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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, 2003
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 May 5, 2003
-------------------- ----------------
Common Stock, $.10 par value 2,127,130
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PART I
FINANCIAL INFORMATION
- 2 -
AMERICAN PHYSICIANS SERVICE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Item 1 - Financial Statements
(In thousands)
Three Months Ended
March 31,
2003 2002
------- -------
Revenues:
Financial services $4,057 $3,097
Insurance services 2,557 2,109
Consulting 899 697
Other 2 --
------- -------
Total revenue 7,515 5,903
Expenses:
Financial services 3,340 2,612
Insurance services 1,972 1,595
Consulting 626 630
General and administrative 426 361
Gain on sale of assets (Note 4) (2) (572)
------- -------
Total expenses 6,362 4,626
------- -------
Operating income 1,153 1,277
Gain on sale of investments (Note 4) 15 2,801
Earnings from operations before interest,
income taxes, minority interests and equity
in loss of unconsolidated affiliates 1,168 4,078
Interest income 71 38
Interest expense 1 18
Income tax expense 437 1,395
Minority interests (Note 9) 249 57
Equity in loss of unconsolidated
affiliates (Note 5) -- (44)
------ ------
Net earnings $552 $2,602
====== ======
See accompanying notes to consolidated financial statements.
- 3 -
AMERICAN PHYSICIANS SERVICE GROUP, INC.
CONSOLIDATED STATEMENT OF EARNINGS PER SHARE (UNAUDITED)
(In thousands, except per share amounts)
Three Months Ended
March 31,
2003 2002
------- --------
Earnings (loss) per common share
Basic:
Earnings from operations $0.26 $1.12
------- --------
Net earnings $0.26 $1.12
======= ========
Diluted:
Earnings from operations $0.25 $1.07
------- --------
Net earnings $0.25 $1.07
======= ========
Basic weighted average shares
outstanding 2,132 2,323
======= ========
Diluted weighted average
shares outstanding 2,228 2,422
======= ========
See accompanying notes to consolidated financial statements.
- 4 -
AMERICAN PHYSICIANS SERVICE GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
March 31, December 31,
2003 2002
---------- ------------
(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $6,331 $6,691
Trading account securities 133 133
Trade receivables, net 653 460
Notes receivable - current 688 571
Management fees and other receivables 743 763
Deposit with clearing organization 500 500
Receivable from clearing organization 70 70
Investment in available-for-sale fixed
income securities - current 1,010 1,015
Income tax receivable 98 491
Prepaid expenses and other 644 673
--------- ----------
Total current assets 10,870 11,367
Notes receivable, less current portion 221 374
Property and equipment, net 388 374
Investment in available-for-sale equity
securities (Note 5) 6,565 6,996
Investment in available-for-sale fixed
income securities - non-current 2,793 3,273
Net deferred income tax asset - non-current 2,357 2,399
Other assets 197 198
-------- ---------
Total Assets $23,391 $24,981
========= =========
See accompanying notes to consolidated financial statements.
- 5 -
AMERICAN PHYSICIANS SERVICE GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS, continued
(In thousands, except share data)
March 31, December 31,
2003 2002
-------------- ------------
LIABILITIES AND SHAREHOLDERS' EQUITY (Unaudited)
Current liabilities:
Accounts payable - trade $724 $738
Payable to clearing broker 80 70
Accrued incentive compensation 566 1,804
Accrued expenses and other liabilities (Note 6) 1,264 1,227
Deferred gain - current 488 487
Deferred tax liability - current 614 974
-------- --------
Total current liabilities 3,736 5,300
Payable under loan participation agreements 259 259
Deferred gain - non-current 1,762 1,887
-------- --------
Total liabilities 5,757 7,446
Minority interests (Note 9) 632 393
Shareholders' Equity:
Preferred stock, $1.00 par value, 1,000,000
shares authorized, none issued or outstanding -- --
Common stock, $0.10 par value, shares authorized 20,000,000;
2,130,043 issued and outstanding at 03/31/03
and 2,133,843 at 12/31/02 213 213
Additional paid-in capital 5,584 5,584
Retained earnings 10,053 9,515
Accumulated other comprehensive income (loss),
net of taxes 1,152 1,830
--------- --------
Total shareholders' equity 17,002 17,142
--------- --------
Total Liabilities and Shareholders' Equity $23,391 $24,981
========= ========
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,
2003 2002
--------- ---------
Cash flows from operating activities:
Net income $552 $2,602
Adjustments to reconcile net income to cash
used in operating activities:
Depreciation and amortization 50 51
Forgiveness of debt and other 41 42
Minority interest in consolidated earnings 239 57
Undistributed loss of affiliates -- 230
Gain on sale of assets (124) (880)
Loss (gain) on sale of investment 19 (2,802)
Provision for bad debt 21 5
Changes in operating assets and liabilities:
Trade receivables (198) (35)
Trading account securities 0 97
Income tax receivable 393 2,917
Deferred income taxes 53 (1,537)
Receivable from clearing organization 10 (99)
Management fees & other receivables 20 (44)
Prepaid expenses & other assets 29 803
Trade accounts payable (15) 135
Deferred income -- 186
Accrued expenses & other liabilities (1,201) (1,745)
--------- --------
Net cash used in operating activities (111) (16)
Cash flows from investing activities:
Capital expenditures (58) (48)
Proceeds from the sale of an investment 612 10,309
Purchase of available-for-sale securities (812) --
Investments in and advances to affiliate -- (230)
Funds loaned to others (150) (150)
Collection of notes receivable 129 209
Other 44 172
--------- --------
Net cash (used in) provided by investing activities (235) 10,262
Cash flows from financing activities:
Payment of long term debt -- (2,280)
Purchase and cancellation of treasury stock (14) (251)
--------- --------
Net cash used in financing activities (14) (2,531)
Net change in cash and cash equivalents ($360) $7,715
Cash and cash equivalents at beginning of period 6,691 3,851
--------- --------
Cash and cash equivalents at end of period $6,331 $11,566
========= ========
See accompanying notes to consolidated financial statements.
- 7 -
AMERICAN PHYSICIANS SERVICE GROUP, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME (LOSS)
For the three months ended March 31, 2002 and 2003
(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, 2001 (audited) $ 275 $ 5,539 $ 8,310 $ (39) $ (1,418) $ 12,667
------------------------------------------------------------------------------------------------
Comprehensive income:
Net income -- -- 2,602 $ 2,602 -- -- 2,602
Other comprehensive income:
Unrealized gain on securities,
net of taxes of $710 -- -- -- 1,380 1,380 -- 1,380
------
Comprehensive income -- -- -- $ 3,982 -- -- --
========
Treasury stock purchase -- -- -- -- -- (251) (251)
------------------------------------------------------------------------------------------------
Balance March 31, 2002 (unaudited) $ 275 $ 5,539 $ 10,912 $ -- $ 1,341 $ (1,669) $ 16,398
================================================================================================
Balance December 31, 2002 (audited) $ 213 $ 5,584 $ 9,515 $ 1,830 $ -- $ 17,142
------------------------------------------------------------------------------------------------
Comprehensive income:
Net income -- -- 552 $ 552 -- -- 552
Other comprehensive income:
Unrealized loss on securities,
net of taxes of $349 -- -- -- (678) (678) -- (678)
------
Comprehensive loss -- -- -- $ (126) -- -- --
========
Treasury stock purchases -- -- -- -- (14) (14)
Cancelled treasury stock -- -- (14) -- 14 --
------------------------------------------------------------------------------------------------
Balance March 31, 2003 (unaudited) $ 213 $ 5,584 $10,053 $ -- $ 1,152 $ -- $ 17,002
================================================================================================
See accompanying notes to consolidated financial statements
- 8 -
AMERICAN PHYSICIANS SERVICE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2003
(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 and pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with accounting
principles generally accepted in the United States of America have been
condensed or omitted pursuant to such rules and regulations. The consolidated
financial statements for the three months ended March 31, 2003 and 2002 reflect
all adjustments which are, in the opinion of management, necessary for a fair
presentation of the financial position, results of operations and cash flows for
the periods presented. Such adjustments consist of only items of a normal
recurring nature. 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, 2002 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 2003 presentation.
2. MANAGEMENT'S ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the consolidated financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
3. CONTINGENCIES
We have extended various lines of credit to Uncommon Care totaling
$4.69 million with interest rates between 10% and 12%. 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 have recognized 100% of the losses of Uncommon Care, to the
extent of our investment, based on our ownership of 100% of Uncommon Care's
preferred stock
- 9 -
equity and subordinated debt with Uncommon Care. Our total basis in investment
and advances to Uncommon Care has been reduced to zero.
At March 31, 2003, Uncommon Care was not in compliance with its senior
loan covenants. Uncommon Care's senior lender has several options ranging from
renegotiating new loan terms to seizing collateral, thus forcing Uncommon Care
into bankruptcy. Although Uncommon Care was able to secure refinance funds from
a third party lender on some of its properties in April, 2003, they are still
not in compliance with bank covenants and it is unknown as of the date of this
report what action the lender may take. Uncommon Care's management has been
informed by us that we will not advance them additional funds.
We have extended a line of credit to APS Consulting. See Note 9 to
these consolidated financial statements.
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 or results of operations.
4. GAIN RECOGNITION
During the three months ended March 31, 2003, we received proceeds of
approximately $49,000 and recognized a gain of $15,000 resulting from the sale
of available-for-sale equity securities.
Additionally, we recognized $124,000 of deferred gain related to the
November 2001 sale and subsequent leaseback of real estate to Prime Medical. Due
to our continuing involvement in the property, we deferred recognizing
approximately $2.4 million of the approximately $5.1 million gain and are
recognizing it in earnings, as a reduction of rent expense, monthly through
November 2006. In addition, 15% of the gain ($0.76 million) related to our then
15% ownership in the purchaser, was deferred. As our ownership percentage in
Prime declines through our sales of Prime common stock, we recognize these gains
proportionately to our reduction of our interest in Prime. During the first
three months of 2003, we recognized $2,000 of these deferred gains.
5. EQUITY IN EARNINGS OF UNCONSOLIDATED AFFILIATES
At March 31, 2003 we owned approximately 4% (746,000 shares) of the
outstanding common stock of Prime Medical. Our ownership percentage was reduced
during 2002 when we sold 1,570,000 shares of Prime Medical common stock. As a
result of our reduced ownership interest and as a result of the Company's
Chairman and CEO, Kenneth S. Shifrin, stepping down from day-to-day operations
as Executive Chairman of the Board of Prime Medical effective January 1, 2002,
we ceased accounting for our investment in Prime Medical using the equity method
effective March 19, 2002 and began accounting for our investment in Prime as an
available-for-sale security in accordance with SFAS 115. Accordingly, our
investment in Prime Medical is reported at fair value in our balance sheet and
no equity earnings were recorded during
- 10 -
5. EQUITY IN EARNINGS OF UNCONSOLIDATED AFFILIATES, continued
the first quarter of 2003. We recognized $186,000 of equity earnings during the
first quarter of 2002 prior to converting to the cost method of accounting for
this investment.
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 with the Securities and Exchange Commission annually, quarterly
and other reports and documents containing 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.
The condensed statements of operations for Prime Medical follows (unaudited, in
thousands):
Condensed statements of operations for the three months ended March 31, 2003
and 2002
2003 2002
---- ----
Total revenue $40,852 $40,303
Income from operations 8,907 12,142
Net income 1,827 2,106
At March 31, 2003 the Company owned convertible preferred and common
stock of Uncommon Care, a developer and operator of dedicated Alzheimer's care
facilities. We have followed 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 our investment and
advances to Uncommon Care was reduced to zero. Until such time as Uncommon Care
becomes profitable and our future equity in these profits fully offsets our
prior period combined equity losses, future advances to Uncommon Care will
result in a loss when advanced.
The common and preferred shares owned by the Company, represent a 42%
interest in the common equity in Uncommon Care on a fully converted basis. We
continue to record our investment in and advances to Uncommon Care on the equity
method.
The condensed statements of operations for Uncommon Care follows (unaudited, in
thousands):
Condensed statements of operations for the three months ended March 31, 2003
and 2002
2003 2002
---- ----
Total revenue $1,918 $1,869
Income from operations 201 194
Net loss (196) (143)
- 11 -
6. ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued expenses and other liabilities consists of the following:
March 31 December 31
2003 2002
(Unaudited)
----------- ------------
Commissions Payable $ 817,000 $ 798,000
Taxes 113,000 93,000
Vacation 144,000 154,000
Other 190,000 182,000
---------- -----------
$1,264,000 $1,227,000
========== ==========
7. 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, such as options and
convertible debt. A reconciliation of earnings and average shares outstanding
used in the calculation of basic and diluted earnings per share from operations
follows:
For the Three Months Ended March 31, 2003
-------------------------------------------
Earnings Shares Per Share
(Numerator) (Denominator) Amount
---------- ------------ ---------
Earnings from operations $ 552,000
Basic EPS
Earnings available to
common stockholders 552,000 2,132,000 $0.26
=====
Diluted EPS
Effect of dilutive securities -- 96,000
--------- ----------
Earnings available to
common stockholders and
assumed conversions $ 552,000 2,228,000 $0.25
========== ========= =====
- 12 -
For the Three Months Ended March 31, 2002
------------------------------------------
Earnings Shares Per Share
(Numerator) (Denominator) Amount
---------- ------------ --------
Earnings from operations $ 2,602,000
Basic EPS
Earnings available to 2,602,000 2,323,000 $ 1.12
======
common stockholders
Diluted EPS
Effect of dilutive securities -- 99,000
---------- -----------
Earnings available to common
stockholders and assumed
conversions $ 2,602,000 2,422,000 $ 1.07
=========== ========= ======
Unexercised employee stock options to purchase 575,000 and 456,500
shares of the Company's common stock for the three months ended March 31, 2003
and 2002, respectively, were not included in the computations of diluted EPS
because the effect would be antidilutive as their exercise price exceeds the
average stock price during the period.
8. SEGMENT INFORMATION
The Company's segments are distinct by type of service provided. Comparative
financial data for the three month periods ended March 31, 2003 and 2002 are
shown as follows:
Three months ended March 31,
2003 2002
--------- -----------
Operating Revenue:
Financial services $4,057,000 $3,097,000
Insurance services 2,557,000 2,109,000
Consulting 899,000 697,000
Corporate 6,000 157,000
--------- -----------
Total Segment Revenues $7,519,000 $6,060,000
========== ===========
Reconciliation to Consolidated
Statement of Operations:
Total segment revenues $7,519,000 $6,060,000
Less: Intercompany dividends -- (145,000)
Intercompany interest (4,000) (12,000)
---------- ----------
Total Revenues $7,515,000 $5,903,000
========== ==========
- 13 -
Three months ended March 31,
2003 2002
------- -------
Operating Income (Loss)
Financial services $ 717,000 $ 485,000
Insurance services 585,000 514,000
Consulting 273,000 67,000
Corporate (422,000) 211,000
--------- ---------
Total segments operating profits 1,153,000 1,277,000
Gain on sale of investments 15,000 2,801,000
Profit from operations before interest,
income taxes and minority interests and
equity in loss of unconsolidated
affiliates 1,168,000 4,078,000
Interest Income 71,000 38,000
Interest expense 1,000 18,000
Income tax expense 437,000 1,395,000
Minority interests 249,000 57,000
Equity in loss of affiliates -- (44,000)
--------- ---------
Net earnings $ 552,000 $2,602,000
========= ==========
9. SALE OF APS CONSULTING
Effective November 1, 2002, we completed the sale of APS Consulting to
its management. We sold all of our APS Consulting shares for a de minimus amount
of cash plus a $250,000 seven year term note at the prime rate plus 3%. The note
is secured by the assets of APS Consulting. Our existing contract to provide
administrative support services to APS Consulting for a period of approximately
seven years remains in effect. Fees under this contract are dependent on APS
Consulting's pre-tax earnings but may not be less than $200,000 or more than
$518,000 over its remaining term.
In addition, we extended a line of credit to APS Consulting of up to
$450,000. This line is at the prime rate plus 3% and is collateralized by the
accounts receivable and cash of APS Consulting. Advances under the line are
dependent upon meeting borrowing base requirements.
- 14 -
Under the terms of the sale agreement, we are dependent upon the future
successful operation of the division to collect our proceeds from the disposal.
Additionally, as we have a security interest in the assets of the division, we
have retained a risk of loss on the division's assets and, under the terms of
our notes with the division, we have the ability to veto certain transactions,
including significant asset disposals.
Consistent with the guidance under FIN 46, we have not recognized the
divestiture of APS Consulting and continue to consolidate the division as an
entity in which we have a variable interest that will absorb the majority of the
entity's operating losses if they occur.
Accordingly, the assets and liabilities of APS Consulting are included
in our consolidated balance sheets as of March 31, 2003 and December 31, 2002.
The balance sheet below summarizes the assets and liabilities of APS Consulting
that are included in our consolidated balance sheet at March 31, 2003:
ASSETS
Cash $226,000
Accounts Receivable, net 649,000
Prepaid Expenses 17,000
----------
Total Current Assets 892,000
Property and Equipment 66,000
----------
Total Assets $958,000
==========
LIABILITIES
Accounts Payable $389,000
Accrued Expenses 88,000
----------
Total Current Liabilites 477,000
Notes Payable 237,000
Federal Income Tax Payable 75,000
Deferred Income 23,000
----------
Total Liabilites $812,000
==========
Total Assets in excess of Liabilities $146,000
==========
We continue to consolidate APS Consulting's revenues and expenses. If
APS Consulting reports operating losses, we record such losses in our statement
of operations. If APS Consulting reports net earnings, we reduce our interest in
such earnings to zero by increasing the minority interest presented in our
statement of operations.
Creditors of APS Consulting have no recourse to the general credit of
the Company or its other consolidated subsidiaries.
- 15 -
10. STOCK-BASED COMPENSATION
We have adopted the disclosure-only provisions of Statement of
Accouting Standards No. 123, Accounting for Stock-Based Compensation ("SFAS
123"), as amended by SFAS 148, "Accounting for Stock-Based Compensation -
Transition and Disclosure", but measure compensation expense for our stock-based
employee compensation plans using the intrinsic value method prescribed by APS
Opinion No. 25, Accounting for Stock Issued to Employees. Proforma disclosures
of net income and earnings per share as if the fair value-based method
prescribed by SFAS 123 had been applied in measuring compensation expense
follow. For purposes of the proforma disclosures, the estimated fair value of
the options is amortized to expense over the options' vesting period.
Three Months Ended March 31,
2003 2002
---- ----
Net Income as reported $552,000 $2,602,000
Deduct: Total stock-based employee
compensation expense determined under
fair value based method for all awards,
net of related tax effects (59,000) (59,000)
---------- -----------
Pro forma net income 493,000 2,543,000
Income per share
Basic - as reported $ 0.26 $ 1.12
====== ======
Basic - pro forma $ 0.23 $ 1.09
====== ======
Diluted - as reported $ 0.25 $ 1.07
====== ======
Diluted - pro forma $ 0.22 $ 1.05
====== ======
11. RECENT ACCOUNTING PRONOUNCEMENTS
In June 2002, the FASB issued SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities. SFAS No. 146 addresses financial
accounting and reporting for costs associated with exit or disposal activities
and nullifies Emerging Issues Task Force (EITF)Issue 94-3, Liability Recognition
for Certain Employee Termination Benefits and Other Costs to Exit an Activity.
The provisions of this Statement are effective for exit or disposal activities
that are initiated after December 31, 2002, with early application encouraged.
The adoption of SFAS No. 146 did not have a material effect on our consolidated
financial statements.
In November 2002, the FASB issued Interpretation No. 45, Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness to Others, an interpretation of FASB Statements No.
5, 57 and 107 and a rescission of FASB Interpretation No. 34. This
Interpretation elaborates on the disclosures to be made by a guarantor in its
interim and annual financial statements about its obligations under guarantees
issued. The
- 16 -
interpretation also clarifies that a guarantor is required to recognize, at
inception of a guarantee, a liability for the fair value of the obligation
undertaken. The initial recognition and measurement provisions of the
Interpretation are applicable to guarantees issued or modified after December
31, 2002 and did not have a material effect on our consolidated financial
statements. The disclosure requirements are effective for financial statements
of interim and annual periods ending after December 15, 2002.
In December 2002, the FASB issued SFAS No. 148, Accounting for
Stock-Based Compensation - Transition and Disclosure, an amendment of FASB
Statement No. 123. This Statement amends FASB Statement No. 123, Accounting for
Stock-Based Compensation, to provide alternative methods of transition for a
voluntary change to the fair value method of accounting for stock-based employee
compensation. In addition, this Statement amends the disclosure requirements of
Statement No. 123 to require prominent disclosures in both annual and interim
financial statements. Certain of the disclosure modifications are required for
fiscal years ending after December 15, 2002 and are included in the notes to
these consolidated financial statements.
In January 2003, the FASB issued Interpretation No. 46, Consolidation
of Variable Interest Entities, an interpretation of ARB No. 51. This
Interpretation addresses the consolidation by business enterprises of variable
interest entities as defined in the Interpretation. The Interpretation applies
immediately to a variable interests in variable interest entities created after
January 31, 2003, and to variable interests in variable interest entities
obtained after January 31, 2003. We have voluntarily elected early adoption of
Interpretation No. 46. The effect of the application of this Interpretation is
described in Note 9 to these consolidated financial statements.
- 17 -
Item 2
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.
CRITICAL ACCOUNTING POLICIES
The preparation of our consolidated financial statements requires us to
make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses. On an on-going basis, we evaluate our
estimates, including those related to, impairment of assets; bad debts; income
taxes; and contingencies and litigation. We base our estimates on historical
experience and on various other assumptions that we believe to be reasonable
under the circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities
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that are not readily apparent from other sources. Actual results may differ
from these estimates under different assumptions or conditions.
We believe the following critical accounting policies affect our more
significant judgments and estimates used in the preparation of our consolidated
financial statements. We periodically review the carrying value of our assets to
determine if events and circumstances exist indicating that assets might be
impaired. If facts and circumstances support this possibility of impairment, our
management will prepare undiscounted and discounted cash flow projections which
require judgments that are both subjective and complex. Management may also
obtain independent valuations.
Our financial services revenues are composed primarily of commissions
on securities trades and asset management fees. Revenues related to securities
transactions are recognized on a trade date basis. Asset management fees are
recognized as a percentage of assets under management during the period based
upon the terms of agreements with the applicable customers.
Our insurance services revenues are primarily related to management
fees based on the earned premiums of the managed company and include a profit
sharing component related to the managed company's annual earnings. Management
fees are recorded, based upon the terms of the management agreement, in the
period the related premiums are earned by the managed company. The managed
company recognizes premiums as earned ratably over the terms of the related
policy. The profit sharing component is recognized when it is reasonably certain
the managed company will have an annual profit, and, typically, has been
recognized during the fourth quarter.
When necessary, we record an allowance for doubtful accounts based on
specifically identified amounts that we believe to be uncollectible. If our
actual collections experience changes, revisions to our allowance may be
required. We have a limited number of customers with individually large amounts
due at any given balance sheet date. Any unanticipated change in one of those
customer's credit could have a material affect on our results of operations in
the period in which such changes or events occur. After all attempts to collect
a receivable have failed, the receivable is written off against the allowance.
When necessary, we record a valuation allowance to reduce our deferred tax
assets to the amount that is more likely than not to be realized. While we have
considered future taxable income and ongoing prudent and feasible tax planning
strategies in assessing the need for the valuation allowance, in the event we
were to determine that we would be able to realize our deferred tax assets in
the future in excess of its net recorded amount, an adjustment to the deferred
tax asset would increase income in the period the determination was made.
Likewise, should we determine that we would not be able to realize all or part
of our net deferred tax asset in the future, an adjustment to the deferred tax
asset would be charged to income in the period the determination was made.
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During 2001, it was our judgment that the equity method of accounting
for our investment in Prime Medical and Uncommon Care was more appropriate than
the cost method, on the basis that even though we held less than a 20% equity
interest in Prime Medical, we had significant influence over the operational and
financial policies of Prime Medical and Uncommon Care. Using the equity method
we recorded our share of Prime Medical's and Uncommon Care's earnings or losses.
As described earlier in the "Our other investments" section of this Form 10-KSB,
during the first quarter of 2002 our sales of shares of Prime Medical common
stock reduced our ownership to less than 5% of their total shares outstanding.
Consequently, we stopped accounting for our investment in Prime Medical using
the equity method and changed to the cost method. Unrealized gains/losses
related to our investment in Prime Medical are recorded in equity as other
comprehensive income, net of taxes.
In November 2002, we sold our consulting division, APS Consulting, to
its management for a de minimus amount of cash and a $250,000 seven year term
note. Additionally, we retained a security interest in the assets of the
division, agreed to provide continuing financial support to the division under a
$450,000 line of credit and continue to perform, for a fee, certain
administrative services for the division. We determined that, under the terms of
the transaction, we were dependent upon the future successful operation of the
division to collect the term note receivable accepted as consideration for the
sale. We further determined that we had a risk of loss in the division's assets
in which we retained a security interest and, through our administrative
services arrangement, maintained continuing involvement with the division.
We have accounted for the division as variable interest entity under
the guidance of FIN 46 "Consolidation of Variable Interest Entities." Consistent
with the guidance under FIN 46, we have not recognized the divestiture of APS
Consulting and continue to consolidate the division as an entity in which we
have a variable interest that will absorb the majority of the entity's operating
losses if they occur.
At March 31, 2003 we owned convertible preferred and common stock of
Uncommon Care, a developer and operator of dedicated Alzheimer's care
facilities. 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 our investment and
advances to Uncommon Care was reduced to zero. In 2003 it was decided that we
would make no further advances to Uncommon Care due to their defaults to us and
to their senior lender. While we do not intend to make any future advances to
Uncommon Care, any such advances would result in our recording a loss when
advanced.
RESULTS OF OPERATIONS
REVENUES
Revenues from operations increased $1,612,000 (27%) for the three month
period ended March 31, 2003 compared to the same period in 2002. Revenues
increased in the current three month period at all segments compared to the same
period in 2002.
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Financial services revenues increased $960,000 (31%) for the three
month period ended March 31, 2003 compared to the same period in 2002. The
increase in the current year three month period was due to strong commission
revenues at APS Financial, the broker/dealer division of our financial services
segment. APS Financial continues to trade predominantly in bond markets, which
have been strong relative to equity markets. Commissions are higher this year as
we have experienced zero turnover in broker personnel and they continue to open
new institutional accounts. Also, corporate bond business volumes have been
significant this year as investors look for yields above those offered by
treasury securities.
Our insurance services revenues from our premium-based insurance
management segment, APS Insurance Services, increased $448,000 (21%) for the
three month period ended March 31, 2003 compared to the same period in 2002. The
increase is due to greater management fees and commissions, resulting from
higher insurance premiums. Premiums have increased due to rate increases at the
managed insurance company.
Consulting revenues increased $202,000 (29%) for the three month period
ended March 31, 2003 compared to the same period in 2002. The increase in the
current year is primarily due to an increased number of short term construction
and consulting projects completed during the quarter for new and existing
clients. As described in Note 9 to our consolidated financial statements, we
completed the sale of APS Consulting to its management effective November 1,
2002. However, since we did not satisfy the conditions to treat the sale as a
divestiture, we will record operating losses of APS Consulting in our statement
of operations and will record operating earnings of APS Consulting as a
reduction of our interest in such earnings by increasing the minority interest
presented in our statement of operations.
EXPENSES
Total operating expenses increased $1,736,000 (38%) for the three month
period ended March 31, 2003 compared to the same period in 2002. For the current
year three month period, expenses increased at our financial services, insurance
services and corporate segments and decreased at our consulting segment.
Financial services expense increased $728,000 (28%) for the three month
period ended March 31, 2003 compared to the same period in 2002. The primary
reason for the current year variance is a $491,000 (30%) increase in commission
expense resulting from the increase in commission revenue at APS Financial
mentioned earlier. In addition, increased net profits at APS Financial resulted
in a $197,000 (162%) increase in formula driven management incentive costs.
Insurance services expenses at the insurance management subsidiary
increased $377,000 (24%) for the three month period March 31, 2003 compared to
the same period in 2002. The current three month period increase is due
primarily to a $116,000 (15%) increase in commission expense paid to third party
and in-house agents arising because of the aforementioned increase in commission
income. Also higher this year is payroll related expenses which rose $77,000
(13%) in the current year three month period as a result of an industry salary
analysis conducted in the latter
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half of 2002 which resulted in wages within certain departments increasing to
competitive levels in order to retain personnel. Lastly, management incentive
expense increased $67,000 (102%) in the current year three month period as a
result of additional incentive accruals.
General and administrative expenses increased $65,000 (18%) for the
three month period March 31, 2003 compared to the same period in 2002. The
increase in the current year period is due primarily to a 19% increase in
personnel related costs, which includes annual merit raises as well as an
increase in health insurance.
Gain on sale of assets for the three months ended March 31, 2003
primarily represents the recognition of deferred income resulting from reducing
our investment in Prime Medical through the sale of its common stock.
Approximately $760,000 of the $5,100,000 gain on the sale of real estate to
Prime Medical in 2001 was deferred in 2001 and is to be recognized upon the
reduction of our percentage in Prime Medical through the sale of its stock. To
date, a total of $517,000 of the $760,000 originally deferred has been
recognized.
Interest expense decreased $17,000 (94%) for the three month period
ended March 31, 2003 compared to the same period in 2002. The primary cause of
the current period decrease is the payoff of the Company's note payable from a
balance of $2,750,000 during the first quarter of 2002. There was no long-term
debt at March 31, 2003.
GAIN ON SALE OF INVESTMENTS
The three month gain represent gains on the sale of Prime Medical
common stock. As a result of these sales, as of March 31, 2003, we own
approximately 746,000 shares of Prime Medical amounting to an ownership
percentage of approximately 4%.
EQUITY IN EARNINGS (LOSS) OF UNCONSOLIDATED AFFILIATES
Our equity in the earnings of Prime Medical decreased $186,000 (100%)
for the three month period ended March 31, 2003 compared to the same period in
2002 as we no longer account for our investment in Prime Medical using the
equity method of accounting, as was the case in the first quarter of 2002. As of
March 19, 2002, we ceased accounting for our investment in Prime Medical using
the equity method of accounting because (1) on January 1, 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 continues to serve as
non-executive Chairman; and (2) from January to March 19, 2002, we sold
1,570,000 shares of Prime Medical reducing our ownership percentage to slightly
less than 5%.
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Our equity in losses of Uncommon Care decreased $230,000 (100%) for the
three month period ended March 31, 2003 compared to the same period in 2002
primarily as a result of our limiting our losses in Uncommon Care to our total
investment and advances to Uncommon Care, which has been reduced to zero. Once
we reduced our total investment to zero, as required under the equity method, we
ceased recording equity losses. Until such time as Uncommon Care becomes
profitable and future equity in these profits fully offsets our prior period
combined equity losses, future advances to Uncommon Care will result in a loss
when advanced. Due to Uncommon Care's default of our notes, we do not expect to
make future advances to Uncommon Care.
MINORITY INTERESTS
Minority interests represents the combination of two outside interests
in subsidiaries of the Company: a twenty percent interest in Insurance Services
owned by FPIC Insurance Group, Inc. and a three percent interest in APS Asset
Management, a subsidiary of the financial services subsidiary of the Company
(APS Investment Services), owned by key individuals within APS Asset Management.
In addition, we are now recording net income from APS Consulting as minority
interest. See Note 9 to these consolidated financial statements. Minority
interests increased in the current year primarily as a result of increased
profitability of our insurance services segment as well as to net income from
APS Consulting.
SHAREHOLDERS' EQUITY
For the three months ended March 31, 2003, we purchased and cancelled
3,800 shares of treasury stock. These purchases and cancellations had no effect
on treasury stock or common stock and decreased retained earnings by $14,000.
Through March 31, 2003, we recorded other comprehensive loss of
$678,000 which represents unrealized holding losses on securities held for sale,
primarily in Prime Medical common stock, net of tax. Changes in fair value for
securities categorized as "available-for-sale" are excluded from earnings and
reported net of deferred income taxes in shareholders' equity until realized.
LIQUIDITY AND CAPITAL RESOURCES
Current assets exceeded current liabilities by $7,134,000 at March 31,
2003 and $6,067,000 at December 31, 2002. Working capital rose in 2003 due
primarily to proceeds from the sale of non-current available-for-sale equity and
fixed income securities.
Capital expenditures through the three month period ended March 31,
2003 were approximately $58,000. Total capital expenditures are expected to be
approximately $225,000 in 2003.
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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 us to pursue investment and
expansion opportunities consistent with our growth plans. Although it is
uncertain if our operating activities will continue to provide positive cash
flow in 2003, we believe that our current strong working capital position will
enable us to meet our working capital requirements for the foreseeable future.
ADOPTION OF RECENT ACCOUNTING PRONOUNCEMENTS
In June 2002, the FASB issued SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities. SFAS No. 146 addresses financial
accounting and reporting for costs associated with exit or disposal activities
and nullifies Emerging Issues Task Force (EITF)Issue 94-3, Liability Recognition
for Certain Employee Termination Benefits and Other Costs to Exit an Activity.
The provisions of this Statement are effective for exit or disposal activities
that are initiated after December 31, 2002, with early application encouraged.
The adoption of SFAS No. 146 did not have a material effect on our consolidated
financial statements.
In November 2002, the FASB issued Interpretation No. 45, Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness to Others, an interpretation of FASB Statements No.
5, 57 and 107 and a rescission of FASB Interpretation No. 34. This
Interpretation elaborates on the disclosures to be made by a guarantor in its
interim and annual financial statements about its obligations under guarantees
issued. The interpretation also clarifies that a guarantor is required to
recognize, at inception of a guarantee, a liability for the fair value of the
obligation undertaken. The initial recognition and measurement provisions of the
Interpretation are applicable to guarantees issued or modified after December
31, 2002 and did not have a material effect on our consolidated financial
statements. The disclosure requirements are effective for financial statements
of interim and annual periods ending after December 15, 2002.
In December 2002, the FASB issued SFAS No. 148, Accounting for
Stock-Based Compensation - Transition and Disclosure, an amendment of FASB
Statement No. 123. This Statement amends FASB Statement No. 123, Accounting for
Stock-Based Compensation, to provide alternative methods of transition for a
voluntary change to the fair value method of accounting for stock-based employee
compensation. In addition, this Statement amends the disclosure requirements of
Statement No. 123 to require prominent disclosures in both annual and interim
financial statements. Certain of the disclosure modifications are required for
fiscal years ending after December 15, 2002 and are included in the notes to
these consolidated financial statements.
In January 2003, the FASB issued Interpretation No. 46, Consolidation
of Variable Interest Entities, an interpretation of ARB No. 51. This
Interpretation addresses the consolidation by business enterprises of variable
interest entities as defined in the Interpretation. The Interpretation applies
immediately to a variable interests in variable interest entities created after
January 31, 2003, and to variable interests in variable interest entities
obtained after January 31, 2003. We have voluntarily elected early adoption of
Interpretation No. 46. The effect of the application of this Interpretation is
described in Note 9 to these consolidated financial statements.
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Item 3.
CONTROLS AND PROCEDURES
a.) Within the 90-day period prior to the date of this report, we carried out
an evaluation under the supervision and with the participation of our
management, including our Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the design and operation of our disclosure
controls and procedures pursuant to Rule 13a-14 of the Securities and
Exchange Act of 1934 (the "Exchange Act"). Based upon that evaluation, our
Chief Executive Officer and Chief Financial Officer concluded that our
disclosure controls and procedures are effective in timely alerting them to
material information relating to our reports (including those of our
consolidated subsidiaries) required to be included in our Exchange Act
filings.
b) There have been no significant changes in our internal controls or in other
factors which could significantly affect internal controls subsequent to
the date we carried out our evaluation.
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PART 11
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 or results of operations. 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 2. CHANGES IN SECURITIES
For the three months ended March 31, 2003, we purchased 3,800 and
cancelled 3,800 shares of treasury stock. These purchases and cancellations had
no effect on treasury stock or common stock and decreased retained earnings by
$14,000.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
99.1 Certification of Chief Executive Officer
99.2 Certification of Chief Financial Officer
(b) Reports on Form 8-K.
Report filed April 18, 2003 concerning the press
release reporting annual and fourth quarter 2002 results of
operations and financial condition.
- 27 -
Dated: May 14, 2003
CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO
SECTION 302 OF SARBANES-OXLEY ACT OF 2002
I, Kenneth S. Shifrin, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of American Physicians
Service Group, Inc.
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design of operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
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b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have
indicated in this quarterly report whether or not there were
significant changes in internal controls or in other factors
that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies
and material weaknesses.
Date: May 14, 2003
/s/ Kenneth S. Shifrin
-----------------------
Kenneth S. Shifrin
Chairman of the Board
- 29 -
Dated: May 14, 2003
CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO
SECTION 302 OF SARBANES-OXLEY ACT OF 2002
I, William H. Hayes, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of American Physicians
Service Group, Inc.
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have
disclosed, based on our most recent evaluation, to the registrant's auditors and
the audit committee of registrant's board of directors (or persons performing
the equivalent function):
a) all significant deficiencies in the design of operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
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b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have
indicated in this quarterly report whether or not there were
significant changes in internal controls or in other factors
that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies
and material weaknesses.
Date: May 14, 2003
/s/ William H. Hayes
------------------------
William H. Hayes
Senior Vice President-Finance
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