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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE PERIOD ENDED MARCH 31, 2002
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM
to
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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, 2001
-------------------- ----------------
Common Stock, $.10 par value 2,264,231
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PART I
FINANCIAL INFORMATION
2
AMERICAN PHYSICIANS SERVICE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(In thousands, except earnings per share data)
Three Months Ended
March 31,
2002 2001
----------- ------------
Revenue:
Financial services $3,097 $3,357
Insurance services 2,109 1,633
Consulting 697 556
Investments and other 3,720 42
----------- ------------
Total revenue 9,623 5,588
Expenses:
Financial services 2,645 2,830
Insurance services 1,670 1,361
Consulting 630 565
General and administrative 376 336
Interest 18 140
----------- ----------
Total expenses 5,339 5,232
----------- ----------
Operating income 4,284 356
Equity in loss of unconsolidated
affiliates (Note 2 and 3) (230) (137)
----------- ----------
Earnings from continuing operations before
income taxes and minority interests 4,054 219
Income tax expense 1,395 106
Minority interests (57) (29)
------------ ----------
Earnings from continuing operations 2,602 84
Discontinued operations:
Profit from discontinued operations net of
income tax expense of $21 in 2001 -- 41
----------- ----------
Net earnings $2,602 $125
=========== ==========
See accompanying notes to consolidated financial statements
- 3 -
AMERICAN PHYSICIANS SERVICE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED), continued
Three Months Ended
March31,
2002 2001
------ ------
Earnings per common share: (Note 5)
Basic:
Earnings from continuing operations $1.12 $0.04
Discontinued operations -- 0.02
------- -------
Net earnings $1.12 $0.05
======= =======
Diluted:
Earnings from continuing operations $1.07 $0.03
Discontinued operations -- 0.01
------- -------
Net earnings $1.07 $0.05
======= =======
Basic weighted average shares outstanding 2,323 2,343
======= =======
Diluted weighted average shares outstanding 2,422 2,765
======= =======
See accompanying notes to consolidated financial statements
- 4 -
AMERICAN PHYSICIANS SERVICE GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
March 31, December 31,
2002 2001
----------- ------------
ASSETS (Unaudited)
Current Assets:
Cash and cash equivalents $11,566 $3,851
Trading account securities 52 149
Notes receivable - current 605 573
Management fees and other receivables 1,166 1,087
Deposit with clearing organization 499 499
Receivable from clearing organization 69 69
Net deferred income tax asset 262 282
Income tax receivable -- 167
Prepaid expenses and other 344 1,147
---------- ---------
Total current assets 14,563 7,824
Notes receivable, less current portion 867 999
Property and equipment 412 415
Investment in affiliate (Note 3) 5,865 10,700
Other investments 68 68
Net deferred income tax asset - non-current 2,299 1,453
Other assets 200 201
--------- ---------
Total Assets $24,274 $21,660
========= =========
See accompanying notes to consolidated financial statements
- 5 -
AMERICAN PHYSICIANS SERVICE GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS, continued
(In thousands)
March 31, December 31,
2002 2001
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY (Unaudited)
Current liabilities:
Accounts payable - trade $1,174 $1,044
Payable to clearing broker 155 254
Income tax payable 2,750 --
Deferred income - current 487 499
Accrued incentive compensation 295 1,246
Accrued expenses and other
liabilities (Note 4) 544 1,337
--------- ----------
Total current liabilities 5,405 4,380
Payable under loan participation
agreements 259 259
Deferred income - non-current 2,031 1,955
Notes payable - long term -- 2,275
--------- ----------
Total liabilities 7,695 8,869
Minority interests 181 124
Shareholders' Equity:
Preferred stock, $1.00 par value,
1,000,000 shares authorized -- --
Common stock, $0.10 par value, shares authorized
20,000,000;2,745,231 issued at 3/31/02 and
12/31/01 and 2,264,231 outstanding at 3/31/02
and 2,359,231 at 12/31/01 275 275
Additional paid-in capital 5,539 5,539
Retained earnings 10,912 8,310
Accumulated other comprehensive income (loss) 1,341 (39)
Treasury stock, at cost, 481,000 shares
at 3/31/02 and 386,000 shares at 12/31/01 (1,669) 1,418)
--------- --------
Total shareholders' equity 16,398 12,667
Total Liabilities and Shareholders' Equity $24,274 $21,660
========= =======
See accompanying notes to consolidated financial statements
- 6 -
AMERICAN PHYSICIANS SERVICE GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
Three Months Ended
March 31,
2002 2001
--------- --------
Cash flows from operating activities:
Cash received from customers $5,826 $5,657
Cash paid to suppliers and employees (5,858) (5,861)
Change in trading account securities 97 (20)
Change in receivable from clearing
organization (99) 79
Interest paid (18) (140)
Income tax refund received -- 90
Interest, dividends and other investment
proceeds 36 142
--------- --------
Net cash used in operating activities (16) (53)
Cash flows from investing activities:
Capital expenditures (48) (43)
Proceeds from the sale of an investment 10,309 --
Investments in and advances to affiliate (230) --
Funds loaned to others (150) (928)
Collection of notes receivable 209 574
Other 172 (13)
--------- --------
Net cash provided by (used in)
investing activities 10,262 (410)
Cash flows from financing activities:
Proceeds from borrowings -- 815
Payment of long term debt (2,280) (1)
Purchase of treasury stock (251) --
Distribution to minority interest -- (80)
--------- -------
Net cash provided by (used in)
financing activities (2,531) 734
--------- -------
Net change in cash and cash equivalents $7,715 $271
Cash and cash equivalents at beginning of period 3,851 2,988
--------- -------
Cash and cash equivalents at end of period $11,566 $3,259
========= =======
(continued)
See accompanying notes to consolidated financial statements
- 7 -
AMERICAN PHYSICIANS SERVICE GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED), continued
(In thousands)
Three Months Ended
March 31,
2002 2001
-------- --------
Reconciliation of net earnings to net cash used
in operating activities:
Net earnings $2,602 $125
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Depreciation and amortization 51 77
Forgiveness of debt 42 63
Minority interest in consolidated earnings 57 29
Undistributed loss of affiliates 230 236
Gain on sale of property (880) --
Gain on sale of investment (2,802) --
Change in income tax receivable 2,917 165
Provision for deferred taxes (1,537) (80)
Provision for bad debt 5 --
Change in trading account securities 97 (20)
Change in receivable from clearing organization (99) 79
Change in management fees & other receivables (79) 24
Change in prepaid expenses & other assets 803 --
Change in deferred income 186 --
Change in trade accounts payable 135 26
Change in accrued expenses & other liabilities (1,744) (777)
--------- -------
Net cash used in operating activities ($16) ($53)
========= =======
See accompanying notes to consolidated financial statements
- 8 -
AMERICAN PHYSICIANS SERVICE GROUP, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the three months ended March 31, 2001 and 2002
(In thousands)
Accumulated
Additional Other Total
Common Paid-In Retained Comprehensive Comprehensive Treasury Shareholders'
Stock Capital Earnings Income (Loss) Income (Loss) Stock Equity
--------- ---------- --------- --------------- ------------ ---------- -------------
Balance December 31, 2000 (restated) $ 275 $ 5,539 $ 8,888 $ (32) $ (1,418) $ 13,252
Comprehensive income:
Net income -- -- 125 -- -- 125
--------- ---------- --------- ------------- ------------ ---------- -----------
Balance March 31, 2001 $ 275 $ 5,539 $ 9,013 $ (32) $ (1,418) $ 13,377
========= ========== ========= ============= ============ ========== ===========
Balance December 31, 2001 $ 275 $ 5,539 $ 8,310 $ (39) $ (1,418) $ 12,667
--------- ---------- --------- ------------- ------------ ---------- -----------
Comprehensive income:
Net income -- -- 2,602 $ 2,602 -- -- 2,602
Other comprehensive income, net
of tax
Unrealized gain on securities
net of reclassification adjustment
of $1,850 -- -- -- 1,380 1,380 -- 1,380
-------
Comprehensive income -- -- -- $ 3,982 -- -- --
-------
Treasury stock purchases -- -- -- -- (251) (251)
-------- ---------- --------- --------------- ------------ ---------- -----------
Balance March 31, 2002 $ 275 $ 5,539 $ 10,912 $ 1,341 $ (1,669) $ 16,398
======== ========== ========= =============== ============ ========== ===========
See accompanying notes to consolidated financial statements
- 9 -
AMERICAN PHYSICIANS SERVICE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2002
(Unaudited)
1. GENERAL
The accompanying unaudited consolidated financial statements have been prepared
in conformity with accounting principles generally accepted in the United States
of America described in the audited consolidated financial statements for the
year ended December 31, 2001 and reflect all adjustments which are, in the
opinion of management, necessary for a fair presentation of the statement of the
financial position as of March 31, 2002 and the results of operations for the
periods presented. These consolidated financial statements have not been audited
by our 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 our Annual Report on
Form 10-KSB for the year ended December 31, 2001 filed with the Securities
Exchange Commission should be read in conjunction with this Quarterly Report on
Form 10-QSB. There have been no significant changes in the information reported
in those notes other than from normal business activities.
Certain reclassifications have been made to amounts in prior periods to be
consistent with the 2002 presentation.
2. CONTINGENCIES
Under agreements with former doctor shareholders of Syntera, our practice
management company that was merged with FemPartners, we agreed to exchange their
shares in Syntera for the common stock of American Physicians, or cash, if the
Syntera shares did not become publicly traded. We have paid approximately
$2,956,000 in cash related to these agreements, thus satisfying all liabilities.
We have extended various lines of credit to Uncommon Care totaling $4.46 million
with interest rates between 10% and 12%. During 2001 we agreed to modify the
terms of the foregoing notes. For the period July 1, 2001 through June 30, 2002
the interest rate is to be 4% and payments are to be paid in-kind (PIK) in the
form of Uncommon Care common stock at $0.57 per share. Additionally, the PIK
stock may be repurchased by Uncommon Care through June 30, 2004 at a price of
$.64 per share. We agreed to these modified terms to improve Uncommon Care's
liquidity and to assist it in complying with the terms of its bank covenants.
PIK payments during 2002 increased our ownership in Uncommon Care from 38% to
40% on a fully converted basis.
We are involved in various claims and legal actions that have arisen in the
ordinary course of business. Management believes that any liabilities arising
from these actions will not have a significant adverse effect on our financial
condition.
- 10 -
3. EQUITY IN EARNINGS OF UNCONSOLIDATED AFFILIATES
At March 31, 2002 we owned slightly less than 5% (774,000 shares) of the
outstanding common stock of Prime Medical, having sold 1,570,000 shares during
2002. As a result of these sales, and as a result of Board resignations
mentioned in Form 10-KSB dated December 31, 2001, we no longer account for our
investment in Prime Medical using the equity method. The common stock of Prime
Medical is traded in the over-the-counter market under the symbol "PMSI". Prime
Medical 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 Medical. Such reports and documents may be examined and copies may be
obtained from the offices of the Securities and Exchange Commission. A table
detailing our investment in Prime Medical follows:
Fair Value March 31, 2002 Book Value Date of Conversion *
--------------------------------------------------------------- -----------------------------------------
No. of Shares
Owned MV per Share Fair Value BV per Share Book Value
------------------ ------------- ------------- ------------ ---------------
773,803 $7.58 $5,865,000 $4.89 $3,784,000
* Book Value at January 1, 2002, the date of conversion from accounting for
our investment in Prime Medical common stock using the equity method to
accounting for as a marketable security.
The difference between the March 31, 2002 fair value and book value at date of
conversion is represented on the consolidated balance sheet as accumulated other
comprehensive income.
At March 31, 2002 the Company owned Convertible Preferred Stock of Uncommon
Care. We have applied the guidance of EITF 99-10, specifically the percentage of
ownership method, in applying the equity method to our investment in Uncommon
Care. Uncommon Care's common stock equity had been eliminated by losses prior to
our investment and, accordingly, we recognized 100% of the losses of Uncommon
Care based on our ownership of 100% of its preferred stock equity and
subordinated debt. During 2001 our total basis in investment and advances to
Uncommon Care was reduced to zero. Until such time as Uncommon Care becomes
profitable and future equity in these profits fully offsets prior period
combined equity losses, future advances to Uncommon Care will result in a loss
when advanced while loan repayments by Uncommon Care will result in income to us
when received. Advances to Uncommon Care totaling $230,000 in February 2002
accounts for the loss recorded during the first quarter 2002. Uncommon Care is a
developer and operator of dedicated Alzheimer's care facilities. The preferred
shares owned by the Company, together with common stock to be paid-in-kind, are
convertible into approximately a 40% interest in the common equity in Uncommon
Care. We continue to record our investment in and advances to Uncommon Care on
the equity method.
- 11 -
4. ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued expenses and other liabilities consists of the following:
March 31 December 31
2002 2001
---- -----
Taxes payable $ 89,000 61,000
Contractual/legal fees and claims 202,000 1,031,000
Vacation payable 140,000 140,000
Other 112,000 105,000
---------- ----------
$543,000 1,337,000
========== ==========
5. EARNINGS PER SHARE
Basic earnings per share is based on the weighted average shares outstanding
without any dilutive effects considered. Diluted earnings per share reflect
dilution from all contingently issuable shares, including options and
convertible debt. A reconciliation of income and average shares outstanding used
in the calculation of basic and diluted earnings per share from continuing and
discontinued operations follows:
For the Three Months Ended March 31, 2002
----------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------ ---------
Earnings from
continuing operations $ 2,602,000
Basic EPS
Earnings available to
common stockholders 2,602,000 2,323,000 $1.12
Effect of dilutive securities -- 99,000
--------- ---------
Diluted EPS
Earnings available to
common stockholders and
assumed conversions $ 2,602,000 2,422,000 $1.07
============ ========= =====
- 12 -
5. EARNINGS PER SHARE, continued
For the Three Months Ended March 31, 2001
--------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
---------- ------------ ---------
Earnings from continuing
operations $ 84,000
Discontinued operations,
net of tax 41,000
Basic EPS
Earnings available to 125,000 2,343,000 $ 0.05
Common stockholders
Effect of dilutive securities -- 422,000
--------- --------
Diluted EPS
Earnings available to common
stockholders and assumed
conversions $ 125,000 2,765,000 $ 0.05
========= ========= ======
Unexercised employee stock options to purchase 456,500 and 969,500 shares of the
Company's common stock as of March 31, 2002 and 2001, respectively, were not
included in the computations of diluted EPS because the effect would be
antidilutive.
6. SEGMENT INFORMATION
The Company's segments are distinct by type of service provided. Comparative
financial data for the three month periods ended March 31, 2002 and 2001 are
shown as follows:
- 13 -
6. SEGMENT INFORMATION, continued
March 31,
--------------------------------
2002 2001
Operating Revenue: ---------- -----------
Investment services 3,097,000 3,357,000
Insurance services 2,109,000 1,633,000
Consulting 697,000 556,000
Corporate 3,877,000 612,000
----------- ---------
$9,780,000 $6,158,000
=========== =========
Reconciliation to Consolidated
Statement of Operations:
Total segment revenues $9,780,000 $6,158,000
Less: Intercompany dividends (145,000) (470,000)
Intercompany interest (12,000) (100,000)
----------- ----------
Total Revenues $9,623,000 $5,588,000
=========== ==========
Operating Income
Investment services 452,000 527,000
Insurance services 439,000 272,000
Consulting 67,000 (9,000)
Corporate 3,326,000 (434,000)
---------- ---------
$4,284,000 $356,000
========== =========
Total segments operating profits 4,284,000 356,000
Equity in loss of unconsolidated
affiliates (230,000) (137,000)
--------- ---------
Earnings from continuing operations
before income taxes and minority
interests 4,054,000 219,000
Income tax expense 1,395,000 106,000
Minority interests (57,000) (29,000)
--------- ---------
Earnings from continuing operations $2,602,000 $84,000
Net profit from discontinued
operations, net of income tax -- 41,000
--------- ---------
Net profit $2,602,000 $125,000
========== ========
- 14 -
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FORWARD LOOKING STATEMENTS
All statements past and future, written or oral, made by the us or our
officers, directors, shareholders, agents, representatives or employees,
including without limitation, those statements contained in this Report on Form
10-QSB, that are not purely historical are forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934, including statements regarding our
expectations, hopes, intentions or strategies regarding the future.
Forward-looking statements may appear in this document or other documents,
reports, press releases, and written or oral presentations made by our officers
to shareholders, analysts, news organizations or others. Readers should not
place undue reliance on forward-looking statements. All forward-looking
statements are based on information available to us and the declarant at the
time the forward-looking statement is made, and we assume no obligation to
update any such forward-looking statements. It is important to note that our
actual results could differ materially from those described in such
forward-looking statements. In addition to any risks and uncertainties
specifically identified in connection with such forward-looking statements, the
reader should consult our reports on previous filings under the Securities Act
of 1933 and the Securities Exchange Act of 1934, for factors that could cause
actual results to differ materially from those presented.
Forward-looking statements are necessarily based on various assumptions
and estimates and are inherently subject to various risks and uncertainties,
including risks and uncertainties relating to the possible invalidity of the
underlying assumptions and estimates and possible changes or developments in
social, economic, business, industry, market, legal and regulatory circumstances
and conditions and actions taken or omitted to be taken by third parties,
including customers, suppliers, business partners and competitors and
legislative, judicial and other governmental authorities and officials.
Assumptions relating to the foregoing involve judgements with respect to, among
other things, future economic, competitive and market conditions and future
business decisions, all of which are difficult or impossible to predict
accurately and many of which are beyond control. Any such assumptions could be
inaccurate and, therefore, there can be no assurance that any forward-looking
statements by us or our officers, directors, shareholders, agents,
representatives or employees, including those forward-looking statements
contained in this Report on Form 10-QSB, will prove to be accurate.
RESULTS OF OPERATIONS
REVENUES
Revenues from operations increased $4,035,000 (72%) for the three month
period ended March 31, 2002 compared to the same period in 2001. Revenues
increased in the current period at our insurance services, consulting and
administrative segments and decreased at our financial services segment compared
to the same period in 2001.
- 15 -
Our financial services revenues decreased $260,000 (8%) for the three
month period ended March 31, 2002 compared to the same period in 2001. The
decrease was due to lower commission income at APS Financial Corp., our
broker/dealer division of APS Investment Services, Inc. This decrease in current
quarter commission income is the result of generally more difficult market
conditions than existed during the year-ago quarter. Equity markets have been
trading weaker due to concerns about corporate profits and accounting
irregularities. Also, some large issuers have become distressed, which has
negatively impacted the credit markets significantly, affecting the high yield
volume as well.
Our insurance services revenues from premium-based insurance management
fees increased $476,000 (29%) for the three month period ended March 31, 2002
compared to the same period in 2001. The increase in the current year was due
primarily to a $457,000 (27%) increase in commissions earned. Commission income
was up as a result of premium rate increases that were fully phased in by July,
2001. These rate increases, which averaged about 35-40%, resulted in higher
earned premium, which generates our commission income.
Our consulting revenue increased $141,000 (25%) for the three month
period ended March 31, 2002 compared to the same period in 2001. The current
year increase is due primarily to a 12% increase in chargeable hours, the result
of an increase in the number of professional personnel employed as well as
higher project demands from our largest environmental client. In addition,
revenues generated through work performed by sub-contractors involved in
environmental assessment field activities was greater this quarter compared to
the same three months in 2001.
Our investments and other income increased greatly for the three month
period ended March 31, 2002 compared to the same period in 2001. The current
year increase is primarily the result of gains on the sale of 1,570,000 shares
of Prime Medical common stock totaling $2,802,000. As a result of these sales,
we now own approximately 774,000 shares of Prime Medical amounting to an
ownership percentage of slightly less than 5%. In addition, we recognized income
in the current quarter related to the November, 2001 sale of the office
building. Since the sale of that property was to our 15% owned affiliate, Prime
Medical, we had deferred $760,000 of the $5,000,000 gain, as required by the
equity method of accounting. With our Prime Medical ownership now below 5%, we
are no longer accounting for our investment using the equity method and have
therefore recognized this deferred income. Also as a result of the 2001 sale of
real estate and subsequent leaseback on the office space, we recorded deferred
income of approximately $2.4 million which will be recognized monthly over the
next five years. Approximately $120,000 was recorded in 2002 representing a
portion of this deferred gain.
EXPENSES
Total operating expenses increased $107,000 (2%) for the three month
period ended March 31, 2002 compared to the same period in 2001. Expenses at the
insurance services, consulting and administrative segments increased while
expenses at the financial services segment as well as interest expense decreased
in the current period.
- 16 -
Financial services expense decreased $185,000 (7%) for the three month
period ended March 31, 2002 compared to the same period in 2001. The primary
reason for the current year three month decrease is a 6% decrease in commission
expense resulting from lower commission revenue at APS Financial, our
broker/dealer division of APS Investment Services, Inc. Lower profits also
resulted in a 28% decrease in management incentive compensation. Also, legal and
professional fees decreased 40% as there were not the investment banking fees
this year that were incurred last year. Partially offsetting these reductions in
expenses was a 4% increase in payroll, the result of normal annual merit raises.
Insurance services expenses at the insurance management subsidiary
increased $309,000 (23%) for the three month period March 31, 2002 compared to
the same period in 2001. The current period increase is due primarily to a 28%
increase in commission expense arising because of the aforementioned increase in
commission income. Also higher this year is payroll related expenses which rose
13% as a result of creating two new vice-presidential positions and normal
annual merit raises.
General and administrative expense increased $40,000 (12%) for the
three month period ended March 31, 2002 compared to the same period in 2001. The
primary expense increase was payroll related, which rose 28% this year primarily
as a result of the reversal of a portion of management incentive expense in
2001. Partially offsetting this increase was a 10% decrease in professional
fees. In 2002, there were no fees associated with the S-4 registration filed in
2001. In addition, there were no fees related to the share exchange agreements
with the former FemPartners doctors that were incurred in the first quarter of
2001.
Interest expense decreased $122,000 (87%) for the three month period
ended March 31, 2002 compared to the same period in 2001. The primary cause of
the current period decrease is the payoff of the Company's note payable from a
balance of $6,700,000 at March 31, 2001 to zero at March 31, 2002.
EQUITY IN EARNINGS (LOSS) OF UNCONSOLIDATED AFFILIATES
Our equity in the earnings of Prime Medical decreased $297,000 for the
three month period ended March 31, 2002 compared to the same period in 2001 as
we no longer account for our investment in Prime Medical using the equity method
of accounting as was the case in 2001. As mentioned in our December 31, 2001
Form 10-KSB, as of January 1, 2002 we no longer account for our investment in
Prime Medical using the equity method of accounting because (1) in December
2001, Prime Medical's CEO, Brad Hummel, resigned from our board of directors;
(2) in January, 2002, Kenneth S. Shifrin, the Company's Chairman and CEO,
stepped down from day-to-day operations as Executive Chairman of the Board of
Prime Medical, but will continue to serve as non-executive Chairman; and (3)
from January to March 2002, we sold 1,570,000 shares of Prime Medical reducing
our ownership percentage to slightly less than 5%.
- 17 -
Our equity in losses of Uncommon Care decreased $204,000 (47%)
primarily as a result of our limiting our losses in Uncommon Care to our total
investment and advances to Uncommon Care, which was reduced to zero during 2001.
Once we reduced our total investment to zero, as required under the equity
method, we ceased recording equity losses. The $230,000 loss recorded in 2002
was the result of an advance made in 2002. Until such time as Uncommon Care
becomes profitable and future equity in these profits fully offsets prior period
combined equity losses, future advances to Uncommon Care will result in a loss
when advanced while loan repayments by Uncommon Care will result in income to us
when received. Advances to Uncommon Care totaling $230,000 in February 2002
accounts for the loss recorded during the first quarter 2002.
MINORITY INTERESTS
Minority interests represents the combination of two outside interests
in subsidiaries of the Company: a twenty percent interest of Insurance Services
owned by Florida Physicians Insurance Group, Inc., an A- (Excellent) rated
insurance company as rated by AM Best; and a five percent interest of APS Asset
Management, a subsidiary of the financial services subsidiary of the Company
(APS Investment Services), owned by key individuals within APS Asset Management.
LIQUIDITY AND CAPITAL RESOURCES
Current assets exceeded current liabilities by $9,158,000 at March 31,
2002 and $3,444,000 at December 31, 2001. Working capital rose in the current
quarter due to the sale of 1,570,000 shares of Prime Medical common stock which
added approximately $10,500,000 in cash. Partially offsetting this was
$2,275,000 in cash used to pay off a note payable.
Capital expenditures through the three month period ended March 31,
2002 were approximately $48,000. Total capital expenditures are expected to be
approximately $150,000 in 2002.
Historically, the Company has maintained a positive working capital
position and, has been able to satisfy its operational and capital expenditure
requirements with cash generated from its operating and investing activities.
These same sources of funds have also allowed the Company to pursue investment
and expansion opportunities consistent with its growth plans. Although it is
uncertain if our operating activities will continue to provide positive cash
flow in 2002, we believe that the cash received from the sale of 1,570,000
shares of Prime Medical will enable us to meet our working capital requirements
for the foreseeable future.
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ADOPTION OF ACCOUNTING PRONOUNCEMENTS
In August 2001, the FASB issued Statement of Financial Accounting Standards No.
144 ("Statement 144"), Accounting for the Impairment or Disposal of Long-Lived
Assets. Statement 144 addresses financial accounting and reporting for the
impairment or disposal of long-lived assets. Statement 144 requires that one
accounting model be used for long-lived assets to be disposed of by sale and
broadens presentation of discontinued operations to include more disposals. Our
adoption or Statement 144 effective January 1, 2002 did not have a material
effect on our financial position or results of operations.
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PART II
OTHER INFORMATION
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Item 1. Legal Proceedings
-----------------
We are involved in various claims and legal actions that have arisen in
the ordinary course of business. We believe that the liability provision in our
consolidated financial statements is sufficient to cover any unfavorable outcome
related to lawsuits in which we are currently named. Management believes that
liabilities, if any, arising from these actions will not have a significant
adverse effect on our financial condition. However, due to the uncertain nature
of legal proceedings, the actual outcome of these lawsuits may differ from the
liability provision recorded in our consolidated financial statements.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Current reports on Form 8-K.
Report filed March 6, 2002 concerning the February
25, 2002 sale by American Physicians Service Group, Inc. of
500,000 shares of common stock of Prime Medical Services, Inc.
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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 15, 2002 By: /s/ William H. Hayes
------------------------------------------
William H. Hayes, Vice President
and Chief Financial Officer
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