=====================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
AMENDMENT NO. 1 TO
FORM 10-Q/A
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE PERIOD ENDED JUNE 30, 2000
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 JULY 31, 2000
-------------------- ----------------
Common Stock, $.10 par value 2,414,233
============================================================================
PART I
FINANCIAL INFORMATION
2
AMERICAN PHYSICIANS SERVICE GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(In thousands)
Three Months Ended Six Months Ended
June 30, June 30,
------------------------ ------------------------
2000 1999 2000 1999
(Restated) (Restated) (Restated) (Restated)
---------- ---------- --------- --------
REVENUES:
Financial services $1,289 $2,754 $5,608 $5,664
Insurance services 1,141 915 2,416 2,109
Consulting 661 -- 1,316 --
Real estate 980 166 1,193 356
Investments and other 77 1,632 117 1,637
---------- ---------- -------- -------
Total revenue 4,148 5,467 10,650 9,766
EXPENSES:
Financial services 1,347 2,415 5,058 4,969
Insurance services 1,079 1,011 2,354 2,356
Consulting 620 -- 1,209 --
Real estate 127 137 266 271
General and administrative 399 1,663 835 2,118
Interest 77 56 155 90
---------- ---------- -------- -------
Total expenses 3,649 5,282 9,877 9,804
---------- ---------- -------- -------
Operating income(loss) 499 185 773 (38)
Equity in earnings of
unconsolidated affiliates (Note 4) 24 207 28 394
---------- ---------- -------- --------
Earnings from continuing
operations before income taxes
and minority interest 523 392 801 356
Income tax expense 218 45 327 30
Minority interest (6) 12 3 37
--------- --------- -------- --------
Earnings from continuing
operations 299 359 477 363
Discontinued operations:
Loss from discontinued operations net
of income tax of $0 and $118 for the
three months and $0 and $90 for the six
months in 2000 and 1999, respectively. -- (229) -- (175)
---------- ---------- -------- -------
NET EARNINGS (LOSS) $ 299 $130 $477 $188
========== ========== ======== =======
See accompanying notes to consolidated financial statements
3
AMERICAN PHYSICIANS SERVICE GROUP, INC.
CONSOLIDATED STATEMENT OF EARNINGS PER SHARE (UNAUDITED)
(In thousands, except per share amounts)
EARNINGS PER COMMON SHARE:
Three Months Ended Six Months Ended
June 30, June 30,
------------------------ ----------------------------
2000 1999 2000 1999
(Restated) (Restated) (Restated) (Restated)
--------- --------- --------- ---------
Basic:
Earnings from continuing
operations $ 0.11 $ 0.12 $ 0.18 $ 0.10
Discontinued operations 0.00 (0.08) 0.00 (0.05)
--------- --------- -------- --------
Net earnings $ 0.11 $ 0.04 $ 0.18 $ 0.05
========= ========= ======== ========
Diluted:
Earnings from continuing
operations $ 0.11 $ 0.12 $ 0.17 $ 0.10
Discontinued operations 0.00 (0.08) 0.00 (0.05)
--------- --------- -------- --------
Net earnings $ 0.11 $ 0.04 $ 0.17 $ 0.05
========= ========= ======== ========
Basic weighted average shares outstanding 2,611 2,952 2,600 3,548
========= ========= ======== ========
Diluted weighted average shares outstanding 2,745 2,962 2,750 3,569
========= ========= ======== ========
See accompanying notes to consolidated financial statements
4
AMERICAN PHYSICIANS SERVICE GROUP, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(In thousands)
June 30, December 31,
2000 1999
(Restated) (Restated)
------------- -------------
ASSETS
Current Assets:
Cash and cash investments $2,842 $2,275
Cash - restricted -- 376
Trading account securities 161 348
Management fees and other receivables 1,680 1,344
Notes receivable, net - current 88 270
Deposit with clearing broker 779 1,042
Receivable from clearing broker 101 147
Prepaid expenses and other 382 279
Income taxes receivable 375 200
Deferred income tax asset 241 633
------------- -------------
Total current assets 6,649 6,914
Notes receivable, net, less current portion 2,066 2,066
Property and equipment 1,488 1,820
Investment in and advances
to affiliates (Note 4) 13,956 14,274
Other investments 3,972 3,969
Goodwill 543 573
Other assets 217 219
------------- -------------
Total Assets $28,891 $29,835
============= =============
See accompanying notes to consolidated financial statements
5
AMERICAN PHYSICIANS SERVICE GROUP, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(In thousands)
June 30, December 31,
2000 1999
(Restated) (Restated)
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable - trade $ 959 $1,242
Payable to clearing broker 870 624
Notes payable - short term -- 12
Payable under loan participation agreements 259 259
Accrued incentive compensation 304 818
Accrued expenses and other
liabilities (Note 5) 1,519 2,923
----------- -----------
Total current liabilities 3,911 5,878
Net deferred income tax liability 1,699 1,699
Notes payable - long term 4,407 3,298
----------- -----------
Total liabilities 10,017 10,875
Minority interest 64 48
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 2,444,233
at 6/30/00 and 2,667,233 at 12/31/99 278 278
Additional paid-in capital 5,549 5,549
Retained earnings 14,121 13,644
Less: Treasury stock (1,138) (559)
----------- ----------
Total shareholders' equity 18,810 18,912
Total Liabilities and Shareholders' Equity $28,891 $29,835
=========== ==========
See accompanying notes to consolidated financial statements
6
AMERICAN PHYSICIANS SERVICE GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
Six Months Ended
June 30,
2000 1999
(Restated) (Restated)
----------- -----------
Cash flows from operating activities:
Cash received from customers $9,427 $8,908
Cash paid to suppliers and employees (11,391) (9,782)
Change in trading account securities 157 8
Change in receivable from clearing broker 555 53
Interest paid (155) (90)
Income taxes paid (72) (385)
Discontinued operations -- --
Interest, dividends and other investment
proceeds 233 198
----------- -----------
Net cash used in operating
activities (1,246) (1,090)
Cash flows from investing activities:
Proceeds from sale of property and equipment 966 --
Payments for purchase property and equipment (40) (68)
Discontinued operations -- 149
Funds loaned to others (1,154) (3,804)
Collection of notes receivable 1,454 963
Other 69 --
----------- -----------
Net cash provided by/ (used in)
investing activities 1,295 (2,760)
Cash flows from financing activities:
Proceeds from borrowings 1,862 2,360
Payment of long term debt (765) --
Purchase/retire treasury stock (579) (25)
----------- ----------
Net cash provided by financing
activities 518 2,335
----------- -----------
Net change in cash and cash equivalents $567 ($1,515)
----------- -----------
Cash and cash equivalents at beginning of period 2,275 3,214
----------- -----------
Cash and cash equivalents at end of period $2,842 $1,699
=========== ===========
See accompanying notes to consolidated financial statements
7
AMERICAN PHYSICIANS SERVICE GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS, continued
(In thousands)
Six Months Ended
June 30,
2000 1999
(Restated) (Restated)
--------- ---------
Reconciliation of net earnings to net cash
from operating activities:
Net earnings $ 477 $188
Adjustments to reconcile net earnings to net
cash from operating activities:
Depreciation and amortization 309 307
Provision for bad debts -- 1,479
Loss from discontinued operations -- 27
Minority interest in consolidated earnings (3) (37)
Undistributed earnings of affiliate 88 (292)
Undistributed loss of other investment (3) --
Gain on sale of fixed assets (770) --
Gain on exchange of common stock -- (1,635)
Change in federal income tax receivable (175) 569
Provision for deferred tax asset 392 (892)
Change in trading securities 157 8
Change in payable to clearing broker 555 53
Change in management fees & other receivables (336) 795
Change in prepaids & other current assets (103) 87
Change in trade payables 93 (485)
Change in accrued expenses & other liabilities (1,927) (1,262)
--------- ---------
Net cash from operating activities $(1,246) $(1,090)
========= =========
Summary of non-cash transactions:
During the second quarter, 1999, the Company acquired $4,862,000 in
treasury stock by exchanging $4,862,000 in Prime Medical Services, Inc. common
stock. The treasury stock was subsequently retired and the amount in excess of
par was charged to Retained Earnings.
See accompanying notes to consolidated financial statements
8
AMERICAN PHYSICIANS SERVICE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000
(Unaudited)
1. RESTATEMENT
The accompanying consolidated financial statements have been restated to reflect
changes in accounting for Syntera and Uncommon Care.
In the previously reported consolidated financial statements for the six month
period ended June 30, 1999, the Company had accounted for its ownership of
Syntera on the equity method because of management's belief that majority
control of Syntera was temporary based on management's initial business plan.
This plan anticipated that the Company's ownership would decrease to a minority
position as physician practices were acquired over a relatively short period of
time. Syntera was not able to acquire the number of practices originally
anticipated, accordingly Syntera has been consolidated in these restated
consolidated financial statements. Syntera's business was distinct from other
services offered by the Company and it had separate management that reported
directly to the Company's CEO; accordingly, the results of operations of Syntera
are reflected as loss from discontinued operations as Syntera was acquired by an
unrelated company effective August 31, 1999. The Company's previously filed
consolidated financial statements should have reflected Syntera as a
discontinued operation beginning in late 1998 when management decided to dispose
of the segment.
In addition, in the previously reported consolidated financial statements as of
June 30, 2000 and December 31, 1999 and for the six month periods ended June 30,
2000 and June 30, 1999, the Company had accounted for its ownership of Uncommon
Care on the cost basis. The restated consolidated financial statements account
for the investment in Uncommon Care on the equity method. The change from the
cost to the equity method is based on management's ability to exert significant
influence over the operations of Uncommon Care.
A summary of the effects of these restatements on the accompanying consolidated
financial statements is as follows (in thousands):
June 30, 2000 December 31, 1999
------------- -----------------
As Previously As Previously
Reported As Restated Reported As Restated
------------- ----------- ------------- -----------
Assets $ 32,788 $ 28,891 $ 32,661 $ 29,835
Liabilities 11,142 10,017 11,647 10,875
Minority interest 45 64 48 48
Shareholders equity 21,601 18,810 20,966 18,912
9
Three Months Ended Three Months Ended
June 30, 2000 June 30, 1999
------------------ ------------------
As Previously As Previously
Reported As Restated Reported As Restated
------------- ----------- ------------- -----------
Revenue $ 4,209 $ 4,148 $ 5,573 $ 5,467
Operating income 560 499 110 185
Equity in earnings
of unconsolidated
affiliates 482 24 474 207
Earnings from
continuing operations 642 299 381 359
Earnings (loss) from
discontinued operations -- -- -- (229)
Net earnings 642 299 381 130
Earnings per common share:
Basic:
Continuing operations $0.25 $0.11 $0.13 $0.12
Discontinued operations $ -- $ -- $ -- ($0.08)
Net earnings $0.25 $0.11 $0.13 $0.04
Diluted:
Continuing operations $0.23 $0.11 $0.13 $0.12
Discontinued operations $ -- $ -- $ -- ($0.08)
Net earnings $0.23 $0.11 $0.13 $0.04
Six Months Ended Six Months Ended
June 30, 2000 June 30, 1999
------------------ ------------------
As Previously As Previously
Reported As Restated Reported As Restated
------------- ----------- ------------- -----------
Revenue $ 10,766 $ 10,650 $ 9,945 $ 9,766
Operating income (loss) 889 773 (39) (38)
Equity in earnings
of unconsolidated
affiliates 953 28 992 394
Earnings from
continuing operations 1,165 477 649 363
Earnings (loss) from
discontinued operations -- -- 63 (175)
Net earnings 1,165 477 712 188
Earnings per common share:
Basic:
Continuing operations $0.45 $0.18 $0.18 $0.10
Discontinued operations $ -- $ -- $0.02 ($0.05)
Net earnings $0.45 $0.18 $0.20 $0.05
Diluted:
Continuing operations $0.42 $0.17 $0.18 $0.10
Discontinued operations $ -- $ -- $0.02 ($0.05)
Net earnings $0.42 $0.17 $0.20 $0.05
10
2. GENERAL
The accompanying unaudited consolidated financial statements have been prepared
in conformity with the generally accepted accounting principles described in the
audited financial statements for the year ended December 31, 1999 and reflect
all adjustments which are, in the opinion of management, necessary for a fair
statement of the financial position as of June 30, 2000 and the results of
operations for the periods presented. These statements have not been audited 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-K for the year ended December 31, 1999 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 2000 presentation.
3. CONTINGENCIES
In conjunction with a settlement agreement, the Company's broker/dealer
subsidiary, APS Financial, guaranteed the future yield of a customer's
investment portfolio beginning in November 1994 for up to a five and one-half
year period ending in May, 2000. On April 28, 2000 the Company liquidated the
holdings in the customer's investment portfolio and tendered payment to the
customer. Reflected in the earnings for the first six months of 2000 is a charge
to income totaling $192,000 which represents the shortfall in the portfolio
after liquidation.
In connection with the development of Syntera HealthCare Corporation, the
Company entered into Share Exchange Agreements ("Agreements") with the physician
shareholders of Syntera. The Agreements provide that the Syntera shareholders
may, at their option, exchange their shares for a fixed dollar amount of the
Company's common stock in the event that the Syntera shares are not publicly
traded by certain dates. The Company has the option of purchasing any or all of
the shares at the weighted average dollar amount of $5.26 per share rather than
exchanging its common stock. As a result of Syntera's merger with FemPartners,
Inc. in 1999, the Syntera shares were converted to FemPartners shares, with such
shares retaining all of the conversion features. These shares began to become
eligible to exchange in the first quarter of 2000 and continue to become
eligible into the first quarter of 2002. Should all eligible FemPartners shares
(248,000) be presented for exchange and the Company elected to purchase the
shares for cash, the amount would be approximately $3,900,000.
During the second quarter of 2000, four doctors have notified the Company that
they will exercise options to convert 94,000 shares of FemPartners common stock
at a cost to the Company of approximately $1,600,000.
11
4. EQUITY IN EARNINGS OF UNCONSOLIDATED AFFILIATES
At September 30, 2000 the Company owned 14.8% (2,344,000 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 method, as the
Company continues to exercise significant influence over Prime's operating and
financial policies, primarily through the Board of Directors and senior
officers. Two of Prime Medical's seven member board are also members of American
Physicians' board. Mr. Shifrin is CEO of American Physicians and chairman of the
board of both companies. Mr. Hummel is a director of American Physicians and is
CEO and President of Prime Medical. Mr. Searles is a director of both companies.
American Physicians continues to be Prime's largest shareholder. According to
information in Prime's most recent Proxy statement, American Physicians and its
two directors who are also Prime directors have 18.5% beneficial ownership in
Prime. Prime is primarily in the business of providing lithotripsy and
refractive vision surgery 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.
At June 30, 2000 the Company owned preferred shares of Uncommon Care, a
developer and operator of dedicated Alzheimer's care facilities. The preferred
shares owned by the Company are convertible into approximately a 34% common
stock interest in the equity of Uncommon Care on a fully converted basis. The
Company's investment entitles it to vote in certain instances and to elect two
of the five members of the board of directors of Uncommon Care. In addition,
pursuant to a shareholders agreement between Uncommon Care and its shareholders,
one of the directors elected by the holders of the preferred stock must consent
to Uncommon Care's taking certain important corporate actions specified in the
shareholders agreement. As a result, APSG accounts for this investment on the
equity method. The Company has applied the guidance of EITF 99-10, specifically
the percentage of ownership method, in applying the equity method to its
investment in Uncommon Care. Uncommon Care's common stock equity had been
reduced to zero prior to the Company's investment and, accordingly, the Company
has recognized 100% of the losses of Uncommon Care based on its ownership of
100% of Uncommon Care's preferred stock equity. At June 30, 2000 and 1999, the
Company's consolidated retained earnings included losses of Uncommon Care
totaling $2,314,000 and $1,041,000 respectively.
5. ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued expenses and other liabilities consists of the following:
June 30 December 31
2000 1999
---- ----
Taxes payable $ 116,000 $ 160,000
Deferred income (Note 7) 780,000 528,000
Contractual/legal claims 369,000 1,409,000
Vacation payable 118,000 116,000
Funds held for others 15,000 402,000
APS Systems disposition costs
discontinued operations) 10,000 10,000
Other 111,000 298,000
--------- --------
$1,519,000 $2,923,000
========= =========
12
6. EARNINGS PER SHARE
Basic earnings per share is based on the weighted average shares outstanding
without any dilutive effects considered. Diluted earnings per share reflect
dilution from all contingently issuable shares under exchangeable share
agreements and employee stock option agreements. A reconciliation of income and
average shares outstanding used in the calculation of basic and diluted earnings
per share from continuing operations follows:
For the Three Months Ended June 30, 2000
-------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
--------- ----------- -------
Earnings from
continuing operations $ 299,000
Basic EPS
Earnings available to
common stockholders 299,000 2,611,000 $0.11
Effect of Dilutive Securities -- 134,000
-------- ---------
Diluted EPS
Earnings available to
common stockholders and
assumed conversions $ 299,000 2,745,000 $0.11
========= ========= ====
For the Three Months Ended June 30, 1999
-----------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
---------- ----------- -------
Earnings from continuing
operations $ 359,000
Basic EPS
Earnings available to 359,000 2,952,000 $ 0.12
common stockholders
Effect of dilutive securities 10,000
--------
Diluted EPS
Earnings available to
common stockholders and
assumed conversions $ 359,000 2,962,000 $ 0.12
======= ========= ====
13
7. EARNINGS PER SHARE, continued
For the Six Months Ended June 30, 2000
----------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
--------- ----------- ---------
Earnings from
continuing operations $ 477,000
Basic EPS
Earnings available to
common stockholders 477,000 2,600,000 $0.18
Effect of Dilutive Securities -- 150,000
---------- ---------
Diluted EPS
Earnings available to
common stockholders and
assumed conversions $ 477,000 2,750,000 $0.17
========== ========= ====
For the Six Months Ended June 30, 1999
---------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
--------- ----------- --------
Earnings from continuing
operations $ 363,000
Basic EPS
Earnings available to
common stockholders 363,000 3,548,000 $ 0.10
Effect of Dilutive Securities 21,000
--------
Diluted EPS
Earnings available to
common stockholders and
assumed conversions $ 363,000 3,569,000 $ 0.10
======== ========= ====
14
6. EARNINGS PER SHARE, continued
Unexercised employee stock options to purchase 649,900 and 985,500
shares of the Company's common stock as of June 30, 2000 and 1999, respectively,
were not included in the computations of diluted EPS because the effect would be
antidilutive.
7. DEFERRED INCOME
The Company collects commissions on certain medical malpractice
insurance policies. Such commissions are collected in advance. Income is earned
ratably on the policy over the course of the life of the policy, typically
twelve months. Commissions which are not yet earned are recorded as deferred
income on the balance sheet.
8. SEGMENT INFORMATION
The Company's segments are distinct by type of service provided.
Comparative financial data for the six month periods ended June 30, 2000 and
1999 are shown as follows (in thousands):
June 30,
----------------------------------
2000 1999
Operating Revenues: ----------- -----------
Financial services 5,608 5,664
Insurance services 2,416 2,109
Consulting 1,316 --
Real estate 1,193 356
Corporate 553 1,637
--------- ---------
$11,086 $9,766
========== ==========
Reconciliation to Consolidated
Statement of Earnings:
Total segment revenues $11,086 $9,766
Less: Intercompany dividends (436) --
---------- ---------
Total Revenues $10,650 $9,766
========== ==========
Operating Profit (Loss)
Financial services 552 684
Insurance services 62 (247)
Consulting 106 --
Real estate 927 85
Corporate (874) (560)
--------- --------
Total segments operating profits/(loss) $773 $(38)
15
8. SEGMENT INFORMATION, (continued)
-------------------
Equity in earnings of affiliates 28 394
------- -------
Earnings from continuing operations
before income taxes and minority
interests 801 356
Income tax expense 327 30
Minority interests 3 37
--------- --------
Earnings from continuing operations 477 363
--------- --------
Net loss from discontinued
operations, net of income tax -- (175)
--------- --------
Net earnings $477 $188
========= ========
16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FORWARD LOOKING STATEMENTS
All statements past and future, written or oral, made by the Company or
its officers, directors, shareholders, agents, representatives or employees,
including without limitation, those statements contained in this Report on Form
10-Q, that are not purely historical are forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934, including statements regarding the Company's
expectations, hopes, intentions or strategies regarding the future.
Forward-looking statements may appear in this document or other documents,
reports, press releases, and written or oral presentations made by officers of
the Company to shareholders, analysts, news organizations or others. Readers
should not place undue reliance on forward-looking statements. All
forward-looking statements are based on information available to the Company and
the declarant at the time the forward-looking statement is made, and the Company
assumes no obligation to update any such forward-looking statements. It is
important to note that the Company's actual results could differ materially from
those described in such forward-looking statements. In addition to any risks and
uncertainties specifically identified in connection with such forward-looking
statements, the reader should consult the Company's reports on previous Forms
10-Q and other filings under the Securities Act of 1933 and the Securities
Exchange Act of 1934, for factors that could cause actual results to differ
materially from those presented.
Forward-looking statements are necessarily based on various assumptions
and estimates and are inherently subject to various risks and uncertainties,
including risks and uncertainties relating to the possible invalidity of the
underlying assumptions and estimates and possible changes or developments in
social, economic, business, industry, market, legal and regulatory circumstances
and conditions and actions taken or omitted to be taken by third parties,
including customers, suppliers, business partners and competitors and
legislative, judicial and other governmental authorities and officials.
Assumptions relating to the foregoing involve judgements with respect to, among
other things, future economic, competitive and market conditions and future
business decisions, all of which are difficult or impossible to predict
accurately and many of which are beyond the control of the Company. Any such
assumptions could be inaccurate and, therefore, there can be no assurance that
any forward-looking statements by the Company or its officers, directors,
shareholders, agents, representatives or employees, including those
forward-looking statements contained in this Report on Form 10-Q, will prove to
be accurate.
RESULTS OF OPERATIONS
REVENUES
Revenues from operations decreased $1,319,000 (24%) for the three month
period but increased $884,000 (9%) for the six month period ended June 30, 2000
compared to the same periods in 1999. For the current year three month and six
month periods revenues increased at the
17
insurance services, consulting and real estate segments while the investment
services and corporate segments revenues decreased when compared to the same
periods in 1999.
Financial services revenues decreased $1,465,000 (53.2%) and $56,000
(1.0%) for the three and six month periods ended June 30, 2000, respectively,
compared to the same periods in 1999. The decrease in the second quarter of 2000
was due to lower commission income at APS Financial Corp., a broker/dealer
division of APS Investment Services, Inc. The April, 2000 general market
sell-off of high-tech and e-commerce equity securities had an adverse effect on
the bond market as well. This, coupled with interest rate tightening by the
Federal Reserve Board, resulted in investor uncertainty leading to a reduction
of activity in the bond market.
Insurance services revenues from premium-based insurance management
fees increased $226,000 (24.7%) and $307,000 (14.6%) for the three and six month
periods ended June 30, 2000, respectively, compared to the same periods in 1999.
The increase in both periods of the current year was due to an increase in
commissions earned on a higher volume of new business. Partially offsetting the
revenue increase was lower commissions earned on renewal business. Renewal
business declined as a result of raising premiums to reduce the effective
underwriting loss ratio. Although the premium increase will result in fewer
renewals and lower revenues, the profitability per renewed policy is expected to
be greater.
Consulting revenue increased $661,000 and $1,316,000 for the three and
six month periods ended June 30, 2000, respectively, compared to the same
periods in 1999. Since the Company did not begin consolidating the financial
results of APS Consulting until the third quarter of 1999, no revenues were
recorded during the first six months of 1999.
Real estate revenues increased $814,000 (490.4%) and $837,000 (235.1%)
for the three and six month periods ended June 30, 2000, respectively, compared
to the same periods in 1999. The current year three month increase is primarily
the result of gains on the sales of office space formerly leased to the
Company's outside tenants. The sales amounted to a total of approximately 8,000
square feet of the 53,000 total square feet owned by the Company and resulted in
gains of approximately $770,000. Revenues in the six month period ending June
30, 2000 were also higher due to an increase in rent charged to the Company's
tenants. As of June 30, 2000 the occupancy rate of the building space owned by
the Company was 100%. With the continued strength of the Austin real estate
market, rent revenues should be robust for the foreseeable future.
Investment and other income decreased $1,555,000 (95.3%) and $1,520,000
(92.9%) for the three and six month periods ended June 30, 2000, respectively,
compared to the same periods in 1999. During the second quarter of 1999 the
Company recorded gains totaling $1,635,000 from the exchanges of Prime Medical
Services, Inc. (NASDAQ:PMSI) common stock for American Physicians Service Group,
Inc. (NASDAQ:AMPH) common stock. No such gains were recorded in 2000.
18
EXPENSES
Total operating expenses decreased $1,633,000 (31%) and increased
$73,000 (1.0%) for the three and six month periods ended June 30, 2000,
respectively, compared to the same periods in 1999. For the current year three
month period, expenses at the investment services, real estate and corporate
segments decreased while expenses at the insurance services and consulting
segments increased compared to the same three months in 1999. For the current
year six month period, expenses at the insurance services, real estate and
corporate segments decreased while those at the investment services and
consulting segments increased compared to the same six months in 1999.
Financial services expense decreased $1,064,000 (44.1%) but increased
$89,000 (1.8%) for the three and six month periods ended June 30, 2000,
respectively, compared to the same periods in 1999. The primary reason for the
current year three month decrease is lower commission expense resulting from a
decrease in commission revenue at APS Financial, the broker/dealer division of
APS Investment Services, Inc. The opposite was true in the 1st quarter of 2000
where commission revenues, and subsequently commission expenses, were up
substantially over the 1st quarter of 1999. This accounts for the small six
month increase in expenses in the current year compared to 1999.
Insurance services expenses at the insurance management subsidiary
increased $69,000 (7.0%) but decreased $2,000 (0.1%) for the three and six month
periods June 30, 2000, respectively, compared to the same periods in 1999. The
current period three month increase is due primarily to higher personnel costs
resulting from annual merit increases and higher advertising expenses within the
business development department.
Consulting expense increased $620,000 and $1,209,000 for the three and
six month periods ended June 30, 2000, respectively, compared to the same
periods in 1999. Since the Company did not begin consolidating the financial
results of APS Consulting until the third quarter of 1999, no expenses were
recorded during the first six months of 1999.
Real estate expenses decreased $3,000 (2.3%) and $5,000 (1.9%) for the
three and six month periods ended June 30, 2000, respectively, compared to the
same periods in 1999. The cause for the decline in expenses in both the three
and six month periods of 2000 was primarily due to lower depreciation resulting
from some assets becoming fully depreciated since the first six months of 1999.
In addition, the sale of office space mentioned above lowered depreciation,
taxes and building maintenance fees.
General and administrative expense decreased $1,264,000 (76%) and
$1,283,000 (61%) for the three and six month periods ended June 30, 2000,
respectively, compared to the same periods in 1999. The 2nd quarter of 1999
contained charges to bad bebt resulting from a write-down of a note receivable
($996,000) as well as a separate charge to bad debt ($343,000) pertaining to
receivables from Syntera HealthCare, Inc. (now FemPartners, Inc.). No such bad
debt write-offs occurred in 2000.
19
Interest expense increased $21,000 (38%) and $65,000 (72.2%) for the
three and six month periods ended June 30, 2000, respectively, compared to the
same periods in 1999. The primary cause of the current year rise is additional
draws taken by the Company on its line of credit increasing the balance due the
bank by $1,100,000.
EQUITY IN EARNINGS/(LOSS) OF UNCONSOLIDATED AFFILIATES
The Company's equity in earnings of Prime Medical Services, Inc.
("Prime") decreased $127,000 (20.1%) and $215,000 (18.4%) for the three and six
month periods ended June 30, 2000, respectively, compared to the same periods in
1999. Although net income before non-recurring items was up at Prime for both
periods in 2000 compared to the same periods in 1999, Prime recorded $1.1
million of non-recurring income in 1999 which caused net earnings after
non-recurring items to be lower in 2000. In addition, the Company holds a
smaller percentage ownership in Prime resulting from the common stock exchanges
to acquire treasury shares that occurred in the second quarter of 1999. As a
result of these exchanges, the Company's percentage ownership of Prime dropped
from an average of 15.9% during the first six months of 1999 to an average of
14.4% during the first six months of 2000.
During the first six months of 2000 and 1999, the Company recorded
losses from its equity investment in Uncommon Care of $(925,000) and $(774,000),
respectively. These losses were expected during Uncommon Care's early growth
stage. The expenses incurred to develop new facilities and to bring them to full
occupancy exceed profits from the limited early operations and will continue to
do so until the operations are sufficiently large to cover the development
expenses, or until a slowdown in development of new facilities. Uncommon Care
continues to develop new projects and plans to do so through the end of 2000.
MINORITY INTEREST
Minority interest represents the combination of two outside interests
in subsidiaries of the Company: a twenty percent interest of Insurance Services
owned by Florida Physicians Insurance Group, Inc., an A- (Excellent) rated
insurance company as rated by AM Best; and a five percent interest of APS Asset
Management, a division of the financial services subsidiary of the Company (APS
Investment Services), owned by key individuals within APS Asset Management.
LIQUIDITY AND CAPITAL RESOURCES
Current assets exceeded current liabilities by $2,738,000 and
$1,036,000 at June 30, 2000, and December 31, 1999, respectively. The primary
cause of the rise in working capital is cash received from the sale of office
space formerly leased by the Company's outside tenants.
Capital expenditures through the three month period ended June 30, 2000
were approximately $40,000. Total capital expenditures are expected to be
approximately $125,000 in 2000.
20
Historically, the Company has maintained a positive working capital
position and, has been able to satisfy its operational and capital expenditure
requirements with cash generated from its 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. To further its
ability to meet its liquidity requirements and to accelerate its growth, the
Company established a $7,500,000 revolving line of credit with Bank of America.
Funds advanced under the agreement bear interest at the prime rate less 1/4%.
The Company will pledge shares of Prime Medical to the bank as funds are
advanced under the line. A balance of $4,400,000 was owed under this credit line
as of June 30, 2000. The Company believes that its positive working capital
position together with its ability to draw upon its line of credit will provide
sufficient working capital for its foreseeable future needs.
NEW ACCOUNTING PRONOUNCEMENTS
In 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No.133, Accounting for Derivative
Instruments and Hedging Activities as amended by SFAS No. 138, Accounting for
Certain Derivative Instruments and Certain Hedging Activities, in June 2000. The
Company is required to implement these standards effective with our 2001 fiscal
year (after deferral by SFAS No. 137). SFAS No. 133 and 138 address the
accounting for derivative instruments, including certain instruments embedded in
other contracts, and for hedging activities. Under these statements, the Company
will be required to recognize all derivative instruments as either assets or
liabilities and measure those at fair value. If certain conditions are met, a
derivative may be specifically designated as a hedge, an unrecognized firm
commitment, an available-for-sale security, or a foreign-currency-dominated
forecasted transaction. The Company does not believe that these statements will
have a material effect on our financial condition or results of operations.
In March 2000, the Financial Accounting Standards Board issued FASB
Interpretation (FIN) No.44, Accounting for Certain Transactions involving Stock
Compensation. FIN No. 44 clarifies the application of APB Opinion No. 25,
Accounting for Stock Issued to Employees. This interpretation is effective July
1, 2000. We do not believe that this interpretation will have a material effect
on our financial condition or results of operations.
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PART II
OTHER INFORMATION
22
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 4. RESULTS OF VOTES OF SECURITY HOLDERS
On June 12, 2000 the annual meeting of shareholders of American
Physicians Service Group, Inc. was held in Austin, Texas. Shareholders voted on
the following item:
Election of Directors
The names of the directors elected at the meeting along with numbers of votes
for, against and withheld are as follows:
Name For Against Withheld
------------------- ----------- ----------- -----------
Brad A. Hummel 2,535,501 55,214 ---
Robert L. Myer 2,535,501 55,214 ---
William A. Searles 2,535,501 55,214 ---
Kenneth S. Shifrin 2,535,501 55,214 ---
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None
(b) Current reports on Form 8-K.
None
23
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: March 23, 2001 By: /s/ William H. Hayes
--------------------------------------
William H. Hayes, Vice President
and Chief Financial Officer