=====================================================================
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 SEPTEMBER 30, 2002
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 November 4, 2002
-------------------- ----------------
Common Stock, $.10 par value 2,199,143
============================================================================
PART I
FINANCIAL INFORMATION
- 2 -
Item 1 - Financial Statements
AMERICAN PHYSICIANS SERVICE GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(In thousands)
Three Months Ended Nine Months Ended
----------------------------- ------------------------------
September 30, September 30,
2002 2001 2002 2001
------------ ------------ ------------ ------------
Revenues:
Financial services $3,429 $3,212 $9,727 $10,269
Insurance services 2,854 2,230 7,204 5,384
Consulting 899 821 2,499 2,107
Investments and other 59 5 103 91
------------ ------------ ------------ ------------
Total revenue 7,241 6,268 19,533 17,851
Expenses:
Financial services 3,078 2,869 8,549 8,976
Insurance services 2,291 1,864 5,681 4,448
Consulting 760 991 2,120 2,192
General and administrative 710 235 1,419 894
Gain on sale of assets (126) -- (881) --
------------ ------------ ------------ ------------
Total expenses 6,713 5,959 16,888 16,510
------------ ------------ ------------ ------------
Operating income 528 309 2,645 1,341
Gain on sale of investments (Note 4) 64 -- 2,855 --
Equity in earnings (loss) of unconsolidated
affiliates (Note 5) -- 34 (44) (62)
------------ ------------ ------------ ------------
Earnings from continuing operations before
interest, income taxes and minority interests 592 343 5,456 1,279
Interest expense 4 124 25 393
Income tax expense 222 95 1,899 364
Minority interests (70) (42) (185) (105)
------------ ------------ ------------ ------------
Earnings from continuing operations 296 82 3,347 417
Discontinued operations:
Earnings from discontinued operations, net
of income tax expense of $18 and $56 for
the three and nine months in 2001 -- 35 -- 110
------------ ------------ ------------ ------------
Net earnings $296 $117 $3,347 $527
============ ============ ============ ============
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 Nine Months Ended
September 30, September 30,
------------------------------- -------------------------------
2002 2001 2002 2001
------------- ------------- ------------- -------------
Earnings (loss) per common share
Basic:
Earnings from continuing operations $0.13 $0.04 $1.48 $0.18
Discontinued operations -- 0.01 -- 0.05
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Net earnings $0.13 $0.05 $1.48 $0.22
============= ============= ============= =============
Diluted:
Earnings from continuing operations $0.13 $0.04 $1.40 $0.16
Discontinued operations -- 0.01 -- 0.04
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Net earnings $0.13 $0.05 $1.40 $0.20
============= ============= ============= =============
Basic weighted average shares
outstanding 2,223 2,343 2,266 2,343
============= ============= ============= =============
Diluted weighted average
shares outstanding 2,357 2,608 2,393 2,601
============= ============= ============= =============
See accompanying notes to consolidated financial statements.
- 4 -
AMERICAN PHYSICIANS SERVICE GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
September 30, December 31,
2002 2001
------------- ------------
ASSETS (Unaudited)
Current Assets:
Cash and cash equivalents $9,543 $3,851
Trading account securities 106 149
Trade receivables, net 709 603
Notes receivable - current 602 573
Management fees and other receivables 496 484
Deposit with clearing organization 499 499
Receivable from clearing organization 70 69
Net deferred income tax asset -- 282
Income tax receivable -- 167
Prepaid expenses and other 539 1,147
----------- ------------
Total current assets 12,564 7,824
Notes receivable, less current portion 566 999
Property and equipment 396 415
Investment in available for sale equity
securities (Note 5) 6,953 --
Investment in available for sale fixed
income securities 1,394 --
Investment in affiliate (Note 5) -- 10,700
Other investments 10 68
Net deferred income tax asset - non-current 3,127 1,453
Other assets 200 201
---------- -----------
Total Assets $25,210 $21,660
========== ===========
See accompanying notes to consolidated financial statements.
- 5 -
AMERICAN PHYSICIANS SERVICE GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS, continued
(In thousands, except share data)
September 30, December 31,
2002 2001
-------------- ------------
LIABILITIES AND SHAREHOLDERS' EQUITY (Unaudited)
Current liabilities:
Accounts payable - trade $1,096 $1,044
Payable to clearing broker 156 254
Accrued incentive compensation 1,401 1,246
Accrued expenses and other liabilities (Note 6) 458 1,337
Income tax payable 980 --
Deferred gain - current 488 499
Deferred tax liability - current 748 --
-------------- ------------
Total current liabilities 5,327 4,380
Payable under loan participation agreements 259 259
Deferred gain - non-current 1,983 1,955
Notes payable - long term -- 2,275
-------------- ------------
Total liabilities 7,569 8,869
Minority interests 309 124
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;
2,206,543 issued at 9/30/02 and 2,745,231 at 12/31/01
2,206,543 outstanding at 9/30/02 and 2,359,231 at 12/31/01 215 275
Additional paid-in capital 5,590 5,539
Retained earnings 9,395 8,310
Accumulated other comprehensive income (loss),
net of taxes 2,132 (39)
Treasury stock, at cost, zero shares at 9/30/02
and 386,000 shares at 12/31/01 -- (1,418)
-------------- ------------
Total shareholders' equity 17,332 12,667
-------------- ------------
Total Liabilities and Shareholders' Equity $25,210 $21,660
============== ============
See accompanying notes to consolidated financial statements.
- 6 -
AMERICAN PHYSICIANS SERVICE GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
Nine Months Ended
September 30,
-----------------------------
2002 2001
--------- ---------
Cash flows from operating activities:
Cash received from customers $19,195 $17,678
Cash paid to suppliers and employees (17,332) (16,719)
Change in trading account securities 43 37
Change in receivable from clearing
organization (99) (73)
Interest paid (24) (397)
Income tax paid (2,406) (45)
Interest, dividends and other investment
proceeds 103 91
--------- --------
Net cash (used in) provided by
operating activities (520) 572
Cash flows from investing activities:
Capital expenditures (133) (176)
Proceeds from the sale of an investment 10,719 --
Purchase of bonds (1,394) --
Investments in and advances to affiliate (230) --
Funds loaned to others (150) (2,373)
Collection of notes receivable 558 1,736
Other -- 66
--------- --------
Net cash provided by (used in)
investing activities 9,370 (747)
Cash flows from financing activities:
Proceeds from borrowings -- 1,715
Payment of long term debt (2,275) (1,208)
Purchase of treasury stock (1,058) --
Exercise of stock options 175 --
Distribution to minority interest -- (80)
--------- --------
Net cash provided by (used in)
financing activities (3,158) 427
--------- --------
Net change in cash and cash equivalents $5,692 $252
Cash and cash equivalents at beginning
of period 3,851 2,988
--------- --------
Cash and cash equivalents at end of period $9,543 $3,240
========= ========
See accompanying notes to consolidated financial statements.
- 7 -
AMERICAN PHYSICIANS SERVICE GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED), continued
(In thousands)
Nine Months Ended
September 30,
2002 2001
--------- ---------
Reconciliation of net earnings to net
cash provided by operating activities:
Net earnings $3,347 $527
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 152 214
Forgiveness of debt and other 151 164
Minority interest in consolidated earnings 185 105
Undistributed loss of affiliates 44 62
Gain on sale of assets (881) --
Gain on sale of investment (2,797) --
Change in income tax receivable 1,147 468
Provision for deferred taxes (1,631) (146)
Provision for bad debt 117 15
Change in trading account securities 43 37
Change in receivable from clearing organization (99) (73)
Change in management fees & other receivables (12) (603)
Change in trade receivables (223) (42)
Change in prepaid expenses & other assets 609 (1)
Change in trade accounts payable 52 (88)
Change in accrued expenses & other liabilities (724) (67)
--------- --------
Net cash (used in) provided by
operating activities ($520) $572
========= ========
See accompanying notes to consolidated financial statements.
- 8 -
AMERICAN PHYSICIANS SERVICE GROUP, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME (LOSS)
For the Nine Months Ended September 30, 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 (audited) $ 275 $ 5,539 $ 8,888 $ (32) $ (1,418) $ 13,252
------------------------------------------------------------------------------------------------
Comprehensive income:
Net income -- -- 527 527 -- -- 527
Other comprehensive loss:
Unrealized loss on securities,
net of tax of $2 -- -- -- (26) (26) -- (26)
Comprehensive income -- -- -- 501 -- -- --
------------------------------------------------------------------------------------------------
Balance Sept 30, 2001 (unaudited) $ 275 $ 5,539 $ 9,415 $ -- $ (58) $ (1,418) $ 13,753
================================================================================================
Balance December 31, 2001(audited) $ 275 $ 5,539 $ 8,310 $ (39) $ (1,418) $ 12,667
------------------------------------------------------------------------------------------------
Comprehensive income:
Net income -- -- 3,347 $ 3,347 -- -- 3,347
Other comprehensive income:
Unrealized gain on securities,
net of taxes of $1,118 -- -- -- 2,171 2,171 -- 2,171
________
Comprehensive income -- -- -- $ 5,518 -- -- --
Treasury stock purchases -- -- -- -- (1,058) (1,058)
Cancelled treasury stock (61) -- (2,415) -- 2,476 --
Stock options exercised 1 21 154 -- -- 176
Stock Options expensed -- 30 -- -- -- 30
------------------------------------------------------------------------------------------------
Balance Sept 30, 2002 (unaudited) $215 $5,590 $9,395 $ -- $ 2,132 $ -- $ 17,332
================================================================================================
See accompanying notes to consolidated financial statements.
- 9 -
AMERICAN PHYSICIANS SERVICE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 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 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 generally
accepted accounting principles in the United States of America have been
condensed or omitted pursuant to such rules and regulations. The consolidated
financial statements for the three and nine months ended September 30, 2002 and
2001 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, 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. 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
Under agreements with former doctor shareholders of Syntera, our practice
management company that was merged with FemPartners in 1999, we agreed to
exchange their shares in Syntera for the common stock of American Physicians
Service Group, Inc., or cash, if the Syntera shares did not become publicly
traded. Through March 31, 2002 we paid approximately
- 10 -
3 CONTINGENCIES, continued
$2,956,000 in cash related to these agreements, thus satisfying all liabilities
related to these agreements.
We have extended various lines of credit to Uncommon Care totaling $4.69
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 September
30, 2002 the interest rate was 4% and payments were 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 preferred and
common stock from 38% to 42% as of September 30, 2002 on a fully converted
basis.
During the year we guaranteed a loan in the maximum amount of $110,000 for
a director, William Searles. The guarantee was collateralized by Mr. Searles'
options to purchase American Physicians and Prime Medical shares as well as Mr.
Searles' common stock interest in Uncommon Care. As a result of recent
regulatory restrictions, we informed all of our officers and directors that we
could no longer make or guarantee loans. The loan had a zero balance as of the
date of this filing.
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.
During the third quarter of 2002 we entered into discussions with senior
management of our environmental consulting subsidiary, Eco Systems, Inc.
("Eco"), regarding a management buyout of Eco. We expect to complete the
transaction following the date of this report. Terms of the transaction call for
us to recover, on an accelerated basis, certain loans made to Eco and for Eco to
continue our management services agreement. We do not expect the transaction to
have a material impact on our financial condition or results of operations.Eco
had been acquired in a foreclosure proceeding related to loans which we had made
in 1996 and does not fit into our long-term business plan.
4. GAIN RECOGNITION
During the three and nine months ended September 30, 2002, we sold 11,200
and 1,591,200 shares of the common stock of Prime Medical reducing our interest
to less than 5%. In connection with these sales we received proceeds of
approximately $119,000 and $10,719,000 and recognized a gain of $64,000 and
$2,855,000, respectively.
- 11 -
4. GAIN RECOGNITION, continued
Additionally, we recognized $512,000 of deferred gain related to the sale
of real estate to Prime in November 2001. At the time of the real estate sale,
we deferred a portion of the total gain to reflect our interest in the
purchaser. During the first nine months of 2002, we have recognized these
deferred gains proportionately to our reduction of our interest in Prime.
5. EQUITY IN EARNINGS OF UNCONSOLIDATED AFFILIATES
At September 30, 2002 we owned less than 5% (752,603 shares) of the
outstanding common stock of Prime Medical. As a result of our reduced ownership
interest and as a result of Board of Directors changes mentioned in our Form
10-KSB for the year ended December 31, 2001, 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. We recognized $186,000 of equity
earnings during the first quarter of 2002 prior to converting to the cost
method. This change in accounting also resulted in a balance sheet
reclassification for our investment in Prime Medical from "Investment in
Affiliate" to "Investment in Available for Sale Equtiy Securities".
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. A
table detailing our investment in Prime Medical follows:
Fair Value September 30, 2002 Book Value at Date of Conversion *
---------------------------------------- ----------------------------------
No. of
Shares Owned MV per Share Fair Value BV per Share Book Value
------------ ------------ ---------- ------------ ----------
752,603 $9.24 $6,953,000 $5.02 $3,837,000
* Book Value at March 19, 2002, the date of conversion from accounting for
our investment in Prime Medical common stock using the equity method to
accounting for it as a marketable security.
The difference between the September 30, 2002 fair value and book value at
date of conversion is classified on the consolidated balance sheet in
accumulated other comprehensive income.
- 12 -
5. EQUITY IN EARNINGS OF UNCONSOLIDATED AFFILIATES, continued
The condensed statements of operations for Prime Medical follows (unaudited, in
thousands):
Condensed statements of operations for the nine months ended September 30, 2002
and 2001
2002 2001
-------- --------
Total revenue $126,305 $114,092
Gross profit 25,151 50,122
Income from continuing operations 19,851 39,465
Net income (loss) (2,970) 6,313
At September 30, 2002 the Company 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. 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. Advances to Uncommon Care have totaled $230,000
through September 30, 2002.
The common and preferred shares owned by the Company, together with common
stock to be paid-in-kind, are convertible into approximately a 42% interest in
the common equity in Uncommon Care. 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 nine months ended September 30, 2002
and 2001
2002 2001
------ -------
Total revenue $5,691 $4,756
Gross profit 980 376
Loss from continuing operations (440) (1,393)
Net loss (631) (1,322)
- 13 -
6. ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued expenses and other liabilities consists of the following:
September 30 December 31
2002 2001
(Unaudited)
------------ ------------
Taxes $ 79,000 $ 61,000
Contractual/legal fees and claims 13,000 1,031,000
Vacation 140,000 140,000
Other 226,000 105,000
-------- ---------
$458,000 $1,337,000
======== =========
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 continuing
and discontinued operations follows:
- 14 -
7. EARNINGS PER SHARE, continued
For the Three Months Ended September 30, 2002
----------------------------------------------
Earnings Shares Per Share
(Numerator) (Denominator) Amount
Earnings from ---------- ----------- ---------
continuing operations $ 296,000
Basic EPS
Earnings available to
common stockholders 296,000 2,223,000 $0.13
=====
Effect of dilutive securities -- 134,000
Diluted EPS --------- ---------
Earnings available to
common stockholders and
assumed conversions $ 296,000 2,357,000 $0.13
========= ========= =====
For the Three Months Ended September 30, 2001
---------------------------------------------
Earnings Shares Per Share
(Numerator) (Denominator) Amount
Earnings from continuing ----------- ------------ ---------
operations $ 82,000
Discontinued operations,
net of tax 35,000
-------
Basic EPS
Earnings available to
Common stockholders 117,000 2,343,000 $ 0.05
======
Effect of dilutive securities -- 265,000
Diluted EPS --------- ---------
Earnings available to common
stockholders and assumed
conversions $ 117,000 2,608,000 $ 0.05
========= ========= ======
- 15 -
7. EARNINGS PER SHARE, continued
For the Nine Months Ended September 30, 2002
--------------------------------------------
Earnings Shares Per Share
(Numerator) (Denominator) Amount
Earnings from ---------- ------------ ---------
continuing operations $ 3,347,000
Basic EPS
Earnings available to
common stockholders 3,347,000 2,266,000 $1.48
=====
Effect of dilutive securities -- 127,000
Diluted EPS ----------- ---------
Earnings available to
common stockholders and
assumed conversions $ 3,347,000 2,393,000 $1.40
=========== ========= =====
For the Nine Months Ended September 30, 2001
--------------------------------------------
Earnings Shares Per Share
(Numerator) (Denominator) Amount
Earnings from ---------- ------------ ---------
continuing operations $ 417,000
Discontinued operations,
net of tax 110,000
---------
Basic EPS
Earnings available to
common stockholders 527,000 2,343,000 $0.22
=====
Effect of dilutive securities -- 258,000
Diluted EPS --------- ---------
Earnings available to
common stockholders and
assumed conversions $ 527,000 2,601,000 $0.20
========= ========= =====
Unexercised employee stock options to purchase 116,500 and 515,500 shares
of the Company's common stock for the three months ended September 30, 2002 and
2001, respectively, and to purchase 266,500 and 515,500 for the nine months
ended September 30, 2002 and 2001, respectively, were not included in the
computations of diluted EPS because the effect would be antidilutive as their
exercise price exceeded the average stock price during the period.
- 16 -
8. SEGMENT INFORMATION
The Company's segments are distinct by type of service provided.
Comparative financial data for the three and nine month periods ended September
30, 2002 and 2001 are shown as follows:
Three months ended September 30,
2002 2001
Operating Revenue: --------- ---------
Financial services $3,429,000 $3,212,000
Insurance services 2,854,000 2,230,000
Consulting 899,000 821,000
Corporate 69,000 517,000
---------- ---------
$7,251,000 $6,780,000
========== =========
Reconciliation to Consolidated
Statement of Operations:
Total segment revenues $7,251,000 $6,780,000
Less: Intercompany dividends -- (450,000)
Intercompany interest (10,000) (62,000)
--------- ---------
Total Revenues $7,241,000 $6,268,000
========= =========
Operating Income (Loss)
Financial services $ 351,000 $ 343,000
Insurance services 563,000 366,000
Consulting 139,000 (170,000)
Corporate (525,000) (230,000)
-------- --------
Total segments operating profits 528,000 309,000
Gain on sale of investments 64,000 --
Equity in earnings of unconsolidated
affiliates -- 34,000
------- -------
Earnings from continuing operations
before income taxes and minority
interests 592,000 343,000
Interest expense 4,000 124,000
Income tax expense 222,000 95,000
Minority interests (70,000) (42,000)
------- -------
Net earnings from discontinued
operations, net of income tax -- 35,000
Net earnings $ 296,000 $117,000
========= ========
- 17 -
8. SEGMENT INFORMATION, continued
Nine months ended September 30,
2002 2001
Operating Revenue: ----------- -----------
Financial services $ 9,727,000 $10,269,000
Insurance services 7,204,000 5,384,000
Consulting 2,499,000 2,107,000
Corporate 387,000 1,569,000
---------- ----------
$19,817,000 $19,329,000
========== ==========
Reconciliation to Consolidated
Statement of Operations:
Total segment revenues $19,817,000 $19,329,000
Less: Intercompany dividends (245,000) (1,300,000)
Intercompany interest (39,000) (178,000)
---------- ----------
Total Revenues $19,533,000 $17,851,000
========== ==========
Operating Income (Loss)
Financial services $ 1,178,000 $ 1,293,000
Insurance services 1,523,000 936,000
Consulting 379,000 (85,000)
Corporate (435,000) (803,000)
--------- ---------
Total segments operating profits 2,645,000 1,341,000
Gain on sale of investments 2,855,000 --
Equity in loss of unconsolidated
affiliates (44,000) (62,000)
Earnings from continuing operations -------- -------
before income taxes and minority
interests 5,456,000 1,279,000
Interest expense 25,000 393,000
Income tax expense 1,899,000 364,000
Minority interests (185,000) (105,000)
--------- --------
Earnings from continuing operations $ 3,347,000 $417,000
Net earnings from discontinued
operations, net of income tax -- 110,000
Net earnings $ 3,347,000 $527,000
========== ========
- 18 -
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. See Note 21 to the consolidated financial
statements in our annual report for the year ended December 31, 2001 on Form
10-KSB.
We maintain allowances for doubtful accounts for estimated losses resulting
from the inability of our customers to make required payments. If the financial
condition of our customers were to deteriorate, resulting in an impairment of
their ability to make payments, additional allowances may be required.
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.
We are a defendant in lawsuits that arise out of, and are incidental to,
the conduct of our business. Our management uses its judgment, with the aid of
legal counsel, to determine if accruals are necessary as a result of any pending
actions against us.
At September 30, 2002 we owned less than 5% of the outstanding common stock
of Prime Medical. As a result of our reduced ownership interest and as a result
of Board of Directors changes mentioned in our Form 10-KSB for the year ended
December 31, 2001, 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. We recognized $186,000 of equity earnings during the first
quarter of 2002 prior to converting to the cost method. This change in
accounting also resulted in a balance sheet reclassification for our investment
in Prime Medical from "Investment in Affiliate" to "Investment in Available for
Sale Equtiy Securities".
At September 30, 2002 the Company 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. Until such time as Uncommon Care
becomes profitable and our future equity
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in these profits fully offsets our prior period combined equity losses,
future advances to Uncommon Care will result in a loss when advanced. Advances
to Uncommon Care have totaled $230,000 through September 30, 2002.
RESULTS OF OPERATIONS
REVENUES
Revenues from operations increased $973,000 (16%) and $1,682,000 (9%) for
the three and nine month periods ended September 30, 2002, respectively,
compared to the same periods in 2001. Revenues increased in the current three
month period at all segments compared to the same period in 2001. For the
current year nine month period, revenues increased at our insurance services,
consulting and corporate segments and decreased at our financial services
segment compared to the same period in 2001.
Financial services revenues increased $217,000 (7%) but decreased $542,000
(5%) for the three and nine month periods ended September 30, 2002,
respectively, compared to the same periods in 2001. The increase in the current
year three month period was due to strong September 2002 commission revenues at
APS Financial, our broker dealer division of APS Investment Services, Inc.,
compared to those of last year following the significant negative effects in the
stock market resulting from the tragic events of September 11, 2001. For the
nine month period, revenues were down, continuing to reflect the general
industry slowdown in the volume of securities transactions. With treasury rates
at historic lows, market participants have been reluctant to invest in
longer-term fixed income securities. And, investor demand for corporate debt
continues to be limited due to weak economic and revenue forecasts.
Our insurance services revenues from our premium-based insurance management
segment, APS Insurance Services, increased $624,000 (28%) and $1,820,000 (34%)
for the three and nine month periods ended September 30, 2002, respectively,
compared to the same periods in 2001. The increase in both periods 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.
Our consulting segment revenues increased $78,000 (9%) and $392,000 (19%)
for the three and nine month periods ended September 30, 2002, respectively,
compared to the same periods in 2001. Billable hours have increased 14% in 2002
resulting from an increased workload performed for our largest client and new
business involving wetlands mitigation construction and remedial investigation
projects.
During the third quarter of 2002 we entered into discussions with senior
management of our environmental consulting subsidiary, Eco Systems, Inc.
("Eco"), regarding a management buyout of Eco. We expect to complete the
transaction following the date of this report. Terms of the transaction call for
us to recover, on an accelerated basis, certain loans made to Eco and for Eco to
continue our management services agreement. We do not expect the transaction to
have a material impact on our financial condition or results of operations.
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Eco had been acquired in a foreclosure proceeding related to loans which we
had made in 1996 and does not fit into our long-term business plan.
EXPENSES
Total operating expenses increased $754,000 (13%) and $378,000 (2%) for the
three and nine month periods ended September 30, 2002, respectively, compared to
the same periods in 2001. For the current year three month period, expenses
increased at our financial services, insurance services and corporate segments
and decreased at our consulting segment. For the current year nine month period,
expenses at our insurance services and corporate segments increased while
expenses at our financial services and consulting segments decreased.
Financial services expense increased $209,000 (7%) but decreased $427,000
(5%) for the three and nine month periods ended September 30, 2002,
respectively, compared to the same periods in 2001. The primary reason for the
current year variances in both periods is the variances in commission expense
resulting from the changes in commission revenue at APS Financial mentioned
earlier. For the current year three month period, commission expenses increased
$216,000 (12%) compared to the same three months in 2001 due to increased
commission revenues during the current quarter. For the current year nine month
period, commission expenses were down $279,000 (5%) compared to the same nine
months in 2001 due to lower commission revenues earned in the current year.
Profits at APS Financial are down 4% and 18% for the three and nine month period
ended September 30, 2002, respectively, compared to the same periods in 2001.
This decrease in profits was responsible for a current year nine month decrease
of $273,000 (31%) in accrued management incentive compensation as this accrual
is calculated solely on net profits. Also, legal and professional fees decreased
39% in the first nine months of 2002 compared to the same period in 2001 as
there were no legal fees associated with investment banking activities this year
that were incurred last year.
Insurance services expenses at the insurance management subsidiary
increased $427,000 (23%) and $1,233,000 (28%) for the three and nine month
periods September 30, 2002, respectively, compared to the same periods in 2001.
The current three and nine month period increase is due primarily to a $222,000
(23%) and $698,000 (38%) increase, respectively, in commission expense paid to
third party agents arising because of the aforementioned increase in commission
income. Also higher this year is payroll related expenses which rose $126,000
(18%) and $327,000 (16%) in the current year three and nine month periods,
respectively, as a result of creating two new vice-presidential positions and
normal annual merit raises.
Consulting expenses decreased $231,000 (23%) and $72,000 (3%) for the three
and nine month periods ended September 30, 2002, respectively, compared to the
same periods in 2001. The primary reason for the decrease in the current quarter
is a reduction in legal fees. During 2001, we were involved in a lawsuit that
was eventually lost in the fourth quarter of 2001.
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General and administrative expenses increased $475,000 (202%) and $525,000
(59%) for the three and nine month periods September 30, 2002, respectively,
compared to the same periods in 2001. The increase in both current year periods
is due primarily to a $366,000 and $364,000 increase in the three and nine month
current periods, respectively, to accrued management incentive expense.
Management incentive, a formula driven expense, has increased this year as a
result of the increase in consolidated profit brought about in large part by the
profits on the sales of Prime Medical common stock mentioned below.
Gain on sale of assets for the three months ended September 30, 2002, in
the amount of $126,000, primarily represents the amortization of deferred gain
attributable to the November, 2001 sale of real estate and subsequent leaseback
of office space. We had deferred $2,400,000 of the $5,000,000 gain and will
recognize income monthly over the life of the five year lease. For the nine
month period ended September 30, 2002, amortization of deferred gains equaled
$365,000. In addition, since the sale of the real estate was to our then 15%
owned affiliate, Prime Medical, we had deferred an additional $760,000 of the
$5,000,000 gain, as required by the equity method of accounting. During 2002 we
reduced our investment in Prime Medical and subsequently recognized a
proportionate percentage of the deferred gain, or about $516,000.
Interest expense decreased $120,000 (97%) and $368,000 (94%) for the three
and nine month periods ended September 30, 2002, respectively, compared to the
same periods in 2001. The primary cause of the current period decrease is the
payoff of the Company's note payable from a balance of $5,150,000 at September
30, 2001 to zero at September 30, 2002.
GAIN ON SALE OF INVESTMENTS
The three and nine month gains represent gains on the sale of 11,200 and
1,591,200 shares of Prime Medical common stock. As a result of these sales, as
of September 30, 2002, we own approximately 753,000 shares of Prime Medical
amounting to an ownership percentage of slightly less than 5%.
EQUITY IN EARNINGS (LOSS) OF UNCONSOLIDATED AFFILIATES
Our equity in the earnings of Prime Medical decreased $346,000 (100%) and
$765,000 (80%) for the three and nine month periods ended September 30, 2002,
respectively, compared to the same periods 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 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
will continue to serve as non-executive Chairman; (2) in December 2001, Prime
Medical's CEO, Brad Hummel, resigned from our board of directors; and (3) 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 $312,000 (100%) and
$782,000 (77%) for the three and nine month periods ended September 30, 2002,
respectively, compared to the same periods in 2001 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. 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. Advances
to Uncommon Care totaling $230,000 in February 2002 account for the loss
recorded during the first quarter 2002. Repayments by Uncommon Care totaling
$125,000 received in the third quarter of 2002 were recorded as deferred income.
Future advances will not affect net income until such time as they exceed the
amount repaid.
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 FPIC Insurance Group, Inc. and a three 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.
Minority interests increased in the current year primarily as a result of
increased profitability of our insurance services segment.
SHAREHOLDERS' EQUITY
For the three months ended September 30, 2002, we purchased 71,000 and
cancelled 73,000 shares of treasury stock. The net effect of these purchases and
cancellations was to decrease treasury stock $8,000, representing the cost of
the cancelled shares, to decrease common stock by $7,000, determined by
multiplying the number of shares cancelled by $0.10 par value, and to decrease
retained earnings $302,000. For the nine months ended September 30, 2002, we
purchased 226,000 and cancelled 612,000 shares of treasury stock. The net effect
of these purchases and cancellations was to decrease the treasury stock
$1,418,000, to decrease common stock by $60,000, and to decrease retained
earnings $2,158,000.
Through September 30, 2002, we recorded other comprehensive income of
$2,132,000 which represents unrealized holding gains 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 $7,237,000 at September 30,
2002 and $3,444,000 at December 31, 2001. Working capital rose in 2002 due to
the sale of 1,591,200 shares of Prime Medical common stock which added
approximately $10,719,000 in cash. Partially offsetting this was $2,275,000 in
cash used to pay off a note payable and the purchase of $1,395,000 in available
for sale bonds.
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Capital expenditures through the nine month period ended September 30, 2002
were approximately $133,000. 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 our current strong working capital position will
enable us to meet our working capital requirements for the foreseeable future.
ADOPTION OF ACCOUNTING PRONOUNCEMENTS
In July 2001, the FASB issued Statement of Financial Accounting Standards
No. 141, Business Combinations, and Statement of Financial Accounting Standards
No. 142, Goodwill and Other Intangible Assets. Statement 141 requires that we
use the purchase method of accounting for all business combinations initiated
after June 30, 2001 as well as all purchase method business combinations
completed after June 30, 2001. Statement 141 also specifies criteria that
intangible assets acquired in a purchase method business combination must meet
to be recognized and reported apart from goodwill. We adopted the provisions of
Statement 141 in 2001. Our adoption of Statement 141 did not have any impact on
our consolidated financial statements. As of September 30, 2002, we had no
goodwill or other intangible assets.
In June 2001, the Financial and Accounting Standards Board issued Statement
of Financial Accounting Standards No. 142. Statement of Financial Accounting
Standards No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"), which
applies to all acquired intangible assets whether acquired singularly, as part
of a group, or in a business combination. SFAS 142 supersedes APB Opinion No.
17, "Intangible Assets," and carries forward provisions in Opinion 17 related to
internally developed intangible assets. SFAS 142 changes the accounting for
goodwill from an amortization method to an impairment-only approach. Goodwill
should no longer beamortized, but instead tested for impairment at least
annually at the reporting unit level. The accounting provisions are effective
for fiscal years beginning after December 15, 2001. Our adoption of Statement
142 effective January 1, 2002 did not have a material effect on our financial
position or results of operations.
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 of Statement 144 effective January 1, 2002 did not have a material
effect on our financial position or results of operations.
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In April 2002, the Financial and Accounting Standards Board issued
Statement of Financial Accounting Standards No. 145. Statement of Financial
Accounting Standards No. 145, "Rescission of SFAS Statements No. 4, 44, and 64,
Amendment of SFAS Statement No. 13, and Technical Corrections" ("SFAS 145"),
which updates, clarifies and simplifies existing accounting pronouncements. SFAS
145 rescinds SFAS No. 4, "Reporting Gains and Losses from Extinguishment of
Debt." SFAS 145 amends SFAS No. 13, "Accounting for Leases," to eliminate an
inconsistency between the required accounting for sale-leaseback transactions
and the required accounting for certain lease modifications that have economic
effects that are similar to sale-leaseback transactions. The provisions of SFAS
145 related to SFAS No. 4 and SFAS No. 13 are effective for fiscal years
beginning and transactions occurring after May 15, 2002, respectively. Adoption
of this standard will not have any immediate effect on our consolidated
financial statements.
In September 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities", which addresses accounting for
restructuring and similar costs. SFAS No. 146 supersedes previous accounting
guidance, principally Emerging Issues Task Force (EITF) Issue No. 94-3. will
adopt the provisions of SFAS No. 146 for restructuring activities initiated
after December 31, 2002. SFAS No. 146 requires that the liability for costs
associated with an exit or disposal activity be recognized when the liability is
incurred. Under EITF No. 94-3, a liability for an exit cost was recognized at
the date of a company's commitment to an exit plan. SFAS No. 146 also
establishes that the liability should initially be measured and recorded at fair
value. Accordingly, SFAS No. 146 may affect the timing of recognizing future
restructuring costs as well as the amount recognized. Adoption of this standard
will not have any immediate effect on our consolidated financial statements.
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 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 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 September 30, 2002, we purchased 71,000 and
cancelled 73,000 shares of treasury stock. The net effect of these purchases and
cancellations was to decrease treasury stock $8,000, representing the cost of
the cancelled shares, to decrease common stock by $7,000, determined by
multiplying the number of shares cancelled by $0.10 par value, and to decrease
retained earnings $302,000. For the nine months ended September 30, 2002, we
purchased 226,000 and cancelled 612,000 shares of treasury stock. The net effect
of these purchases and cancellations was to decrease the treasury stock
$1,418,000, to decrease common stock by $60,000, and to decrease retained
earnings $2,158,000.
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 July 25, 2002 concerning the change in
certifying accountants from KPMG LLP to BDO Seidman LLP.
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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.
By: /s/ William H. Hayes
----------------------------------
William H. Hayes, Vice President
and Chief Financial Officer
Dated: November 14, 2002
CERTIFICATION OF CHIEF EXECUTIVE OFFICER PUSUANT 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 in order 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 issuer as of, and for, the periods presented in this
quarterly report;
4. The issuer'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 issuer and we:
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a) designed such disclosure controls and procedures to ensure
that material information relating to the issuer, 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 issuer'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 issuer's other certifying officers and I have disclosed, based on
our most recent evaluation, to the issuer's auditors and the audit
committee of the board of directors:
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the issuer's
ability to record, process, summarize and report financial
data and have identified for the issuer's auditors any
material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the issuer's
internal controls; and
6. The issuer'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: November 14, 2002
/s/ Kenneth S. Shifrin
-----------------------
Kenneth S. Shifrin
Chairman of the Board
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CERTIFICATION OF CHIEF FINANCIAL OFFICER PUSUANT 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 in order 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 issuer as of, and for, the periods presented in this
quarterly report;
4. The issuer'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 issuer and we:
a) designed such disclosure controls and procedures to ensure
that material information relating to the issuer, 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 issuer'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 issuer's other certifying officers and I have disclosed, based on
our most recent evaluation, to the issuer's auditors and the audit
committee of the board of directors:
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the issuer's
ability to record, process, summarize and report financial
data and have identified for the issuer'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 issuer's
internal controls; and
6. The issuer'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: November 14, 2002
/s/ William H. Hayes
---------------------------
William H. Hayes
Senior Vice President-Finance
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