=====================================================================
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 SEPTEMBER 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 OCTOBER 31, 2000
-------------------- ----------------
Common Stock, $.10 par value 2,361,233
============================================================================
PART I
FINANCIAL INFORMATION
2
AMERICAN PHYSICIANS SERVICE GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(In thousands)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------ ------------------------
2000 1999 2000 1999
(Restated) (Restated) (Restated) (Restated)
---------- ---------- --------- --------
REVENUES:
Financial services $2,334 $2,505 $7,942 $8,168
Insurance services 1,699 1,098 4,115 3,207
Consulting 536 163 1,852 163
Real estate 177 169 1,370 526
Investments and other 60 66 177 1,703
---------- ---------- -------- -------
Total revenue 4,806 4,001 15,456 13,767
EXPENSES:
Financial services 2,177 2,275 7,235 7,248
Insurance services 1,493 1,070 3,847 3,427
Consulting 557 162 1,765 162
Real estate 118 142 384 420
General and administrative 314 803 1,150 2,909
Interest 116 80 271 170
---------- ---------- -------- -------
Total expenses 4,775 4,532 14,652 14,336
---------- ---------- -------- -------
Operating income(loss) 31 (531) 804 (569)
Equity (loss) in earnings of
unconsolidated affiliates (Note 4) (117) 272 (89) 666
---------- ---------- -------- -------
Earnings (loss) from continuing
operations before income taxes
and minority interest (86) (259) 715 97
Income tax expense (benefit) (23) (87) 304 (57)
Minority interest (22) -- (19) 37
---------- ---------- -------- -------
Earnings (loss) from continuing
Operations (85) (172) 392 191
Discontinued operations:
Earnings from discontinued operations net
of income tax of $0 and $100 for the
three months and $0 and $9 for the nine
months in 2000 and 1999, respectively. -- 193 -- 18
---------- ---------- -------- -------
NET EARNINGS (LOSS) $ (85) $ 21 $ 392 $ 209
========== ========== ======== =======
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 Nine Months Ended
September 30, September 30,
------------------------ ----------------------------
2000 1999 2000 1999
(Restated) (Restated) (Restated) (Restated)
--------- --------- --------- ---------
Basic:
Earnings (loss) from continuing
Operations $ (0.03) $(0.06) $ 0.15 $ 0.06
Discontinued operations -- 0.07 -- --
--------- --------- -------- --------
Net earnings (loss) $ (0.03) $ 0.01 $ 0.15 $ 0.06
========= ========= ======== ========
Diluted:
Earnings (loss) from continuing
Operations $ (0.03) $(0.06) $ 0.14 $ 0.06
Discontinued operations -- 0.07 -- --
--------- --------- -------- --------
Net earnings (loss) $ (0.03) $ 0.01 $ 0.14 $ 0.06
========= ========= ======== ========
Basic weighted average shares outstanding 2,706 2,738 2,535 3,275
========= ========= ======== ========
Diluted weighted average shares outstanding 2,746 2,768 2,747 3,299
========= ========= ======== ========
See accompanying notes to consolidated financial statements
4
AMERICAN PHYSICIANS SERVICE GROUP, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(In thousands)
September 30, December 31,
2000 1999
(Restated) (Restated)
------------- -------------
ASSETS
Current Assets:
Cash and cash investments $2,994 $2,275
Cash - restricted -- 376
Trading account securities 117 348
Management fees and other receivables 1,295 1,344
Notes receivable, net - current 58 270
Deposit with clearing broker 495 1,042
Receivable from clearing broker 150 147
Prepaid expenses and other 396 279
Income taxes receivable 394 200
Deferred income tax asset 176 633
------------- -------------
Total current assets 6,075 6,914
Notes receivable, net, less
current portion 2,066 2,066
Property and equipment 1,483 1,820
Investment in and advances
to affiliates (Note 4) 14,042 14,274
Other investments 4,212 3,969
Goodwill 592 573
Other assets 217 219
------------- -------------
Total Assets $28,687 $29,835
============= =============
See accompanying notes to consolidated financial statements
5
AMERICAN PHYSICIANS SERVICE GROUP, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(In thousands)
September 30, December 31,
2000 1999
(Restated) (Restated)
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable - trade $1,177 $1,242
Payable to clearing broker 593 624
Notes payable - short term -- 12
Payable under loan participation
agreements 259 259
Accrued incentive compensation 499 818
Accrued expenses and other
liabilities (Note 5) 1,118 2,923
----------- -----------
Total current liabilities 3,646 5,878
Net deferred income tax liability 1,661 1,699
Notes payable - long term 4,816 3,298
----------- -----------
Total liabilities 10,123 10,875
Minority interest 86 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 2,377,233
at 9/30/00 and 2,667,233 at 12/31/99 278 278
Additional paid-in capital 5,549 5,549
Retained earnings 14,069 13,644
Unrealized holding gains 34 --
Less: Treasury stock (1,452) (559)
----------- ----------
Total shareholders' equity 18,478 18,912
Total Liabilities and Shareholders' Equity $28,687 $29,835
=========== ==========
See accompanying notes to consolidated financial statements
6
AMERICAN PHYSICIANS SERVICE GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
Nine Months Ended
September 30,
2000 1999
(Restated) (Restated)
----------- -----------
Cash flows from operating activities:
Cash received from customers $14,561 $12,668
Cash paid to suppliers and employees (15,895) (13,509)
Change in trading account securities 235 42
Change in receivable from clearing broker 513 114
Interest paid (271) (170)
Income taxes paid (72) (385)
Interest, dividends and other investment
Proceeds 361 309
----------- -----------
Net cash used in operating
Activities (568) (931)
Cash flows from investing activities:
Proceeds from the sale of fixed assets 966 --
Payments for purchase property and equipment (111) (148)
Proceeds from prior year disposition -- 40
Discontinued operations -- (62)
Proceeds from subsidiary acquisition -- 149
Funds loaned to others (1,451) (4,437)
Payments for purchse of equity investment (188) --
Collection of notes receivable 1,455 1,138
Other 46 32
----------- -----------
Net cash provided by/ (used in)
investing activities 717 (3,288)
Cash flows from financing activities:
Proceeds from borrowings 2,285 3,050
Payment of long term debt (766) --
Exercise of stock options -- 75
Purchase/retire treasury stock (949) (25)
----------- ----------
Net cash provided by financing
Activities 570 3,100
----------- -----------
Net change in cash and cash equivalents $719 ($1,119)
----------- -----------
Cash and cash equivalents at beginning of period 2,275 3,214
----------- -----------
Cash and cash equivalents at end of period $2,994 $2,095
=========== ===========
See accompanying notes to consolidated financial statements
7
AMERICAN PHYSICIANS SERVICE GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS, continued
(In thousands)
Nine Months Ended
September 30,
2000 1999
(Restated) (Restated)
--------- ---------
Reconciliation of net earnings to net cash from
operating activities:
Net earnings $ 392 $ 209
Adjustments to reconcile net earnings to net cash
from operating activities:
Depreciation and amortization 471 494
Provision for bad debts -- 1,869
Earnings from discontinued operations -- (81)
Minority interest in consolidated earnings 19 (37)
Undistributed earnings of affiliate 277 (513)
Undistributed gain of other investment (18) --
Gain on sale of fixed assets (770) --
Gain on exchange of common stock -- (1,635)
Change in federal income tax receivable (194) (431)
Provision for deferred tax asset 419 305
Change in trading securities 235 42
Change in payable to clearing broker 513 114
Change in management fees & other receivables 48 564
Change in prepaids & other current assets (117) (265)
Change in trade payables 311 (161)
Change in accrued expenses & other liabilities (2,154) (1,405)
--------- --------
Net cash from operating activities $ (568) $(931)
========= ========
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
September 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 nine month
period ended September 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
September 30, 2000 and December 31, 1999 and for the nine month periods ended
September 30, 2000 and September 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):
September 30, 2000 December 31, 1999
------------------ -----------------
As Previously As Previously
Reported As Restated Reported As Restated
------------- ----------- ------------- -----------
Assets $ 33,208 $ 28,687 $ 32,661 $ 29,835
Liabilities 11,460 10,123 11,647 10,875
Minority interest 67 86 48 48
Shareholders equity 21,681 18,478 20,966 18,912
9
Three Months Ended Three Months Ended
September 30, 2000 September 30, 1999
------------------ ------------------
As Previously As Previously
Reported As Restated Reported As Restated
------------- ----------- ------------- -----------
Revenue $ 4,878 $ 4,806 $ 4,104 $ 4,001
Operating income (loss) 103 31 (428) (531)
Equity in earnings (loss)
of unconsolidated 435 (117) 608 272
affiliates
Earnings (loss) from
continuing operations 327 (85) 128 (172)
Earnings from
discontinued operations -- -- 194 193
Net earnings (loss) 327 (85) 322 21
Earnings per common share:
Basic:
Continuing operations $0.12 ($0.03) $0.05 ($0.06)
Discontinued operations $ -- $ -- $0.07 $0.07
Net earnings $0.12 ($0.03) $0.12 $0.01
Diluted:
Continuing operations $0.12 ($0.03) $0.05 ($0.06)
Discontinued operations $ -- $ -- $0.07 $0.07
Net earnings $0.12 ($0.03) $0.12 $0.01
Nine Months Ended Nine Months Ended
September 30, 2000 September 30, 1999
------------------ ------------------
As Previously As Previously
Reported As Restated Reported As Restated
------------- ----------- ------------- -----------
Revenue $ 15,644 $ 15,456 $ 14,048 $ 13,767
Operating income (loss) 992 804 (480) (569)
Equity in earnings (loss)
of unconsolidated 1,388 (89) 1,600 666
affiliates
Earnings from
continuing operations 1,492 392 777 191
Earnings from
discontinued operations -- -- 257 18
Net earnings 1,492 392 1,034 209
Earnings per common share:
Basic:
Continuing operations $0.59 $0.15 $0.24 $0.06
Discontinued operations $ -- $ -- $0.08 $ --
Net earnings $0.59 $0.15 $0.32 $0.06
Diluted:
Continuing operations $0.54 $0.14 $0.24 $0.06
Discontinued operations $ -- $ -- $0.08 $ --
Net earnings $0.54 $0.14 $0.31 $0.06
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 September 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, explained as explained in Note 3 to these financial
statements, 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 nine 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.
As of September 30, 2000 six doctors have notified the Company of their intent
to exercise options to convert a total of 125,000 shares of FemPartners common
stock. If the Company elects to purchase the shares for cash the amount would be
approximately $1,670,000.
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 September 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 September 30, 2000 and 1999,
the Company's consolidated retained earnings included losses of Uncommon Care
totaling $2,654,000 and $1,238,000 respectively.
12
5. ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued expenses and other liabilities consists of the following:
September 30 December 31
2000 1999
---- ----
Taxes payable $ 86,000 $ 160,000
Deferred income (Note 7) 300,000 528,000
Contractual/legal claims 370,000 1,409,000
Vacation payable 124,000 116,000
Funds held for others 26,000 402,000
APS Systems disposition costs (discontinued
operations) --- 10,000
Other 212,000 298,000
-------- --------
$1,118,000 $ 2,923,000
========== ===========
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
weighted average shares outstanding used in the calculation of basic and diluted
earnings per share from continuing operations follows:
13
EARNINGS PER SHARE, continued
For the Three Months Ended September 30, 2000
----------------------------------------------
Loss Shares Per Share
(Numerator) (Denominator) Amount
--------- ----------- ----------
Earnings (loss) from
continuing operations $ (85,000)
Basic EPS
Earnings (loss) available to
common stockholders (85,000) 2,707,000 $(0.03)
Effect of Dilutive Securities --- 40,000
------- ---------
Diluted EPS
Earnings (loss) available to
common stockholders and
assumed conversions $ (85,000) 2,747,000 $(0.03)
========= ========= =====
For the Three Months Ended September 30, 1999
----------------------------------------------
(Loss) Shares Per Share
(Numerator) (Denominator) Amount
---------- ------------ --------
Earnings (loss) from continuing
Operations $(172,000)
Basic EPS
Earnings (loss) available to
Common stockholders (172,000) 2,738,000 $(0.06)
Effect of dilutive securities --- 30,000
------- ---------
Diluted EPS
Earnings (loss) available to common
stockholders and assumed
conversions $ (172,000) 2,768,000 $(0.06)
========= ========= ======
14
EARNINGS PER SHARE, continued
For the Nine Months Ended September 30, 2000
---------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ----------- ---------
Earnings from
continuing operations $ 392,000
Basic EPS
Earnings available to
common stockholders 392,000 2,535,000 $ 0.15
Effect of Dilutive Securities --- 212,000
--------- ---------
Diluted EPS
Earnings available to
common stockholders and
assumed conversions $ 392,000 2,747,000 $ 0.14
========== ========== ======
For the Nine Months Ended September 30, 1999
---------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
------------ ------------ ---------
Earnings from continuing
operations $ 191,000
Basic EPS
Earnings available to
common stockholders 191,000 3,275,000 $ 0.06
Effect of Dilutive Securities 24,000
---------
Diluted EPS
Earnings available to common
stockholders and assumed
conversions $ 191,000 3,299,000 $ 0.06
========= ========= ======
Unexercised employee stock options to purchase 1,054,900 and 649,900
shares of the Company's common stock as of September 30, 2000 and 1999,
respectively, were not included in the computations of diluted EPS because the
effect would be antidilutive.
15
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 nine month periods ended September 30, 2000
and 1999 are shown as follows (in thousands):
September 30,
------------------------------------
2000 1999
Operating Revenues: -------------- -------------
Financial services 7,943 8,168
Insurance services 4,115 3,207
Consulting 1,852 163
Real estate 1,509 632
Corporate 864 3,154
--------- ----------
$16,283 $15,324
=========== ===========
Reconciliation to Consolidated
Statement of Earnings:
Total segment revenues $16,283 $15,324
Less:Intercompany profits (139) (107)
Intercompany dividends (688) (1,450)
---------- -----------
Total Revenues $15,456 $13,767
=========== ===========
Operating Profit (Loss)
Financial services 707 890
Insurance services 268 (220)
Consulting 87 1
Real estate 986 106
Corporate (556) 104
-------- ---------
Total segments operating profits $ 1,492 $ 881
Reconciliation to consolidated statement
of earnings:
Total segment operating profits 1,492 881
Less:intercompany dividends (688) (1,450)
--------- ----------
Operating income(loss) 804 (569)
16
Equity in earnings (loss) of affiliates (89) 666
--------- ---------
Earnings from continuing operations
before income taxes and
minority interests 715 97
Income tax expense (benefit) 304 (57)
Minority interests (19) 37
-------- --------
Earnings from continuing operations 392 191
--------- --------
Net profit from discontinued
operations, net of income tax --- 18
----------- --------
Net earnings $ 392 $ 209
=========== ==========
17
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 increased $805,000 (20.1%) and $1,689,000
(12.3%) for the three and nine month periods ended September 30, 2000 compared
to the same periods in 1999. For the current year three and nine month periods
revenues increased at the insurance services,
18
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 $171,000 (6.8%) and $225,000
(2.8%) for the three and nine month periods ended September 30, 2000,
respectively, compared to the same periods in 1999. The decrease in the third
quarter of 2000 was due to lower commission income at APS Financial Corp., a
broker/dealer division of APS Investment Services, Inc. Speculation over further
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 $601,000 (54.7%) and $908,000 (28.3%) for the three and nine
month periods ended September 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 as well as
from a premium increase implemented in July, 2000. The number of new insureds
has increased steadily during the past twelve months, raising total premiums
written and consequently, the total monthly premiums earned.
Consulting revenue increased $373,000 and $1,689,000 for the three and
nine month periods ended September 30, 2000, respectively, compared to the same
periods in 1999. Since the Company did not begin consolidating the financial
results of APS Consulting until September 1, 1999, no revenues were recorded
during the first eight months of 1999.
Real estate revenues increased $8,000 (4.7%) and $845,000 (161.0%) for
the three and nine month periods ended September 30, 2000, respectively,
compared to the same periods in 1999. The current year nine 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 nine month period
ending September 30, 2000 were also higher despite the Company's reduced
ownership due to an increase in rent charged to the Company's tenants. As of
September 30, 2000 the occupancy rate of the building space owned by the Company
was 100%.
Investment and other income decreased $6,000 (9.1%) and $1,526,000
(90%) for the three and nine month periods ended September 30, 2000,
respectively, compared to the same periods in 1999. The current year nine month
decrease was due to the Company recording gains in 1999 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.
19
EXPENSES
Total operating expenses increased $243,000 (5.4%) and $316,000 (2.2%)
for the three and nine month periods ended September 30, 2000, respectively,
compared to the same periods in 1999. For both the current year three and nine
month periods, 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.
Financial services expense decreased $98,000 (4.3%) and $11,000 (0.2%)
for the three and nine month periods ended September 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.
Insurance services expenses at the insurance management subsidiary
increased $423,000 (40%) and $420,000 (12.3%) for the three and nine month
periods September 30, 2000, respectively, compared to the same periods in 1999.
The current period three month increase is due primarily to commission expenses
paid to agents being 74% higher than the same three months in 1999. This is the
result of the increase in commissioned revenue mentioned above.
Consulting expense increased $395,000 and $1,603,000 for the three and
nine month periods ended September 30, 2000, respectively, compared to the same
periods in 1999. Since the Company did not acquire APS Consulting until the
third quarter of 1999, no expenses were recorded during the first eight months
of 1999.
Real estate expenses decreased $24,000 (17%) and $37,000 (8.8%) for the
three and nine month periods ended September 30, 2000, respectively, compared to
the same periods in 1999. The cause for the decline in expenses in both the
three and nine month periods of 2000 was primarily due to lower depreciation
resulting from some assets becoming fully depreciated since the first nine
months of 1999. In addition, the sale of office space during the second quarter
of 2000 lowered depreciation by $9,000 (32.0%) and building maintenance fees by
$4,000.
General and administrative expense decreased $488,000 (61%) and
$1,771,000 (61%) for the three and nine month periods ended September 30, 2000,
respectively, compared to the same periods in 1999. The 2nd quarter of 1999
contained charges to bad bebt expense resulting from a write-down of a note
receivable ($996,000) as well as a separate charge to bad debt expense
($343,000) pertaining to receivables from Syntera HealthCare, Inc. (now
FemPartners, Inc.). No such bad debt write-offs occurred in 2000.
Interest expense increased $36,000 (45.0%) and $101,000 (59.4%) for the
three and nine month periods ended September 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 at September 30, 2000 by $1,735,000 compared to the
year-ago total.
20
EQUITY IN EARNINGS/(LOSS) OF UNCONSOLIDATED AFFILIATES
The Company's equity in earnings of Prime Medical Services, Inc.
("Prime") decreased $173,000 (28.5%) and $389,000 (21.9%) for the three and nine
month periods ended September 30, 2000, respectively, compared to the same
periods in 1999. Depreciation and amortization expense increased $1.1 million
(38.0%) during the current three month period compared to the same three month
period in 1999 as a result of acquisitions of refractive surgery centers. For
the nine month period, 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
third quarter of 1999. As a result of these exchanges, the Company's percentage
ownership of Prime dropped from an average of 15.3% during the first nine months
of 1999 to an average of 14.5% during the first nine months of 2000.
During the first nine months of 2000 and 1999, the Company recorded
losses from its equity investment in Uncommon Care of $(1,477,000) and
$(1,110,000), respectively. 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 outside ownership interests in
subsidiaries of the Company: a twenty percent interest of Insurance Services
owned is 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), is owned by key individuals within APS Asset Management.
21
LIQUIDITY AND CAPITAL RESOURCES
Current assets exceeded current liabilities by $2,429,000 and
$1,036,000 at September 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 nine month period ended September 30,
2000 were approximately $99,000. Total capital expenditures are expected to be
approximately $125,000 in 2000.
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 $4,810,000 was owed under this credit line
as of September 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 September
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. The Company does not
engage in hedging activities or hold any derivative instruments and does not
believe that these statements will have a material effect on our financial
condition or results of operations.
22
PART II
OTHER INFORMATION
23
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 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None
(b) Current reports on Form 8-K.
None
24
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