UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE
EXCHANGE ACT
For the transition period from ---------- to -------------
Commission file number 0-14451
Acap Corporation
(Exact name of small business issuer as specified in its charter)
State of Incorporation: IRS Employer Id.:
Delaware 25-1489730
Address of Principal Executive Office:
10555 Richmond Avenue
Houston Texas 77042
Issuer's telephone number: (713) 974-2242
Check whether the issuer (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past 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. X Yes ------ No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
CLASS OUTSTANDING NOVEMBER 6,1998
Common Stock, Par Value $.10 7,243
This Form 10-QSB contains a total of 14 pages, including any exhibits.
<PAGE>
ACAP CORPORATION AND SUBSIDIARIES
FORM 10-QSB
INDEX
Page No.
Part I. Financial Information:
Item 1. Financial Statements
Condensed Consolidated Balance
Sheet - September 30, 1998 (Unaudited) 3
Condensed Consolidated Statements of
Operations - Nine Months Ended
September 30, 1998 and 1997 (Unaudited) 5
Condensed Consolidated Statements of
Operations - Three Months Ended
September 30, 1998 and 1997 (Unaudited) 6
Condensed Consolidated Statements of
Cash Flows - Nine Months Ended
September 30, 1998 and 1997 (Unaudited) 7
Notes to Condensed Consolidated
Financial Statements (Unaudited) 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 11
Part II. Other Information:
Item 6. Exhibit 27-Financial Data Schedule 14
<PAGE>
PART I. ITEM 1. FINANCIAL INFORMATION
ACAP CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1998
(UNAUDITED)
ASSETS
Investments:
Fixed maturities available for sale $ 37,001,339
Mortgage loans 1,943,208
Policy loans 6,968,521
Short-term investments 1,108,256
-----------
Total investments 47,021,324
Cash 35,836
Accrued investment income 646,013
Reinsurance receivable 104,876,940
Accounts receivable (less allowance
for uncollectible accounts of $88,516) 290,604
Deferred acquisition costs 1,482,305
Property and equipment
(less accumulated depreciation of $443,693) 382,769
Costs in excess of net assets of
acquired business (less accumulated
amortization of $1,131,874) 1,541,902
Other assets 1,259,152
-----------
$157,536,845
===========
See accompanying notes to consolidated financial statements.
<PAGE>
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Policy liabilities:
Future policy benefits $139,127,703
Contract claims 1,699,522
-----------
Total policy liabilities 140,827,225
Other policyholders' funds 2,620,524
Deferred tax liability 1,068,805
Deferred gain on reinsurance 2,473,238
Deferred gain on sale of real estate 408,851
Note payable 625,000
Other liabilities 1,085,522
-----------
Total liabilities 149,109,165
-----------
Stockholders' equity:
Series A preferred stock, par value
$.10 per share, authorized, issued
and outstanding 74,000 shares
(involuntary liquidation value $2,035,000) 1,850,000
Common stock, par value $.10 per share,
authorized 10,000 shares, issued
8,759 shares 876
Additional paid-in capital 6,259,589
Accumulated deficit (735,812)
Treasury stock, at cost, 1,510 shares (499,442)
Accumulated other comprehensive income
Net unrealized gains on securities,
net of taxes of $702,236 1,569,688
Reclassification adjustment, net of taxes of $7,700 (17,219)
-----------
1,552,469
-----------
Total stockholders' equity 8,427,680
-----------
$157,536,845
===========
See accompanying notes to consolidated financial statements.
<PAGE>
ACAP CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(UNAUDITED)
1998 1997
Revenues:
Premiums and other considerations $1,770,590 2,141,165
Net investment income 1,511,319 1,118,428
Net realized investment gains 106,353 3,423
Reinsurance expense allowance 3,675,211 1,481,912
Amortization of deferred gain on reinsurance 130,240 160,005
Other income 35,190 40,233
---------- ---------
Total revenues 7,228,903 4,945,166
---------- ---------
Benefits and expenses:
Death benefits 784,325 848,967
Other benefits 1,021,069 1,198,548
Commissions and general expenses 4,439,138 2,012,492
Interest expense 57,054 69,103
Amortization of deferred acquisition costs 87,664 73,442
Amortization of costs in excess of net
assets of acquired business 179,745 179,747
---------- ---------
Total benefits and expenses 6,568,995 4,382,299
---------- ---------
Income before federal income tax expense 659,908 562,867
Federal income tax expense (benefit):
Current 194,385 115,348
Deferred (176,346) (117,018)
---------- ---------
Net income $ 641,869 564,537
---------- ---------
Other comprehensive income:
Net unrealized holding gains arising
during period, net of tax of $321,463
in 1998 and $137,703 in 1997 625,965 260,930
Less: reclassification adjustment for net
gains included in net income, net of tax
of $14,371 in 1998 and 0 in 1997 (32,137) 0
---------- ---------
Comprehensive income $ 1,235,697 825,467
========== =========
Earnings per share:
Net income per share-basic $ 67.47 56.18
--------- ---------
Net income per share-diluted $ 58.00 48.18
--------- ---------
See accompanying notes to consolidated financial statements.
<PAGE>
ACAP CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(UNAUDITED)
1998 1997
Revenues:
Premiums and other considerations $ 613,288 893,731
Net investment income 462,577 503,237
Net realized investment gains 20,445 6,540
Reinsurance expense allowance 1,089,259 468,127
Amortization of deferred gain on reinsurance 39,035 57,252
Other income 13,229 12,152
--------- ---------
Total revenues 2,237,833 1,941,039
--------- ---------
Benefits and expenses:
Death benefits 278,221 379,101
Other benefits 361,844 393,799
Commissions and general expenses 1,277,513 715,264
Interest expense 15,701 22,486
Amortization of deferred acquisition costs 31,356 24,503
Amortization of costs in excess of net
assets of acquired business 59,916 59,916
--------- ---------
Total benefits and expenses 2,024,551 1,595,069
--------- ---------
Income before federal income tax expense 213,282 345,970
Federal income tax expense (benefit):
Current 49,890 65,329
Deferred (54,535) (26,333)
--------- ---------
Net income $ 217,927 306,974
--------- ---------
Other comprehensive income:
Net unrealized holding gains arising
during period, net of tax of $277,581
in 1998 and $160,508 in 1997 530,799 312,587
Less: reclassification adjustment for
net gains included in net income, net
of tax of $6,448 in 1998 and 0 in 1997 13,894 0
--------- ---------
Comprehensive income $ 762,620 619,561
========= =========
Earnings per share:
Net income per share-basic $ 23.36 34.61
--------- ---------
Net income per share-diluted $ 22.65 28.89
--------- ---------
See accompanying notes to consolidated financial statements.
<PAGE>
ACAP CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
INCREASE (DECREASE) IN CASH (UNAUDITED)
1998 1997
Cash flows from operating activities:
Net income from operations $ 641,869 564,537
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 113,357 193,875
Realized gains on investments (106,353) (3,423)
Deferred federal income tax benefit (176,346) (117,018)
Decrease in reinsurance receivables 1,147,742 1,195,973
Increase in accrued investment income (93,810) (2,797)
Increase in accounts receivable (72,769) (81,284)
Decrease (increase) in other assets 306,017 (812,538)
Decrease in future policy benefit
liability (1,119,068) (395,898)
Decrease in contract claim liability (44,180) (23,157)
Decrease in other policyholders'
funds liability (57,602) (57,123)
Increase (decrease) in other liabilities (659,695) 244,310
---------- ----------
Net cash used in(provided by)operating
activities (120,838) 705,457
---------- ----------
Cash flows from investing activities:
Proceeds from sales of investments
available for sale and principal
repayments on mortgage loans 7,944,285 3,551,071
Purchases of investments available for sale (6,625,855) (7,706,889)
Net (increase) decrease in policy loans 315,754 (2,797)
Net (increase) decrease in short-term
investments (228,153) 1,184,099
Purchase of property and equipment (248,335) (78,512)
Assumption reinsurance acquisition, net of
cash acquired 0 2,854,226
---------- ----------
Net cash provided by(used in)investing
activities 1,157,696 (198,802)
---------- ----------
Cash flows from financing activities:
Principal payments on note payable (187,500) (187,500)
Deposits on policy contracts 870,700 1,294,546
Withdrawals from policy contracts (1,636,247) (1,506,679)
Preferred dividends paid (145,689) (143,375)
---------- ----------
Net cash used in financing activities (1,098,736) (543,008)
---------- ----------
Net decrease in cash (61,878) (36,353)
Cash at beginning of year 97,714 36,353
---------- ----------
Cash at end of period $ 35,836 0
========== ==========
See accompanying notes to consolidated financial statements.
<PAGE>
ACAP CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The condensed consolidated balance sheet as of September 30, 1998 and the
condensed consolidated statements of operations and cash flows for the nine
month periods ended September 30, 1998 and 1997, have been prepared by Acap
Corporation (the "Company"), without audit. In the opinion of management,
all adjustments (which, except as may be noted below, include only normal
recurring adjustments) necessary to present fairly the financial position,
results of operations, and changes in cash flows at September 30, 1998 and
for all periods presented have been made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. It is suggested that these
condensed consolidated financial statements be read in conjunction with the
financial statements and notes thereto included in the Company's
December 31, 1997 Annual Report to Stockholders. The results of operations
for the nine month periods ended September 30, 1998 and 1997 are not
necessarily indicative of the operating results for the full year.
2. ACCOUNTING STANDARDS
In September 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards (SFAS) No. 130 "Reporting
Comprehensive Income." SFAS No. 130, which must be adopted for both
interim and fiscal periods beginning after December 15, 1997, establishes
standards for reporting and displaying comprehensive income and its
components (revenue, expenses, gains, and losses) in a full set of general
purpose financial statements. SFAS 130 requires that all items that are
required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed
with the same prominence as other financial statements.
Effective January 1, 1998, the Company adopted SFAS No. 130. The Company's
only components of other comprehensive income are unrealized gains and
losses on investments. As those items were previously presented as direct
charges or credits to the Company's stockholders' equity, the only impact
of adopting this standard is to reflect an additional presentation of those
items.
3. EARNINGS PER SHARE
Basic earnings per common share is computed by dividing net income (less
dividends paid on preferred stock of $145,689 and $143,375 for September
30, 1998 and 1997, respectively) by the weighted average common shares
outstanding (7,354 at September 30, 1998 and 7,497 at September 30, 1997).
Earnings per common share on a diluted basis is computed by dividing net
income (less dividends paid on preferred stock of $145,689 and $143,375 for
September 30, 1998 and 1997, respectively, and less the income statement
effect of stock options as if exercised of $58,976 and $58,976 for
September 30, 1998 and 1997, respectively) by the weighted average common
shares outstanding as if such stock options were exercised (7,538 at
September 30, 1998 and 7,517 at September 30, 1997).
4. STOCKHOLDERS' EQUITY
During the nine months ended September 30, 1998, stockholders' equity
changed for the following items: Increase in net unrealized investment
gains of $608,746; net income of $641,869; cash dividends paid on preferred
stock of $145,689; a net increase in treasury stock of $48,960; and an
increase in additional paid in capital of $400.
5. UNIVERSAL TRANSACTION
On March 5, 1998, American Capitol Insurance Company ("American Capitol"),
a wholly owned subsidiary of Acap Corporation, closed a coinsurance
transaction with Universal Life Insurance Company ("Universal"). Pursuant
to the coinsurance agreement (the "Coinsurance Agreement"), American
Capitol coinsured 100% of the individual life insurance policies of
Universal in force at January 1, 1998. The effective date of the
Coinsurance Agreement was January 1, 1998. American Capitol paid Universal
an initial ceding commission of approximately $13 million. Universal
transferred approximately $40 million in assets to American Capitol in
connection with the coinsurance.
Contemporaneous with the signing of the Coinsurance Agreement, the parties
executed an administrative agreement (the "Administration Agreement")
whereby American Capitol agreed to provide specified administrative
functions for the 246,011 coinsured Universal policies. American Capitol
started administering the policies beginning July 1, 1998. Between
January 1, 1998 and July 1, 1998, Universal continued to administer the
policies, and American Capitol paid Universal the expense allowance
stipulated in the Administration Agreement.
Concurrent with the coinsurance of the Universal policies, American Capitol
retroceded all of the coinsured Universal policies with an unaffiliated
reinsurer. The reinsurer paid American Capitol an initial ceding
commission of approximately $13.5 million. So, while Universal transferred
$40 million to American Capitol in connection with the coinsurance,
American Capitol transferred $39.6 million in assets to the reinsurer in
connection with the retrocession. Once the reinsurer has recovered the
initial ceding commission, the reinsurer may, at American Capitol s option,
retrocede back to American Capitol 100% of the policies. Upon this
retrocession, American Capitol then pays the reinsurer 30% of the profits
generated by the policies, retaining the other 70% of the profits. In
addition, American Capitol has the right to recapture the retrocession
under certain terms and conditions. While the retrocession is in effect,
American Capitol receives an expense allowance from the reinsurer.
6. SUPPLEMENTAL INFORMATION REGARDING CASH FLOWS
Cash payments of $210,129 and $80,779 for federal income taxes were made
for the nine months ended September 30, 1998 and 1997, respectively.
Cash payments of $54,032 and $70,949 for interest expense were made during
the nine months ended September 30, 1998 and 1997, respectively.
The following reflects assets acquired and liabilities assumed relative to
the coinsurance agreement for the policies of Universal, the consideration
given for such coinsurance and the net cash flow relative to such
coinsurance on January 1, 1998.
Assets acquired. . . . . . . . . . . . . . . . . . . . . $ 39,972,696
Liabilities assumed. . . . . . . . . . . . . . . . . . . (53,085,774)
-----------
Cost of coinsurance. . . . . . . . . . . . . . . . . . . $(13,113,078)
===========
Cash paid for coinsurance. . . . . . . . . . . . . . . . $(13,113,078)
===========
Net cash from coinsurance:
Cash acquired. . . . . . . . . . . . . . . . . . . . . . $ 38,597,840
Cash paid for coinsurance. . . . . . . . . . . . . . . . (13,113,078)
-----------
Net cash provided from coinsurance . . . . . . . . . . . $ 25,484,762
===========
The following reflects assets and liabilities transferred in connection
with a coinsurance treaty whereby all policies assumed from Universal were
100% retroceded to an unaffiliated reinsurer, the ceding commission
received and the net cash flow related to the coinsurance treaty on January
1,1998.
Assets transferred . . . . . . . . . . . . . . . . . . . $(39,580,339)
Liabilities transferred. . . . . . . . . . . . . . . . . 53,080,339
-----------
Net transferred. . . . . . . . . . . . . . . . . . . . . $ 13,500,000
===========
Ceding commission received . . . . . . . . . . . . . . . $ 13,500,000
===========
Net cash from coinsurance:
Cash paid. . . . . . . . . . . . . . . . . . . . . . . . (38,984,762)
Cash received from coinsurance . . . . . . . . . . . . . 13,500,000
-----------
Net cash provided from coinsurance . . . . . . . . . . . $(25,484,762)
===========
Net proceeds from coinsurance agreements . . . . . . . . $ 0
===========
7. SUBSEQUENT EVENT
A subsidiary of the Company, Texas Imperial Life Insurance Company,
executed a stock purchase agreement dated October 19, 1998 to acquire The
Statesman National Life Insurance Company ("Statesman"). The acquisition
is subject to certain conditions being met, the most significant of which
is the approval of the Texas Department of Insurance. If the transaction
closes, it is anticipated that such closing will be prior to December 31,
1998.
The purchase price of Statesman to be used for closing purposes is
approximately $500,000. However, the purchase price is subject to a number
of post-closing price adjustments. The acquisition will be financed by a
promissory note issued to the sellers. The note amount will be adjusted
and will become due when all post-closing price adjustments are quantified
(which is currently anticipated to be sometime in the third quarter of
2000). Statesman has $2.5 million in surplus debentures issued to the
sellers that will remain obligations of Statesman following the
acquisition.
Statesman, located in Houston, Texas, markets final expense life insurance
and Medicare supplement health insurance. At September 30, 1998, Statesman
had assets, determined in accordance with statutory accounting principles,
of approximately $9 million.
<PAGE>
ACAP CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
UNIVERSAL LIFE INSURANCE COMPANY TRANSACTION
On March 5, 1998, American Capitol Insurance Company ("American Capitol"),
a wholly owned subsidiary of Acap Corporation, closed a coinsurance
transaction with Universal Life Insurance Company ("Universal"). Pursuant
to the coinsurance agreement (the "Coinsurance Agreement"), American
Capitol coinsured 100% of the individual life insurance policies of
Universal in force at January 1, 1998. The effective date of the
Coinsurance Agreement was January 1, 1998. American Capitol paid Universal
an initial ceding commission of approximately $13 million. Universal
transferred approximately $40 million in assets to American Capitol in
connection with the coinsurance.
Contemporaneous with the signing of the Coinsurance Agreement, the parties
executed an administrative agreement (the "Administration Agreement")
whereby American Capitol agreed to provide specified administrative
functions for the 246,011 coinsured Universal policies. American Capitol
started administering the policies beginning July 1, 1998. Between January
1, 1998 and July 1, 1998, Universal continued to administer the policies,
and American Capitol paid Universal the expense allowance stipulated in the
Administration Agreement.
Concurrent with the coinsurance of the Universal policies, American Capitol
retroceded all of the coinsured Universal policies with an unaffiliated
reinsurer. The reinsurer paid American Capitol an initial ceding
commission of approximately $13.5 million. So, while Universal transferred
$40 million to American Capitol in connection with the coinsurance,
American Capitol transferred $39.6 million in assets to the reinsurer in
connection with the retrocession. Once the reinsurer has recovered the
initial ceding commission, the reinsurer may, at American Capitol s option,
retrocede back to American Capitol 100% of the policies. Upon this
retrocession, American Capitol then pays the reinsurer 30% of the profits
generated by the policies, retaining the other 70% of the profits. In
addition, American Capitol has the right to recapture the retrocession
under certain terms and conditions. While the retrocession is in effect,
American Capitol receives an expense allowance from the reinsurer.
RESULTS OF OPERATIONS
Premiums and other considerations were 17% lower during the nine months
ended September 30, 1998 in comparison to the comparable period in 1997.
Premiums and other considerations were 31% lower during the three months
ended September 30, 1998 in comparison to the comparable period in 1997.
From June 1, 1996 through July 31, 1997, American Capitol coinsured, and
did not retrocede, 91.4% of the policies written during that period by
World Service Life Insurance Company of America ("World Service"). The
policies written by World Service were mostly single premium whole life.
Therefore, premiums for the first seven months of 1997 include the premiums
on such policies while premiums throughout 1998 do not. Also, during the
third quarter of 1997, the Company recorded approximately $330,000 in
single premiums with respect to a one-time transaction involving certain
pre-need life insurance policies acquired from World Service.
Net investment income was 35% higher during the nine months ended September
30, 1998 in comparison to the comparable period in 1997, but was 8% lower
during the three months ended September 30, 1998 in comparison to the
comparable period in 1997. Effective August 1, 1997, American Capitol
acquired, through assumption reinsurance, the World Service policies.
World Service transferred American Capitol approximately $2.5 million in
assets in connection with the assumption. Thus, net investment income
throughout the nine months ended September 30, 1998 includes the earnings
on the transferred assets while net investment income for the nine months
ended September 30, 1997 only includes two months of such earnings. Also,
on November 21, 1997, American Capitol sold its home office building and
adjacent land to an unrelated third party. During the first nine months of
1997, the home office building was a negative factor in the determination
of net investment income, as the expenses associated with the property
exceeded rental income. During the first nine months of 1998, net
investment income includes the earnings from the investment of the proceeds
of the sale of the property. Net investment income for 1997 includes a
one-time $50,000 benefit realized in August 1997 from forfeited earnest
money American Capitol received when a prospective purchaser of the home
office building could not complete the transaction.
The Company receives an expense allowance for administering certain blocks
of reinsured policies. The expense allowance for the nine months ended
September 30, 1998 was 148% higher than the expense allowance for the
comparable period in 1997 and was 133% higher during the three months ended
September 30, 1998 in comparison to the comparable period in 1997. The
increase in the expense allowance during 1998 is due to the expense
allowance attributable to the retrocession of the Universal policies
discussed above under "Universal Life Insurance Company Transaction."
Primarily as a result of the above factors, total revenue was 46% higher
during the nine months ended September 30, 1998 in comparison to the
comparable period in 1997. Total revenue was 15% higher during the three
months ended September 30, 1998 in comparison to the comparable period in
1997.
Total policy benefits (i.e., death benefits and other benefits) were 102%
of premiums and other considerations during the nine months ended September
30, 1998 in comparison to 96% of premiums and other considerations during
the comparable period in 1997. Total policy benefits were 104% of premiums
and other considerations during the three months ended September 30, 1998
in comparison to 86% of premiums and other considerations during the
comparable period in 1997. As noted above in the discussion of premiums
and other considerations, the Company recorded an unusual volume of single
premium during the third quarter of 1997. This transaction resulted in a
lower than usual ratio of policy benefits to premiums in that quarter.
Total expenses (i.e., total benefits and expenses less total policy
benefits) were 67% of total revenue ("total revenue" as used in this
paragraph excludes realized investment gains) during the nine months ended
September 30, 1998 in comparison to 47% of total revenue during the
comparable period in 1997. Total expenses were 62% of total revenue during
the three months ended September 30, 1998 in comparison to 43% of total
revenue during the comparable period in 1997. As noted above under
"Universal Life Insurance Company Transaction," Universal administered the
coinsured policies until July 1, 1998. General expenses for the nine
months ended September 30, 1998 include approximately $1.3 million related
to payments made to Universal for administering the coinsured policies
until July 1. Prior to July 1, 1998, the Company also incurred expenses in
preparing to assume the administration of the Universal policies. General
expenses for the first quarter of 1998 also include a one-time broker s fee
of $227,500 associated with the Universal coinsurance. Since July 1, 1998,
the Company has been incurring expenses of approximately $50,000 per month
preparing to convert the Universal policies from the system acquired from
Universal to one of the Company s policy administration systems. It is
anticipated that the conversion will be completed during November 1998.
YEAR 2000 STATUS
Other than the system acquired from Universal, the Company s policies are
administered on two policy administration systems. One of the policy
administration systems was internally developed. The Company has performed
what it believes to be a reasonable degree of testing on the system and
believes that the system is year 2000 compliant. The other policy
administration system is a vendor-supported system that the vendor has
certified is year 2000 compliant. Certain of the Company s subsystems are
not currently year 2000 compliant and will either be remediated or
replaced. The Company believes that all of its systems will be year 2000
compliant by the end of 1998, and that the cost to reach such compliance
will not be material.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1998, there was an increase in net unrealized
investment gains since December 31, 1997 of $608,747. The increase in
invested asset values was primarily the result of a decrease in market
interest rates during 1998. It is not anticipated that the Company will
need to liquidate investments prior to their projected maturities in order
to meet cash flow requirements.
SUBSEQUENT EVENT
A subsidiary of the Company, Texas Imperial Life Insurance Company,
executed a stock purchase agreement dated October 19, 1998 to acquire The
Statesman National Life Insurance Company ("Statesman"). The acquisition
is subject to certain conditions being met, the most significant of which
is the approval of the Texas Department of Insurance. If the transaction
closes, it is anticipated that such closing will be prior to December 31,
1998.
The purchase price of Statesman to be used for closing purposes is
approximately $500,000. However, the purchase price is subject to a number
of post-closing price adjustments. The acquisition will be financed by a
promissory note issued to the sellers. The note amount will be adjusted
and will become due when all post-closing price adjustments are quantified
(which is currently anticipated to be sometime in the third quarter of
2000). Statesman has $2.5 million in surplus debentures issued to the
sellers that will remain obligations of Statesman following the
acquisition.
Statesman, located in Houston, Texas, markets final expense life insurance
and Medicare supplement health insurance. At September 30, 1998, Statesman
had assets, determined in accordance with statutory accounting principles,
of approximately $9 million.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Quarterly Report on Form 10-QSB for the
quarter ended September 30, 1998 to be signed on its behalf by the
undersigned thereunto duly authorized.
ACAP CORPORATION
(Registrant)
Date: November 11, 1998 By:\s\William F. Guest
-------------------------------
William F. Guest, President
Date: November 11, 1998 By:\s\John D. Cornett
-------------------------------
John D. Cornett, Treasurer
(Principal Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SEPTEMBER
30, 1998 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<DEBT-HELD-FOR-SALE> 37,001,339
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 0
<MORTGAGE> 1,943,208
<REAL-ESTATE> 0
<TOTAL-INVEST> 47,021,324
<CASH> 35,836
<RECOVER-REINSURE> 104,876,940
<DEFERRED-ACQUISITION> 1,482,305
<TOTAL-ASSETS> 157,536,845
<POLICY-LOSSES> 139,127,703
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 1,699,522
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0
1,850,000
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1,770,590
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