United States
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended June 30, 2001
or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transaction period from ____________to
___________.
Commission file number 1-11983
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FPIC Insurance Group, Inc.
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(Exact name of registrant as specified in its charter)
Florida 59-3359111
- ----------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
225 Water Street, Suite 1400, Jacksonville, Florida 32202
- -------------------------------------------------------- ------------------
(Address of principal executive offices) (Zip Code)
(904) 354-2482
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(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 [ ]
As of August 7, 2001, there were 9,406,255 shares of the registrant's common
stock outstanding.
FPIC Insurance Group, Inc.
Form 10-Q
Index
Page
----
Part I
Item 1. Unaudited Consolidated Financial Statements of FPIC Insurance
Group, Inc. and Subsidiaries
o Consolidated Balance Sheets................................... 3
o Consolidated Statements of Income............................. 4
o Consolidated Statements of Comprehensive Income............... 5
o Consolidated Statements of Changes in Shareholders' Equity.... 6
o Consolidated Statements of Cash Flows......................... 7
o Notes to the Unaudited Consolidated Financial Statements...... 9
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................. 13
Item 3. Quantitative and Qualitative Disclosures About Market Risk........ 20
Part II
Item 1. Legal Proceedings................................................. 20
Item 2. Changes in Securities and Use of Proceeds......................... 20
Item 3. Defaults Upon Senior Securities................................... 20
Item 4. Submission of Matters to a Vote of Security Holders............... 21
Item 5. Other Information................................................. 21
Item 6. Exhibits and Reports on Form 8-K.................................. 21
FPIC INSURANCE GROUP, INC.
Consolidated Balance Sheets (in thousands, except common share data)
As of June 30, 2001 and December 31, 2000
(unaudited)
2001 2000
--------------- ----------------
Assets
Cash and cash equivalents $ 48,328 $ 18,967
Bonds and U.S. Government securities, available for sale 355,829 385,513
Equity securities, available for sale 10 555
Other invested assets, at equity 2,754 3,134
Other invested assets, at cost 11,287 11,388
Real estate investments 4,382 4,398
--------------- ----------------
Total cash and investments 422,590 423,955
Premiums receivable, net 43,210 31,211
Accrued investment income 5,812 5,932
Reinsurance recoverable on paid losses 12,451 13,009
Due from reinsurers on unpaid losses and advance premiums 68,265 57,698
Ceded unearned premiums 22,938 10,107
Property and equipment, net 3,910 4,139
Deferred policy acquisition costs 7,133 6,136
Deferred income taxes 17,850 18,271
Finance charge receivable 314 471
Prepaid expenses 1,034 1,662
Goodwill and intangible assets, net 59,846 61,026
Federal income tax receivable 5,704 8,519
Other assets 17,072 10,233
--------------- ----------------
Total assets $ 688,129 $ 652,369
=============== ================
Liabilities and Shareholders' Equity
Loss and loss adjustment expenses $ 294,938 $ 281,295
Unearned premiums 111,794 100,066
Reinsurance payable 9,275 6,518
Paid in advance and unprocessed premiums 4,465 6,146
Revolving credit facility 67,182 67,219
Accrued expenses and other liabilities 23,147 18,598
--------------- ----------------
Total liabilities 510,801 479,842
--------------- ----------------
Commitments and contingencies (Note 7)
Common stock, $.10 par value, 50,000,000 shares authorized; 9,401,255 and
9,380,353 shares issued and outstanding at
June 30, 2001 and December 31, 2000, respectively 940 938
Additional paid-in capital 37,989 37,827
Unearned compensation (42) (105)
Accumulated other comprehensive income 2,262 968
Retained earnings 136,179 132,899
--------------- ----------------
Total shareholders' equity 177,328 172,527
--------------- ----------------
Total liabilities and shareholders' equity $ 688,129 $ 652,369
=============== ================
See accompanying notes to the unaudited consolidated financial statements.
3
FPIC INSURANCE GROUP, INC.
Consolidated Statements of Income (in thousands, except per common share data)
(unaudited)
-------------------------------------------------------------
Three months ended June 30, Six months ended June 30,
2001 2000 2001 2000
-------------- -------------- -------------- --------------
Revenues
Net premiums earned $ 34,802 33,434 $ 66,319 62,553
Net investment income 6,559 6,174 12,628 12,213
Net realized investment losses (285) (90) (380) (110)
Claims administration and management fees 7,581 7,435 14,794 14,556
Commission income 1,174 501 1,664 1,156
Finance charge and other income 214 318 674 1,581
-------------- -------------- -------------- --------------
Total revenues 50,045 47,772 95,699 91,949
-------------- -------------- -------------- --------------
Expenses
Net losses and loss adjustment expenses 32,732 26,531 62,741 50,693
Other underwriting expenses 5,618 4,477 9,909 8,314
Claims administration and management expenses 7,674 7,237 15,267 14,323
Interest expense 1,186 1,013 2,339 2,254
Other expenses 960 1,437 1,938 2,631
-------------- -------------- -------------- --------------
Total expenses 48,170 40,695 92,194 78,215
-------------- -------------- -------------- --------------
Income before income taxes 1,875 7,077 3,505 13,734
Income taxes 13 1,934 349 3,879
-------------- -------------- -------------- --------------
Net income $ 1,862 5,143 $ 3,156 9,855
============== ============== ============== ==============
Basic earnings per common share $ 0.20 0.54 $ 0.34 1.04
============== ============== ============== ==============
Diluted earnings per common share $ 0.20 0.54 $ 0.33 1.02
============== ============== ============== ==============
Basic weighted average common shares outstanding 9,401 9,452 9,397 9,508
============== ============== ============== ==============
Diluted weighted average common shares outstanding 9,458 9,533 9,447 9,628
============== ============== ============== ==============
See accompanying notes to the unaudited consolidated financial statements.
4
FPIC INSURANCE GROUP, INC.
Consolidated Statements of Comprehensive Income (in thousands)
(unaudited)
--------------------------------------------------------
Three months ended June 30, Six months ended June 30,
2001 2000 2001 2000
------------- ------------- ------------- -------------
Net income $ 1,862 5,143 $ 3,156 9,855
------------- ------------- ------------- -------------
Other comprehensive income
Unrealized holding (losses) gains on securities
arising during period (1,946) 126 3,248 2,550
Unrealized holding loss on derivative financial
instruments arising during the period (112) -- (1,299) --
Income tax benefit (expense) related to unrealized
gains and losses 1,560 (49) (655) (984)
------------- ------------- ------------- -------------
Other comprehensive (loss) income (498) 77 1,294 1,566
------------- ------------- ------------- -------------
Comprehensive income $ 1,364 5,220 $ 4,450 11,421
============= ============= ============= =============
See accompanying notes to the unaudited consolidated financial statements.
5
FPIC INSURANCE GROUP, INC.
Consolidated Statements of Changes in Shareholders' Equity (in thousands)
For the Six Months Ended June 30, 2001 and Year Ended December 31, 2000
Accumulated
Additional Other
Common Paid-in Comprehensive Retained Unearned
Stock Capital Income (Loss) Earnings Compensation Total
------------ ------------ ------------- ------------ ------------ ------------
Balances at December 31, 1999 $ 962 41,858 (8,495) 132,285 (231) 166,379
Net income -- -- -- 614 -- 614
Compensation earned on options -- -- -- -- 126 126
Unrealized gain on debt and equity securities, net -- -- 9,463 -- -- 9,463
Repurchase of shares, net (24) (4,031) -- -- -- (4,055)
------------ ------------ ------------- ------------ ------------ ------------
Balances at December 31, 2000 $ 938 37,827 968 132,899 (105) 172,527
============ ============ ============= ============ ============ ============
Net income -- -- -- 3,156 -- 3,156
Compensation earned on options -- -- -- -- 63 63
Cumulative effect of change in accounting
principle (Note 1) -- -- -- 124 -- 124
Unrealized loss on derivative financial
instruments, net -- -- (887) -- -- (887)
Unrealized gain on debt and equity securities, net -- -- 2,181 -- -- 2,181
Issuance of shares, net 2 162 -- -- -- 164
------------ ------------ ------------- ------------ ------------ ------------
Balances at June 30, 2001 (unaudited) $ 940 37,989 2,262 136,179 (42) 177,328
============ ============ ============= ============ ============ ============
See accompanying notes to the unaudited consolidated financial statements.
6
FPIC INSURANCE GROUP, INC.
Consolidated Statements of Cash Flows (in thousands)
(unaudited)
---------------------------------
Six months ended June 30,
2001 2000
--------------- ---------------
Cash flows from operating activities:
Net income $ 3,156 $ 9,855
Adjustments to reconcile net income to cash provided by
operating activities:
Depreciation and amortization 2,336 1,694
Realized loss on investments 380 110
Noncash compensation 63 63
Net loss (gain) from equity investments 249 (11)
Bad debt expense 41 --
Deferred income tax benefit (237) (3,056)
Changes in assets and liabilities:
Premiums receivable, net (11,999) (11,626)
Accrued investment income, net 120 (652)
Reinsurance recoverable on paid losses 558 6,088
Reinsurance recoverable on unpaid losses (10,567) (7,386)
Ceded unearned premium (12,831) 3,872
Reinsurance payable 2,757 1,227
Deferred policy acquisition costs (997) (1,831)
Prepaid expenses and finance charge receivable 785 (427)
Other assets and accrued expenses and other liabilities 6,674 (882)
Loss and loss adjustment expenses 13,643 1,832
Unearned premiums 11,728 (641)
Paid in advance and unprocessed premiums (1,681) (2,247)
Federal income tax receivable 2,815 6,325
--------------- ---------------
Net cash provided by operating activities 6,993 2,307
--------------- ---------------
Cash flows from investing activities:
Proceeds from sale or maturity of bonds and U.S. Government securities 42,785 18,093
Purchase of bonds and U.S. Government securities (20,028) (16,040)
Purchase of goodwill and intangible assets -- (1,895)
Proceeds from sale of real estate investments -- 160
Purchase of real estate investments (112) (12)
Proceeds from sale of other invested assets 218 --
Purchase of other invested assets -- (491)
Purchase of property and equipment, net (623) (300)
Proceeds from sale of subsidiary -- 185
--------------- ---------------
Net cash provided by (used in) investing activities 22,240 (300)
--------------- ---------------
Cash flows from financing activities:
(Repayments) borrowings under revolving credit facility (37) 4,500
Issuance (repurchase) of common stock 165 (3,065)
--------------- ---------------
Net cash provided by financing activities 128 1,435
--------------- ---------------
Net increase in cash and cash equivalents 29,361 3,442
Cash and cash equivalents at beginning of period 18,967 6,830
--------------- ---------------
Cash and cash equivalents at end of period $ 48,328 $ 10,272
=============== ===============
See accompanying notes to the unaudited consolidated financial statements.
Continued
7
FPIC INSURANCE GROUP, INC.
Consolidated Statements of Cash Flows (in thousands)
(unaudited)
-------------------------------
Six months ended June 30,
2001 2000
-------------- --------------
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest $ 2,572 $ 2,409
============== ==============
Federal income taxes $ 540 $ 1,450
============== ==============
Supplemental schedule of noncash investing and financing activities:
Effective January 1, 2000, the Company's insurance subsidiaries
entered into a 100% quota share reinsurance agreement to assume
the death, disability, and retirement ( "DD&R") risks under
Physicians' Reciprocal Insurers' ("PRI") claims made insurance
policies. The Company received cash and bonds in exchange for
business assumed from PRI.
Assumed unearned premiums $ -- $ 33,749
Reduction in net goodwill and intangible assets -- 13,205
Receipt of bonds -- (44,194)
-------------- --------------
Net cash received $ -- $ 2,760
============== ==============
See accompanying notes to the unaudited consolidated financial statements.
8
FPIC INSURANCE GROUP, INC.
Notes to the Unaudited Consolidated Financial Statements
(In Thousands, Except per Common Share Data and Elsewhere as Noted)
1. Organization and Basis of Presentation
--------------------------------------
The accompanying unaudited consolidated financial statements include the
accounts of FPIC Insurance Group, Inc. (the "Company") consolidated with
the accounts of all its subsidiaries. Reference is made to the Company's
most recently filed Form 10-K, which includes information necessary or
useful to understanding the Company's businesses and financial statement
presentations. In particular, the Company's significant accounting
policies and practices are presented in Note 1 to the consolidated
financial statements included in that report.
Financial information in this report reflects adjustments, consisting
only of normal recurring accruals, that are, in the opinion of
management, necessary for a fair statement of results for interim
periods.
For a number of reasons, the Company's results for interim periods may
not be indicative of results to be expected for the year. The timing and
magnitude of losses incurred by insurance subsidiaries and the
estimation error inherent in the process of determining the liability
for loss and loss adjustment expenses can be relatively more significant
to results of interim periods than to results for a full year.
Effective January 1, 2001, the Company adopted Financial Accounting
Standards Board ("FASB") Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("FAS 133") and FASB Statement No.
138, "Accounting for Certain Derivative Instruments and Certain Hedging
Activities, an amendment to FAS 133" ("FAS 138"). FAS 133 requires all
derivative financial instruments, such as interest rate swaps, to be
recognized in the financial statements and measured at fair value
regardless of the purpose or intent for holding them. Changes in the
fair market value of derivative financial instruments are either
recognized periodically in income or shareholders' equity (as a
component of accumulated other comprehensive income), depending on
whether the derivative is being used to hedge changes in fair value
or cash flows. FAS 138 amended the accounting and reporting standards
for certain derivative instruments and hedging activities under FAS
133. The adoption of FAS 133 did not have a material effect on the
Company's consolidated financial statements, but did increase total
shareholders' equity by $124 at January 1, 2001, as a cumulative effect
of a change in accounting principle.
2. Investments
-----------
Data with respect to debt and equity securities, available for sale, are
shown below.
June 30, Dec 31,
2001 2000
----------- ----------
Amortized cost of investments in debt
and equity securities.................. $ 350,963 $ 384,440
June 30, June 30,
2001 2000
----------- ----------
Proceeds from sales and maturities........... $ 42,785 $ 18,093
Gross realized gains......................... $ 526 $ 70
Gross realized losses........................ $ (906) $ (180)
Realized investment gains and losses are recorded when investments are
sold, other-than-temporarily impaired or in certain situations, as
required by generally accepted accounting principles, when investments
are marked-to-market with the corresponding gain or loss included in
earnings. Variations in the amount and timing of realized investment
gains and losses could cause significant variations in periodic net
earnings.
9
FPIC INSURANCE GROUP, INC.
Notes to the Unaudited Consolidated Financial Statements
(In Thousands, Except per Common Share Data and Elsewhere as Noted)
3. Revolving Credit Facility
-------------------------
The Company maintains a $75.0 million revolving credit facility with
four banks to meet certain non-operating cash needs as they may arise.
As of June 30, 2001 and December 31, 2000, $67.2 million had been
borrowed under this credit facility. The credit facility terminates on
January 4, 2002 and bears interest at various rates, primarily based
upon the LIBOR rate plus 125 to 150 basis points. As of June 30, 2001
and December 31, 2000, the interest rate was 6.38% and 7.78%,
respectively. The Company anticipates that before January 4, 2002, it
will either replace the existing credit facility with a similar facility
or obtain alternative financing.
4. Derivative Financial Instruments
--------------------------------
The Company uses interest rate swap agreements (the "swap agreements")
to minimize fluctuations in cash flows caused by interest rate
volatility and to effectively convert all of its floating-rate debt to
fixed-rate debt. Such agreements involve the exchange of fixed and
floating interest rate payments over the life of the agreement without
the exchange of the underlying principal amounts. Accordingly, the
impact of fluctuations in interest rates on these swap agreements is
offset by the opposite impact on the related debt. Amounts to be paid or
received under the swap agreements are recognized as increases or
reductions in interest expense in the periods in which they accrue. The
swap agreements are only entered into with creditworthy counterparties.
The swap agreements in effect at June 30, 2001 are as follows:
Notional Receive Pay
Amount Maturities Rate (1) Rate
------------ -------------- ------------ -----------
$ 60,000 01/02/2004 4.88% 5.27%
$ 7,219 01/02/2004 4.88% 6.68%
(1) Based on three-month LIBOR
The following is a summary of the Company's interest risk management
strategy and the effect of this strategy on the Company's consolidated
financial statements.
Under the swap agreements (the "hedging instruments"), the Company
agrees to pay an amount equal to a specified fixed-rate of interest
times a notional principal amount and to receive in return an amount
equal to a specified variable-rate of interest times the same notional
principal amount. The notional amounts on the contract are not
exchanged. No other cash payments are made unless the contract is
terminated prior to maturity, in which case the amount paid or received
in settlement is established by agreement at the time of termination,
and usually represents the net present value, at current interest rates,
of the remaining obligations to exchange payments under the terms of the
contract. To date, the Company has not terminated the hedging
instruments prior to maturity.
The Company's swap agreements provide a hedge against changes in
the amount of cash flows associated with the Company's revolving credit
facility. Accordingly, the swap agreements are reflected at fair value
in the Company's consolidated balance sheet and the effective portion of
the related gains or losses on the agreements are recognized in
shareholders' equity (as a component of accumulated other comprehensive
income). The net effect of this accounting on the Company's operating
results is that interest expense on the variable debt being hedged is
generally recorded based on fixed interest rates. For the six months
ended June 30, 2001, the net gain or loss on the ineffective portion of
the swap agreements was not material.
The Company formally documents the relationships between the hedging
instruments and the revolving credit facility. The Company also assesses
the effectiveness of the hedging instruments on
10
FPIC INSURANCE GROUP, INC.
Notes to the Unaudited Consolidated Financial Statements
(In Thousands, Except per Common Share Data and Elsewhere as Noted)
a quarterly basis. If it is determined that the hedging instruments are
no longer highly effective, the change in the fair value of the hedging
instrument would be included in earnings rather than comprehensive
income.
5. Reconciliation of Basic and Diluted Earnings Per Common Share
-------------------------------------------------------------
Data with respect to the Company's basic and diluted earnings per common
share are shown below.
Three Months Ended Six Months Ended
-------------------------- --------------------------
6/30/01 6/30/00 6/30/01 6/30/00
------------ ----------- ------------ -------------
Net income and income from continuing operations $ 1,862 5,143 $ 3,156 9,855
============ =========== ============ =============
Basic weighted average shares outstanding 9,401 9,452 9,397 9,508
Common stock equivalents 57 81 50 120
------------ ----------- ------------ -------------
Diluted weighted average shares outstanding 9,458 9,533 9,447 9,628
============ =========== ============ =============
Basic earnings per common share $ 0.20 0.54 $ 0.34 1.04
============ =========== ============ =============
Diluted earnings per common share $ 0.20 0.54 $ 0.33 1.02
============ =========== ============ =============
6. Segment Information
-------------------
The business segments presented in this document have been determined in
accordance with the provisions of FASB Statement No. 131, "Disclosures
about Segments of an Enterprise and Related Information." The Company
has three main operating segments as follows: insurance, third party
administration ("TPA"), and reciprocal management ("RM"). Holding
company operations are included within the insurance segment due to the
size and prominence of the segment and the substantial attention devoted
to it.
Through its four insurance subsidiaries, the Company specializes in
professional liability insurance products and services for physicians,
dentists, other healthcare providers and attorneys. The Company provides
TPA services through its subsidiaries that market and administer self-
insured and fully insured plans for both large and small employers,
including group accident and health insurance, workers' compensation and
general liability and property insurance. In addition, the Company
provides reciprocal management services, brokerage and administration
services for reinsurance programs and brokerage services for the
placement of annuities in structured settlements. The Company evaluates
a segment's performance based on net income. All segments are managed
separately as each business requires different technology and marketing
strategies. Consolidating information by segment is summarized in the
tables below.
Three Months Ended Six Months Ended
------------------------------- -------------------------------
6/30/01 6/30/00 6/30/01 6/30/00
------------- ------------- ------------- -------------
Total Revenues:
--------------
Insurance ................... $ 41,304 39,637 $ 79,056 75,279
TPA ........................ 3,781 3,813 7,778 7,952
RM ........................ 6,356 5,075 11,464 12,716
------------- ------------- ------------- -------------
Total Segments............. 51,441 48,525 98,298 95,947
Intersegment Eliminations.... (1,396) (753) (2,599) (3,998)
------------- ------------- ------------- -------------
Total Revenues............. $ 50,045 47,772 $ 95,699 91,949
============= ============= ============= =============
Net Income (Loss):
-----------------
Insurance ................... $ 804 4,745 $ 1,784 7,305
TPA ........................ (127) (136) (57) (120)
RM ........................ 1,185 534 1,429 2,670
------------- ------------- ------------- -------------
Total Net Income .......... $ 1,862 5,143 $ 3,156 9,855
============= ============= ============= =============
11
FPIC INSURANCE GROUP, INC.
Notes to the Unaudited Consolidated Financial Statements
(In Thousands, Except per Common Share Data and Elsewhere as Noted)
June 30, December 31,
Identifiable Assets: 2001 2000
------------------- ------------- -------------
Insurance ..................................................... $ 617,253 583,294
TPA .......................................................... 15,402 16,565
RM .......................................................... 66,686 62,864
Intersegment Eliminations...................................... (11,212) (10,354)
------------- -------------
Total Assets ................................................ $ 688,129 652,369
============= =============
7. Commitments and Contingencies
-----------------------------
The Company is involved in numerous legal actions arising primarily from
claims under insurance policies. The legal actions arising from claims
under insurance policies have been considered by the Company in
establishing its liability for loss and loss adjustment expenses. The
Company has also been involved in one or more legal actions not
involving claims under its insurance policies from time to time.
Management is not aware of any such actions that in their opinion will
have a material adverse effect on the Company's financial position or
results of operations.
8. New Accounting Pronouncements
-----------------------------
In September 2000, the FASB issued Statement of Financial Accounting
Standards No. 140 ("FAS 140") "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities." FAS 140 replaces
FAS 125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities" and revises the standards for accounting
for securitizations and other transfers of financial assets and
collateral and requires certain disclosures, but it carries over most of
Statement 125's provisions without reconsideration. Except as provided
in paragraphs 20-25, FAS 140 is effective for transfers and servicing of
financial assets and extinguishments of liabilities occurring after
March 31, 2001. Management believes the adoption of FAS 140 will not
have a significant impact on the Company's consolidated financial
statements.
In June 2001, the FASB issued Statement of Financial Accounting
Standards No. 141 ("FAS 141") "Business Combinations." FAS 141 addresses
financial accounting and reporting for business combinations and
supersedes Accounting Principles Board ("APB") Opinion No. 16, "Business
Combinations," and FAS 38, "Accounting for Preacquisition Contingencies
of Purchased Enterprises." All business combinations in the scope of
this Statement are to be accounted for using one method, the purchase
method. The provisions of FAS 141 apply to all business combinations
initiated after June 30, 2001. FAS 141 also applies to all business
combinations accounted for using the purchase method for which the date
of acquisition is July 1, 2001, or later. Management believes the
adoption of FAS 141 will not have a significant impact on the Company's
consolidated financial statements.
In June 2001, the FASB issued Statement of Financial Accounting
Standards No. 142, ("FAS 142") "Goodwill and Other Intangible Assets."
FAS 142 addresses financial accounting and reporting for acquired
goodwill and other intangible assets and supersedes APB Opinion No. 17,
"Intangible Assets." FAS 142 also addresses how intangible assets that
are acquired individually or with a group of other assets (but not those
acquired in a business combination) should be accounted for in financial
statements upon their acquisition and how goodwill and other intangible
assets should be accounted for after they have been initially recognized
in the financial statements. As issued, FAS 142 is effective for all
fiscal years beginning after December 15, 2001. Management has not
determined the impact of FAS 142 on the consolidated financial
statements of the Company.
9. Reclassification
----------------
Certain amounts for 2000 have been reclassified to conform to the 2001
presentation.
12
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
- --------------------------------------------------------------------------------
For purposes of this management discussion and analysis, the term "Company"
refers to FPIC Insurance Group, Inc. and its subsidiaries. The following
discussion and analysis of financial condition and results of operations should
be read in conjunction with the audited, consolidated financial statements and
notes included in the Company's Form 10-K for the year ended December 31, 2000,
which was filed with the Securities and Exchange Commission on March 30, 2001.
Safe Harbor Disclosure
- ----------------------
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for forward-looking statements. Any written or oral statements made by or on
behalf of the Company may include forward-looking statements, which reflect the
Company's current views with respect to future events and financial performance.
These forward-looking statements are subject to certain uncertainties and other
factors that could cause actual results to differ materially from such
statements. These uncertainties and other factors include, but are not limited
to, (i) uncertainties relating to government and regulatory policies (such as
subjecting the Company to insurance regulation or taxation in additional
jurisdictions or amending, revoking or enacting any laws, regulations or
treaties affecting the Company's current operations), (ii) the occurrence of
insured or reinsured events with a frequency or severity exceeding the Company's
estimates, (iii) legal developments, (iv) the uncertainties of the loss
reserving process, (v) the actual amount of new and renewal business and market
acceptance of expansion plans, (vi) the loss of the services of any of the
Company's executive officers, (vii) changing rates of inflation and other
economic conditions, (viii) the ability to collect reinsurance recoverables,
(ix) the competitive environment in which the Company operates, related trends
and associated pricing pressures and developments, (x) the impact of mergers and
acquisitions, including the ability to successfully integrate acquired
businesses and achieve cost savings, competing demands for the Company's capital
and the risk of undisclosed liabilities, (xi) developments in global financial
markets that could affect the Company's investment portfolio and financing
plans, and (xii) risk factors associated with financing and refinancing,
including the willingness of credit institutions to provide financing and the
availability of credit generally.
The words "believe," "anticipate," "estimate," "project," "plan," "expect,"
"intend," "hope," "will likely result" or "will continue" and variations thereof
or similar expressions identify forward-looking statements. Readers are
cautioned not to place undue reliance on these forward-looking statements, which
speak only as of their dates. The Company undertakes no obligation to publicly
update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise.
Overview
- --------
Net income for the second quarter 2001 totaled $1.9 million, or $0.20 per
diluted share, compared with net income of $5.1 million, or $0.54 per diluted
share, for the same period in 2000. Net income for the six months ended June 30,
2001, totaled $3.2 million, or $0.33 per diluted share, compared with net income
of $9.9 million, or $1.02 per diluted share, for the six months ended June 30,
2000. Included in net income are $1.1 million and $2.5 million of pretax losses
on the Company's group accident and health ("A&H") insurance business, for the
three months and six months ended June 30, 2001, respectively. The losses on the
group A&H business decreased in the second quarter as the Company continues its
exit from this line of business during 2001.
Total revenues for the second quarter 2001 increased $2.2 million, to $50.0
million, from $47.8 million for the second quarter 2000. Total revenues for the
six months ended June 30, 2001 increased 4%, to $95.7 million, from $91.9
million for the six months ended June 30, 2000. Revenue growth was driven
primarily by price increases on core medical professional liability ("MPL")
business and by the addition of MPL policyholders in Florida and Missouri.
Revenue growth was also driven by increases in commission income earned by the
Company's non-insurance subsidiaries in New York and Florida.
13
Total expenses for the second quarter 2001 increased $7.5 million, to $48.2
million, from $40.7 million in the second quarter of 2000. Total expenses for
the six months ended June 30, 2001 increased 18%, to $92.2 million, from $78.2
million for the six months ended June 30, 2000. Net losses and LAE incurred
represent $12.0 million of the increase in total expenses for the six months
ended June 30, 2001. Of this amount, approximately $1.9 million reflects a net
reduction in the amount of prior years' reserves released, which did not recur
in the current year. The remaining $10.1 million of the increase reflects the
establishment of reserves for the current book of business, taking into
consideration expected loss trends and an appropriately conservative loss ratio.
Other underwriting expenses also contributed to the increase in total expenses,
primarily as a result of ongoing enhancements made to the Company's financial
and reporting systems and the recognition of additional administrative expenses.
Insurance Segment
- -----------------
The Company's insurance segment is made up of its four insurance subsidiaries,
First Professionals Insurance Company, Inc. ("First Professionals"),
Anesthesiologists Professional Assurance Company ("APAC"), and The Tenere Group,
Inc. ("Tenere") companies of Intermed Insurance Company and Interlex Insurance
Company. Holding company operations are included within the insurance segment
due to the size and prominence of the segment and the substantial attention
devoted to it. Unaudited financial data for the Company's insurance segment for
the three months and six months ended June 30, 2001 and 2000 are summarized in
the table below. Dollar amounts are in thousands.
Three Months Ended Six Months Ended
--------------------------------------- ---------------------------------------
June 30, Percentage June 30, June 30, Percentage June 30,
2001 Change 2000 2001 Change 2000
----------- ------------ ----------- ----------- ------------ -----------
Direct and Assumed Premiums
Written.......................$ 46,942 34% $ 35,046 $ 102,115 (8)% $ 111,079
=========== =========== ============ ===========
Net Premiums Written............$ 29,318 (2)% $ 29,919 $ 65,216 (33)% $ 96,973
=========== =========== ============ ===========
Net Premiums Earned.............$ 34,802 4% $ 33,434 $ 66,319 6% $ 62,553
Net Investment Income........... 6,395 5% 6,072 12,336 2% 12,045
Net Realized Investment
(Losses) Gains .............. (285) (682)% 49 (380) (1410)% 29
Commission Income............... 8 (78)% 37 21 (72)% 74
Finance Charge and Other
Income....................... 188 318% 45 368 (36)% 578
Intersegment Revenue............ 196 100% -- 392 100% --
----------- ----------- ----------- -----------
Total Revenues...............$ 41,304 4% $ 39,637 $ 79,056 5% $ 75,279
----------- ----------- ----------- -----------
Net losses and LAE..............$ 32,732 23% $ 26,531 $ 62,741 24% $ 50,693
Other Underwriting Expenses..... 5,618 25% 4,477 9,909 19% 8,314
Interest Expense................ 1,186 17% 1,013 2,339 4% 2,254
Other Expenses.................. 246 (55)% 545 491 (37)% 784
Intersegment Expense............ 1,200 59% 753 2,206 (45)% 3,998
----------- ----------- ----------- -----------
Total Expenses...............$ 40,982 23% $ 33,319 $ 77,686 18% $ 66,043
----------- ----------- ----------- -----------
Income Before Taxes..... 322 (95)% 6,318 1,370 (85)% 9,236
----------- ----------- ----------- ----------
Net Income .............$ 804 (83)% $ 4,745 $ 1,784 (76)% $ 7,305
=========== =========== =========== ==========
14
Direct and assumed premiums written in the second quarter of 2001 were $46.9
million, an increase of $11.9 million, from $35.0 million in 2000. The increase
in direct and assumed premiums written is primarily the result of an increase in
the number of policyholders and the effect of rate increases on the Company's
core MPL lines. First Professionals instituted a rate increase effective January
1, 2001, while APAC and Tenere had rate increases during the latter half of
2000. A portion of the increase in premiums written for the three months ended
June 30, 2001 was also attributable to fronting arrangements whereby the Company
cedes substantially all of the business to other insurance carriers. The
increase in premiums written was partially offset by declines in MPL assumed
premiums written and group A&H premiums written.
Direct and assumed premiums written declined 8%, to $102.1 million, for the six
months ended June 30, 2001, from $111.1 million for the six months ended June
30, 2000. This decline in direct and assumed premiums written is primarily due
to the non-recurring portion of the assumed premiums under the 100% quota share
reinsurance agreement written in the first quarter of 2000 between the Company's
insurance subsidiaries and Physicians' Reciprocal Insurers ("PRI") of
approximately $34.0 million. Excluding this item, premiums written increased for
the first six months of 2001 as a result of growth in the number of
policyholders, the effects of rate increases and premiums written under fronting
arrangements, as noted above. For the six months ended June 30, 2001, the growth
in premiums written was partially offset by declines in MPL assumed premiums
written and group A&H premiums written.
Net premiums earned in the second quarter of 2001 totaled $34.8 million, an
increase of $1.4 million, or 4%, from $33.4 million in 2000. For the six months
ended June 30, 2001, net premiums earned increased 6%, to $66.3 million, from
$62.6 million for the six months ended June 30, 2000. The increase in net
premiums earned is also the result of the recent increases in policyholders and
rates, as noted above. These increases are less than the increases in direct
premiums written for the same periods, due to the normal lag between written and
earned premiums. In addition, direct premiums written includes premiums written
under fronting arrangements, as noted above.
Net losses and LAE incurred increased $6.2 million to $32.7 million for the
three months ended June 30, 2001, from $26.5 million for the three months ended
June 30, 2000. The loss ratios for such periods were 94% and 79%, respectively.
Net losses and LAE incurred increased $12.0 million to $62.7 million for the six
months ended June 30, 2001, from $50.7 million for the six months ended June 30,
2000. The loss ratios for such periods were 95% and 81%, respectively. The
increases in net losses and LAE incurred are the result of the recognition of
expected loss trends and increases in net premiums earned, offset by a decrease
in the Company's A&H business corresponding with the withdrawal from its A&H
programs.
Other underwriting expenses during the second quarter of 2001 increased $1.1
million, or 25%, to $5.6 million at June 30, 2001, from $4.5 million at June 30,
2000. Other underwriting expenses increased 19%, to $9.9 million for the six
months ended June 30, 2001, from $8.3 million for the six months ended June 30,
2000. The increase in other underwriting expenses is primarily attributable to
additional expenses incurred to improve the financial and reporting systems used
by the Company. The Company also recognized additional administrative expenses
and loan-related fees.
Third Party Administration
- --------------------------
The Company's third party administration segment is made up of McCreary
Corporation and its subsidiary Employers Mutual, Inc.
15
Unaudited financial data for the Company's TPA segment for the three months and
six months ended June 30, 2001 and 2000 are summarized in the table below.
Dollar amounts are in thousands.
Three Months Ended Six Months Ended
--------------------------------------- ---------------------------------------
June 30, Percentage June 30, June 30, Percentage June 30,
2001 Change 2000 2001 Change 2000
----------- ------------ ----------- ----------- ------------ -----------
Net Investment Income...........$ 42 (31)% $ 61 $ 109 3% $ 106
Net Realized Investment
Losses....................... -- 100% (139) -- 100% (139)
Claims Administration and
Management Fees.............. 2,971 (1)% 3,006 6,217 (1)% 6,273
Commission Income............... 521 28% 406 903 37% 658
Other Income.................... 7 17% 6 15 (92)% 182
Intersegment Revenue............ 240 (49)% 473 534 (39)% 872
----------- ----------- ----------- -----------
Total Revenues..............$ 3,781 (1)% $ 3,813 $ 7,778 (2)% $ 7,952
----------- ----------- ----------- -----------
Claims Administration and
Management Expenses..........$ 3,726 (3)% $ 3,828 $ 7,329 (3)% $ 7,523
Other Expenses.................. 171 (8)% 185 361 (40)% 597
Intersegment Expense............ 85 100% -- 171 100% --
----------- ----------- ----------- -----------
Total Expenses..............$ 3,982 (1)% $ 4,013 $ 7,861 (3)% $ 8,120
----------- ----------- ----------- -----------
Loss Before Taxes....... (201) (1)% (200) (83) 51% (168)
----------- ----------- ----------- -----------
Net Loss ...............$ (127) 7% $ (136) $ (57) 53% $ (120)
=========== ============ =========== ===========
Commission income in the second quarter of 2001 increased $0.1 million, or 28%,
to $0.5 million at June 30, 2001, from $0.4 million at June 30, 2000. Commission
income increased $0.2 million, or 37%, to $0.9 million for the six months ended
June 30, 2001, from $0.7 million for the six months ended June 30, 2000. The
increase in commission income is due to the addition of new service contracts
during 2001 and increases in rates paid by insureds.
For the six months ended June 30, 2001, other expenses decreased 40%, to $0.4
million, from $0.6 million, for the six months ended June 30, 2000. The decrease
in other expenses represents savings from the Company's disposition of non-core
businesses during 2000.
Reciprocal Management
- ---------------------
The Company's reciprocal management segment is made up of Administrators for the
Professions, Inc. ("AFP"), the Company's New York subsidiary, and its two wholly
owned subsidiaries, FPIC Intermediaries, Inc. ("Intermediaries") and Group Data
Corporation ("Group Data"). The segment also includes Professional Medical
Administrators, LLC ("PMA"), a 70% owned subsidiary of the Company. AFP acts as
administrator and attorney-in-fact for PRI, the second largest medical
professional liability insurer for physicians in the state of New York.
Intermediaries acts as a reinsurance broker and intermediary in the placement of
reinsurance. Group Data acts as a broker in the placement of annuities for
structured settlements. PMA provides brokerage and administration services for
professional liability insurance programs.
16
Unaudited financial data for the Company's RM segment for the three months and
six months ended June 30, 2001 and 2000 are summarized in the table below.
Dollar amounts are in thousands.
Three Months Ended Six Months Ended
--------------------------------------- ---------------------------------------
June 30, Percentage June 30, June 30, Percentage June 30,
2001 Change 2000 2001 Change 2000
----------- ------------ ----------- ----------- ------------ -----------
Net Investment Income........... $ 122 198% $ 41 $ 183 195% $ 62
Claims Administration and
Management Fees.............. 4,610 4% 4,429 8,577 4% 8,283
Commission Income............... 645 1012% 58 740 75% 424
Other Income.................... 19 (93)% 267 291 (65)% 821
Intersegment Revenue............ 960 243% 280 1,673 (46)% 3,126
----------- ----------- ----------- -----------
Total Revenues............... $ 6,356 25% $ 5,075 $ 11,464 (10)% $ 12,716
----------- ----------- ----------- -----------
Claims Administration and
Management Expenses.......... $ 3,948 16% $ 3,409 $ 7,938 17% $ 6,800
Other Expenses.................. 543 (23)% 707 1,086 (13)% 1,250
Intersegment Expense............ 111 100% -- 222 100% --
----------- ----------- ----------- -----------
Total Expenses.............. $ 4,602 12% $ 4,116 $ 9,246 15% $ 8,050
----------- ----------- ----------- -----------
Income Before Taxes......... 1,754 83% 959 2,218 (52)% 4,666
----------- ----------- ----------- -----------
Net Income ................. $ 1,185 122% $ 534 $ 1,429 (46)% $ 2,670
=========== =========== =========== ===========
Commission income in the second quarter of 2001 increased $0.5 million, to $0.6
million at June 30, 2001, from $0.06 million at June 30, 2000. Commission income
increased $0.3 million, or 75%, to $0.7 million for the six months ended June
30, 2001, from $0.4 million for the six months ended June 30, 2000. The increase
in commission income is due to commissions earned for brokerage services related
to the placement of reinsurance for the Company's insurance subsidiaries.
Other income during the second quarter of 2001 decreased $0.3 million, or 93%,
to $0.02 million at June 30, 2001, from $0.3 million at June 30, 2000. Other
income declined $0.5 million, or 65%, to $0.3 million for the six months ended
June 30, 2001, from $0.8 million for the six months ended June 30, 2000. The
decline in other income resulted from a decrease in the statutory net income of
PRI. In accordance with the management agreement between AFP and PRI, AFP
receives 10% of PRI's statutory net income or loss. AFP also receives a
management fee equal to 13% of PRI's written premiums, which is included in
claims administration and management fees.
Claims administration and management expenses in the second quarter of 2001
increased $0.5 million, or 16%, to $3.9 million at June 30, 2001, from $3.4
million at June 30, 2000. Claims administration and management expenses for the
six months ended June 30, 2001 increased $1.1 million, or 17%, to $7.9 million,
from $6.8 million at June 30, 2000. The increase in claims administration and
management expenses is due to additional commission expense incurred as a result
of growth in brokerage and administration business at PMA related to program
business written by First Professionals and assumed by PRI.
Selected Balance Sheet Items as of June 30, 2001
- ------------------------------------------------
Premiums receivable increased $12.0 million, to $43.2 million as of June 30,
2001, from $31.2 million as of December 31, 2000. The increase in premiums
receivable is driven primarily by price increases on core MPL business and by
the addition of MPL policyholders in Florida and Missouri.
17
Due from reinsurers on unpaid losses and advance premiums increased $10.6
million, to $68.3 million as of June 30, 2001, from $57.7 million as of December
31, 2000. The increase in due from reinsurers on unpaid losses and advance
premiums is related to an increase in gross reserves for which reinsurance
recoverables are established.
Ceded unearned premiums increased $12.8 million, to $22.9 million as of June 30,
2001, from $10.1 million as of December 31, 2000. The increase in ceded unearned
premiums is primarily related to an increase in premiums written under fronting
arrangements whereby the Company cedes substantially all of the business to
other insurance carriers. Also contributing to the increase was a change in
contract terms on one of the Company's large reinsurance agreements from ceding
premium on an earned basis to a written basis.
Deferred policy acquisition costs increased $1.0 million to $7.1 million as of
June 30, 2001 from $6.1 million as of December 31, 2000. The increase in
deferred policy acquisition costs is due to growth in costs incurred related to
the issuance of new insurance policies.
Goodwill and intangible assets decreased $1.2 million to $59.8 million as of
June 30, 2001 from $61.0 million as of December 31, 2000. The decrease in
goodwill and intangible assets is due to the amortization of the goodwill and
intangible assets.
Federal income tax receivable decreased $2.8 million to $5.7 million as of June
30, 2001 from $8.5 million as of December 31, 2000. The decrease in federal
income tax receivable is primarily attributable to the receipt of a federal tax
refund related to the overpayment of estimated tax expense for the year 2000.
Other assets increased $6.9 million to $17.1 million as of June 30, 2001 from
$10.2 million as of December 31, 2000. The increase in other assets is due to
the sale of investments prior to June 30, 2001 for which a receivable from the
broker was recorded. These investments were settled subsequent to June 30, 2001.
The liability for loss and LAE increased $13.6 million to $294.9 million as of
June 30, 2001 from $281.3 million as of December 31, 2000. The increase in the
liability for loss and LAE is primarily due to increases in net premiums earned
and the establishment of reserves for the current book of business, taking into
consideration expected loss trends and an appropriately conservative loss ratio.
Gross reserves also increased due to the increase in ceded business for which
reinsurance recoverables are established.
Unearned premiums increased $11.7 million, to $111.8 million as of June 30,
2001, from $100.1 million as of December 31, 2000. The increase in unearned
premiums is related to growth in direct and assumed premiums written at the
Company's insurance subsidiaries, as noted above.
Reinsurance payable increased $2.8 million, to $9.3 million as of June 30, 2001,
from $6.5 million as of December 31, 2000. The increase in reinsurance payable
is related to an increase in premiums written under fronting arrangements
whereby the Company cedes substantially all of the business to other insurance
carriers. Also contributing to the increase was a change in contract terms on
one of the Company's large reinsurance agreements from ceding premium on an
earned basis to a written basis.
Accrued expenses and other liabilities increased $4.5 million, to $23.1 million
as of June 30, 2001, from $18.6 million as of December 31, 2000. The increase in
accrued expenses and other liabilities is primarily attributable to the receipt
of funds by the Company's RM segment for brokerage services that are payable to
other insurance carriers.
18
Stock Repurchase Plans
- ----------------------
Under the Company's stock repurchase programs, shares may be repurchased at such
times and in such amounts, as management deems appropriate. A decision whether
or not to make additional repurchases will be based upon an analysis of the best
use of the Company's capital and after consultation with the Company's lenders.
Since the commencement of these repurchase programs, the Company has repurchased
853,500 shares at a cost of approximately $16 million. A total of 387,000 shares
remain available to be repurchased under the programs.
Liquidity and Capital Resources
- -------------------------------
The payment of losses, LAE and operating expenses in the ordinary course of
business is the principal need for the Company's liquid funds. Cash provided by
operating activities has been used to pay these items and was sufficient during
the second quarter of 2001 to meet these needs. Management believes these
sources will be sufficient to meet the Company's cash needs for operating
purposes for at least the next twelve months. However, a number of factors could
cause increases in the dollar amount of losses and LAE and may therefore
adversely affect future reserve development and cash flow needs. Management
believes these factors include, among others, inflation, changes in medical
procedures, increased use of managed care and adverse legislative changes. In
order to compensate for such risk, the Company: (i) maintains what management
considers to be adequate reinsurance; (ii) conducts regular actuarial reviews of
loss and LAE reserves; and (iii) maintains adequate asset liquidity (by managing
its cash flow from operations coupled with the maturities from its fixed income
portfolio investments).
The Company maintains a $75.0 million revolving credit facility with four banks
to meet certain non-operating cash needs as they may arise. As of June 30, 2001,
the Company had borrowed $67.2 million under this facility. The credit facility
terminates on January 4, 2002 and bears interest at various rates, primarily
based upon the LIBOR rate plus 125 to 150 basis points. The Company anticipates
that before such time, it will either replace the existing credit facility with
a similar facility or obtain alternative financing. The Company is not required
to maintain compensating balances in connection with this credit facility but is
charged a fee on the unused portion, which ranges from 20 to 30 basis points.
Under the terms of the credit facility, the Company is required to meet certain
financial covenants. Significant covenants are as follows: a) the Company's
funded debt to total capital plus funded debt cannot exceed 0.30:1 and b) net
premiums written to statutory capital and surplus cannot exceed 2.0:1.
At June 30, 2001, the Company held approximately $17.9 million in investments
scheduled to mature during the next twelve months, which combined with net cash
flows from operating activities, are expected to provide the Company with
sufficient liquidity and working capital. As reported in the consolidated
statement of cash flows, the Company generated positive net cash from operating
activities of $7.0 million at June 30, 2001.
Dividends payable by the Company's insurance subsidiaries are subject to certain
limitations imposed by Florida and Missouri laws. In 2001, these subsidiaries
are permitted, within insurance regulatory guidelines, to pay dividends of
approximately $11.3 million, without prior regulatory approval.
Accounting Pronouncements
- -------------------------
Effective January 1, 2001, the Company adopted Financial Accounting Standards
Board ("FASB") Statement No. 133, "Accounting for Derivative Instruments and
Hedging Activities" ("FAS 133") and FASB Statement No. 138, "Accounting for
Certain Derivative Instruments and Certain Hedging Activities, an amendment to
FAS 133" ("FAS 138"). FAS 133 requires all derivative financial instruments,
such as interest rate swaps, to be recognized in the financial statements and
measured at fair value regardless of the purpose or intent for holding them.
Changes in the fair market value of derivative financial instruments are either
recognized periodically in income or shareholders' equity (as a component of
accumulated other comprehensive income), depending on whether the derivative is
being
19
used to hedge changes in fair value or cash flows. FAS 138 amended the
accounting and reporting standards for certain derivative instruments and
hedging activities under FAS 133. The adoption of FAS 133 did not have a
material effect on the Company's consolidated financial statements, but did
increase total shareholders' equity by $124 thousand at January 1, 2001 as a
cumulative effect of a change in accounting principle.
In September 2000, the FASB issued Statement of Financial Accounting Standards
No. 140 ("FAS 140") "Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities." FAS 140 replaces FAS 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities"
and revises the standards for accounting for securitizations and other transfers
of financial assets and collateral and requires certain disclosures, but it
carries over most of Statement 125's provisions without reconsideration. Except
as provided in paragraphs 20-25, FAS 140 is effective for transfers and
servicing of financial assets and extinguishments of liabilities occurring after
March 31, 2001. Management believes the adoption of FAS 140 will not have a
significant impact on the Company's consolidated financial statements.
In June 2001, the FASB issued Statement of Financial Accounting Standards No.
141 ("FAS 141") "Business Combinations." FAS 141 addresses financial accounting
and reporting for business combinations and supersedes Accounting Principles
Board ("APB") Opinion No. 16, "Business Combinations," and FAS 38, "Accounting
for Preacquisition Contingencies of Purchased Enterprises." All business
combinations in the scope of this Statement are to be accounted for using one
method, the purchase method. The provisions of FAS 141 apply to all business
combinations initiated after June 30, 2001. FAS 141 also applies to all business
combinations accounted for using the purchase method for which the date of
acquisition is July 1, 2001, or later. Management believes the adoption of FAS
141 will not have a significant impact on the Company's consolidated financial
statements.
In June 2001, the FASB issued Statement of Financial Accounting Standards No.
142, ("FAS 142") "Goodwill and Other Intangible Assets." FAS 142 addresses
financial accounting and reporting for acquired goodwill and other intangible
assets and supersedes APB Opinion No. 17, "Intangible Assets." FAS 142 also
addresses how intangible assets that are acquired individually or with a group
of other assets (but not those acquired in a business combination) should be
accounted for in financial statements upon their acquisition and how goodwill
and other intangible assets should be accounted for after they have been
initially recognized in the financial statements. As issued, FAS 142 is
effective for all fiscal years beginning after December 15, 2001. Management has
not determined the impact of FAS 142 on the consolidated financial statements of
the Company.
Item 3. Quantitative and Qualitative Disclosures About Market Risk:
- -------------------------------------------------------------------
There have been no material changes in the reported market risks, as described
in the Company's 2000 annual report on Form 10-K, since the end of the most
recent fiscal year.
Part II - Other Information
- ---------------------------
Item 1. Legal Proceedings - None
Item 2. Changes in Securities and Use of Proceeds - None
Item 3. Defaults Upon Senior Securities - None
20
Item 4. Submission of Matters to a Vote of Security Holders
The Company's Annual Meeting of Shareholders (the "Meeting") was held
on June 6, 2001. At the Meeting, the following items were passed by
the vote shown.
Abstentions and
I. Directors Elected at the Meeting For Against Broker non-votes
---------- ---------- ----------------
John K. Anderson 6,975,607 -- 288,742
James W. Bridges, M.D. 6,947,736 -- 316,613
John R. Byers 6,307,460 -- 956,889
J. Stewart Hagen, M.D. 6,947,736 -- 316,613
M.C. Harden, III 6,962,839 -- 301,510
Incumbent Directors continuing after the Meeting
Gaston J. Acosta-Rua, M.D. Richard J. Bagby, M.D. Robert O. Baratta, M.D.
Curtis E. Gause, D.D.S. Louis C. Murray, M.D. Guy T. Selander, M.D.
David M. Shapiro, M.D. James G. White, M.D.
Subsequent to the Meeting, Gene C. Witherspoon was appointed
as a director by the Company's Board of Directors on July 14, 2001.
Under the terms of a management agreement pursuant to which APA
Management, Inc. ("APAM") manages APAC, APAM has the right to
designate a nominee to the Company's Board of Directors so long as the
management agreement remains in effect. Frank Moya, M.D. served as
APAM's designee on the Company's Board until his retirement from the
Board upon the completion of his term ending in June 2001. Mr.
Witherspoon has been appointed by the Board to serve until the 2002
Annual Meeting of Shareholders as APAM's designee to fill the vacancy
created by Dr. Moya's retirement from the Board.
Abstentions and
II. Approve Amendments to For Against Broker non-votes
---------- ---------- ----------------
Director Stock Option Plan 5,772,428 1,408,504 83,417
III. Approve Amendments to
Omnibus Incentive Plan 5,469,721 1,687,129 107,499
Item 5. Other Information - None
Item 6. Exhibits and Reports on Form 8-K
a) The following exhibits are included herewith:
------------------------------------------------
Exhibit 10(d) -- Director Stock Option Plan, an amended,
incorporated by reference to the Company's
definitive proxy statement filed on April 30,
2001.
Exhibit 10(e) -- Omnibus Incentive Plan, as amended, incorporated by
reference to the Company's definitive proxy
statement filed on April 30, 2001.
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.
FPIC Insurance Group, Inc.
/s/ Kim D. Thorpe
-----------------------------------------
August 14, 2001 Kim D. Thorpe, Executive Vice President
and Chief Financial Officer (a duly
authorized officer and the principal
financial officer of the registrant)
21