised its put in exchange for a note receivable from Exsorbet.
The note is secured by the shares which were subject to the put plus all the
stock and substantially all of the assets of a wholly-owned subsidiary of
Exsorbet. According to documents which Exsorbet has filed with the Securities
and Exchange Commission, Exsorbet has limited liquidity, which would currently
not allow payment of the Company's note, and is considering various options to
secure such funding, including a private placement of debt or equity. As of
April 30, 1997 there has been no change in the status of this note.
On December 20, 1996, the Company announced its intention to purchase up
to 500,000 shares of the Company's common stock. As of April 30, 1997, the
Company has bought back approximately 40,000 shares and expects to repurchase
shares so long as they are trading below adjusted book value.
On April 4, 1997, the Company formed an alliance with FPIC Insurance
Group, Inc. and its subsidiary, Florida Physicians Insurance Company, Inc.
("FPIC") (NASDAQ:FPIC) in a plan to strengthen and expand its presence in the
Texas market for medical professional liability insurance. Subject to approval
by the Texas Department of Insurance, FPIC has purchased a 20% interest in the
Company's subsidiary, APS Insurance Services, Inc. for two million dollars. FPIC
also has an option to purchase an additional 35% within two years.
- 14 -
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
11 Computation of Net Income Per Share at March 31, 1997
and 1996.
(b) Current reports on Form 8-K.
A report on Form 8-K was filed with the Securities and Exchange
Commission on April 15, 1997 disclosing the Company's sale of 20% of its
professional liability insurance subsidiary, APS Insurance Services, Inc.
- 15 -
<PAGE>
SIGNATURES
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 PHYSICIANS SERVICE GROUP, INC.
Date: May 7, 1997 By: /s/ William H. Hayes
----------------------------
William H. Hayes, Vice President
and Chief Financial Officer
- 16 -
<PAGE>
EXHIBIT 11
AMERICAN PHYSICIANS SERVICE GROUP, INC.
COMPUTATION OF NET INCOME PER SHARE
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(In thousands, except earnings per share) Primary Fully Diluted
Earnings Earnings
Per Share Per Share
---------- ----------
1997
Net Income applicable to common stock $366 366
Average number of shares outstanding 4,032 4,032
Average stock option shares 224 224
----------- ----------
Shares for earnings calculation 4,256 4,256
Net income per share $0.09 0.09
=========== ==========
1996
Net Income applicable to common stock $395 395
Average number of shares outstanding 3,947 3,947
Average stock option shares 317 369
----------- ----------
Shares for earnings calculation 4,264 4,316
Net income per share $0.09 0.09
=========== ==========
NOTE:
Primary and fully diluted income per share were computed by dividing net income
by the average number of shares outstanding plus the common stock equivalents
which, would arise from the exercise of dilutive stock options.
- 17 -
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
MARCH 31, 1997 FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 4,713
<SECURITIES> 759
<RECEIVABLES> 5,141
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 10,992
<PP&E> 4,311
<DEPRECIATION> 2,524
<TOTAL-ASSETS> 24,343
<CURRENT-LIABILITIES> 2,864
<BONDS> 0
0
0
<COMMON> 402
<OTHER-SE> 20,161
<TOTAL-LIABILITY-AND-EQUITY> 24,343
<SALES> 0
<TOTAL-REVENUES> 2,407
<CGS> 0
<TOTAL-COSTS> 2,191
<OTHER-EXPENSES> 42
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3
<INCOME-PRETAX> 570
<INCOME-TAX> 204
<INCOME-CONTINUING> 366
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 366
<EPS-PRIMARY> 0.09
<EPS-DILUTED> 0.09
</TABLE>
