AMERICAN PUBLIC HOLDINGS, INC.
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20459
FORM 10-Q
Quarterly Report Under Section 13 or 15 (d) of the
Securities Exchange Act of 1934
For the quarter ended September 30, 1997 Commission File Number 0-22479
AMERICAN PUBLIC HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Mississippi 64-0874171
(State or other jurisdiction of (I.R.S. Employer
incorporation of organization) Identification No.)
Registrant's telephone number: (601) 936-6600 ext. 201
No Change
Former name, former address and former fiscal year,
if changed since last report
Indicate by check mark whether the registrant (1) has filed all reports required
by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for shorter period that the registrant was required to
file such report), 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 registrant's classes of
common stock, as of the latest practicable date.
Class Outstanding at October 31, 1997
Common stock (no par value) 52,919 shares
PART I: FINANCIAL INFORMATION
Item 1 - Unaudited Quarterly Financial Statements
Page
Consolidated Balance Sheets 1
September 30, 1997 and December 31, 1996
Consolidated Statements of Operations 2
Three Months Ended September 30, 1997 and 1996
Nine Months Ended September 30, 1997 and 1996
Consolidated Changes in Stockholders' Equity 3
Twelve Months Ended December 31, 1996
Nine Months Ended September 30, 1997
Consolidated Statements of Cash Flows 4
Nine Months Ended September 30, 1997 and 1996
Notes To Consolidated Financial Statements 5
American Public Holdings, Inc.
Consolidated Balance Sheets
As of September 30, 1997(Unaudited)and December 31, 1996
September 30, December 31,
1997 1996
------ ------
ASSETS
Investments:
Securities:
Available for sale $34,594,709 $32,720,388
Mortgage loans 1,011,088 1,075,268
Investment real estate, net 741,159 781,542
Policy loans 1,502,692 1,600,398
---------- ----------
Total investments 37,849,648 36,177,596
OTHER ASSETS:
Cash and cash equivalents 370,696 602,470
Accrued investment income 387,002 424,805
Accounts and notes receivable net of allowance
for uncollectible accounts of $42,000 (1997)
and $46,000 (1996) 439,433 512,906
Deferred policy acquisition costs 10,644,509 11,317,490
Property and equipment - net 2,221,646 2,205,019
Real estate acquired in satisfaction of debt 517,746 583,393
Deferred income tax asset 316,069 357,272
Other 23,244 3,659
---------- ----------
TOTAL ASSETS $52,769,993 $52,184,610
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Future policy benefits $33,408,663 $32,918,172
Unpaid claims 1,083,221 856,085
Unearned premiums 812,524 879,437
Policyholders' dividend accumulations 402,036 396,952
Accounts payable and other liabilities 875,148 997,376
---------- ----------
Total liabilities 36,581,592 36,048,022
STOCKHOLDERS' EQUITY
Preferred stock, $1 par value, authorized
25,000,000 shares
Common stock, $1 stated value, authorized
50,000,000 shares, issued 52,919 shares
in 1997 and 57,250 shares in 1996 52,919 57,250
Additional paid-in capital 2,614,406 2,232,750
Unrealized gain (loss) on available for
sale securities, net of deferred tax
expense of $169,030 for 1997 and
$62,852 for 1996 676,121 251,408
Retained earnings 12,844,955 14,609,589
---------- ----------
16,188,401 17,150,997
Less cost of treasury stock - 4,406 shares (1996) 0 (1,014,409)
---------- ----------
Total stockholders' equity 16,188,401 16,136,588
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $52,769,993 $52,184,610
========== ==========
STOCKHOLDERS' EQUITY PER SHARE $ 305.91 $ 281.86
========== ==========
See notes to consolidated financial statements.
American Public Holdings, Inc.
Consolidated Statements of Operations (Unaudited)
For Nine Months Ended September 30, 1997 and 1996
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
----------------------------- -----------------------------
REVENUE:
Premiums $6,856,691 $6,443,931 $20,269,538 $19,422,835
Net investment income 672,496 631,735 1,974,610 1,768,355
Realized investment
gains (losses) (2,146) (15,086) (29,471) (13,432)
Other income 5,741 6,210 30,603 19,676
--------- --------- --------- ---------
Total Revenues 7,532,782 7,066,790 22,245,280 21,197,434
BENEFITS AND EXPENSES:
Benefits and claims 4,978,568 4,359,801 14,899,249 13,099,648
Commissions expense 536,781 604,536 1,660,540 1,813,681
Salaries and benefits 602,065 580,569 1,797,362 1,763,810
Amortization of
deferred policy
acquisition costs 670,425 663,861 2,274,814 2,308,099
Insurance taxes,
licenses and fees 290,935 305,010 910,787 777,945
Other operating expenses 349,776 365,485 832,010 1,048,916
-------- -------- --------- ----------
7,428,550 6,879,262 22,374,762 20,812,099
--------- --------- ---------- ----------
INCOME (LOSS) BEFORE INCOME
TAX PROVISION (BENEFIT) 104,232 187,528 (129,482) 385,335
INCOME TAX PROVISION
(BENEFIT) 24,733 52,834 19,523 130,797
--------- --------- --------- ----------
NET INCOME (LOSS) $ 79,499 $134,694 $ (149,005) $254,538
========= ========= ========= =========
NET INCOME (LOSS) PER SHARE $ 1.50 $ 2.55 $ (2.82) $ 4.82
========= ========= ========= =========
Shares used in computing income
per share 52,865 57,250 52,865 57,250
========= ========= ========= =========
Cash dividends per share 4.70 4.70 4.70 4.70
========= ========= ========= =========
See notes to consolidated financial statements.
American Public Holdings, Inc.
Consolidated Statements of Changes in Stockholders' Equity
For Periods Indicated (Unaudited)
Unrealized
Additional Gain on Total
Common Stock Paid-in Available for Retained Treasury Stockholders'
Shares Amount Capital Sale Securities Earnings Stock Equity
------ -------- ---------- --------------- ----------- --------- --------------
BALANCE, DECEMBER 31, 1995 57,250 $57,250 $2,232,750 $0 $14,705,318 $(398,009) $16,597,309
Change in net unrealized gain (loss) 251,408 251,408
Treasury Stock acquired (1,068,650) (1,068,650)
Treasury Stock reissued 452,250 452,250
Net Income 156,884 156,884
Dividend paid to Stockholders (252,613) (252,613)
------ ------ --------- -------- ---------- ---------- ----------
BALANCE, DECEMBER 31, 1996 57,250 57,250 2,232,750 251,408 14,609,589 (1,014,409) 16,136,588
Change in net unrealized gain (loss) 424,713 424,713
Stock Issued 75 75 25,050 25,125
Treasury Stock retired (4,406) (4,406) (1,010,003) 1,014,409 0
Adjust exchange price 1,366,609 (1,366,609) 0
Net loss (149,005) (149,005)
Dividend paid to Stockholders (24,020) (249,020)
------ ------ --------- -------- ---------- ---------- ----------
BALANCE, SEPTEMBER 30, 1997 $52,919 $52,919 $2,614,406 $676,121 $12,844,955 $0 $16,188,401
====== ====== ========= ======== ========== ========== ==========
See notes to consolidated financial statements.
American Public Holdings, Inc.
Consolidated Statements of Cash Flows (Unaudited)
For The Nine Months Ended September 30, 1997 and September 30, 1996
September 30, September 30,
1997 1996
------ ------
OPERATING ACTIVITIES:
Net income (loss) $(149,005) $254,538
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Realized loss (gain) of sale of assets 29,471 13,432
Depreciation and other amortization 287,280 252,699
Amortization of deferred policy
acquisition costs 2,274,814 2,308,099
Deferred income tax expense (benefit) (64,975) (98,852)
Decrease (increase) in receivables 111,276 94,186
Decrease (increase) in other assets (19,585) 3,898
Policy acquisition costs deferred (1,601,833) (1,558,226)
Increase in liability for future
policy benefits 490,491 853,504
Increase (decrease) in unpaid claims,
accounts pay and other liabilities 104,908 38,799
Increase (decrease) in unearned
premiums and policyholders' dividend
accumulations (61,829) 36,908
----------- -----------
Net cash provided by operating
activities 1,401,013 2,198,985
INVESTING ACTIVITIES:
Purchase of real estate (5,000)
Proceeds from sale of real estate 41,176 42,010
Purchase of fixed maturity and short-term
investments (70,207,396) (14,815,794)
Mortgage and policy loan repayments 161,886 111,727
Proceeds from maturities and calls of
fixed-maturity and short-term investments 68,863,966 12,782,949
Property and equipment purchased (263,524) (373,011)
Refund of deposit 0 225,000
---------- ----------
Net cash used in investing
activities (1,408,892) (2,027,119)
FINANCING ACTIVITIES:
Proceeds from issuance of stock 25,125 0
Dividends paid to shareholders (249,020) (251,965)
Payments to acquire treasury stock 0 (273,025)
---------- ----------
Net cash used in financing
activities (223,895) (524,990)
---------- ----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (231,774) (353,124)
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD 602,470 301,102
---------- ----------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $370,696 $ (52,022)
========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION-
Income taxes paid (refunded) $75,000 $150,000
========== ==========
See notes to consolidated financial statements.
AMERICAN PUBLIC HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
QUARTERS ENDED AND NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 (Unaudited)
1. BASIS OF PRESENTATION
The consolidated financial statements include those of American Public
Holdings, Inc., and its wholly-owned subsidiary, American Public Life
Insurance Company (APL), and APL's wholly-owned subsidiary,
DentaCare Marketing and Administration, Inc. All significant
intercompany balances and transactions have been eliminated.
These interim financial statements have been prepared on the basis of
accounting principles used in the annual financial statements ended
December 31, 1996, and must be read in conjunction with the 1996
statements. In the opinion of management, the accompanying interim
unaudited consolidated financial statements contain all adjustments
necessary for a fair statement of consolidated financial position and
results of operations of the Company for the interim periods.
2. STOCKHOLDERS' EQUITY
The Company elected to retire its treasury stock in 1997, as shown
in the Consolidated Statements of Changes in Stockholders' Equity.
Additionally, paid-in capital has been adjusted to reflect an increase
in contributed capital from $40 per share to $50 per share.
Proceeds in the amount of $25,125 were received from the issuance of
an additional 75 shares of common stock in July, 1997.
3. EARNINGS (LOSS) PER COMMON SHARE
Earnings (loss) per common share is based on net income (loss) and the
weighted average number of shares outstanding during each interim
period. The number of shares used in computing the earnings per share
was 52,865 for the quarter ended September 30, 1997 and 52,844
for the quarter ended September 30, 1996.
4. COMMITMENTS AND CONTINGENCIES
The Company is required to participate in certain guaranty funds and
involuntary pools of insurance and is therefore exposed to
undeterminable future assessments resulting from the insolvency of
other insurers.
The Company is involved in litigation incurred in the normal course of
business. Management of the Company is of the opinion that the
Company's ultimate liability, if any, which may result from the
litigation will not have a material adverse effect on the
consolidated financial condition or results of operations of the
Company.
Item 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations
Financial Condition - September 30, 1997 Compared to December 31, 1996
Total stockholders' equity increased by $51,813 or .32% from
$16,136,588 at December 31, 1996, to $16,188,401 at September 30, 1997. This
increase is the result of a $424,713 increase in unrealized gain on available
for sale securities at September 30, 1997. However, a net loss from operations
of $149,005 for the first nine months of 1997, and dividends to stockholders
in the amount of $249,020 have offset the impact of the increase in unrealized
gain on available for sale securities.
The Company elected to retire its treasury stock in 1997, as shown in
the Consolidated Statements of Changes in Stockholders' Equity. Additionally,
paid-in-capital has been adjusted to reflect an increase in contributed capital
from $40 per share to $50 per share. Also, an additional 75 shares of common
stock were issued during the third quarter.
Total assets increased by $585,383 or 1.12% at September 30, 1997
compared to December 31, 1996. Securities increased by $1,874,321 or 5.73%
as the result of additional investments made through funds provided by
operations. Deferred policy acquisition costs decreased by $672,981 or 5.95%
because of the runoff of acquisition costs on older lines of business and
because a greater proportion of business written was group business on which
fewer costs are deferred compared to individual insurance products. Deferred
income tax asset decreased $41,203 or 11.53% due to the tax deferment on the
unrealized gain on available for sale securities.
Total liabilities increased $533,570 through September 30, 1997
compared to December 31, 1996. Future policy benefits and unpaid claims
increased $717,627 or 2.12% because of the aging of inforce policies. Other
liabilities decreased $184,057 or 8.09% compared to December 31, 1996 due to
prepayments of premium taxes.
Results of Operations - Third Quarter 1997 Compared to Third Quarter 1996
The Company experienced a net gain in the third quarter of 1997 of
$79,499 compared to net income of $134,694 in the third quarter of 1996.
The decrease in income is due to a significant increase in benefits and claims
caused by higher medical treatment costs. The impact of the increase in
benefits and claims was softened by a $412,760 increase in premiums and
a $40,761 increase in investment income.
Revenue increased by 6.59% from $7,066,790 in the third quarter of
1996 to $7,532,782 in the third quarter of 1997. The increase was due to a
6.45% increase in investment income. The increase in premiums is the result
of increased sales of group insurance, but this increase has been
impacted by the decrease in cancer premiums due to policy lapses caused by
rate increases and low sales of limited chemotherapy benefit cancer products.
Net investment income increased as a result of rental income from investment
property that was idle for most of 1996 and also from additional income earned
from increases in the Company's investment portfolio.
Realized investment losses decreased by $12,940 for the third quarter
of 1997 compared to the third quarter of 1996 due to fewer sales of real estate
acquired in satisfaction of debt.
Benefits and expenses increased by $549,288 in the third quarter of
1997 compared to the third quarter of 1996, a 7.98% increase. This increase was
due to a $618,767 increase in benefits and claims. Benefits and claims increased
because of increased claims exposure on cancer policies, and also from the
introduction of new products such as group dental which have a higher first
year claim cost than other new products. Commissions expense decreased because
of the marketing switch to products with lower commission structures.
Insurance taxes, licenses and fees decreased slightly compared to the
third quarter of the previous year. Administrative costs remained level as a
result of cost cutting measures implemented by management.
Results of Operations - Nine Months ended September 30, 1997 compared to
Nine Months ended September 30, 1996
The Company experienced a net loss in the nine months ended
September 30, 1997 of $149,005 compared to net income of $254,538 in the nine
months ended September 30, 1996. The loss is attributed to an increase of
$1,799,601, or 13.73%, in benefits and claims.
Revenue increased $1,047,846 in 1997 as compared to 1996. The increase
in revenue is due to a 4.36% increase in premium income and a 11.7%
increase in investment income. The increase in premiums is the result of
increased sales of group insurance. However, this increase has been limited
by policy lapses in cancer products from the product portfolio. Net investment
income increased as a result of the receipt of rental income from investment
property that was idle in 1996, and also from additional income derived from an
increasing investment portfolio. Other income increased $10,927 as a result of
a rare receipt of deposit funds from an insured.
Realized investment losses increased as a result of additional sales
of real estate acquired in satisfaction of debt for nine months ended September
30, 1997 as compared to the nine months ended September 30, 1996.
Benefits and expenses increased $1,562,663 in 1997 as compared to
1996. The increase in expenses is due to a 13.73% increase in benefits and
claims. Benefits and claims increased because of increased claims exposure
on comprehensive cancer policies which have high or unlimited benefits for
radiation/chemotherapy treatment, and also from the introduction of new
products such as group dental. Profits were adversely affected by the
comprehensive cancer policies and unanticipated increases in cost of treatment.
These comprehensive cancer policies are no longer being offered for sale. The
Company is making significant rate increases on the existing comprehensive
cancer policies. In an effort to limit losses, the Company is offering two
more affordable policies that provide more limited benefits. These policies
are also being offered to current policyholders who have the existing
comprehensive cancer policies which are subject to the premium increases.
Management is implementing steps which should help control
future cancer benefits. Unlimited chemotherapy benefit products which account
for much of the increase in benefits are no longer offered for sale. In
addition, the Company is preparing an offer of conversion to a limited benefit
policy from the unlimited benefit policies in exchange for a five year rate
guarantee which will decrease benefits.
Commission expense has decreased from 9.3% of premium in 1996 to
8.2% in 1997 due to a marketing switch from individual sales to group
insurance sales. Commission rates on group insurance are typically lower
than individual insurance.
Insurance taxes, licenses and fees increased $132,842 due to the costs
related to a triennial examination. The examination should be concluded in the
fourth quarter of 1997.
Other operating expenses have decreased $216,906 as a result of cost-
cutting measures implemented by management in the first quarter of 1997. The
Company is developing an improved policy administration system which should
allow the Company to become more efficient and thus reduce further the
Company's operating expense.
AMERICAN PUBLIC HOLDINGS, INC.
PART II: OTHER INFORMATION
Item 1 - Legal Proceedings
There have been no material changes to the legal proceedings described in the
Company's Registration Statement on Form 10 as amended (File Number 0-22479).
Item 2 - Changes in Securities
None
Item 3 - Defaults Upon Senior Securities
None
Item 4 - Submission of Matters to a Vote of Security Holders
None
Item 5 - Other Information
None
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27: Financial data schedule
(b) No reports on Form 8-K were filed during the quarter ended September 30,
1997.
AMERICAN PUBLIC HOLDINGS, INC.
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMERICAN PUBLIC HOLDINGS, INC.
(Registrant)
DATE: November 14, 1997 /s/ Jerry C. Stovall
---------------------------------------------
Jerry C. Stovall, President
and Chief Executive Officer
DATE: November 14, 1997 /s/ William F. Weems
---------------------------------------------
William F. Weems
Chief Accounting Officer