-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HtTG0QeNfqgiCQ5l++K3cGos2p4gXi6t4VrHr/uOf1q/ZWHrxe+19dMA6awB288N OXTaSKgK+tmt7KUcIOyd9Q== 0000724024-97-000012.txt : 19970508 0000724024-97-000012.hdr.sgml : 19970508 ACCESSION NUMBER: 0000724024-97-000012 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970507 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN PHYSICIANS SERVICE GROUP INC CENTRAL INDEX KEY: 0000724024 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MANAGEMENT SERVICES [8741] IRS NUMBER: 751458323 STATE OF INCORPORATION: TX FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-11453 FILM NUMBER: 97596977 BUSINESS ADDRESS: STREET 1: 1301 CAPITAL OF TEXAS HWY STREET 2: C-300 CITY: AUSTIN STATE: TX ZIP: 78746 BUSINESS PHONE: 5123280888 MAIL ADDRESS: STREET 1: 1301 CAPITAL OF TEXAS HIGHWAY CITY: AUTIN STATE: TX ZIP: 78746 10-Q 1 MARCH 31, 1997 FORM 10-Q ===================================================================== UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE PERIOD ENDED MARCH 31, 1997 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 April 30, 1997 -------------------- ---------------- Common Stock, $.10 par value 4,019,695 ============================================================================ PART I FINANCIAL INFORMATION -2- AMERICAN PHYSICIANS SERVICE GROUP, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (In thousands, except per share data) Three Months Ended March 31, 1997 1996 ---------- --------- REVENUES: Financial services $2,041 2,330 Computer systems/software --- 847 Real estate 182 169 Investments and other 184 110 --------- --------- Total revenues 2,407 3,456 EXPENSES: Financial service expense 1,846 2,006 Computer systems/software --- 877 Real estate 129 128 General and administrative 259 263 Interest 3 16 --------- --------- Total expenses 2,236 3,289 ---------- --------- OPERATING INCOME (LOSS) 171 168 Equity in earnings of unconsolidated affiliates (Note 4) 399 400 --------- --------- Earnings from continuing operations before income taxes 570 567 Income tax expense 204 172 NET EARNINGS 366 395 ========= ========= Earnings per common share: PRIMARY $0.09 0.09 ========= ========== FULLY DILUTED $0.09 0.09 ========= ========= Primary weighted average shares outstanding 4,256 4,264 ========= ========= Fully Diluted weighted average shares outstanding 4,256 4,316 ========= ========= See accompanying notes to consolidated financial statements - 3 - AMERICAN PHYSICIANS SERVICE GROUP, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (In thousands) March 31, December 31, 1997 1996 ------------- ------------- ASSETS CURRENT ASSETS: Cash and cash investments $4,713 5,770 Marketable securities (Note 2) 20 29 Trading account securities 739 699 Notes receivable - current 3,530 3,447 Management fees and other receivables 943 512 Receivable from clearing broker 65 279 Deferred income tax receivable 603 650 Prepaid expenses and other 379 239 ----------- ----------- Total current assets 10,992 11,625 Notes receivable, less current portion 84 179 Property and equipment 1,788 1,781 Investment in Affiliates 10,116 9,657 Other assets 1,363 1,226 ----------- ----------- TOTAL ASSETS $24,343 24,468 ============ =========== See accompanying notes to consolidated financial statements - 4 - AMERICAN PHYSICIANS SERVICE GROUP, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (In thousands) March 31, December 31, 1997 1996 ----------- ----------- LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Current installments of obligations under capital leases $--- 542 Accounts payable - trade 176 382 Accrued compensation 58 252 Accrued expenses and other liabs (Note 5) 2,629 2,144 --------- --------- Total current liabilities 2,864 3,320 LONG-TERM OBLIGATIONS 916 766 --------- --------- TOTAL LIABILITIES 3,780 4,086 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 4,022,965 at 3/31/97 and 4,049,195 at 12/31/96 402 405 Additional paid-in capital 5,190 5,366 Unrealized holding gains/(losses) (17) (11) Retained earnings 14,988 14,622 ----------- ----------- TOTAL SHAREHOLDERS' EQUITY 20,563 20,382 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $24,343 24,468 =========== =========== See accompanying notes to consolidated financial statements - 5 - AMERICAN PHYSICIANS SERVICE GROUP, INC. Consolidated Statements of Cash Flows (Unaudited) (In thousands) Three Months Ended March 31, 1997 1996 ---------- ---------- CASH FLOWS FROM OPERATING ACTIVITIES: Cash received from customers $1,930 3,603 Cash paid to suppliers and employees (2,336) (3,913) Change in trading account securities (40) 725 Change in receivable from clearing broker 100 (674) Interest paid (3) (16) Income taxes paid (7) (598) Interest, dividends and other investment proceeds 46 111 ---------- ---------- Net cash provided by (used in) operating activities (309) (762) CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from the sale of marketable securities --- 1,577 Payments for purchase property and equipment (56) (38) Collection of notes receivable 9 21 Other 21 17 ---------- ---------- Net cash provided by (used in) investing activities (26) 1,577 CASH FLOWS FROM FINANCING ACTIVITIES: Repayment of long term obligations (542) (67) Purchase/retire treasury stock (180) --- Exercise of stock options --- 476 ---------- ---------- Net cash provided by (used in) financing activities (722) 409 ---------- ---------- NET CHANGE IN CASH AND CASH EQUIVALENTS ($1,057) 1,224 ========== ========== CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 5,770 6,797 ---------- ---------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $4,713 8,021 ========== ========== See accompanying notes to consolidated financial statements - 6 - AMERICAN PHYSICIANS SERVICE GROUP, INC. Consolidated Statements of Cash Flows, continued (In thousands) Three Months Ended March 31, 1997 1996 --------- ---------- Reconciliation of net earnings to net cash from operating activities: NET EARNINGS $ 366 395 Adjustments to reconcile net earnings to net cash from operating activities: Depreciation and amortization 87 88 Other miscellaneous gains 133) --- Undistributed earnings of affiliates (399) (400) Change in federal income tax payable 47 (643) Provision for deferred tax asset 150 218 Change in trading securities (40) 725 Change in receivable from clearing broker 100 (674) Change in management fees & other receivables (431) 256 Change in prepaids & other current assets (140) (88) Change in other assets (3) --- Change in trade payables (206) 19 Change in accrued expenses & other liabilities 293 (659) -------- --------- NET CASH FROM OPERATING ACTIVITIES ($309) (762) ======== ========= Summary of non-cash transactions: At March 31, 1997, the Company recognized a gain on the discontinuation of a lawyer's professional liability insurance exchange resulting from the reversal of accruals for contingencies which are no longer considered likely. The result of this transaction was an increase to revenue and an increase to other assets of $133,000. See accompanying notes to consolidated financial statements - 7 - AMERICAN PHYSICIANS SERVICE GROUP, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS March 31, 1997 (Unaudited) 1. General The accompanying unaudited consolidated financial statements have been prepared in conformity with the accounting principles stated in the audited financial statements for the year ended December 31, 1996 and reflect all adjustments which are, in the opinion of management, necessary for a fair statement of the financial position as of March 31, 1997 and the results of operations for the periods presented. These statements have not been audited or reviewed 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-KSB for the year ended December 31, 1996 filed with the Securities Exchange Commission should be read in conjunction with this Quarterly Report on Form 10-Q. There have been no significant changes in the information reported in those notes other than from normal business activities of the Company. Certain reclassifications have been made to amounts presented in prior periods to be consistent with the 1997 presentation. 2. Marketable Securities Marketable securities include equity securities and investments in bonds that are intended to be held less than one year. At January 1, 1994, the Company began recording these securities at fair value, with unrealized holding gains and losses reported as a separate component of shareholders' equity, per SFAS-115. 3. Contingencies In conjunction with a settlement agreement, the Company's broker/dealer subsidiary, APS Financial, has guaranteed the future yield of a customer's investment portfolio beginning in November 1994 for up to a five and one-half year period. Management believes that the Company's financial statements adequately provide for any loss that might occur under this agreement; however, as defined in AICPA Statement of Position 94-6, it is reasonably possible that the Company's estimate of loss could change over the remaining term of the agreement. Management is unable to determine the range of potential adjustment since it is based on securities markets, which are beyond its ability to control. - 8 - 4. Equity in Earnings of Unconsolidated Affiliates The financial statement line item in this quarterly report combines the equity in earnings of Syntera Technologies, Inc. ("Syntera"), a computer systems/software affiliate, and Prime Medical Services, Inc., described below. At March 31, 1997 the Company owned 16% (3,064,000 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 basis. Prime is in the business of providing lithotripsy 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. 1st Quarter 1997 earnings/(loss) from the two affiliates are broken out as follows: 3 Months Prime (In thousands) 461.8 Syntera (In thousands) (63.0) 5. Accrued Expenses and Other Liabilities Accrued expenses and other liabilities consists of the following: Mar Dec 1997 1996 -------- --------- Taxes payable-other .............................. $ 24,000 74,000 Commissions payable .............................. 39,000 18,000 Deferred income .................................. 858,000 339,000 Health insurance and other claims payable ........ 58,000 87,000 Contractual/legal claims ......................... 1,306,000 1,352,000 Vacation payable ................................. 77,000 77,000 Funds held for others ............................ 32,000 63,000 Other ............................................ 235,000 134,000 ---------- --------- $2,629,000 2,144,000 ========== ========= - 9 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS REVENUES Revenues from operations decreased $1,049,000 (30.3%) for the three month period ended March 31, 1997, compared to the same period in 1996. Real estate and investments and other increased while financial services and computer systems and software decreased during the first quarter of 1997 compared to the same period in 1996. Financial services revenues decreased $289,000 (12.4%) for the three month period ended March 31, 1997 compared to the same period in 1996. The decrease in 1997 was due primarily to lower broker/dealer commissions which were down essentially due to a weakened bond market resulting from inflationary fears brought about by a robust economy. Barring further weakening of the bond market, revenues from broker/dealer operations should improve due to the Company's opening of a branch office in Houston, Texas on March 1, 1997. The new office currently employs nine brokers. Revenues from premium-based insurance management fees were down $32,000 (2.8%) for the first three months of 1997 compared to the same period in 1996, due primarily to a lower number of insureds brought about by stiffer competition in the Texas professional liability insurance market Computer systems and software sales revenues decreased $847,000 for the three month period ended March 31, 1997 compared to the same period in 1996. The first quarter decrease was due to the fact that 51% of this subsidiary was sold on July 1, 1996 so revenues and expenses are no longer consolidated into the Company's financials. Rather, the 49% equity in the newly formed affiliate is reported as a single line item on the statement of earnings as "Equity in earnings of unconsolidated affiliates". Monthly earnings/losses within this line item are combined with those of Prime Medical Services, Inc. Real estate revenues rose $13,000 (7.7%) for the three month period ended March 31, 1997 compared to the same period in 1996. The increase in revenue was due to rising lease rates. Given the current economic good health of the Austin real estate market, it is reasonable to expect rental and occupancy rates to remain favorable throughout 1997. Investment and other income increased $74,000 (67.3%) for the three month period ended March 31, 1997 compared to the same period in 1996. The increase was due to a gain associated with the dissolution of an inactive insurance entity. Partially offsetting this gain was reduced interest income arising from a lower investable cash balance. Cash and cash investments was lower due to the purchase of Exsorbet Industries, Inc. common stock which subsequently was converted to a note receivable. (See Item 5) - 10 - EXPENSES Total expenses decreased $1,053,000 (32.0%) for the three month period ended March 31, 1997 compared to the same period in 1996. Financial services, computer systems, general and administrative and interest decreased while real estate services showed an increase for the three month period. Financial services expense decreased $160,000 (8.0%) for the three month period ended March 31, 1997 compared to the same period in 1996. The decrease was primarily the result of lower commissions paid in broker/dealer operations arising from the lower commission revenues. In addition, legal fees were reduced at the broker/dealer subsidiary as prior year claims were settled satisfactorily and no new suits required significant actual or accrued expenditures. Reduced general and administrative expenses within the broker/dealer subsidiary have also contributed to the decrease. Expenses at the insurance management subsidiary increased $95,000 (10.7%) for the three month period ended March 31, 1997 compared to the same period in 1996 due primarily to personnel additions in the marketing department as well as annual merit increases. Computer systems/software expense decreased $877,000 for the three month period ended March 31, 1997 compared to the same period in 1996. The first quarter decrease was due to the fact that 51% of this subsidiary was sold on July 1, 1996 so revenues and expenses are no longer consolidated into the Company's financials. Rather, the 49% equity in the newly formed affiliate is reported as a single line item on the statement of earnings as "Equity in earnings of unconsolidated affiliates". Monthly earnings/losses within this line item are combined with those of Prime Medical Services, Inc. Interest expense decreased $13,000 (81.3%) for the three month period ended March 31, 1997 compared to the same period in 1996. The decrease was due to the early payoff of the note payable for the office space owned by the Company. EQUITY IN EARNINGS OF UNCONSOLIDATED AFFILIATES The Company's equity in earnings of Prime Medical Services, Inc. ("Prime") increased $62,000 (15.5%) while its equity in earnings of Syntera Technologies, Inc. ("Syntera") decreased $63,000. Although earnings at Prime increased 51% in the 1st quarter of 1997 when compared to the same period in 1996, the Company's ownership percentage decreased from approximately 21% to approximately 16%. This dilution was primarily the result of common stock issued to complete a large acquisition by Prime in April, 1996. Syntera's first quarter loss was due to the fact that the new software product remains under development so revenues are limited primarily to support and processing fees charged to existing clients. - 11 - LIQUIDITY AND CAPITAL RESOURCES Current assets exceeded current liabilities by $8,128,000 and $8,305,000 at March 31, 1997, and December 31, 1996, respectively. The decrease is primarily attributable to the puchase and retirement of $180,000 of common stock of the Company. Capital expenditures through the quarter ended March 31, 1997 were approximately $56,000. Total capital expenditures are expected to be approximately $250,000 in 1997. Historically, the Company has maintained a strong working capital position and, has been able to satisfy its operational and capital expenditure requirements with cash generated from it 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. The ability of the Company to borrow against its investment in the common stock of Prime Medical (market value $29,879,000 at March 31, 1997) gives it significant additional liquidity. ADOPTION OF ACCOUNTING STANDARDS The Financial Accounting Standards Board issued Statement of Accounting Standards No. 128, Earnings Per Share ("Statement 128") which replaces Primary EPS and Fully Diluted EPS with Basic EPS and Diluted EPS, respectively. Statement 128 was issued to simplify the computation of EPS and to make the U.S. standard more compatible with the EPS standards of other countries and that of the International Accounting Standards Committee (IASC). Implementation of Statement 128 is scheduled to begin for fiscal years beginning after December 15, 1997. If the Company had applied Standard 128 for the quarter ended March 31, 1997, the rounded earnings per share calculations for both Basic EPS and Diluted EPS would have been the same as Primary EPS and Fully Diluted EPS, respectively. - 12 - PART II OTHER INFORMATION - 13 - 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 5. Other Information On October 31, 1996, the Company invested $3,300,000 in common stock of Exsorbet Industries, inc. ("Exsorbet") (NASDAQ:EXSO) with a put option. Exsorbet is a diversified environmental and technical services company. On November 26, 1996, the Company exercised its put in exchange for a note receivable from Exsorbet. The note is secured by the shares which were subject to the put plus all the stock and substantially all of the assets of a wholly-owned subsidiary of Exsorbet. According to documents which Exsorbet has filed with the Securities and Exchange Commission, Exsorbet has limited liquidity, which would currently not allow payment of the Company's note, and is considering various options to secure such funding, including a private placement of debt or equity. As of April 30, 1997 there has been no change in the status of this note. On December 20, 1996, the Company announced its intention to purchase up to 500,000 shares of the Company's common stock. As of April 30, 1997, the Company has bought back approximately 40,000 shares and expects to repurchase shares so long as they are trading below adjusted book value. On April 4, 1997, the Company formed an alliance with FPIC Insurance Group, Inc. and its subsidiary, Florida Physicians Insurance Company, Inc. ("FPIC") (NASDAQ:FPIC) in a plan to strengthen and expand its presence in the Texas market for medical professional liability insurance. Subject to approval by the Texas Department of Insurance, FPIC has purchased a 20% interest in the Company's subsidiary, APS Insurance Services, Inc. for two million dollars. FPIC also has an option to purchase an additional 35% within two years. - 14 - Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 11 Computation of Net Income Per Share at March 31, 1997 and 1996. (b) Current reports on Form 8-K. A report on Form 8-K was filed with the Securities and Exchange Commission on April 15, 1997 disclosing the Company's sale of 20% of its professional liability insurance subsidiary, APS Insurance Services, Inc. - 15 - 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: May 7, 1997 By: /s/ William H. Hayes ---------------------------- William H. Hayes, Vice President and Chief Financial Officer - 16 - EX-11 2 EXHIBIT 11 : EPS CALCULATION (3 MOS) EXHIBIT 11 AMERICAN PHYSICIANS SERVICE GROUP, INC. COMPUTATION OF NET INCOME PER SHARE FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996 (In thousands, except earnings per share) Primary Fully Diluted Earnings Earnings Per Share Per Share ---------- ---------- 1997 Net Income applicable to common stock $366 366 Average number of shares outstanding 4,032 4,032 Average stock option shares 224 224 ----------- ---------- Shares for earnings calculation 4,256 4,256 Net income per share $0.09 0.09 =========== ========== 1996 Net Income applicable to common stock $395 395 Average number of shares outstanding 3,947 3,947 Average stock option shares 317 369 ----------- ---------- Shares for earnings calculation 4,264 4,316 Net income per share $0.09 0.09 =========== ========== NOTE: Primary and fully diluted income per share were computed by dividing net income by the average number of shares outstanding plus the common stock equivalents which, would arise from the exercise of dilutive stock options. - 17 - EX-27 3 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE MARCH 31, 1997 FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS DEC-31-1997 JAN-01-1997 MAR-31-1997 4,713 759 5,141 0 0 10,992 4,311 2,524 24,343 2,864 0 0 0 402 20,161 24,343 0 2,407 0 2,191 42 0 3 570 204 366 0 0 0 366 0.09 0.09
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