-----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, JTqAlFdxcURT11968o7SUcr/P4oc3jKopcbuNxdJIqKpHxp3NKggQU2jbqaRRVRJ xSA1ZmDLQCVAWNRDKeYERA== 0001047469-98-019973.txt : 19980515 0001047469-98-019973.hdr.sgml : 19980515 ACCESSION NUMBER: 0001047469-98-019973 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980514 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: PENN TREATY AMERICAN CORP CENTRAL INDEX KEY: 0000814181 STANDARD INDUSTRIAL CLASSIFICATION: LIFE INSURANCE [6311] IRS NUMBER: 231664166 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-15972 FILM NUMBER: 98619340 BUSINESS ADDRESS: STREET 1: 3440 LEHIGH ST CITY: ALLENTOWN STATE: PA ZIP: 18103 BUSINESS PHONE: 2159652222 MAIL ADDRESS: STREET 1: 3440 LEHIGH ST STREET 2: 3440 LEHIGH ST CITY: ALLENTOWN STATE: PA ZIP: 18103 10-Q 1 FORM 10-Q FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 [X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended March 31, 1998 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 0-13972 PENN TREATY AMERICAN CORPORATION ---------------------------------------------------- (Exact name of registrant as specified in its charter) PENNSYLVANIA 23-1664166 - ------------------------------ --------------------------- (State or other jurisdiction of (I.R.S. Employer Identifi- incorporation of organization) cation No.) 3440 Lehigh Street, Allentown, PA 18103 ----------------------------------------- (Address, including zip code, of principal executive offices) (610) 965-2222 ---------------- (Registrant's telephone number, including area code) Not Applicable --------------- (Former name, former address and former fiscal year, if change since last report) 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 __ The number of shares outstanding on the Registrant's common stock, par value $.10 per share, as of May 8, 1998 was 7,796.246. PART I FINANCIAL INFORMATION Item 1. Financial Statements The registrant's Unaudited Consolidated Balance Sheets, Statements of Income and Statements of Cash Flows and Notes thereto required under this item are contained on pages 3 through 7 of this report, respectively. These financial statements represent the consolidation of the operations of the registrant, and its subsidiaries, American Network Insurance Company ("ANIC"), Senior Financial Consultants Company and Penn Treaty Life Insurance Company ("PTLIC"). ANIC, PTLIC and its subsidiary, Penn Treaty Network America Insurance Company ("PTNA"), (formerly Network America Life Insurance Company), (collectively, "the Insurers"), are underwriters of long-term care insurance products. PTLIC and PTNA are also underwriters of life insurance products. 2 PENN TREATY AMERICAN CORPORATION AND SUBSIDIARIES Consolidated Balance Sheets (amounts in thousands)
March 31, December 31, 1998 1997 --------- ------------ (unaudited) ASSETS Investments Bonds, available for sale at market (cost $264,725 and $271,315, respectively) $271,482 $278,148 Equity securities at market value (cost of $3,099 and $18,511, respectively) 3,200 23,554 Policy loans 95 85 --------- ------------ Total Investments 274,777 301,787 Cash and cash equivalents 54,259 11,241 Property and equipment, at cost, less accumulated depreciation of $2,513 and $2,399, respectively 8,901 8,753 Unamortized deferred policy acquisition costs 118,746 110,471 Receivables from agents, less allowance for uncollectable amounts of $130 and $130, respectively 1,138 1,107 Accrued investment income 4,230 4,112 Federal income tax recoverable 2,411 1,182 Cost in excess of fair value of net assets acquired, less accumulated amortization of $794 and $716, respectively 6,584 6,661 Present value of future profits acquired 3,493 3,597 Receivable from reinsurers 11,430 10,541 Other assets 7,970 6,318 --------- ------------ Total assets $493,939 $465,770 --------- ------------ --------- ------------ LIABILITIES Policy reserves: Accident and health $151,389 $139,962 Life 8,146 8,116 Policy and contract claims 83,953 78,142 Accounts payable and other liabilities 8,697 6,192 Long-term debt 76,560 76,752 Deferred income taxes 27,368 23,850 --------- ------------ Total liabilities 356,113 333,014 --------- ------------ Commitments and contingencies SHAREHOLDERS' EQUITY Preferred stock, par value $1.00; 5,000 shares authorized, none outstanding -- -- Common stock, par value $.10; 225,000 and 10,000 shares authorized, 8,178 and 8,178 shares issued 818 818 Additional paid-in capital 53,205 53,194 Net unrealized appreciation of securities 4,526 7,838 Retained earnings 80,983 76,612 --------- ------------ 139,532 134,462 Less 606 common shares held in treasury, at cost (1,706) (1,706) --------- ------------ 137,826 132,756 --------- ------------ Total liabilities and shareholders' equity $493,939 $465,770 --------- ------------ --------- ------------
See accompanying notes to consolidated financial statements. 3 PENN TREATY AMERICAN CORPORATI0N AND SUBSIDIARIES Consolidated Statements of Operations and Comprehensive Income (unaudited) (amounts in thousands, except per share data)
Three Months Ended March 31, ----------------------- 1998 1997 --------- ---------- Revenue: Accident and health premiums $ 50,912 $ 38,816 Life premiums 867 894 --------- --------- 51,779 39,710 Net investment income 4,626 3,893 Net realized capital gains 6,715 50 Other income 76 79 --------- --------- 63,196 43,732 Benefits and expenses: Benefits to policyholders 34,282 25,331 Commissions 17,365 12,907 Net policy acquisition costs deferred (8,275) (5,492) General and administrative expense 5,955 4,967 Interest expense 1,213 1,203 --------- --------- 50,540 38,916 --------- --------- Income before federal income taxes 12,656 4,816 Provision for federal income taxes 4,285 1,397 --------- --------- Net income 8,371 3,419 --------- --------- Other comprehensive income: Unrealized holding gain (loss) arising during period 1,696 (4,936) Income (tax) benefit from unrealized holdings (577) 1,678 Reclassification adjustment for (gain) loss included in net income (6,715) (50) Income (tax) benefit from reclassification adjustment 2,283 17 --------- --------- --------- --------- Comprehensive income $ 5,059 $ 128 --------- --------- --------- --------- Basic earnings per share $ 1.11 $ 0.45 Diluted earnings per share $ 0.88 $ 0.42 Weighted average number of shares outstanding 7,572 7,516 Weighted average number of shares outstanding (diluted) 10,418 10,340 --------- --------- --------- ---------
See accompanying notes to consolidated financial statements 4 PENN TREATY AMERICAN CORPORATION AND SUBSIDIARIES Consolidated Statements of Cash Flows for the three months ended March 31, (unaudited) (amounts in thousands)
1998 1997 -------- --------- Net cash flow from operating activities: Net income $ 8,371 $ 3,419 Adjustments to reconcile net incoe to cash provided by operations: 272 265 Amortization of intangible assets Deferred income taxes 5,224 1,339 Depreciation expense 89 101 Net realized capital gains (6,715) (50) Increase (decrease) due to change in: Receivables from agents (31) (78) Receivable from reinsurers (889) (111) Policy acquisition costs, net (8,275) (5,492) Policy and contract claims 5,811 867 Policy reserves 11,457 9,488 Accounts payable and other liabilities 2,505 2,879 Federal income taxes recoverable (1,229) 48 Accrued investment income (118) (320) Other, net (1,752) (3) -------- -------- Cash provided by operations 14,721 12,352 Cash flow from (used in) investing activities: Proceeds from sales of bonds 6,224 _ Proceeds from sales of equity securities 22,045 530 Maturities of investments 2,995 8,022 Purchase of bonds (2,355) (53,246) Purchase of equity securities (193) (4,477) Acquisition of property and equipment (238) (166) -------- -------- 28,478 (49,337) Cash used in investing Cash flow from (used in) financing activities: Proceeds from exercise of stock options 11 75 Repayments of long-term debt (192) (190) -------- --------- Cash from (used in) financing (181) (115) -------- --------- Increase (decrease) in cash and cash equivalents 43,018 (37,100) Cash balances: Beginning of period 11,241 51,612 -------- --------- End of period $54,259 $14,512 -------- --------- -------- ---------
See accompanying notes to consolidated financial statements 5 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 1998 (unaudited) (amounts in thousands, except per share data) The Consolidated Financial Statements should be read in conjunction with these notes and with the Notes to Consolidated Financial Statements included in the Annual Report on Form 10-K for the year ended December 31, 1997 of Penn Treaty American Corporation ("the Company"). In the opinion of management, the summarized financial information reflects all adjustments (consisting only of normal recurring adjustments) which are necessary for a fair presentation of the financial position and results of operations for the interim periods. Certain prior period amounts have been reclassified to conform to current period presentation. 1. Investments Management has categorized all of its investment securities as available for sale since they may be sold in response to changes in interest rates, prepayments, and similar factors. Investments in this classification are reported at their current market value with net unrealized gains and losses, net of the applicable deferred income tax effect, being added to or deducted from the Company's total shareholders' equity on the balance sheet. As of March 31, 1998, shareholders' equity was increased by $4,526 due to unrealized gains of $6,858 in the investment portfolio. As of December 31, 1997, shareholders' equity was increased by $7,838 due to unrealized gains of $11,876 in the investment portfolio. The amortized cost and estimated market value of investments available for sale as of March 31, 1998 and December 31, 1997 are as follows:
March 31, 1998 December 31, 1997 ------------------------- -------------------------- Amortized Estimated Amortized Estimated Cost Market Value Cost Market Value --------- ------------ --------- ------------ U.S. Treasury securities and obligations of U.S. Government authorities and agencies $161,639 $165,733 $163,277 $167,857 Obligations of states and political sub-divisions 27,663 26,879 30,515 32,152 Debt securities issued by foreign governments 204 205 204 205 Corporate securities 75,219 78,665 77,319 77,934 Other debt securities - - - - Equities 3,099 3,200 18,511 23,554 Policy Loans 95 95 85 85 -------- -------- -------- ------- Total Investments $267,919 $274,777 $289,911 $301,787 -------- -------- -------- ------- -------- -------- -------- ------- Net unrealized gain 6,858 11,876 -------- -------- $274,777 $301,787 -------- -------- -------- --------
6 2. New Accounting Principles: The Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standard 130, "Reporting Comprehensive Income," which requires that changes in comprehensive income be shown in a financial statement with the same prominence as in other financial statements. While not mandating a specific financial statement format, Statement 130 requires that an amount representing total comprehensive income be reported for fiscal years beginning after December 15, 1997. Restatement for earlier years is required for comparative purposes. The FASB also issued Statement 131, "Disclosures about Segments of an Enterprise and Related Information." This Statement, which supersedes Statement 14, Financial Reporting for Segments of a Business Enterprise, changes the way public companies report information about segments. The Statement, which is based on the management approach to segment reporting, includes requirements to report selected segment information quarterly and entity-wide disclosures about products and services, major customers, and the material countries in which the entity holds assets and reports revenues. The Statement is effective for periods beginning after December 15, 1997. Restatement for earlier years is required for comparative purposes unless impracticable. Statement 131 need not be applied to interim periods in the initial year; however, in subsequent years, interim period information must be presented on a comparative basis. The Company believes that the adoption of Statement 131 will not have a material impact on its financial condition or results of operations. In 1998, the FASB issued Statement 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits," which revises employer's disclosures about pension and other postretirement benefits. The Company expects that the adoption of Statement 132 will have no material impact on its financial condition or results of operations. Statement of Position 97-3, "Accounting by Insurance and Other Enterprises for Insurance-Related Assessments" (SOP 97-3) was issued by the American Institute of Certified Public Accountants in December 1997 and provides guidance for determining when an insurance or other enterprise should recognize a liability for guaranty-fund assessments and guidance for measuring the liability. The statement is effective for 1999 financial statements with early adoption permitted. The Company does not expect adoption of this statement to have a material effect on its financial position or results of operations. 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. Three Months Ended March 31, 1998 and 1997: (amounts in thousands, except per share data) Accident and Health Premiums. First year accident and health premiums earned in the three month period ended March 31, 1998 (the "1998 quarter"), including long-term care and Medicare supplement, increased 41.7% to $17,106, compared to $12,071 in the same period in 1997 (the "1997 quarter"). First year long-term care premiums earned in the 1998 quarter increased 39.2% to $16,491, compared to $11,847 in the 1997 quarter. Management believes that it is no longer relevant to measure separate growth for nursing home and home health care policies given the Company's sale of comprehensive coverage plans and plans with attached riders. The Company attributes its growth to continued improvements in product offerings, which competitively meet the needs of the long term care marketplace. In addition, the Company actively recruits and trains agents to sell its products. First year Medicare supplement premiums earned by the Company in the 1998 quarter increased to $615 from $224 in the 1997 quarter. Although the Company does not actively solicit new Medicare supplement business, Management expects that this product line will continue to grow as a result of its complimentary mix with other long-term care products being sold. Renewal accident and health premiums earned by the Company in the 1998 quarter increased 27.4% to $31,950, compared to $25,077 in the 1997 quarter. Renewal long-term care premiums earned in the 1998 quarter increased 28.1% to $31,119, compared to $24,289 in the 1997 quarter. This increase reflects renewals of a larger base of in-force policies. The Company believes that this increase also reflects an increase in persistency, or renewals as a percentage of total prior year business. Renewal Medicare supplement premiums in the 1998 quarter increased 5.4% to $831, compared to $788 in the 1997 quarter. Disability and Life Premiums. The Company posted $1,856 in disability income in the 1998 quarter, compared to $1,668 in the 1997 quarter. During the 1998 quarter, first year disability premiums were $440 and renewal premiums were $1,416. First year life premiums earned by the Company in the 1998 quarter decreased 20.6% to $208, compared to $262 in the 1996 quarter. Renewal life premiums earned by the Company in the 1998 quarter increased to $659, compared to $632 in the 1997 quarter. Net Investment Income. Net investment income earned by the Company for the 1998 quarter increased 18.9% to $4,627, from $3,893 for the 1997 quarter. During the 1998 quarter, the Company sold its entire common equity securities portfolio, or approximately $21,000 of invested assets. From this sale, the Company recognized an approximate $6,400 capital gain. Through its normal operations, the Company recognized an additional $315 of capital gains in the 1998 quarter due primarily to its desire to bolster fixed income investment earnings, which were normally lower from investments in dividend yielding equity securities. Benefits to Policyholders. Total benefits to policyholders in the 1998 quarter increased 35.3% to $34,283 compared to $25,331 in the 1997 quarter. Accident and health benefits to policyholders, excluding disability benefits, in the 1998 quarter increased 36.3% to $32,801 compared to $24,058 in the 1997 quarter. The Company's accident and health loss ratio (the ratio of benefits to policyholders to total accident and health premiums) was 66.9% in the 1998 quarter, compared to 64.8% in the 1997 quarter. The Company uses 8 independent care managers to control claims in its home health care coverage. The amounts due to care management included in benefits to policyholders were approximately $300 or .6% and $200 or .5% of premiums in the 1998 and 1997 quarters, respectively. Disability benefits were $818 and $820 in the 1998 and 1997 quarters, or 44.1% and 49.1% of premiums, respectively. Commissions. Commissions to agents increased 34.5% to $17,366 in the 1998 quarter compared to $12,907 in the 1997 quarter. First year commissions on accident and health business in the 1998 quarter increased 42.0% to $11,739, compared to $8,269 in the 1997 quarter, corresponding to the increase in first year accident and health premiums. The ratio of first year accident and health commissions to first year accident and health premiums was 68.6% in the 1998 quarter and 68.5% in the 1997 quarter. First year commissions on life business in the 1998 quarter decreased 14.6% to $182, compared to $213 in the 1997 quarter, directly reflecting the Company's reduction in first year life premiums. The ratio of first year life commissions to first year life premiums was 87.5% in the 1998 quarter compared to 81.5% in the 1997 quarter. Renewal commissions on accident and health business in the 1998 quarter increased 23.6% to $4,976, compared to $4,026 in the 1997 quarter, consistent with the increase in renewal premiums discussed above. The ratio of renewal accident and health commissions to renewal accident and health premiums was 15.6% in the 1998 quarter and 16.1% in the 1997 quarter. This ratio fluctuates in relation to the age of the policies in force and the rates of commissions paid to the agents. The ratio of disability commissions to disability premiums was 20.4% in the 1998 quarter, including 56.8% on first year premiums and 9.1% on renewal premiums, accounting for $379 in 1998 commissions, compared to $319 in the 1997 quarter. Net Policy Acquisition Costs Deferred. The net deferred policy acquisition costs in the 1998 quarter increased 50.7% to $8,275 compared to $5,492 in the 1997 quarter, consistent with the growth of the Company's business. This deferral is net of amortization, which decreases or increases as the Company's actual persistency is higher or lower than the persistency assumed for reserving purposes. Generally, the deferral of policy acquisition costs remained consistent with the growth of premiums. Management believes that these costs are amortized more slowly in the 1998 quarter due to increased persistency of the policies on which the costs were incurred. General and Administrative Expenses. General and administrative expenses in the 1998 quarter increased 19.1% to $5,915, compared to $4,967 in the 1997 quarter. This increase is due to variable expense growth, yet is below the 30% rise in premiums. The Company attributes these savings to efficiencies in its processing and a reduction in ANIC expense of approximately $100 in the 1998 quarter. Provision for Federal Income Taxes. The provision for federal income taxes recorded by the Company for the 1998 quarter increased to $4,277, compared to $1,397 for the 1997 quarter. This increase is primarily attributable to the capital gains recognized on the sale of the 9 Company's equity portfolio. The effective tax rates of approximately 34% and 29% in the 1998 and 1997 quarters, respectively, are below the normal federal corporate rate as a result of credits from the small life insurance company deduction as well as the Company's investments in tax-exempt bonds. Liquidity and Capital Resources The Company's consolidated liquidity requirements have historically been created and met from the operations of its insurance subsidiaries. The Company's primary sources of cash are premiums, investment income and maturities of investments. The Company has provided, and may continue to provide, cash through public offerings of its common stock, capital markets activities or debt instruments. The primary uses of cash are policy acquisition costs (principally commissions), payments to policyholders, investment purchases and general and administrative expenses. Statutory requirements allow insurers to pay dividends only from statutory earnings as approved by the state insurance commissioner. Statutory earnings are generally lower than publicly reported earnings due to the immediate or accelerated recognition of all costs associated with premium growth and benefit reserves. The Company has not and does not intend to pay shareholder dividends in the near future due to these requirements, choosing to retain statutory surplus to support continued premium growth. The Company's cash flows in the 1998 quarter were attributable to cash provided by operations, cash used in investing, and cash provided by financing. The Company's cash increased by approximately $43,000 in the 1998 quarter primarily due to the sale of approximately $22,000 of its equity securities portfolio and cash from operations of approximately $14,700. The major provider of cash from operations was premiums used to fund additions to reserves of approximately $17,200 in the 1998 quarter. The primary uses of cash were additions to policy acquisition costs of $8,275 and the purchase of bonds of $2,355. The Company's cash decreased by approximately $37,100 in the 1997 quarter primarily due to the purchase of approximately $57,700 of investments, which more than offset cash from operations of approximately $12,400. The major provider of cash from operations was additions to reserves of approximately $10,400 in the 1997 quarter. The Company invests in securities and other investments authorized by applicable state laws and regulations and follows an investment policy designed to maximize yield to the extent consistent with liquidity requirements and preservation of assets. The market value of the Company's bond portfolio represented approximately 102.5% of its cost at March 31, 1998, compared to 104.1% on December 31, 1997, with a current unrealized gain of $6,757 at March 31, 1998, compared to $6,833 on December 31, 1997. Its equity portfolio, which consisted solely of preferred stock at March 31, 1998, exceeded cost by $101, compared to $5,042 on December 31, 1997. As of March 31, 1998, shareholders' equity was increased by $4,526 due to unrealized gains of $6,858 in the investment portfolio. As of December 31, 1997, shareholders' equity was increased by $7,838 due to unrealized gains of $11,875 in the investment portfolio. The Company's debt currently consists primarily of a mortgage note in the approximate amount of $2,000 and $74,750 in convertible subordinated debt. The convertible debt, issued in 10 November 1996, is convertible at $28.44 per share until November 2003. The debt carries a fixed interest coupon of 6.25%, payable semi-annually. The mortgage note is currently amortized over 12 years, and has a balloon payment due on the remaining outstanding balance in September 1998. Although the note carries a variable interest rate, the Company has entered into an amortizing swap agreement with the same bank, with a notional amount equal to the outstanding debt, which has the effect of converting the note to a fixed rate of interest. The Company consists of the Insurers and a non-insurer parent company, Penn Treaty American Corporation ("the Parent"). The Parent directly or indirectly controls 100% of the voting stock of the subsidiary insurers. In the event the Parent is unable to meet its financial obligations, becomes insolvent, or discontinues operations, the Insurers' financial condition and results of operations could be materially affected. The Parent currently has the obligation of making semi-annual interest payments attributable to the Company's convertible debt. In that the dividend ability of the subsidiaries is restricted, the Parent must rely on its own liquidity and cash flows to make all required interest installments. Management believes that the Parent holds sufficient liquid funds to meet its obligations for the foreseeable future. The Company's continued growth is dependent upon its ability to (i) continue marketing efforts to expand its historical markets, (ii) continue to expand its network of agents and effectively market its products in states where its insurance subsidiaries are currently licensed and (iii) fund such marketing and expansion while at the same time maintaining minimum statutory levels of capital and surplus required to support such growth. Management believes that the funds necessary to accomplish the foregoing, including funds required to maintain adequate levels of statutory surplus in the Company's insurance subsidiaries can be met for the foreseeable future by funds generated from its most recent stock offering, the Company's issuance of convertible subordinated debt and from operations. In the event (i) the Company fails to maintain minimum loss ratios calculated in accordance with statutory guidelines, (ii) the Company fails to meet other requirements mandated and enforced by regulatory authorities, (iii) the Company has adverse claims experience in the future, (iv) the Company is unable to obtain additional financing to support future growth, or (v) the economy continues to effect the buying powers of senior citizens, the Company's results of operations, liquidity and capital resources could be adversely affected. Some of the information presented in this filing constitutes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Although the Company believes that its expectations are based on reasonable assumptions within the bounds of its knowledge of its business and operations, there can be no assurance that actual results of the Company's operations will not differ materially from its expectations. Factors which could cause actual results to differ from expectations include, among others, the adequacy of the Company's loss reserves, the Company's ability to qualify new insurance products for sale in the states in which it is licensed and the acceptance of such products, the Company's ability to comply with government regulations, the ability of senior citizens to purchase the Company's products in light of the increasing costs of health care and the Company's ability to expand its network of productive independent agents. 11 New Accounting Principles The Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standard 130, "Reporting Comprehensive Income," which requires that changes in comprehensive income be shown in a financial statement with the same prominence as in other financial statements. While not mandating a specific financial statement format, Statement 130 requires that an amount representing total comprehensive income be reported for fiscal years beginning after December 15, 1997. Restatement for earlier years is required for comparative purposes. The FASB also issued Statement 131, "Disclosures about Segments of an Enterprise and Related Information." This Statement, which supersedes Statement 14, Financial Reporting for Segments of a Business Enterprise, changes the way public companies report information about segments. The Statement, which is based on the management approach to segment reporting, includes requirements to report selected segment information quarterly and entity-wide disclosures about products and services, major customers, and the material countries in which the entity holds assets and reports revenues. The Statement is effective for periods beginning after December 15, 1997. Restatement for earlier years is required for comparative purposes unless impracticable. Statement 131 need not be applied to interim periods in the initial year; however, in subsequent years, interim period information must be presented on a comparative basis. The Company believes that the adoption of Statement 131 will not have a material impact on its financial condition or results of operations. In 1998, the FASB issued Statement 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits," which revises employer's disclosures about pension and other postretirement benefits. The Company expects that the adoption of Statement 132 will have no material impact on its financial condition or results of operations. Statement of Position 97-3, "Accounting by Insurance and Other Enterprises for Insurance-Related Assessments" (SOP 97-3) was issued by the American Institute of Certified Public Accountants in December 1997 and provides guidance for determining when an insurance or other enterprise should recognize a liability for guaranty-fund assessments and guidance for measuring the liability. The statement is effective for 1999 financial statements with early adoption permitted. The Company does not expect adoption of this statement to have a material effect on its financial position or results of operations. 12 PART II OTHER INFORMATION Item 1. Legal Proceedings The Insurers are parties to various lawsuits generally arising in the normal course of their insurance business. The Company does not believe that the eventual outcome of any of the suits to which the Insurers are currently a party will have a material effect on the financial condition or result of operations of the Company. Item 2. Changes in Securities Not Applicable Item 3. Defaults Upon Senior Securities Not Applicable Item 4. Submission of Matters to a Vote of Security Holders Not Applicable Item 5. Other Information Not Applicable Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: Exhibit 11 - Earnings Per Share Calculation Exhibit 27 - Financial Data Schedule (b) Reports on Form 8-K: None. 13 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant had duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. PENN TREATY AMERICAN CORPORATION -------------------------------- Registrant Date: May 8, 1998 /s/ Irving Levit ----------- -------------------------------- Irving Levit President Date: May 8, 1998 /s/ Michael F. Grill ------------------ -------------------------------- Michael F. Grill Treasurer 14 EX-11 2 EX-11 Exhibit 11 STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS (amounts in thousands, except per share data) (unaudited)
Three Months Ended March 31, -------------------- 1998 1997 --------- --------- Net income $ 8,371 $ 3,419 Weighted average common shares outstanding 7,572 7,516 Basic earnings per share $ 1.11 $ 0.45 --------- --------- --------- --------- Net income $ 8,371 $ 3,419 Adjustments net of tax: Interest expense on convertible debt 773 829 Amortization of debt offering costs 60 64 --------- --------- Diluted net income $ 9,204 $ 4,312 --------- --------- --------- --------- Weighted average common shares outstanding 7,572 7,516 Common stock equivalents due to dilutive effect of stock options 218 196 Shares converted from convertible debt 2,628 2,628 --------- --------- Total outstanding shares for diluted earnings per share computation 10,418 10,340 Diluted earnings per share $ 0.88 $ 0.42 --------- --------- --------- ---------
15 EX-27 3 FINANCIAL DATA SCHEDULE
7 1,000 3-MOS DEC-31-1998 JAN-01-1998 MAR-31-1998 271,482 0 0 3,200 0 0 274,777 54,259 11,430 118,746 493,939 159,535 0 83,953 0 76,560 0 0 818 137,008 493,939 51,779 4,626 6,715 76 34,282 (8,275) 24,533 12,656 4,285 8,371 0 0 0 8,371 1.11 .88 0 0 0 0 0 0 0
-----END PRIVACY-ENHANCED MESSAGE-----