Form 10-QSB
(Mark One)
[x] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT 1934
For the quarterly period ended September 30, 2000
[ ] 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, 2nd Floor
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 8, 2000
Common Stock, Par Value $.10 7,224
This Form 10-QSB contains a total of 14 pages, including any exhibits.
ACAP CORPORATION AND SUBSIDIARIES
FORM 10-QSB
INDEX
Page No.
Part I. Financial Information:
Item 1. Financial Statements
Condensed Consolidated Balance
Sheet - September 30, 2000 (Unaudited) 3
Condensed Consolidated Statements of
Operations - Nine Months Ended
September 30, 2000 and 1999 (Unaudited) 5
Condensed Consolidated Statements of
Operations - Three Months ended
September 30, 2000 and 1999 (Unaudited) 6
Condensed Consolidated Statements of
Cash Flows - Nine Months Ended
September 30, 2000 and 1999 (Unaudited) 7
Notes to Condensed Consolidated
Financial Statements (Unaudited) 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 12
Part II. Other Information:
Item 6. Exhibits 14
PART I. ITEM 1. FINANCIAL INFORMATION
ACAP CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 2000
(UNAUDITED)
ASSETS
Investments:
Fixed maturities available for sale $ 40,015,486
Mortgage loans 914,845
Policy loans 6,074,914
Short-term investments 961,538
----------
Total investments 47,966,783
Cash 86,173
Accrued investment income 789,670
Reinsurance receivable 97,770,771
Notes receivable 4,088,295
Accounts receivable (less allowance
for uncollectible accounts of $88,307) 550,011
Deferred acquisition costs 1,575,005
Property and equipment
(less accumulated depreciation of $741,361) 781,303
Costs in excess of net assets of
acquired business (less accumulated
amortization of $1,611,203) 1,062,571
Net deferred tax asset 421,349
Other assets 1,631,837
-----------
$156,723,768
===========
See accompanying notes to condensed consolidated financial statements.
continued. . .
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Policy liabilities:
Future policy benefits $136,077,994
Contract claims 4,076,535
-----------
Total policy liabilities 140,154,529
Other policyholders' funds 2,264,684
Deferred gain on reinsurance 2,092,865
Deferred gain on sale of real estate 229,773
Note payable 1,125,000
Other liabilities 4,452,664
-----------
Total liabilities 150,319,515
-----------
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 (760,993)
Treasury stock, at cost, 1,535 shares (507,842)
Accumulated other comprehensive income-net unrealized
losses, net of taxes of $225,318 (437,377)
-----------
Total stockholders' equity 6,404,253
-----------
$156,723,768
===========
See accompanying notes to condensed consolidated financial statements.
ACAP CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999(UNAUDITED)
2000 1999
Revenues:
Premiums and other considerations $10,975,102 6,684,261
Net investment income 1,641,568 1,504,521
Net realized investment gains (losses) (8,019) 805,838
Reinsurance expense allowance 2,858,504 3,158,985
Amortization of deferred gain on reinsurance 195,692 204,064
Other income 297,938 203,268
---------- ---------
Total revenues 15,960,785 12,560,937
---------- ----------
Benefits and expenses:
Policy benefits 8,627,956 4,720,736
Commissions and general expenses 7,519,599 6,406,399
Interest expense 84,831 67,940
Amortization of deferred acquisition costs 194,953 248,272
Amortization of costs in excess of net
assets of acquired business 179,745 179,745
---------- -----------
Total benefits and expenses 16,607,084 11,623,092
---------- -----------
Income (loss) before federal income tax expense
(benefit) (646,299) 937,845
Federal income tax expense (benefit):
Current 110,842 363,309
Deferred (416,899) (333,369)
---------- ----------
Net income (loss) $ (340,242) 907,905
---------- ----------
Other comprehensive income (loss):
Net unrealized holding gains (losses)
arising during period, net of tax of
$173,552 in 2000 and $721,311 in 1999 152,493 (1,396,996)
---------- ----------
Comprehensive income (loss) (187,749) (489,091)
Earnings per share:
Net (loss) income per share-basic ($67.59) 106.62
========================
Net (loss) income per share-diluted ($67.59) 95.05
========================
See accompanying notes to condensed consolidated financial statements.
ACAP CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(UNAUDITED)
2000 1999
Revenues:
Premiums and other considerations $3,687,890 3,496,936
Net investment income 555,331 524,277
Net realized investment (losses) gains (9,737) 5,862
Reinsurance expense allowance 924,449 997,912
Amortization of deferred gain on reinsurance 60,924 58,569
Other income 126,640 153,309
---------- ----------
Total revenues 5,345,497 5,236,865
---------- ----------
Benefits and expenses:
Policy benefits 2,663,960 2,480,694
Commissions and general expenses 2,783,177 2,823,290
Interest expense 28,238 29,708
Amortization of deferred acquisition costs 65,719 77,516
Amortization of costs in excess of net
assets of acquired business 59,915 59,915
---------- ----------
Total benefits and expenses 5,601,009 5,471,123
---------- ----------
Loss before federal income tax benefit (255,512) (234,258)
Federal income tax expense (benefit):
Current 21,523 28,294
Deferred (167,198) (189,734)
---------- ----------
Net loss $ (109,837) (72,818)
---------- ----------
Other comprehensive gain (loss):
Net unrealized holding gains (losses)
arising during period, net of tax of
$185,581 in 2000 and $132,520 in 1999 180,627 (256,146)
---------- ----------
Comprehensive income (loss) $ 70,790 (328,964)
---------- ----------
Earnings per share:
Net loss per share-basic ($22.25) (16.31)
========================
Net loss per share-diluted ($22.25) (16.31)
========================
See accompanying notes to condensed consolidated financial statements.
ACAP CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 (UNAUDITED)
2000 1999
Cash flows from operating activities:
Net (loss) income from operations $ (340,242) 907,905
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization 326,814 349,248
Net realized investment gains (losses)on
investments 8,019 (871,367)
Deferred federal income tax benefit (416,899) (333,369)
Decrease in reinsurance receivables 3,431,581 2,216,359
Increase in accrued investment income (156,850) (173,568)
Increase (decease) in accounts receivable 84,792 (103,984)
Increase in other assets (1,302,749) (867,053)
Decrease in future policy benefit liability (3,964,470) (1,170,246)
Decrease in contract claim liability (88,820) (1,219,752)
Increase (decrease) in other policyholders'
funds liability 62,017 (550,939)
Increase (decrease) in other liabilities 814,017 431,571
---------- ----------
Net cash (used by) operating activities (1,542,790) (1,385,195)
--------- ----------
Cash flows from investing activities:
Proceeds from sales of investments available for
sale and principal repayments on mortgage loans 4,045,326 2,855,109
Purchases of investments available for sale (5,469,044) (4,384,917)
Net decrease in policy loans 288,329 95,527
Net increase (decease) in short-term investments 3,552,737 (3,920,187)
Purchase of property and equipment (65,209) (505,271)
Proceeds from assumption agreement -0- 2,306,481
Principal payments on notes receivable -0- 4,437,313
---------- ----------
Net cash provided by (used in) investing activities 2,352,139 884,055
---------- ----------
Cash flows from financing activities:
Proceeds from issuance of note payable -0- 1,500,000
Principal payments on note payable (187,500) (687,500)
Deposits on policy contracts 796,927 1,213,334
Withdrawals from policy contracts (1,311,303) (1,345,306)
Preferred dividends paid (148,000) (136,439)
Treasury stock purchases (480) (5,280)
---------- ----------
Net cash provided by (used in) financing activities (850,356) 538,809
---------- ----------
Net (decrease) increase in cash (41,007) 37,669
Cash at beginning of year 127,180 120,332
---------- ----------
Cash at end of period $ 86,173 158,001
========== ==========
See accompanying notes to condensed consolidated financial statements.
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, 2000 and the
condensed consolidated statements of operations and cash flows for the nine
month periods ended September 30, 2000 and 1999, 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, 2000 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, 1999 Form 10-KSB. The results of operations for the nine
month periods ended September 30, 2000 and 1999 are not necessarily
indicative of the operating results for the full year.
2. ACCOUNTING STANDARDS
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting
for Derivative Instruments and for Hedging Activities," requires companies
to recognize all derivatives as either assets or liabilities in the
statement of financial condition and to measure all derivatives at fair
value. SFAS No. 133 requires that changes in fair value of a derivative be
recognized currently in earnings unless specific hedge accounting criteria
are met. Upon implementation of SFAS No. 133, hedging relationships may be
redesignated, and securities held to maturity may be transferred to
available for sale or trading. SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of FASB
Statement No. 133," deferred the effective date of SFAS No. 133 to fiscal
years beginning after June 15, 2000. SFAS No. 138, "Accounting for
Certain Derivative Instruments and Certain Hedging Activies" amended the
accounting and reporting stands of SFAS No. 133 for certain derivative
instruments, hedging activities, and decisions made by the Derivatives
Implementation Group. The Company anticipates that the adoption of the
provisions of SFAS 133, SFAS 137, and SFAS 138 will not have a material
impact on the results of operations, financial condition or cash flows.
3. EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share is computed by dividing net income (loss)
(less dividends paid on preferred stock of $148,000 and $136,439 for
the nine months ended September 30, 2000 and 1999, respectively) by the
weighted average common shares outstanding (7,224 at September 30, 2000 and
7,236 at September 30, 1999).
Earnings per common share on a diluted basis for 1999 is computed by
dividing net income (less dividends paid on preferred stock of $136,439
for the nine months ended September 30, 1999) by the weighted average
common shares outstanding as if stock options were exercised (7,496 at
September 30, 1999). Loss per share was not diluted for 2000.
4. STOCKHOLDERS' EQUITY
During the nine months ended September 30, 2000, stockholders' equity
changed for the following items: Decrease in net unrealized investment
losses of $152,493; net loss of $340,242; cash dividends paid on preferred
stock of $148,000 and an increase in treasury stock of $480.
5. STATESMAN TRANSACTION
On October 19, 1998, Texas Imperial Life Insurance Company, a wholly-owned
subsidiary of American Capitol executed an agreement to acquire the stock
of Statesman National Life Insurance Company ("Statesman"). To facilitate
the Statesman acquisition, American Capitol entered into a coinsurance
agreement with Statesman dated November 17, 1998, in which American Capitol
coinsured, on a 100% quota share basis, a portion of Statesman's Medicare
supplement business effective October 31, 1998. The acquisition
transaction closed on December 16, 1998. Statesman was owned by the
brother of the majority shareholder of Acap, and, as a result, this
qualified as a related party transaction. Texas Imperial issued a
promissory note of $100 to the sellers of the Statesman stock ("Sellers").
At the time of the acquisition of the Statesman stock by Texas Imperial,
Statesman had approximately $1.8 million in surplus debentures issued to
the Sellers. The Sellers' debentures backed the Sellers' representations
and warranties and were to be adjusted based upon the outcome of certain
post-closing price adjustments. In connection with closing, Texas Imperial
purchased an $800,000 surplus debenture from Statesman to bring Statesman's
statutory equity to the level required by the Texas Department of Insurance
(the "Department") as a condition of the Department's approval of Texas
Imperial's acquisition of Statesman. As used herein, the "Statesman
Transaction" refers to the above-described Texas Imperial acquisition of
the stock of Statesman, Texas Imperial purchase of the $800,000 surplus
debenture from Statesman, and American Capitol coinsurance of a portion of
Statesman's Medicare supplement business.
In January, 1999, it was discovered that Statesman's claim liabilities were
significantly understated. The liability understatement exceeded the
amount of the Sellers' debentures. Given the mutual mistake of fact upon
which the stock purchase, the surplus debenture purchase and the
Department's approval of same were based, Texas Imperial, the Sellers, and
Statesman agreed to rescind the purchase of the stock and the surplus
debenture. However, the rescission required the approval of the
Department. The Department did not grant its approval. As a result, Texas
Imperial determined that the $800,000 Statesman surplus debenture was
uncollectible and recorded the realized investment loss on the debenture in
1998 and wrote off its investment in Statesman of $100. Statesman was
placed in receivership by the District Court of Travis County, Texas 250th
Judicial District (the "Court") on June 10, 1999.
On June 10, 1999, the Court approved a Liquidation Plan Regarding the
Insolvency and Liquidation of The Statesman National Life Insurance Company
(the "Liquidation Plan") executed by American Capitol, Texas Imperial,
Statesman, the Department and the National Organization of Life and Health
Insurance Guaranty Associations ("NOLHGA"). Pursuant to the Liquidation
Plan, American Capitol and Texas Imperial assumed all life insurance
policies issued by Statesman since September 30, 1998 as well as all of the
Medicare supplement and hospital indemnity health insurance policies in
force in Statesman. Participating NOLHGA guaranty associations funded the
transaction with a combination of cash and promissory notes. In
determining the funding amount, among other things, the Company received
credit in an amount equal to the $800,000 surplus debenture Texas Imperial
purchased from Statesman during 1998 and which Texas Imperial wrote off at
December 31, 1998. Pursuant to the Liquidation Plan, at a prescribed point
three years after the closing of the assumption transactions, the actual
results during the three year period of the Medicare supplement policies in
question will be compared to the projected results for that same period
and, if the actual results have been better than projected ("excess
profits"), the participating NOLHGA guaranty associations will be entitled
to participate in the excess profits as a refund in an amount prescribed by
a formula set out in the Liquidation Plan. If the actual results are worse
than the projected results, the guaranty associations are not obligated to
compensate the Company for such shortfall. The assumption transactions
closed on June 18, 1999 with an effective date of June 1, 1999.
Approximately $11 million in cash and notes were transferred to the Company
from the participating NOLHGA guaranty associations and approximately $10
million in liabilities were transferred to the Company in connection with
the assumption transactions. At September 30, 2000, the excess profits
owed to the guaranty associations were approximately $2.2 million and are
included in other liabilities.
Other aspects related to the Statesman Transaction include the transfer to
the Company of policy administration system software necessary to enable
the Company to administer the Statesman Medicare supplement policies
assumed from the guaranty associations.
6. SUPPLEMENTAL INFORMATION REGARDING CASH FLOWS
Cash payments of $99,564 and $280,000 for federal income taxes were made
for the nine months ended September 30, 2000 and 1999, respectively.
Cash payments of $84,492 and $58,038 for interest expense were made during
the nine months ended September 30, 2000 and 1999, respectively.
The following reflects assets acquired and liabilities assumed relative to
the assumption agreement for the policies of Statesman, the consideration
received for such assumption and the net cash flow relative to such
assumption on June 1, 1999:
Assets acquired $ 10,893,429
Liabilities assumed (10,093,429)
----------
Gain from assumption $ 800,000
==========
Net cash from assumption:
Cash acquired $ 1,506,481
Credit received 800,000
----------
Net cash provided from assumption $ 2,306,481
==========
7. NOTE PAYABLE
On March 31, 1999, the Company repaid the $500,000 balance on its note from
Central National Bank ("CNB") by borrowing $1,500,000 from CNB. The note
is renewable by the bank each April 30 until fully repaid. The note bears
interest at a rate equal to the base rate of a bank. Principal payments on
the note of $62,500 are due quarterly (a six year amortization) beginning
April 30, 1999. The loan agreement contains certain restrictions and
financial covenants. Without the written consent of the bank, Acap may not
incur any debt, pay common stock dividends or sell any substantial amounts
of assets. Also, American Capitol is subject to minimum statutory earnings
and capital and surplus requirements during the loan term. The Company is
in compliance with all of the terms of the loan as of September 30, 2000.
8. NOTES RECEIVABLE
In connection with the Statesman Transaction, seven promissory notes
totaling $8,525,608 were issued by four different state guaranty
associations. The interest rate on the notes is fixed at 5.3%. The first
payment of principal of $4,437,313 along with accrued interest of
approximately $113,000 was paid September 18, 1999. There are no other
scheduled payments until maturity at December 2, 2002 when the balance of
$4,088,295 and all accrued and unpaid interest is due.
The promissory notes are essentially credit risk free because the notes are
backed by all member insurers of an association. A guaranty association
has the statutory authority to assess solvent insurance companies doing
business in the state to meet its obligations. If the maximum assessment
allowed in any one year does not provide the necessary funds, additional
assessments are made as soon thereafter as permitted by the guaranty
association act.
9. SEGMENT INFORMATION
The Company operates in two reportable segments: Life and Health.
Financial information by industry segment is summarized as follows:
Nine Months Ended September 30
2000 1999
Revenues:
Life 6,132,053 6,583,246
Accident & Health 9,828,732 5,977,691
---------- ----------
Revenues $ 15,960,785 12,560,937
========== ==========
Pretax Income (Loss) from Continuing Operations:
Life $ (168,928) 210,561
Accident & Health (477,371) 727,284
---------- ----------
Pretax Income (Loss) from Continuing Operations $ (646,299) 937,845
========== ==========
Identifiable Assets:
Life $149,606,521 157,576,844
Accident & Health 7,117,247 6,753,565
---------- ----------
Identifiable Asset $156,723,768 164,330,409
=========== ===========
Three Months Ended September 30
2000 1999
Revenues:
Life $ 1,979,278 2,129,637
Accident & Health 3,366,219 3,107,228
----------- -----------
Revenues $ 5,345,497 5,236,865
========== ===========
Pretax Income (Loss) from Continuing Operations:
Life $ (31,826) (15,372)
Accident & Health (223,686) (218,886)
---------- ----------
Pretax Income (Loss) from Continuing Operations $ (255,512) (234,258)
========== ==========
Revenues include premiums, net investment income, realized investment gains
and losses, policy and contract charges, and other income.
ACAP CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Life Segment
Life premiums and other considerations were 10% lower during the nine
months ended September 30, 2000 and were 5% lower during the three months
ended September 30, 2000 in comparison to the comparable periods in 1999.
Effective June 1, 1999, the Company acquired certain blocks of business
originally issued by Statesman National Life Insurance Company from
participating guaranty associations represented by the National
Organization of Life & Health Guaranty Associations (the "Statesman
Transaction"). While the business so acquired was primarily Medicare
supplement health insurance business, a portion of the acquired business
was life insurance business. As a result of entries related to the
Statesman Transaction, life premiums recorded in June 1999 were
significantly higher than normal.
The Company receives an expense allowance for administering certain blocks
of reinsured life insurance policies. The expense allowance for the nine
months ended September 30, 2000 was 10% lower than the expense allowance
for the comparable period in 1999. The expense allowance for the three
months ended September 30, 2000 was 7% lower than the expense allowance for
the comparable period in 1999. The decrease in the expense allowance
during 2000 is due to attrition of the reinsured policies.
Primarily as a result of the above factors, total life segment revenue
(excluding realized investment gains and losses) was 6% lower during the
nine months ended September 30, 2000 and 4% lower during the three months
ended September 30, 2000 in comparison to the comparable periods in 1999.
Total life segment expenses (i.e., total benefits and expenses less policy
benefits) were 3% lower during both the nine months and three months ended
September 30, 2000 in comparison to the comparable periods in 1999. The
decrease in expenses was largely attributable to lower commissions
resulting from (1) the decreased level of premium income and (2) the
termination of the obligation to pay a commission allowance on a
reinsurance treaty. Offsetting a portion of the decrease in commissions
was an increase in general expenses. Beginning late in 1999, the Company
started adding resources to work on the conversion of all of its policies
to the policy administration system acquired as part of the Statesman
Transaction. A major block of policies was converted to the new policy
administration system on November 1, 2000. As a result of this conversion,
the Company anticipates realizing administrative efficiencies during the
fourth quarter of 2000.
The life segment reported a loss before income taxes and realized
investment gains and losses of $160,909 for the nine months ended September
30, 2000 in comparison to a gain of $204,723 for the comparable period in
1999. The life segment reported a loss before income taxes and realized
investment gains and losses of $22,089 for the three months ended September
30, 2000 in comparison to a loss of $21,234 for the comparable period in
1999.
Health Segment
Total health segment revenue (excluding realized investment gains)
increased 91% during the nine months ended September 30, 2000 and increased
7% during the three months ended September 30, 2000 in comparison to the
comparable periods in 1999. The increase resulted primarily from the
inclusion of the Medicare supplement health insurance and hospital
indemnity health insurance business acquired in connection with the
Statesman Transaction for all of 2000, whereas such business was included
in 1999 starting with June. Also, the Company began marketing Medicare
supplement health insurance in May 1999.
Realized investment gains for 1999 include $800,000 realized in June 1999
in connection with the Statesman Transaction. As a part of that
transaction, the Company received credit in an amount equal to an $800,000
surplus debenture purchased from Statesman during 1998 that was written off
at December 31, 1998.
Total health segment policy benefits increased 137% during the nine months
ended September 30, 2000 and increased 14% during the three months ended
September 30, 2000 in comparison to the comparable periods in 1999. The
increase resulted primarily from the inclusion of the Medicare supplement
health insurance and hospital indemnity health insurance business acquired
in connection with the Statesman Transaction for all of 2000, whereas such
business was included in 1999 starting with June. Another factor in the
increased level of benefits was the fact that the Company has experienced
significantly higher claims experience since the second quarter of 2000.
Total health segment policy benefits were 68% of total health segment
revenue (excluding realized investment gains) during the nine months ended
September 30, 2000 in comparison to 55% of total health segment revenue
during the comparable period in 1999. Total health segment policy benefits
were 60% of total health segment revenue (excluding realized investment
gains) during the three months ended September 30, 2000 in comparison to
57% of total health segment revenue during the comparable period in 1999.
Total health segment policy expenses (i.e., total benefits and expenses
less policy benefits) increased 51% during the nine months ended September
30, 2000 and decreased 1% during the three months ended September 30, 2000
in comparison to the comparable periods in 1999. The increase over nine
months resulted primarily from the inclusion of the Medicare supplement
health insurance and hospital indemnity health insurance business acquired
in connection with the Statesman Transaction for all of 2000, whereas such
business was included in 1999 starting with June. Total health segment
policy expenses were 37% of total health segment revenue (excluding
realized investment gains) during the nine months ended September 30, 2000
in comparison to 46% of total health segment revenue during the comparable
period in 1999. Total health segment policy expenses were 47% of total
health segment revenue (excluding realized gains) during the three months
ended September 30, 2000 in comparison to 50% of total health premiums
during the comparable period in 1999. The primary reason for the decrease
is that the effective commission rate decreases as premium rate increases
are instituted on the health policies (commissions are not paid on rate
increases.)
The health segment reported a loss before income taxes and realized
investment gains and losses of $477,371 for the nine months ended September
30, 2000 in comparison to a loss of $72,716 for the comparable period in
1999. The health segment reported a loss before income taxes and realized
investment gains and losses of $223,686 for the three months ended
September 30, 2000 in comparison to a loss of $218,886 for the comparable
period in 1999.
LIQUIDITY AND CAPITAL RESOURCES
Primarily due to a decrease in market interest rates during the nine months
ended September 30, 2000, the Company reported net unrealized investment
losses that were $152,493 smaller than they had been at December 31, 1999.
While cash flow from operations for the nine months ended September 30,
2000 is negative, it is not anticipated that the Company will need to
liquidate investments prior to their projected maturities in order to meet
cash flow.
CAUTIONARY STATEMENT
The 1995 Private Securities Litigation Reform Act provides issuers the
opportunity to make cautionary statements regarding forward-looking
statements. Accordingly, any forward-looking statement contained herein or
in any other oral or written statement by the Company or any of its
officers, directors or employees is qualified by the fact that actual
results of the Company may differ materially from such statement due to the
following important factors, among other risks and uncertainties inherent
in the Company's business: state insurance regulations, rate competition,
adverse changes in interest rates, unforeseen losses with respect to loss
and settlement expense reserves for unreported and reported claims, and
catastrophic events.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS
Exhibit 27 Financial Data Schedule
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, 2000 to be signed on its behalf by the
undersigned thereunto duly authorized.
ACAP CORPORATION
(Registrant)
Date: November 10, 2000 By: /s/William F. Guest
-----------------------------
William F. Guest, President
Date: November 10, 2000 By: /s/John D. Cornett
-------------------------------
John D. Cornett, Treasurer
(Principal Accounting Officer)
