- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------
FORM 10-Q/A
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|X| Quarterly Report pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the quarterly period ended June 30, 1996
OR
|_| Transition report pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
-----------
Commission File Number 0-3722
ATLANTIC AMERICAN CORPORATION
Incorporated pursuant to the laws of the State of Georgia
-----------
Internal Revenue Service-- Employer Identification No.
58-1027114
Address of Principal Executive Offices:
4370 Peachtree Road, N.E., Atlanta, Georgia 30319
(404) 266-5500
Indicate by check mark whether registrant (1) has filed all reports required to
be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES |X| NO |_|
The total number of shares of the registrant's Common Stock, $1 par value,
outstanding on August 5, 1996, was 18,687,124.
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ATLANTIC AMERICAN CORPORATION
INDEX
Part 1. Financial Information Page No.
- ------------------------------ --------
Item 1. Financial Statements:
Consolidated Balance Sheets -
December 31, 1995 and June 30, 1996 2
Consolidated Statements of Operations -
Three months and six months ended
June 30, 1995 and 1996 3
Consolidated Statements of Cash Flows -
Six months ended June 30, 1995 and 1996 4
Notes to Consolidated Financial 5
Statements
Item 2. Management's Discussion and Analysis of 6 - 8
Financial Condition and Results of Operations
Part II. Other Information
- ---------------------------
Item 6. ExhibitS and report on Form 8-K 9
Signature 10
Items 1, 2 and 6 of the Quarterly Report on Form 10-Q, for the quarterly period
ended June 30, 1996, of Atlantic American Corporation (the "Second Quarter
10-Q"), are hereby amended and restated in their entirety as follows:
Item 1. Financial Statements
--------------------
ATLANTIC AMERICAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
(In thousands, except share and per share data) June 30, December 31,
1996 1995
---------- ------------
Cash, including short-term investments
of $21,380 and $12,498 $ 22,590 $ 15,069
-----------------------
Investments:
Bonds (cost: $109,920 and $112,915) 110,986 113,313
Common and preferred stocks (cost: $26,996
and $26,925) 38,512 42,116
Mortgage loans 6,876 6,952
Policy and student loans 2,870 5,690
Real estate 46 46
-----------------------
Total investments 159,290 168,117
-----------------------
Receivables:
Reinsurance 24,034 22,467
Other (net of allowance for bad debts:
$1,469 and $1,260) 25,380 18,567
Deferred acquisition costs 15,367 14,899
Other assets 4,153 4,125
Goodwill 2,175 2,250
-----------------------
Total assets $ 252,989 $245,494
=======================
LIABILITIES AND SHAREHOLDERS' EQUITY
Insurance reserves and policy funds:
Future policy benefits $ 36,327 $ 36,305
Unearned premiums 31,446 24,140
Losses and claims 82,504 79,514
Other policy liabilities 3,733 3,888
-----------------------
Total policy liabilities 154,010 143,847
Accounts payable and accrued expenses 7,145 8,010
Debt payable ($1,058 and $6,358 due to
affiliates) 38,827 44,921
Net obligation to discontinued operations - 953
Minority interest 587 1,285
-----------------------
Total liabilities 200,569 199,016
-----------------------
Commitments and contingencies
Shareholders' equity:
Preferred stock, $1 par, 4,000,000 shares
authorized;
Series A preferred, 30,000 shares issued
and outstanding, $3,000 redemption value 30 30
Series B preferred, 134,000 shares issued
and outstanding, $13,400 redemption value 134 134
Common stock, $1 par, 30,000,000 shares
authorized; 18,712,167 shares issued
in 1996 and 1995 18,712 18,712
Additional paid-in capital 54,824 46,531
Accumulated deficit (35,127) (34,446)
Net unrealized investment gains 13,886 15,589
Treasury stock, at cost, 17,468 shares in
1996 and 32,767 shares in 1995 (39) (72)
-----------------------
Total shareholders' equity 52,420 46,478
-----------------------
Total liabilities and
shareholders' equity $ 252,989 $245,494
=======================
The accompanying notes are an integral part of these financial statements.
-2-
ATLANTIC AMERICAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended Six Months Ended
June 30, June 30,
------------------ -----------------
(In thousands, except per share data)
1996 1995 1996 1995
---- ---- ---- ----
Revenue:
Insurance premiums $ 21,458 $ 10,689 $ 42,843 $ 20,914
Investment income 2,878 1,613 5,558 3,231
Realized investment gains, net 11 470 681 538
Other income 67 - 105 -
---------------------------------------
Total revenue 24,414 12,772 49,187 24,683
---------------------------------------
Benefits and expenses:
Insurance benefits and losses
incurred 13,953 6,456 28,045 12,726
Commissions and underwriting expenses 6,260 3,513 12,648 7,049
Interest expense 801 561 1,724 1,133
Other 1,551 1,519 2,944 2,825
---------------------------------------
Total benefits and expenses 22,565 12,049 45,361 23,733
---------------------------------------
Income before income tax expense
and discontinued operations 1,849 723 3,826 950
Income tax expense (59) - (59) (9)
---------------------------------------
Income from continuing operations 1,790 723 3,767 941
Loss from discontinued operations (4,447) (3,205) (4,447) (2,980)
---------------------------------------
Net loss $(2,657) $ (2,482) $ (680) $ (2,039)
=======================================
Net income (loss) per common share data:
Continuing operations $ 0.08 $ 0.03 $ 0.16 $ 0.04
Discontinued operations (0.24) (0.17) (0.24) (0.16)
---------------------------------------
Net loss $ (0.16) $ (0.14) $ (0.08) $ (0.12)
=======================================
Weighted average common shares
outstanding 18,901 18,588 18,855 18,574
The accompanying notes are an integral part of these financial statements.
-3-
ATLANTIC AMERICAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended
June 30,
---------------------
1996 1995
---------- --------
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (680) $ (2,038)
Adjustments to reconcile net loss to net
cash provided by (used in) operating
activities:
Amortization of deferred acquisition costs 1,805 2,050
Acquisition costs deferred (2,273) (1,856)
Realized investment losses (681) (538)
Increase in insurance reserves 10,163 2,668
Gain from discontinued operations - 2,980
Depreciation and amortization 557 258
Minority interest (698) (19)
Increase in receivables, net (8,380) (2,025)
(Decrease) increase in other liabilities (861) 177
Other, net 1,429 1,213
---------------------
Net cash provided by continuing operations 381 2,870
Net cash used in discontinued operations - (2,977)
---------------------
Net cash provided by (used in) operating
activities 381 (107)
---------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from investments sold or matured 56,741 12,955
Investments purchased (42,727) (7,144)
Additions to property and equipment (404) (702)
---------------------
Net cash provided by investing activities 13,610 5,109
Net cash used in discontinued operations - (1,904)
---------------------
Net cash provided by investing activities 13,610 3,205
---------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Preferred stock dividends (157) (158)
Proceeds from exercise of stock options 9 157
Purchase of treasury shares (22) (78)
Repayments of debt (6,300) (675)
---------------------
Net cash used in continuing operations (6,470) (754)
Net cash provided by discontinued operations - 5,149
---------------------
Net cash (used in) provided by financing
activities (6,470) 4,395
---------------------
Net increase in cash and cash equivalents 7,521 7,493
Cash and cash equivalents at beginning of period:
Continuing operations 15,069 4,016
Discontinued operations - 2,383
---------------------
Total 15,069 6,399
---------------------
Cash and cash equivalents at end of period:
Continuing operations 22,590 11,241
Discontinued operations - 2,651
=====================
Total $ 22,590 $ 13,892
=====================
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest $ 1,989 $ 1,375
=====================
Cash paid for income taxes $ 27 $ 128
=====================
The accompanying notes are an integral part of these financial statements.
-4-
ATLANTIC AMERICAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands)
Note 1. Basis of presentation.
- ------
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. All significant intercompany accounts and transactions have been
eliminated in consolidation and the interests of minority shareholders have been
recognized. Operating results for the six month period ended June 30, 1996, are
not necessarily indicative of the results that may be expected for the year
ending December 31, 1996. These operating results include American Southern
Insurance Company for the first and second quarters of 1996 whereas comparable
1995 operating results do not. For further information, refer to the financial
statements and footnotes thereto included in the Company's annual report on Form
10-K for the year ended December 31, 1995.
Note 2. Investments.
- -------
Investments are comprised of the following:
June 30, December 31,
1996 1995
----------- -------------
Bonds (cost: $109,920 and $112,915) $ 110,986 $ 113,313
Common and preferred stocks (cost:
$26,996 and $26,925) 38,512 42,116
Mortgage loans 6,876 6,952
Policy and student loans 2,870 5,690
Real estate 46 46
---------------------------
Total investments $ 159,290 $ 168,117
===========================
Note 3. Insurance reserves and policy funds.
- -------
Insurance reserves and policy funds are comprised of the following:
June 30, December 31,
1996 1995
----------- -------------
Future policy benefits $ 36,327 $ 36,305
Unearned premiums 31,446 24,140
Losses and claims 82,504 79,514
Other policy liabilities 3,733 3,888
---------------------------
Total policy liabilities $ 154,010 $ 143,847
===========================
-5-
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Atlantic American Corporation's (the "Company" or "Parent Company") net income
from continuing operations for the second quarter of 1996 was $1.8 million, or
$0.08 per share, compared to net income of $723,000, or $0.03 per share, for the
second quarter of 1995. The Company's net income from continuing operations
year-to-date for 1996 was $3.8 million, or $0.16 per share, compared to net
income of $942,000, or $0.04 per share, in 1995. The primary reason for the
increase in earnings for the second quarter and year-to-date are due to
inclusion of the income of American Southern Insurance Company (American
Southern") in the Company's income starting January 1, 1996. American Southern
accounted for $1.4 million of the $1.8 million of income before taxes for the
quarter and $2.9 million of the $3.8 million of income before taxes for the
year-to-date.
At June 30, 1996 the Company had a net cumulative deferred tax asset of zero.
The net cumulative deferred tax asset consists of $26.7 million of deferred tax
assets, offset by $8.6 million of deferred tax liabilities, and a $18.1 million
valuation allowance. The Company's ability to generate taxable income from
operations is dependent upon various factors, many of which are beyond
management's control. Accordingly, there can be no assurance that the Company
will generate future taxable income. Therefore, the realization of the deferred
tax assets will be assessed periodically based on the Company's current and
anticipated results of operations.
Georgia Casualty & Surety Company ("Georgia Casualty") had income before taxes
of $366,000 in the second quarter of 1996 and $1.1 million year-to-date compared
to $341,000 in the second quarter and $634,000 for the year-to-date in 1995. The
improvement operating income is mainly due to an increase in premium of $103,000
and $1.0 million in the second quarter and year-to-date, respectively, over
1995.
Atlantic American Life Insurance Company and Bankers Fidelity Life Insurance
Company (the "Life and Health Division") had net income of $960,000 and $1.5
million for the second quarter and year-to-date, respectively, for 1996,
compared to $956,000 and $1.4 million, respectively, for 1995. The increase in
net income is mainly due to an increase in life insurance premiums offset by
declining accident and health premiums.
The Company had announced on February 21, 1996, its intentions to sell its
interest in Leath Furniture and its subsidiaries; therefore, beginning with the
fourth quarter of 1995, the Company began reporting the results from its
furniture operations as discontinued operations. The sale of Leath Furniture was
completed on April 8, 1996, and, as anticipated, resulted in the Company
recognizing a loss. The loss reported in the second quarter was $4.4 million, or
$0.24 per share, compared to $3.2 million, or $0.17 per share, in the second
quarter of 1995. The loss for the six months for discontinued operations is also
$4.4 million, or $0.24 per share, compared to $3.0 million, or $0.16 per share,
for first six months of 1995.
RESULTS OF OPERATIONS
Total revenue increased to $24.4 million and $49.2 million in the second quarter
and first half, respectively, of 1996 from $12.8 million and $24.7 million,
respectively, for the comparable periods in 1995. Total revenue increased in the
second quarter and first half of 1996 mainly due to an increase in premium
revenue of $10.8 million and $21.9 million, respectively. The increase in
premium revenue is attributed to the inclusion of American Southern for the
first time in 1996, which accounted for $10.5 million in the second quarter and
$20.5 million in the first half of 1996. The balance of the increase in revenue
is attributed to an increase in investment income of $1.5 million in the second
quarter and $2.7 million year-to-date, of which $1.0 million and $2.0 million in
the second quarter and first half of 1996, respectively, was attributed to the
inclusion of American Southern. The remaining increase in insurance premiums
came from a $103,000 increase in Georgia Casualty's premiums in the second
quarter and $1.0 million for the first half of 1996, and $116,000 and $447,000
in the second quarter and first half of 1996, respectively, from the Life and
Health Division. The increase in Georgia Casualty's premiums for the quarter
comes from the business automobile market and for the first half from the
business automobile and worker's compensation markets. The increase in the Life
and Health Division's premiums is in the life line of business which increased
$430,000 for the quarter and $1.2 million for the six months, offset by a
decrease of $315,000 and $741,000 for the quarter and six months, respectively,
in accident and health premiums.
-6-
Insurance benefits and losses have increased to $14.0 million for the second
quarter of 1996 from $6.5 million for the same quarter of 1995, and year-to-date
they have increased to $28.0 million from $12.7 million in 1995. An increase of
$7.3 million in the second quarter and $14.6 million in the first half of the
year was attributed to Georgia Casualty and American Southern (collectively
known as the "Casualty Division") and a $217,000 and $748,000 increase in the
second quarter and first half of 1996, respectively, was attributed to the Life
and Health Division. The Casualty Division's increase is due to a $7.8 million
and $14.8 million addition in the second quarter and first half of 1996,
respectively, from the American Southern acquisition, offset by Georgia
Casualty's decrease of $531,000 and $222,000 in the second quarter and first
half of 1996, respectively. The Life and Health Division's increase is due to
increased premiums causing an increase in reserves, whereas 1995 reflected a
decrease in reserves caused by the elimination of a block of funeral home
business.
As a percentage of premium revenue, insurance benefits and losses incurred have
increased to 65.02% in the second quarter of 1996 from 60.40% in 1995 and to
65.46% year-to-date for 1996 compared to 60.85% for 1995. The percentage of
insurance benefits and losses incurred to premium for the second quarter and
year-to date in the Life and Health Division was 52.16% and 55.24%,
respectively, for 1996 compared to 49.69% and 51.22% for the same periods,
respectively, for 1995; for Georgia Casualty, 62.40% and 64.55% for 1996
compared to 76.17% and 75.00% for 1995; and for American Southern, 74.03% for
the quarter and 72.32% year-to-date.
Commission and underwriting expenses in the first six months increased to $12.6
million in 1996 from $6.1 million in 1995. This increase was primarily due to an
increase in commissions of $3.8 million, an increase in underwriting expenses of
$3.2 million and a net deferral of deferred acquisition costs of $447,000. These
changes can be attributed to the inclusion of American Southern which had $3.1
million of commissions, $1.9 million of underwriting expenses, and $164,000 of
the net deferral of acquisition costs. The balance of the six month increases
were due to increased premiums causing commissions to increase for Georgia
Casualty by $440,000 and $344,000 in the Life and Health Division. Underwriting
expenses increased $850,000 for Georgia Casualty and $373,000 in the Life and
Health Division.
LIQUIDITY AND CAPITAL RESOURCES
The Company's insurance subsidiaries reported a combined statutory income of
$1.8 million and $3.9 million in the second quarter and first half of 1996,
compared to $507,000 and $1.2 million for the same periods, respectively, in
1995. These statutory results were due to income of $312,000 in the Life and
Health Division, $247,000 for Georgia Casualty, and from the addition of
American Southern, whose income was $1.2 million for the second quarter of 1996.
The income for the first half of 1996 on the statutory basis was $474,000 in the
Life and Health Division, $729,000 for Georgia Casualty, and $2.7 million for
American Southern. Statutory results approximate the previous explanations of
generally accepted accounting principles ("GAAP") results of operations, with
the exception of the deferred acquisition costs and reserves in the Life and
Health Division.
The primary sources of funds for the Company are dividends from its subsidiaries
and management fees and borrowings from affiliates of the Company. The Company
believes that additional funding would be available from certain of its
affiliates to meet any additional liquidity needs, although currently there are
no other arranged sources of unused borrowing.
The Company provides certain administrative and other services to each of its
insurance subsidiaries. The amounts charged to and paid by the subsidiaries in
1996 remained approximately the same as 1995. The Company believes that the fees
and charges to its subsidiaries, dividends and, if needed, borrowings from
affiliates will enable the Company to meet its liquidity requirements for the
foreseeable future. In addition the Company has a formal tax-sharing agreement
between the Company and its insurance subsidiaries. It is anticipated that this
agreement will continue to provide the Company with additional funds from
profitable subsidiaries due to the subsidiaries' use of the Company's tax loss
carryforward. Approximately 93.8% of the investment assets of the insurance
subsidiaries are in marketable securities that can be converted into cash, if
required; however, use of such assets by the Company is limited by state
insurance regulations. Dividend payments to the Company by its insurance
subsidiaries are also limited by insurance regulations. At June 30, 1996,
Georgia Casualty had $7.2 million of accumulated statutory earnings, American
Southern had $16.6 million, Bankers Fidelity had $6.5 million, and Atlantic
American Life had an accumulated statutory deficit of $578,000. American
Southern paid the Company dividends totaling $900,000 in both the first and
-7-
second quarters of 1996. Atlantic American Life received approval in the second
quarter for payment of $2.25 million in dividends to the Parent Company. This
payment will be made during the second half of 1996.
Net cash provided by continuing operations totaled $382,000 in 1996, compared to
net cash used in continuing operations of $2.9 million in the first half of
1995. This is partly due to a decrease in the Life & Health Division's benefit
expenses of $242,000 combined with a slight increase in collected premiums. In
addition, the Parent Company had cash provided by operating activities of
$469,000 in the first half of 1996, compared to net cash used in operating
activities of $969,000 in the first half of 1995. This increase is due to
intercompany taxes received from American Southern, Georgia Casualty, and
Bankers Fidelity totaling $2.1 million, compared to intercompany taxes received
of $1.1 million in 1995. There was also an overall decrease of Parent Company
operating expenses of $475,000. Bankers Fidelity had net cash used in operating
activities of $987,000 in the first half of 1996, compared to net cash provided
by operating activities of $351,000 in the first half of 1995. This is
principally due to costs incurred in acquiring the remaining publicly-held
shares of stock of Bankers Fidelity, which was consummated on April 1, 1996. The
total consideration to be paid in that transaction is approximately $1.3
million, of which approximately $698,000 was paid during the second quarter of
1996. Net cash used in operating activities for Georgia Casualty totaled
$537,000 in the first half of 1996, compared to net cash provided by operating
activities of $2.5 million in the first half of 1995. This is the result of an
increase in paid claims with no offsetting increase in collected premiums. In
the first half of 1996, collected premiums increased by only $136,000, while in
1995 premiums increased by $1.9 million over the prior year. Claims paid in the
first half of 1996 increased by $933,000, while in 1995 claims paid had
increased by only $472,000. Cash and short-term investments increased from $15.0
million at December 31, 1995, to $22.6 million at June 30, 1996. This increase
is due to American Southern's net investment proceeds of $6.5 million, primarily
from the purchases and sales of bonds. Total investments (excluding short-term
investments) decreased to $160.0 million at June 30, 1996, from $168.1 million
at December 31, 1995, due primarily to American Southern's net investment
activities.
-8-
ATLANTIC AMERICAN CORPORATION AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 6. Exhibits and Report on Form 8-K.
- ----------------------------------------
(a) The following exhibits are filed herewith:
Exhibit 11. Computation of net loss per common share.
Exhibit 27. Financial Data Schedule.
(b) Report on Form 8-K:
1) On April 23, 1996, under Item 2, the Company filed a Form 8-K regarding
the disposition of the Company's interest in Leath Furniture.
-9-
SIGNATURE
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.
ATLANTIC AMERICAN CORPORATION
-----------------------------
(Registrant)
Date: November 12, 1996 By: /s/
----------------- ------------------------------------
John W. Hancock
Senior Vice President-Treasurer
(Principal Financial and Accounting Officer)
-10-
EXHIBIT 11
ATLANTIC AMERICAN CORPORATION AND SUBSIDIARIES
COMPUTATIONS OF NET LOSS PER COMMON SHARE
SUPPORTING SCHEDULE
Three Months Ended Six Months Ended
June 30, June 30,
(In thousands, except per share data) 1996 1995 1996 1995
--------- --------- -------- ---------
Net loss $(2,657) $ (2,482) $ (680) $ (2,038)
Less preferred dividends to
affiliates (380) (79) (761) (158)
-------------------------------------------
Net loss available to
common shareholders $(3,037) $ (2,561) $(1,441) $ (2,196)
===========================================
Weighted average common shares
outstanding 18,901 18,588 18,855 18,574
===========================================
Net loss per common share $ (0.16) $ (0.14) $ (0.08) $ (0.12)
===========================================
NOTE: Fully diluted earnings per common share are not presented because the
effect of convertible subordinated notes and preferred stock is
anti-dilutive.
7
1000
3-MOS
DEC-31-1996
JUN-30-1996
0
110986
110986
38512
6876
46
159290
22589
24034
15367
252989
118831
31446
3733
0
38827
0
164
18712
33543
252989
42843
5558
681
105
28045
12648
0
3826
(59)
3767
(4447)
0
0
(680)
(0.08)
(0.08)
0
0
0
0
0
0
0
