- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------
FORM 10-Q
-----------
|X| Quarterly Report pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the quarterly period ended June 30, 1998
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 12, 1998, was 18,788,839.
- --------------------------------------------------------------------------------
<PAGE>
ATLANTIC AMERICAN CORPORATION
INDEX
Part 1. Financial Information Page No.
- -------------------------------- --------
Item 1. Financial Statements:
Consolidated Balance Sheets -
June 30, 1998 and December 31, 1997 2
Consolidated Statements of Operations -
Three months and six months ended June 30,
1998 and 1997 3
Consolidated Statements of Shareholders' Equity -
Six months ended June 30, 1998 and 1997 4
Consolidated Statements of Cash Flows -
Six months ended June 30, 1998 and 1997 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Part II. Other Information
- ----------------------------
Item 4. Submission of matters to a vote of
security holders 12
Item 5. Other Information - Shareholder Proposals 12
Item 6. Exhibits and report on Form 8-K 13
Signature 14
<PAGE>
PART I. FINANCIAL INFORMATION
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,
1998 1997
-------------------------
Cash, including short-term investments of
$37,918 and $46,167 $ 44,116 $ 51,044
-------------------------
Investments:
Bonds (cost: $90,640 and $91,143) 91,611 92,184
Common and preferred stocks (cost: $26,130
and $18,359) 57,573 46,876
Investments in limited partnerships (cost:
$4,001 and $4,001) 3,925 3,941
Mortgage loans 3,899 4,243
Policy and student loans 2,498 5,293
Real estate 46 46
-------------------------
Total investments 159,552 152,583
-------------------------
Receivables:
Reinsurance 25,384 25,164
Other (net of allowance for bad debts:
$1,024 and $916) 26,797 17,470
Deferred acquisition costs 17,136 16,483
Other assets 4,694 4,510
Goodwill 4,028 4,606
=========================
Total assets $ 281,707 $ 271,860
=========================
LIABILITIES AND SHAREHOLDERS' EQUITY
Insurance reserves and policy funds:
Future policy benefits $ 38,696 $ 39,188
Unearned premiums 29,552 24,412
Losses and claims 86,978 86,721
Other policy liabilities 4,321 3,997
-------------------------
Total policy liabilities 159,547 154,318
Accounts payable and accrued expenses 11,997 10,759
Debt payable 27,000 28,600
-------------------------
Total liabilities 198,544 193,677
-------------------------
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;
18,935,993 shares issued in 1998 and 18,920,728
shares issued in 1997; 18,797,778 shares outstanding
in 1998 and 18,907,267 shares outstanding in 1997 18,936 18,921
Additional paid-in capital 52,604 53,316
Accumulated deficit (20,256) (23,653)
Accumulated other comprehensive income -
unrealized investment gains, net 32,338 29,498
Treasury stock, at cost, 138,215 shares in
1998 and 13,461 shares in 1997 (623) (63)
-------------------------
Total shareholders' equity 83,163 78,183
-------------------------
Total liabilities and shareholders' equity $ 281,707 $ 271,860
=========================
The accompanying notes are an integral part of these consolidated
financial statements.
-2-
<PAGE>
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)
1998 1997 1998 1997
---------------------------------------
Revenue:
Insurance premiums $ 22,871 $ 21,229 $ 45,829 $ 43,003
Investment income 2,717 2,836 5,641 5,712
Realized investment gains, net 394 248 912 286
Other income 57 26 169 28
---------------------------------------
Total revenue 26,039 24,339 52,551 49,029
---------------------------------------
Benefits and expenses:
Insurance benefits and losses incurred 15,470 14,937 30,992 29,468
Commissions and underwriting expenses 6,443 5,747 13,721 11,792
Interest expense 547 738 1,115 1,471
Other 1,674 1,451 3,193 2,854
---------------------------------------
Total benefits and expenses 24,134 22,873 49,021 45,585
---------------------------------------
Income before income tax expense 1,905 1,466 3,530 3,444
Income tax expense (106) (20) (132) (60)
---------------------------------------
Net income $ 1,799 $ 1,446 $ 3,398 $ 3,384
=======================================
Net income per common share
(basic and diluted) $ .08 $ .06 $ .14 $ .14
=======================================
Weighted average common shares
outstanding, basic 18,879 18,730 18,894 18,801
=======================================
Weighted average common shares
outstanding, diluted 19,169 18,829 19,195 18,916
=======================================
The accompanying notes are an integral part of these consolidated
financial statements.
-3-
<PAGE>
ATLANTIC AMERICAN CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
Net
Additional Unrealized
Preferred Common Paid-in Accumulated Investment Treasury
Six Months Ended June 30, 1998 Stock Stock Capital Deficit Gains Stock Total
- --------------------------------- ---------------------------------------------------------------------------------------------
<S><C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31,1997 $ 164 $18,921 $ 53,316 $ (23,653) $29,498 $ (63) $ 78,183
Comprehensive income:
Net income 3,398 3,398
Increase in unrealized
investment gains 2,840 2,840
--------
Total comprehensive income 6,238
--------
Cash dividends paid on preferred stock (158) (158)
Dividends accrued on preferred stock (603) (603)
Purchase of shares for treasury (587) (587)
Issuance of shares for employee benefit -
plans and stock options (2) (1) 27 24
Issuance of shares for acquisition of -
Self-Insurance Administrators, Inc. 15 51 66
---------------------------------------------------------------------------------------------
Balance, June 30, 1998 $ 164 $18,936 $ 52,604 $ (20,256) $32,338 $ (623) $ 83,163
=============================================================================================
Six Months Ended June 30, 1997
- ---------------------------------
Balance, December 31, 1996 $ 164 $18,712 $ 54,062 $ (31,426) $17,713 $ (89) $ 59,136
Comprehensive income:
Net income 3,384 3,384
Decrease in unrealized investment
gains 1,743 1,743
---------
Total comprehensive income 5,127
---------
Cash dividends paid on preferred stock (158) (158)
Dividends accrued on preferred stock (603) (603)
Purchase of shares for treasury (440) (440)
Issuance of shares for employee benefit -
plans and stock options (1) (98) 147 48
---------------------------------------------------------------------------------------------
Balance, June 30, 1997 $ 164 $18,712 $ 53,300 $ (28,140) $19,456 $(382) $ 63,110
=============================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
-4-
<PAGE>
ATLANTIC AMERICAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended
June 30,
---------------------
1998 1997
---------------------
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,398 $ 3,384
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Amortization of deferred acquisition costs 5,012 4,188
Acquisition costs deferred (5,759) (4,934)
Realized investment gains (912) (286)
Increase in insurance reserves 5,229 8,450
Depreciation and amortization 683 544
Increase in receivables, net (9,547) (8,728)
Decrease in other liabilities 634 (2,587)
Other, net (405) 97
---------------------
Net cash (used) provided by operating activities (1,667) 128
---------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from investments sold or matured 44,445 24,663
Investments purchased (47,678) (34,553)
Reduction in minority interest liability payable - (54)
Additions to property and equipment (269) (346)
Bulk reinsurance transactions, net 564 -
---------------------
Net cash used by investing activities (2,938) (10,290)
---------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Preferred stock dividends (158) (158)
Proceeds from exercise of stock options 22 48
Purchase of treasury shares (587) (493)
Repayments of debt (1,600) (2,000)
---------------------
Net cash used by financing activities (2,323) (2,603)
---------------------
Net decrease in cash and cash equivalents (6,928) (12,765)
Cash and cash equivalents at beginning of period 51,044 45,499
---------------------
Cash and cash equivalents at end of period $ 44,116 $ 32,734
=====================
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest $ 1,097 $ 1,527
=====================
Cash paid for income taxes $ 200 $ 85
=====================
The accompanying notes are an integral part of these consolidated
financial statements.
-5-
<PAGE>
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. Operating results for the six month period ended
June 30, 1998, are not necessarily indicative of the results that may be
expected for the year ending December 31, 1998. 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, 1997.
Note 2. Segment Information
- -------
The following summary sets forth information for each of the Company's
business segments by revenue and income (loss) before income tax provision
(benefit). The Company divides its operations into 3 segments: Property and
Casualty Insurance, Life Insurance, and Accident and Health Insurance.
<TABLE>
Property Accident Corporate Adjustments
and and and and
Casualty Life Health Other Eliminations Consolidated
------------------------------------------------------------------------------------
<S><C> <C> <C> <C> <C> <C> <C>
Six Months Ended June 30, 1998:
- ------------------------------
Revenue $ 32,943 $ 7,835 $11,542 $ 257 $ (26) $ 52,551
Income (loss) before
income tax expense
(benefit) 4,028 1,341 59 (1,898) 0 3,530
Six Months Ended June 30, 1997:
- ------------------------------
Revenue $ 33,741 $ 7,025 $ 8,276 $ 13 $ (26) $ 49,029
Income (loss) before
income tax expense
(benefit) 3,630 997 25 (1,208) 0 3,444
Three Months Ended June 30, 1998:
- --------------------------------
Revenue $ 16,202 $ 3,908 $ 5,841 $ 99 $ (11) $ 26,039
Income (loss) before
income tax expense
(benefit) 2,216 767 (65) (1,013) 0 1,905
Three Months Ended June 30, 1997:
- --------------------------------
Revenue $ 16,745 $ 3,507 $ 4,084 $ 1 $ 2 $ 24,339
Income (loss) before
income tax expense
(benefit) 1,597 737 (225) (643) 0 1,466
</TABLE>
-6-
<PAGE>
Note 3. Reconciliation of Other Comprehensive Income
- -------
June 30,
1998 1997
---------------------
Gain on sale of securities included in net income $ 912 $ 286
=====================
Other comprehensive income:
Net unrealized gain arising during year $ 3,752 $ 2,029
Reclassification adjustment (912) (286)
---------------------
Net unrealized gain recognized in other
comprehensive income $ 2,840 $ 1,743
=====================
-7-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Management's discussion of financial condition and results of operations
for the six month periods ended June 30, 1998 and 1997 analyzes the results of
operations, consolidated financial condition, liquidity and capital resources of
Atlantic American Corporation (the "Company") and its consolidated subsidiaries:
Georgia Casualty & Surety Company ("Georgia Casualty"), American Southern
Insurance Company ("American Southern"), American Safety Insurance Company
("American Safety"), at times jointly referred to as the "Casualty Division",
Bankers Fidelity Life Insurance Company ("Bankers Fidelity"), American
Independent Life Insurance Company ("American Independent"), at times jointly
referred to as the "Life and Health Division", and Self-Insurance
Administrators, Inc. ("SIA, Inc.").
RESULTS OF OPERATIONS
The Company's net income for the second quarter of 1998 was $1.8 million
($.08 per diluted share) compared to net income of $1.4 million ($.06 per
diluted share) for the second quarter of 1997. Net income for the first six
months of both 1998 and 1997 was $3.4 million ($.14 per share). The increase in
net income for the second quarter of 1998 is attributable to increased revenues
in the Life and Health Division and an improvement in the ratio of insurance
benefits and losses incurred to insurance premiums (the "loss ratio").
Year-to-date earnings are flat compared to 1997 as the improvement in the second
quarter of 1998 was offset by net income for the first three months of 1998,
which was lower than in the comparable period in 1997.
Pretax net income for the Casualty Division increased 11% for the first six
months of 1998, while pretax net income for the Life and Health Division
increased 37%. These increases were offset by an increase in the Company's
corporate administrative expenses primarily resulting from a revision in the
method by which expenses of the Company are charged to its subsidiaries.
Total revenue for the six months ended June 30, 1998 was $52.6 million, up
7.2% over the first six months of 1997. For the quarter, total revenue increased
7.0%. The increase in both the quarter and six month period is primarily
attributable to an increase in insurance premiums along with increases in both
realized gains and other income. Investment income for both the six month period
and the quarter decreased as a result of the significant prepayment of debt made
in the fourth quarter of 1997.
Insurance premiums for the year-to-date period are up $2.8 million, or
6.6%, and are up 7.7% for the quarter. In the Life and Health Division premiums
for the first six months of 1998 were up $4.2 million, and for the quarter were
up $2.4 million. This increase in insurance premiums is principally the result
of both the acquisition of American Independent in the fourth quarter of 1997,
which added $2.0 million in premiums through June 30, and strong internal growth
attributable in part to a refocused marketing campaign. Premiums at Georgia
Casualty were up $1.4 million for the year-to-date period and $800,000 for the
second quarter. This increase in premiums reflects an increased marketing
effort, particularly in the fourth quarter of 1997, the results of which are now
being seen. Premium income at American Southern was down $2.7 million for the
six month period and down $1.5 million for the quarter. This decline is
primarily attributable to a decrease in the net rate charged for one of the
company's large block accounts. Management believes that while this net rate has
declined as a result of a heightened competitive environment, the account will
continue to be profitable.
Realized investment gains for the second quarter of 1998 were $394,000
compared to $248,000 for the same period in 1997. For the six months ended June
30, 1998, realized gains were $912,000 compared to $286,000 in 1997. Management
is continually evaluating the composition of the Company's investment portfolio
and will periodically divest appreciated investments as deemed appropriate. The
increase in other income for both the quarter and the six months ended June 30,
1998 is a result of the inclusion of SIA, Inc. which generates income in the
form of commission and service fees from the administration of third party
self-insured workers' compensation plans. SIA, Inc. was acquired in the fourth
quarter of 1997.
Total expenses increased 7.5% for the six months ended June 30, 1998 and
5.5% when compared to the second quarter of 1997. The increase in expenses for
the first half of 1998 is comprised of a 5.2% increase in insurance benefits and
losses incurred, a 16.4% increase in commission and underwriting expenses and an
11.9% increase in other operating expenses, offset in part by a 24.2% decrease
in interest expense. For the quarter, insurance benefits and losses were up
3.6%, commissions and underwriting expenses were up 12.1%, other operating
expenses were up 15.4% and interest expense was down 25.9%.
-8-
<PAGE>
The increase in insurance benefits and losses is primarily a factor of the
increase in insurance premiums. The total loss ratio for the quarter was 67.6%
compared to 70.4% for the second quarter of 1997. For the first six months of
1998, this ratio declined from 68.5% in 1997 to 67.6%.
Insurance benefits and losses incurred at American Southern decreased $3.1
million for the first six months of 1998 and $1.2 million for the quarter. The
loss ratio for the first six months of 1998 was 69.5%, down from 75.6% in the
first half of 1997. The decline in the loss ratio is attributable to a reduction
in substandard auto premiums which historically have a higher loss ratio and an
overall reduction in losses on American Southern's other lines of business.
Insurance benefits and losses at Georgia Casualty were up $1.1 million
through June 30, 1998 and were virtually unchanged for the second quarter. The
year-to-date loss ratio was 70.2%, up slightly from 68.7% in the first six
months of 1997. Insurance benefits and losses at Bankers Fidelity were up $3.1
million year-to-date and $1.4 million for the quarter, as a result of the
increase in premium volume.
Commission and underwriting expenses for the first half of 1998 increased
$1.9 million to $13.7 million and for the quarter were up $534,000. The increase
for the six months ended June 30, 1998 is primarily the result of the increase
in premium volume, particularly at Bankers Fidelity, and increased profit
commissions on American Southern's business. The increase for the second quarter
is attributable to the overall increase in premium volume.
The decline in interest expense of 24% is due to the reduction in debt
compounded by a 50 basis point reduction in the interest rate charged on the
Company's credit facility to the prime rate less 50 basis points, currently
8.0%. The reduction in the rate resulted from the Company meeting certain
specified financial criteria at year-end 1997 under the credit facility, and is
subject to further adjustment, based on the Company's continuing to meet those
criteria. In any event, the rate charged by the credit facility will not exceed
the prime rate of interest.
The Company's tax provision increased for the quarter as a result of the
income of American Independent, which is not a part of the Company's
consolidated return and the income of which is not subject to offset by the
Company's net operating losses carryforwards.
LIQUIDITY AND CAPITAL RESOURCES
The major cash needs of the Company are for the payment of claims and
expenses as they come due and the maintenance of adequate statutory capital and
surplus to satisfy state regulatory requirements and meet debt service
requirements of the Company. The Company's primary source of cash are written
premiums and investment income. Cash payments consist of current claim payments
to insureds and operating expenses such as salaries, employee benefits,
commissions, taxes, and shareholder dividends from the subsidiaries, when
earnings warrant such dividend payments. By statute, the state regulatory
authorities establish minimum liquidity standards primarily to protect
policyholders.
The Company's insurance subsidiaries reported a combined statutory income
of $3.9 million for the first six months of 1998 compared to statutory net
income of $3.2 million for the first six months of 1997. Total statutory net
income for the quarter was $2.3 million compared to $1.1 million in 1997. The
reasons for the increase in statutory earnings in the first half of 1998 are the
same as those discussed in "Results of Operations" above. Statutory results
differ from the results of operations under generally accepted accounting
principles ("GAAP") for the Casualty Division due to the deferral of acquisition
costs. The Life and Health Division's statutory results differ from GAAP
primarily due to deferral of acquisition costs, as well as different reserving
methods.
The Company is a party to a Credit Agreement with Wachovia Bank of Georgia,
N.A. At June 30, 1998, the Company had outstanding borrowings under this
agreement of approximately $27.0 million, none of which is scheduled to become
due and payable during the last six months of 1998. The Company repaid $1.6
million of outstanding principal during the first half of 1998. The Company
intends to repay its obligations under the Credit Agreement using dividend
payments received from its subsidiaries and receipts from its tax sharing
agreement with its subsidiaries.
-9-
<PAGE>
The Company has two series of preferred stock outstanding, substantially of
all which is held by affiliates of the Company's chairman and principal
shareholders. The outstanding shares of Series A Convertible Preferred Stock
accrue annual dividends at a rate of $10.50 per share, are convertible into
approximately 704,000 shares of common stock at a conversion price of $4.26 per
share, and are redeemable at the Company's option at $100 per share, plus
accrued dividends. The outstanding shares of Series B Preferred Stock ("Series B
Stock") have a stated value of $100 per share, accrue annual dividends at a rate
of $9.00 per share, in certain circumstances may be convertible into an
aggregate of approximately 3,358,000 shares of common stock and are redeemable
at the Company's option. The Series B Stock is not currently convertible. At
June 30, 1998, the Company had accrued, but unpaid dividends on the Series B
Stock totaling $3.0 million.
The Company provides certain administrative and other services to each of
its insurance subsidiaries. The amounts charged to and paid by the subsidiaries
in the first six months of 1998 remained approximately the same as in the first
six months of 1997. In addition, the Company has a formal tax-sharing agreement
between the Company and its insurance subsidiaries. It is anticipated that this
agreement will provide the Company with additional funds from profitable
subsidiaries due to the subsidiaries' use of the Company's tax loss
carryforwards, which totaled approximately $41.0 million at June 30, 1998.
At June 30, 1998, the Company had a net cumulative deferred tax asset of
zero. The net cumulative deferred tax asset consisted of $23.0 million of
deferred tax assets, offset by $14.9 million of deferred tax liabilities, and a
$8.1 million valuation allowance. Due to the uncertain nature of their ultimate
realization, based upon past performance and expiration dates, the Company has
established a full valuation allowance against these carryforward benefits and
recognizes the benefits only as reassessment demonstrates they are realizable.
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 based on historical performance. Therefore, the realization of
the deferred tax assets will be assessed periodically based on the Company's
current and anticipated results of operations.
Approximately 94.9% 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
limited to the accumulated statutory earnings of the individual insurance
subsidiaries, subject to annual limitations. At June 30, 1998, Georgia Casualty
had $18.0 million of accumulated statutory earnings, American Southern had $19.5
million of accumulated statutory earnings, and Bankers Fidelity had $19.2
million of accumulated statutory earnings.
Net cash used by operating activities was $1.7 million in the first half of
1998 compared to net cash provided by operating activities of $128,000 in the
first six months of 1997. Cash and short-term investments decreased from $51.0
million at December 31, 1997, to $44.1 million at June 30, 1998, mainly due to
an increase in longer term investments. Total investments (excluding short-term
investments) increased to $159.6 million due in part to the shift from
short-term investments and increases in unrealized gains on the Company's
investment portfolio.
The Company believes that the dividends, fees, and tax-sharing payments it
receives from its subsidiaries and, if needed, borrowings from banks and
affiliates of the Company will enable the Company to meet its liquidity
requirements for the foreseeable future. Management is not aware of any current
recommendations by regulatory authorities which, if implemented, would have a
material adverse effect on the Company's liquidity, capital resources or
operations.
-10-
<PAGE>
YEAR 2000
Many existing computer systems currently in use were developed using two
digits rather than four digits to specify the year. As a result, many systems
will recognize a date code of "00" as the calendar year 1900 rather than 2000
which could cause systems to fail or cause erroneous results.
The Company has undertaken projects to ensure that all of its systems will
be compliant with year 2000 issues. Currently, one of the Company's three major
operating systems is year 2000 compliant and the process of bringing the other
operating systems into compliance is underway. All operating systems are
expected to be compliant by the end of 1998. If the Company fails to bring its
systems into compliance by the year 2000 the Company may, as a result, be unable
to process some business which could potentially have a materially adverse
effect on the financial operations of the Company; however, in the opinion of
management the risk of this occurrence is remote. The cost of bringing the
Company's systems into compliance is not expected to have a material effect on
the results of operations or financial position of the Company.
FORWARD-LOOKING STATEMENTS
This report contains and references certain information that constitutes
forward-looking statements as that term is defined in the Private Securities
Litigation Reform Act of 1995. Those statements, to the extent they are not
historical facts, should be considered forward-looking and subject to various
risks and uncertainties. Such forward-looking statements are made based upon
management's assessments of various risks and uncertainties, as well as
assumptions made in accordance with the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995. The Company's actual results could
differ materially from the results anticipated in these forward-looking
statements as a result of such risks and uncertainties, including those
identified in the Company's Annual Report on Form 10-K for the fiscal year
ending December 31, 1997 and the other filings made by the Company from time to
time with the Securities and Exchange Commission.
-11-
<PAGE>
PART II. OTHER INFORMATION
ATLANTIC AMERICAN CORPORATION AND SUBSIDIARIES
Item 4. Submission of matters to a vote of security-holders.
- -------------------------------------------------------------
On May 5, 1998, the shareholders of the Company cast the following votes at
the annual meeting of shareholders for the election of directors of the Company,
for approval of the Second Amendment to the 1992 Incentive Plan, and the
appointment of Arthur Andersen LLP as the Company's auditors.
Election of Directors Shares Voted
- ------------------------------------- -------------------------------
Director Nominee For Withheld
- ---------------- ---------- --------
J. Mack Robinson 16,816,669 25,378
Hilton H. Howell, Jr. 16,818,486 23,561
Samuel E. Hudgins 16,820,746 21,301
D. Raymond Riddle 16,819,656 22,391
Harriett J. Robinson 16,815,681 26,366
Scott G. Thompson 16,820,131 21,916
Mark C. West 16,820,946 21,101
William H. Whaley, M.D. 16,819,411 22,636
Dom H. Wyant 16,818,526 23,521
Second Amendment to the 1992 Shares Voted
Incentive Plan
- ------------------------------------- ------------------------------------
For Against Abstain
---------- ------- ---------
15,167,948 668,476 1,005,623
Appointment of Independent Public Shares Voted
Accountants
- ------------------------------------- ------------------------------------
For Against Abstain
---------- ------- --------
Arthur Andersen LLP 16,752,503 67,260 22,284
Item 5. Other Information - Shareholder Proposals
- --------------------------------------------------
Proposals by shareholders intended to be presented at the 1999 Annual
Meeting must be forwarded in writing and received at the principal executive
office of the Company no later than December 16, 1998, directed to the attention
of the Secretary, for consideration for inclusion in the Company's proxy
statement for the Annual Meeting of Shareholders to be held in 1999. Moreover,
with regard to any proposal by a shareholder not seeking to have such proposal
included in the proxy statement but seeking to have such proposal considered for
the 1999 Annual Meeting, if such shareholder fails to notify the Company in the
manner set forth above of such proposal no later than February 15, 1999, then
the persons appointed as proxies may exercise their discretionary voting
authority if the proposal is considered at the 1999 Annual Meeting
notwithstanding that shareholders have not been advised of the proposal in the
proxy statement for the 1999 Annual Meeting. Any proposals submitted by
shareholders must comply in all respects with the rules and regulations of the
Securities and Exchange Commission and the provisions of the Company's Articles
of Incorporation and Bylaws and of Georgia Law.
-12-
<PAGE>
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) No reports on Form 8-K were filed with the Securities and Exchange
Commission during the second quarter of 1998.
-13-
<PAGE>
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: August 14, 1998 By: /s/
---------------- --------------------------------
Edward L. Rand, Jr.
Vice President and Treasurer
(Principal Financial and Accounting Officer)
-14-
EXHIBIT 11
ATLANTIC AMERICAN CORPORATION AND SUBSIDIARIES
COMPUTATIONS OF NET INCOME PER COMMON SHARE
SUPPORTING SCHEDULE
Three Months Ended Six Months Ended
June 30, June 30,
-----------------------------------------
(In thousands, except per share data) 1998 1997 1998 1997
-----------------------------------------
Basic Earnings Per Common Share:
Net income $ 1,799 $ 1,446 $ 3,398 $ 3,384
Less preferred dividends to
affiliates (380) (380) (760) (760)
-----------------------------------------
Net income available to common
shareholders $ 1,419 $ 1,066 $ 2,638 $ 2,624
=========================================
Weighted average common shares
outstanding 18,879 18,730 18,894 18,801
=========================================
Net income per common share $ .08 $ .06 $ .14 $ .14
=========================================
Diluted Earnings Per Common Share:
Net income available to common
shareholders $ 1,419 $ 1,066 $ 2,638 $ 2,624
=========================================
Weighted average common shares
outstanding 18,879 18,730 18,894 18,801
Effect of dilutive stock options 290 99 301 115
-----------------------------------------
Weighted average common shares
outstanding adjusted for
dilutive stock options 19,169 18,829 19,195 18,916
=========================================
Net income per common share $ .08 $ .06 $ .14 $ .14
=========================================
<TABLE> <S> <C>
<ARTICLE> 7
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<DEBT-HELD-FOR-SALE> 0
<DEBT-CARRYING-VALUE> 91611
<DEBT-MARKET-VALUE> 91611
<EQUITIES> 57573
<MORTGAGE> 3899
<REAL-ESTATE> 46
<TOTAL-INVEST> 159552
<CASH> 44116
<RECOVER-REINSURE> 25384
<DEFERRED-ACQUISITION> 17136
<TOTAL-ASSETS> 281707
<POLICY-LOSSES> 125674
<UNEARNED-PREMIUMS> 29552
<POLICY-OTHER> 4321
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 27000
0
164
<COMMON> 18936
<OTHER-SE> 64063
<TOTAL-LIABILITY-AND-EQUITY> 281707
45829
<INVESTMENT-INCOME> 5641
<INVESTMENT-GAINS> 912
<OTHER-INCOME> 169
<BENEFITS> 30992
<UNDERWRITING-AMORTIZATION> 13721
<UNDERWRITING-OTHER> 0
<INCOME-PRETAX> 3530
<INCOME-TAX> (132)
<INCOME-CONTINUING> 3398
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3398
<EPS-PRIMARY> 0.14
<EPS-DILUTED> 0.14
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
