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.
-1-
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.
-2-
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.
-3-
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.
-4-
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.
-5-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS FOR THE QUARTERS ENDED MARCH 31, 2000 AND 1999
Financial Condition - March 31, 2000 Compared to December 31, 1999
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.
Results of Operations- First Quarter 2000 Compared to First Quarter 1999
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.
Liquidity and Capital Resources
The
Company’s insurance operations provide the primary source of liquidity for
the Company. The Company needs liquidity for benefit payments, policy
acquisition costs and operating expenses on a recurring basis. The Company is
not aware of any other short-term or long-term liquidity needs, although it is
possible that additional demands for liquidity will arise in the future.
The
Company’s principal sources of cash to meet its liquidity needs are
premiums and investment income. The Company typically generates excess cash flow
each year from operations. Should an occasion arise where additional resources
are needed, the Company’s investments provide an additional source of
liquidity. The Company was required to liquidate various investments in 1999 to
meet negative cash flow needs.
The
Company’s ability to pay dividends is limited by the amount of dividends it
receives from American Public Life. Payment of dividends by American Public Life
is restricted by law to available net surplus computed on a statutory basis. In
addition, without the prior approval of the Mississippi Commissioner of
Insurance, the size of any dividend by American Public Life during any one year
is limited to the lesser of (I) 10% of surplus: or (ii) net gain from operations
for the past three 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 company’s capital by its
risk-based capital ratio (the ratio of its capital, as defined, to its
risk-based capital). These requirements provide a measurement of minimum capital
appropriate for an insurance company to support its overall business operations
based upon its size profile which considers (I) asset risk, (ii) insurance risk,
(iii) interest rate risk and (iv) business risk. American Public Life’s
ratio of adjusted capital to risk-based capital is more than three times the
minimum ratio of 1:1.
Subsequent Events
The Company's Board of Directors signed a definitive
agreement for the sale of the Company to American Fidelity Corporation on April 25, 2000.
AMERICAN PUBLIC HOLDINGS, INC.
PART II. OTHER INFORMATION
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.
AMERICAN PUBLIC HOLDINGS, INC.
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
