EXHIBIT 13.1
Corporate Profile
Atlantic American Corporation is an insurance holding company involved through
its subsidiary companies in well-defined specialty markets of the life, health,
property and casualty insurance industries.
Selected Financial Data
(In Thousands, Except Per Share Data)
Year Ended December 31,
- --------------------------------------------------------------------------------
1996 1995 1994 1993 1992
- --------------------------------------------------------------------------------
Insurance premiums.............$ 86,025 $ 43,373 $ 41,701 $ 40,944 $ 42,764
Investment income.............. 11,457 6,566 6,628 6,048 6,399
Realized investment gains,
net.......................... 1,589 1,731 870 744 4,091
- --------------------------------------------------------------------------------
Total revenue................ 99,071 51,670 49,199 47,736 53,254
- --------------------------------------------------------------------------------
Insurance benefits and
losses incurred.............. 54,281 24,689 21,955 25,364 33,616
Other expenses................. 36,975 23,897 20,727 21,905 20,430
- --------------------------------------------------------------------------------
Total benefits and
expenses................... 91,256 48,586 42,682 47,269 54,046
- --------------------------------------------------------------------------------
7,815 3,084 6,517 467 (792)
Debt conversion expense........ - - - - (98)
Income tax provision
(benefit).................... 204 (34) (1,632) (989) -
- --------------------------------------------------------------------------------
Income (loss) from continuing
operations................. 7,611 3,118 8,149 1,456 (890)
(Loss) income from discon-
tinued operations, net..... (4,447) (10,094) 1,121 1,543 96
- --------------------------------------------------------------------------------
Income (loss) before extraor-
dinary gain and cumulative
effect of change in
accounting principle for
income taxes............... 3,164 (6,976) 9,270 2,999 (794)
Extraordinary gain............. - - 100 897 279
- --------------------------------------------------------------------------------
Income (loss) before
cumulative effect of change
in accounting principle for
income taxes............... 3,164 (6,976) 9,370 3,896 (515)
Cumulative effect of change
in accounting principle for
income taxes............... - - - (519) -
- --------------------------------------------------------------------------------
Net income (loss)..........$ 3,164 $ (6,976) $ 9,370 $ 3,377 $ (515)
================================================================================
Net income (loss) per common share data:
Continuing operations........$ .32 $ .15 $ .43 $ .06 $ (.07)
Discontinued operations...... (.23) (.54) .06 .09 .01
Extraordinary gain........... - - - .05 .01
Cumulative effect of change
in accounting principle
for income taxes........... - - - (.03) -
- --------------------------------------------------------------------------------
Net income (loss)..........$ .09 $ (.39) $ .49 $ .17 $ (.05)
================================================================================
Weighted average common shares
outstanding.................. 18,856 18,671 18,511 18,476 17,680
Book value per share...........$ 2.29 $ 1.61 $ 1.47 $ 1.24 $ 1.01
Common shares outstanding...... 18,684 18,679 18,414 18,399 18,399
Total assets ..................$252,994 $245,494 $148,740 $154,822 $159,698
Total long-term debt...........$ 25,994 $ 31,569 $ 24,327 $ 21,827 $ 19,327
Total shareholders' equity.....$ 59,136 $ 46,478 $ 30,022 $ 25,806 $ 21,601
President's Message
To Our Shareholders:
Atlantic American Corporation's outstanding year can be credited to our
dedication to building one of the best niche insurance companies in the country.
By positioning the Company as a specialty underwriter of niche insurance
products and markets, Atlantic American Corporation produced record financial
results during each quarter of 1996, resulting in an outstanding year-end
performance.
Net income from continuing operations increased 144% in 1996 to $7.6 million, or
$0.32 per share. Revenues increased 92% to $99.1 million. There were
approximately $1.0 million, or $0.05 per share, of non-recurring charges
associated with the Company's realignment. Even with these charges, Atlantic
American Corporation produced a strong 20% return on equity on its common stock.
We also attribute this outstanding performance to the benefits derived from
implementing our strategy to position Atlantic American as a 'pure play'
insurance company. Our focus on higher return specialty insurance markets and
the divestiture of our non-core operations has allowed us to repay approximately
$9 million in debt over the past year.
Atlantic American's management team has been aggressive in building a more
competitive and financially strong company. Through several strategic
initiatives we have furthered our goal of seeking to maximize the value of our
shareholders' investments in the Company. The completed sale of Leath furniture
in April 1996 has afforded the Company complete focus on its core business --
insurance. The bottom line was affected by the operation of Leath Furniture
through the of disposition, but will not affect our future reported earnings.
In addition, we are very proud to report that as of December 31, 1996, Atlantic
American Corporation has complete ownership of all of its subsidiaries,
subsidiaries: American Southern Insurance Company, American Safety Insurance
Company, Atlantic American Life Insurance Company, Bankers Fidelity Life
Insurance Company, and Georgia Casualty & Surety Company. During 1996 the
company purchased the remainingpublicly-held shares of Bankers Fidelity and
followed up with the purchase of theshares of Georgia Casualty not already owned
by the Company. Furthermore, at theclose of the year, the Board of Directors
approved the merger of Atlantic American Life Insurance Company and Bankers
Fidelity Life Insurance Company, with Bankers Fidelity being the surviving
company. These combined initiatives have streamlined operations, reduced costs
and expenses, and created management efficiencies that will positively influence
the Company in 1997 and beyond.
1
President's Message (Continued)
Despite strong, industry-wide pricing pressures, all of our companies remain
profitable and continue to grow. Since becoming a dedicated insurance company,
we have witnessed an overall increase in premiums from all of our operations.
Our life insurance operations reported a 29% increase in total new business
written and for the first time in several years, we reported an increase of 1.7%
in total annualized premiums, as our new life insurance premiums more than
exceeded the anticipated decrease in our supplemental health insurance premiums.
Furthermore, our life insurance operations received 5 new licenses to do
business in the states of Maryland, Montana, Nevada, North Dakota and Oregon,
bringing that division's total market penetration to twenty-eight states.
Georgia Casualty's premiums increased 2.7% this year. Although the company's
voluntary business increased 17%, this increase was primarily offset by a
reduction in the amount of our direct-assignment premiums due to the dwindling
number businesses which obtain workers' compensation coverage in the residual
market. Since that portion of Georgia Casualty's business has now stabilized, we
expect the Company's reportable growth to once again gain momentum this year. In
addition, we have recently been informed that Georgia Casualty received a rating
increase from A.M. Best to B+ (very good). Consequently, all of our insurance
companies are now rated either B+ (very good) or A- (excellent) by A.M. Best and
are positioned to further increase their ratings as time and our results allow.
We remain committed to improving our ratings in 1997 and beyond.
We are particularly proud of the performance of American Southern Insurance
Company, which was acquired at the close of 1995. It is in an enviable position
as one of the most successful property and casualty insurance companies in the
country, adding considerable financial strength and reputation to Atlantic
American Corporation. American Southern's specialization in insurance coverages
for public entity automobile fleets, as well as large accounts that can be
specially priced and customized, diversifies Atlantic American Corporation into
a highly desirable niche market and allows American Southern to provide unique
benefits and services to its insurance customers. This, in turn, gives American
Southern a competitive advantage as a true value added provider of insurance
products and services. For the year, American Southern contributed revenues of
$45.8 million, or 46% of Atlantic American Corporation's total revenue.
A substantial capital investment in our infrastructure, especially in the
management information systems of Georgia Casualty and Bankers Fidelity, has
been committed to further their growth. Over the past three years, approximately
$1.0 million per year has been allocated to upgrade these systems to better
support management, employees, agents and policyholders. The majority of these
2
President's Message (Continued)
expenditures are now behind us, and both companies expect to realize significant
efficiency gains from these investments in the future. Our systems should enable
us to grow our business and maintain the high level of service our agents and
insureds expect without a significant increase in the costs of administration.
We will continue to improve our information systems as needed, while we pursue
the Company's objective to be at the forefront of technical efficiency in our
industry and to ensure that we provide the highest quality service to our agents
and policyholders.
Total shareholders' equity increased dramatically in 1996 to $59.1 million, or
$2.29 per common share, from $46.5 million, or $1.61 per share, in 1995. This
represents a 27% increase in total equity and a 42% increase per share. The
value of our common stock also advanced from 2 5/16 per share at December 31,
1995, to 3 1/16 at year-end 1996, increasing our total market capitalization to
$57.2 million from $43.2 million, a 32% appreciation.
While 1996 was a year of primarily internal development, growth, and
consolidation, Atlantic American Corporation continues to look for potential
acquisition candidates that will complement and grow the Company while
maximizing shareholder value. An attractive candidate must be profitable with
existing management expertise and products that will support and grow our core
insurance business. Opportunities that we would consider exploring include
acquiring companies or blocks of business that can geographically increase our
market share, companies that have the distribution capacity to cross-sell our
products or services, or companies that have an identifiable market niche in the
industry.
Charles West has announced that he will retire from our Board of Directors at
the annual meeting this year. Charles has served as a director of Atlantic
American for 17 years, joining us in July 1980, and has been extremely helpful
in planning the growth of Atlantic American and charting a steady course during
some difficult years. The financial health and vigor of Atlantic American today
are due in no small part to his sound advice in the past. He will be sorely
missed. All of his colleagues on the Board and all of us here at the Company
wish him well in his retirement from the Board and with his many new endeavors.
In closing, we would like to thank all of our employees, agents, policyholders
and especially the shareholders who have helped position Atlantic American
Corporation for its future successes.
J. Mack Robinson Hilton H. Howell, Jr.
Chairman President and Chief Executive Officer
3
Accident Expense
Cancer
Disability Income
Medicare Supplement
Hospital Surgical Indemnity
Medical Indemnity
Nursing Facility
Whole Life
Joint Whole Life
Level Term
OPERATIONS
Life and Health Division
Atlantic American's two life insurance companies, Atlantic American Life
Insurance Company and Bankers Fidelity Life Insurance Company, successfully
completed a planned merger effective January 1, 1997 and will go forward under
the banner of Bankers Fidelity Life. The merger will result in a more efficient
company as well as enhance the financial strength of this important subsidiary,
and will provide Atlantic American Corporation with a vigorous competitor in the
life and supplemental health insurance markets with consolidated capital and
surplus in excess of $25 million. The enhanced financial strength of Bankers
Fidelity will improve the company's competitive posture in established markets
as well as enhance its continuing progress in achieving favorable ratings from
the A.M. Best Company and other industry rating firms. In addition, the merger
will facilitate the planned expansion of the company into new markets in the
midwestern and western United States through improved marketing efficiencies,
streamlined product development and reduced expenses.
Market segmentation in the Life Company continues to evolve. The company's
decision to penetrate new markets in recent years resulted in a firm presence in
four distinct market segments -- the senior, niche, family and payroll deduction
markets. The company's primary product focus in each of these markets is life
insurance and supplemental health insurance.
Bankers Fidelity's niche markets continue to generate stable revenue. Utilizing
a 10-Pay whole life plan and annuity rider, the company targets the college
preparatory and military markets. This product line provides for an early paid
up life policy and substantial cash accumulation through the annuity rider. In
the college preparatory market, an emphasis is placed on cash accumulation in
order to manage the high costs associated with higher education which enhances
the company's position as a qualified student lender. In the military market,
this product line is targeted toward recruits as a means to build retirement
savings and, like the college preparatory market, supplement the cost of higher
5
Asphalt Paving Insulation Installer
Auto Dismantler Landscaping/Lawn Care
Boat Builder Machine Shop
Building Materials Dealer Metal Goods Fabricator
Cabinet Shops/Woodworking Metal Goods Manufacturer
Community Action Metal Shop
Committees Meat Product Processor
Cleaning Products/Soap Millwright
Concrete Construction (Light) Mobile Home Manufacturer
Concrete Products: Block, Painter
Brick, Mix Pallet Manufacturer
Concrete Paving Paper Manufacturer/Processor
Cotton Gin Paper Hanger
Equipment Manufacturing Plastic Goods Manufacturer
Electrical Contractor Plumber
Employment Agency Prefab Metal Building
Floor Covering Contractor Manufacturer
Frame Carpentry Sawmill
Furniture Manufacturer/ Telephone Utility
Dealer Tent/Awning Maker
Glass Dealers/Installer Trim Carpenter
Grading/Land Clearing Wholesaler
Heating/Air-Conditioning Wood Products Manufacturer
Home Health-Care
Operations (Continued)
education after completion of their military service. The company's niche
markets utilize a tightly controlled distribution system with a heavy emphasis
on agent training in order to insure proper market conduct.
The family market is served through traditional life products and supplemental
health products such as accident and cancer insurance. We believe this market is
under served as more and more of our competitors concentrate on high-end
markets. Our ongoing commitment to serving the needs of the traditional family
market should provide for continuing increases in premium income from this
market in the years ahead.
Emerging trends indicate that the payroll deduction market, or work-site
marketing, is the fastest growing entity in the delivery of traditional
insurance products. While Bankers Fidelity has offered all of its life and
supplemental health products through payroll deduction for a number of years,
the company began a re-engineering process of this division more than two years
ago with the end result being the introduction this year of our Benefits Plus
series of payroll deduction products. Much of the groundwork was accomplished
through our association with an experienced, outside consultant whose knowledge
of the payroll deduction market was instrumental in the development of new
products as well as the repackaging of proven products. Through this
relationship, Benefits Plus was brought to market offering full Section 125
support as well as new products such as Term Ten and Term Ten Plus competitive,
ten-year level term products, Flex-I-Care Plus - a no nonsense, medical
indemnity plan designed to provide benefits for physician office visits and
emergency room care. Optional benefits for this product include lump-sum, first
day hospital coverage, daily hospital indemnity and accidental death benefits.
In addition, our proven products such as accident expense, cancer and disability
have been repackaged to enhance the new look of this series.
Overall, Banker's Fidelity is solidly positioned for continued growth in its
chosen markets. The company's planned expansion into new states, as well as a
defined, focused approach to each of its markets, resulted in a solid 29%
increase in new sales during 1996, when the life insurance industry as a whole
only experienced growth in the 5% range. We expect the Life Company's new sales
to continue to grow in the 20% range for the foreseeable future and to play a
vital role in Atlantic American Corporation's continued growth.
Property and Casualty Division
With the addition of the American Southern Insurance Company, the property and
casualty division of Atlantic American Corporation now represents 68% of the
company's total revenues and is the single largest contributor to the company's
7
Operations (Continued)
profitability. American Southern has a strong tradition as one of the most
successful property and casualty insurance companies in the industry, offering a
variety of property and casualty coverages with an emphasis on commercial
automobile liability. Public-entity business, as well as large accounts that can
be specially priced and customized, make up the majority of American Southern's
automobile liability book of business. These specialized product offerings give
American Southern a competitive advantage by allowing it great flexibility and a
unique variable cost structure.
These strengths have attributed to American Southern's outstanding performance
in its first full year as a subsidiary of Atlantic American, but the primary
reason for its fine performance can be attributed to its experienced management
team and the strong relationships that they have established with their clients
over the years. The company has also taken steps to enhance its ability to
expand its customer base by recently adding an additional marketing executive to
its existing marketing team.
American Southern exemplifies the type of company that Atlantic American
Corporation considers in a potential acquisition. It has an excellent product, a
dedicated and experienced management group, and a solid customer base which
immediately contributed to Atlantic American's financial performance.
Georgia Casualty & Surety Company, which will celebrate its 50th anniversary
next year, focuses on workers' compensation and commercial coverages in select
jurisdictions and industries in the southeastern United States. Georgia Casualty
has always taken a proactive position with its insureds to utilize all available
cost containment techniques to control the ultimate costs of their workers'
compensation programs. These initiatives include sponsoring educational programs
on work-site safety, utilizing medical peer review, enforcing fee schedule and
PPO reductions and emphasizing early medical intervention with serious claims.
These efforts, among many others, have helped Georgia Casualty control and
contain the cost of workers' compensation for its clients. By ensuring that each
injured worker gets the best medical care at the earliest possible time so that
lost time from work is reduced to an absolute minimum, Georgia Casualty has been
able to reduce its insureds' ultimate claims costs which will soon improve their
premium costs. This successful approach has allowed Georgia Casualty to grow its
voluntary book of business by 17% in a very soft market and improve its margins
at the same time.
Georgia Casualty targets manufacturing businesses, service industries, and
various construction industries; however, our underwriting team, most of whom
have been with our company over twenty years, have the technical and regional
knowledge necessary to allow Georgia Casualty to write diverse accounts in many
specialized industries overlooked by our competition. This underwriting approach
has produced outstanding results and has allowed Georgia Casualty to continue to
grow with outstanding loss ratios in virtually all lines of business. Georgia
Casualty has also benefited from its regional emphasis. By keeping its
underwriting concentration in a region it knows well, Georgia Casualty has a
competitive advantage in being able to respond quickly and with specialized
knowledge of our customers, their businesses and their locality.
Georgia Casualty and American Southern, two companies with a focused vision on
their markets and customers, will continue to make significant contributions to
the growth and profitability of Atlantic American Corporation.
8
DIRECTORS
J. MACK ROBINSON
Chairman
Atlantic American Corporation
HILTON H. HOWELL, JR.
President and Chief Executive Officer
Atlantic American Corporation
SAMUEL E. HUDGINS
Principal, Percival Hudgins & Company, LLC
D. RAYMOND RIDDLE
Retired Chairman and Chief Executive Officer
National Service Industries, Inc.
HARRIETT J. ROBINSON
Director, Delta Life Insurance Company
SCOTT G. THOMPSON
President and Chief Financial Officer
American Southern Insurance Company
CHARLES B. WEST
Chairman, West Lumber Company
WILLIAM H. WHALEY, M.D.
William H. Whaley, M.D., P.C., F.A.C.P.
DOM H. WYANT
Of Counsel, Jones, Day, Reavis & Pogue
OFFICERS
J. MACK ROBINSON
Chairman
HILTON H. HOWELL, JR.
President and Chief Executive Officer
JOHN W. HANCOCK
Senior Vice President and Treasurer
CLARK W. BERRYMAN
Vice President, Information Services
JANIE L. RYAN
Corporate Secretary
MICHAEL J. BRASSER
Assistant Vice President, Internal Audit
9
ATLANTIC AMERICAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share and Per Share Data)
ASSETS December 31,
- --------------------------------------------------------------------------------
1996 1995
- --------------------------------------------------------------------------------
Cash, including short-term investments of
$41,614 and $12,498.............................. $ 45,499 $ 15,069
Investments ........................................ 142,485 168,117
Receivables:
Reinsurance...................................... 26,854 22,467
Other (net of allowance for doubtful accounts:
$1,151 and $1,260)............................ 16,301 18,567
Deferred acquisition costs.......................... 15,179 14,899
Other assets........................................ 4,576 4,125
Goodwill............................................ 2,100 2,250
- --------------------------------------------------------------------------------
Total assets.................................... $252,994 $245,494
================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Insurance reserves and policy funds ................ $149,198 $143,847
Accounts payable and accrued expenses............... 9,049 8,010
Debt payable ($1,058 and $6,358 due to affiliates).. 35,611 44,921
Net obligation to discontinued operations........... - 953
Minority interest................................... - 1,285
- --------------------------------------------------------------------------------
Total liabilities............................... 193,858 199,016
- --------------------------------------------------------------------------------
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 and
18,684,217 shares outstanding in 1996 and
18,679,400 shares outstanding in 1995.......... 18,712 18,712
Additional paid-in capital....................... 54,062 46,531
Accumulated deficit.............................. (31,426) (34,446)
Net unrealized investment gains.................. 17,713 15,589
Treasury stock, at cost, 27,950 shares in 1996
and 32,767 shares in 1995..................... (89) (72)
- --------------------------------------------------------------------------------
Total shareholders' equity.................... 59,136 46,478
- --------------------------------------------------------------------------------
Total liabilities and shareholders' equity $252,994 $245,494
================================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
10
ATLANTIC AMERICAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Data)
Year Ended December 31,
- --------------------------------------------------------------------------------
Revenue: 1996 1995 1994
- --------------------------------------------------------------------------------
Insurance premiums....................... $86,025 $43,373 $41,701
Investment income........................ 11,457 6,566 6,628
Realized investment gains, net .......... 1,589 1,731 870
- --------------------------------------------------------------------------------
Total revenue........................ 99,071 51,670 49,199
- --------------------------------------------------------------------------------
Benefits and expenses:
Insurance benefits and losses incurred... 54,281 24,689 21,955
Commissions and underwriting expenses.... 26,959 15,249 13,355
Interest expense......................... 3,292 2,458 1,968
Other.................................... 6,724 6,190 5,404
- --------------------------------------------------------------------------------
Total benefits and expenses.......... 91,256 48,586 42,682
- --------------------------------------------------------------------------------
Income before income tax provision
(benefit), discontinued operations
and extraordinary gain............ 7,815 3,084 6,517
Income tax provision (benefit)............. 204 (34) (1,632)
- --------------------------------------------------------------------------------
Income from continuing operations.......... 7,611 3,118 8,149
(Loss) income from discontinued
operations, net......................... (4,447) (10,094) 1,121
- --------------------------------------------------------------------------------
Income (loss) before extraordinary
gain.............................. 3,164 (6,976) 9,270
Extraordinary gain ........................ - - 100
Net income (loss) before preferred
stock dividends...................... 3,164 (6,976) 9,370
Preferred stock dividends.................. (1,521) (315) (315)
- --------------------------------------------------------------------------------
Net income (loss) applicable to
common stock...................... $ 1,643 $(7,291) $ 9,055
================================================================================
Weighted average common shares outstanding. 18,856 18,671 18,511
================================================================================
Net income (loss) per common share data:
Continuing operations................... $ .32 $ .15 $ .43
Discontinued operations................. (.23) (.54) .06
Extraordinary gain...................... - - -
- --------------------------------------------------------------------------------
Net income (loss).................... $ .09 $ (.39) $ .49
================================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
11
ATLANTIC AMERICAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Net
Additional Unrealized
Preferred Common Paid-In Accumulated Investment Treasury
Stock(1) Stock Capital Deficit Gains Stock Total
- ------------------------------------------------------------------------------------------------------------------------------------
(In Thousands, Except Per Share Data)
Balance, December 31, 1993.................. $ 30 $ 18,399 $ 33,600 $ (36,822) $ 10,599 $ - $ 25,806
Net income............................... - - - 9,370 - - 9,370
Cash dividends paid on preferred stock... - - (315) - - - (315)
Stock options exercised.................. - 15 4 - - - 19
Decrease in unrealized investment gains.. - - - - (4,858) - (4,858)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1994.................. 30 18,414 33,289 (27,452) 5,741 - 30,022
Net loss................................. - - - (6,976) - - (6,976)
Cash dividends paid on preferred stock... - - (315) - - - (315)
Purchase of 78,148 shares for treasury .. - - - - - (174) (174)
Issuance of 343,606 shares for employee
benefit plans and stock options....... - 298 291 (18) - 102 673
Conversion of debt payable to preferred
stock................................. 134 - 13,266 - - - 13,400
Increase in unrealized investment gains.. - - - - 9,848 - 9,848
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1995.................. 164 18,712 46,531 (34,446) 15,589 (72) 46,478
Net income............................... - - - 3,164 - - 3,164
Cash dividends paid on preferred stock... - - (315) - - - (315)
Dividends accrued on preferred stock..... - - (1,206) - - - (1,206)
Purchase of 104,635 shares for treasury.. - - - - - (338) (338)
Issuance of 109,452 shares for employee
benefit plans and stock options....... - - 6 (144) - 321 183
Gain on sale of subsidiary............... - - 9,046 - - - 9,046
Increase in unrealized investment gains.. - - - - 2,124 - 2,124
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996.................. $ 164 $ 18,712 $ 54,062 $ (31,426) $ 17,713 $ (89) $ 59,136
====================================================================================================================================
<FN>
(1) Includes Series A and B preferred stock
</FN>
The accompanying notes are an integral part of these consolidated financial
statements.
12
ATLANTIC AMERICAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
- --------------------------------------------------------------------------------
(In Thousands, Except per Share Data) 1996 1995 1994
- --------------------------------------------------------------------------------
Cash flows from operating activities:
Net income (loss).......................... $ 3,164 $ (6,976) $ 9,370
Adjustments to reconcile net income
(loss) to net cash provided (used) by
operating activities:
Amortization of deferred acquisition
costs................................ 8,184 3,721 3,008
Acquisition costs deferred............. (8,464) (2,985) (2,895)
Realized investment gains.............. (1,589) (1,731) (870)
Increase (decrease) in reserves........ 5,352 (1,203) (12,939)
Loss (income) from discontinued
operations, net...................... 4,447 10,094 (1,121)
Depreciation and amortization.......... 1,102 547 370
Deferred income taxes.................. - - (1,000)
Minority interest...................... - 285 63
(Increase) decrease in receivables, net (3,870) 997 (3,793)
Extraordinary gain from extinguishment
of debt.............................. - - (100)
(Decrease) increase in other
liabilities.......................... (694) 177 472
Other, net............................. 811 319 (366)
- --------------------------------------------------------------------------------
Net cash provided (used) by
continuing operations.............. 8,443 3,245 (9,801)
- --------------------------------------------------------------------------------
Net cash (used) provided by
discontinued operations............ (5,902) (9,177) 2,291
- --------------------------------------------------------------------------------
Net cash provided (used) by operating
activities......................... 2,541 (5,932) (7,510)
- --------------------------------------------------------------------------------
Cash flows from investing activities:
Proceeds from investments sold............. 44,445 21,027 17,805
Proceeds from investments matured, called
or redeemed.............................. 40,868 17,004 7,099
Investments purchased...................... (54,632) (32,909) (32,514)
Acquisition of minority interest........... (846) (1,012) -
Sale of Leath Furniture, Inc., net......... 3,646 - -
Acquisition of American Southern Insurance
Company, net of $5,497 of cash acquired.. - (17,273) -
Additions to property and equipment........ (1,616) (1,107) (1,270)
- --------------------------------------------------------------------------------
Net cash provided (used) by continuing
operations............................. 31,865 (14,270) (8,880)
- --------------------------------------------------------------------------------
Net cash used by discontinued operations. (440) (2,551) (6,691)
- --------------------------------------------------------------------------------
Net cash provided (used) by investing
activities............................. 31,425 (16,821) (15,571)
- --------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from issuance of notes payable ... - - 675
Proceeds from issuance of bank financing... 11,352 22,642 -
Preferred stock dividends.................. (315) (315) (315)
Proceeds from exercise of stock options.... 85 600 19
Purchase of treasury shares................ (338) (174) -
Repayments of debt......................... (20,662) (675) -
- --------------------------------------------------------------------------------
Net cash (used) provided by continuing
operations............................. (9,878) 22,078 379
- --------------------------------------------------------------------------------
Net cash provided by discontinued
operations............................. 6,342 9,345 4,303
- --------------------------------------------------------------------------------
Net cash (used) provided by financing
activities............................. (3,536) 31,423 4,682
- --------------------------------------------------------------------------------
Net increase (decrease) in cash and
cash equivalents....................... 30,430 8,670 (18,399)
- --------------------------------------------------------------------------------
Cash and cash equivalents at beginning of year:
Continuing operations.................... 15,069 4,016 22,318
Discontinued operations.................. - 2,383 2,480
- --------------------------------------------------------------------------------
Total.................................. 5,069 6,399 24,798
- --------------------------------------------------------------------------------
Cash and cash equivalents at end of year:
Continuing operations.................... 45,499 15,069 4,016
Discontinued operations.................. - - 2,383
- --------------------------------------------------------------------------------
Total.................................. $ 45,499 $ 15,069 $ 6,399
================================================================================
Supplemental cash flow information:
Cash paid for interest..................... $ 3,763 $ 3,096 $ 900
================================================================================
Cash paid for income taxes................. $ 116 $ 128 $ 115
================================================================================
Debt to seller for purchase of American
Southern Insurance Company............... $ - $ 11,352 $ -
================================================================================
Debt payable converted to preferred stock.. $ - $ 13,400 $ -
================================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
13
ATLANTIC AMERICAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1195 AND 1994 (Dollars in Thousands, Except Per Share Data)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanying consolidated financial statements have been prepared in
conformity with generally accepted accounting principles ("GAAP"). These
financial statements include the accounts of Atlantic American Corporation (the
"Company") and its majority-owned subsidiaries. Leath Furniture, LLC (f/k/a
Leath Furniture, Inc.), previously a majority owned subsidiary, has been
reflected as discontinued operations in the accompanying financial statements
(see Note 8) through the date of its divestiture on April 8, 1996 (see Note 13).
All significant intercompany accounts and transactions have been eliminated in
consolidation.
At December 31, 1996, the Company had five insurance subsidiaries, which include
American Southern Insurance Company and its wholly owned subsidiary American
Safety Insurance Company (collectively known as "American Southern"), Atlantic
American Life Insurance Company, Bankers Fidelity Life Insurance Company and
Georgia Casualty & Surety Company. American Southern was acquired on December
31, 1995 (see Note 7). Assets and liabilities are not classified, in accordance
with insurance industry practice, and certain prior year amounts have been
reclassified to conform to the 1996 presentation.
Premium Revenue and Cost Recognition
Life insurance premiums are recognized as revenues when due, whereas accident
and health premiums are recognized over the premium paying period. Benefits and
expenses are associated with earned premiums so as to result in recognition of
profits over the lives of the contracts in proportion to premiums earned. This
association is accomplished by the provision of a future policy benefits reserve
and the deferral and subsequent amortization of the costs of acquiring business
(principally commissions, advertising and certain issue expenses). Traditional
life insurance and long-duration health insurance deferred policy acquisition
costs are amortized over the estimated premium-paying period of the related
policies using assumptions consistent with those used in computing policy
benefit reserves. The deferred policy acquisition costs for property and
casualty and short-duration health insurance are amortized over the effective
period of the related insurance policies. Deferred policy acquisition costs are
expensed when such costs are deemed not to be recoverable from the related
unearned premiums and investment income.
Property and casualty insurance premiums are recognized as revenue ratably over
the contract period. The Company provides for insurance benefits and losses on
accident, health, and casualty claims based upon: (a) management's estimate of
ultimate liability and claim adjusters' evaluations for unpaid claims reported
prior to the close of the accounting period, (b) estimates of incurred but not
reported claims based on past experience, and (c) estimates of loss adjustment
expenses. The estimated liability is continually reviewed and updated, and
changes to the estimated liability are recorded in the statement of operations
in the year in which such changes are known.
Goodwill
Goodwill resulting from the acquisition of American Southern is amortized over a
15 year period using the straight-line method. The Company periodically
evaluates whether events and circumstances have occurred that indicate the
remaining estimated useful life of goodwill may warrant revision. Should factors
indicate that goodwill be evaluated for possible impairment, the Company will
compare the recoverability of goodwill to a projection of American Southern's
undiscounted income over the estimated remaining life of the goodwill in
assessing whether the goodwill is recoverable.
Investments
All of the Company's debt and equity securities are classified as available for
sale and are carried at market value. Mortgage loans, policy and student loans,
and real estate are carried at historical cost. If a decline in the value of a
common stock, preferred stock, or publicly traded bond below its cost or
amortized cost is considered to be other than temporary, a realized loss is
recorded to reduce the carrying value of the investment to its estimated net
realizable value, which becomes the new cost basis.
The cost of securities sold is based on specific identification. Unrealized
gains (losses) in the value of bonds and common and preferred stocks, are
accounted for as a direct increase (decrease) in shareholders' equity and,
accordingly, have no effect on net income (loss).
14
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Income Taxes
Deferred income taxes represent the expected future tax consequences when the
reported amounts of assets and liabilities are recovered or paid. They arise
from differences between the financial reporting and tax basis of assets and
liabilities and are adjusted for changes in tax laws and tax rates when those
changes are enacted. The provision for income taxes represents the total of
income taxes paid or payable for the current year, plus the change in deferred
taxes during the year.
Net Income (Loss) Per Common Share
Net income (loss) per common share is computed on the basis of the weighted
average number of common shares and common equivalent shares outstanding during
the year applied to net income (loss) after preferred dividends. The weighted
average number of shares outstanding was 18,856,000 in 1996, 18,671,000 in 1995
and 18,511,000 in 1994. The effect of convertible subordinated notes and
convertible preferred stock was anti-dilutive in each of these years.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash on hand and investments in short-term,
highly liquid securities which have original maturities of three months or less
from date of purchase.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with GAAP 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 financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates, although, in the opinion of management, such differences would not be
significant.
NOTE 2. INVESTMENTS
Investments are comprised of the following:
1996
- --------------------------------------------------------------------------------
Gross Gross
Carrying Unrealized Unrealized Amortized
Value Gains Losses Cost
- --------------------------------------------------------------------------------
Bonds:
U.S. Treasury Securities
and Obligations of
U.S. Government Corpora-
tions and Agencies......$ 67,370 $ 275 $ 443 $ 67,538
Obligations of states and
political subdivisions.... 3,496 86 168 3,578
Corporate securities........ 14,717 272 272 14,717
Mortgage-backed securities
(government guaranteed)... 5,727 - 51 5,778
- --------------------------------------------------------------------------------
91,310 $ 633 $ 934 $ 91,611
Common and preferred stocks. 37,762 $ 19,348 $ 1,334 $ 19,748
Mortgage loans (estimated
fair value of $7,732)..... 6,812
Policy and student loans.... 6,555
Real estate................. 46
- --------------------------------------------------------------------------------
Investments............... 142,485
Short-term investments...... 41,614
- --------------------------------------------------------------------------------
Total investments.........$184,099
================================================================================
1995
- --------------------------------------------------------------------------------
Gross Gross
Carrying Unrealized Unrealized Amortized
Value Gains Losses Cost
- --------------------------------------------------------------------------------
Bonds:
U. S. Treasury Securities
and Obligations of
U. S. Government Corpora-
tions and Agencies......$ 70,553 $ 408 $ 19 $ 70,164
Obligations of states and
political subdivisions.... 21,947 6 270 22,211
Corporate securities........ 19,817 386 77 19,508
Mortgage-backed securities
(government guaranteed)... 996 - 36 1,032
- --------------------------------------------------------------------------------
113,313 $ 800 $ 402 $112,915
Common and preferred stocks .. 42,116 $ 15,824 $ 633 $ 26,925
Mortgage loans (estimated
fair value of $7,291)....... 6,952
Policy and student loans...... 5,690
Real estate................... 46
- --------------------------------------------------------------------------------
Investments................ 168,117
Short-term investments........ 12,498
- --------------------------------------------------------------------------------
Total investments..........$180,615
================================================================================
15
ATLANTIC AMERICAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1195 AND 1994 (Dollars in Thousands, Except Per Share Data)
NOTE 2. INVESTMENTS (CONTINUED)
Bonds having an amortized cost of $13,578 and $13,373 were on deposit with
insurance regulatory authorities at December 31, 1996 and 1995, respectively, in
accordance with statutory requirements.
The amortized cost and carrying value of bonds and short-term investments at
December 31, 1996 by contractual maturity are as follows. Actual maturities may
differ from contractual maturities because borrowers may have the right to call
or prepay obligations with or without call or prepayment penalties.
Carrying Amortized
Value Cost
------------------------------
Due in one year or less.......................... $ 56,732 $ 56,905
Due after one year through five years............ 19,439 19,416
Due after five years through ten years........... 37,666 37,804
Due after ten years.............................. 13,360 13,322
Varying maturities............................... 5,727 5,778
------------------------------
Totals........................................ $ 132,924 $ 133,225
==============================
Investment income was earned from the following sources:
1996 1995 1994
- --------------------------------------------------------------------------------
Bonds....................................... $ 6,728 $ 3,549 $ 3,267
Common and preferred stocks................. 1,622 1,205 1,603
Mortgage loans.............................. 863 791 722
CDs and commercial paper.................... 1,443 548 604
Other....................................... 801 473 432
- --------------------------------------------------------------------------------
Total investment income................. 11,457 6,566 6,628
Less investment expenses................ (452) (424) (465)
- --------------------------------------------------------------------------------
Net investment income....................... $11,005 $ 6,142 $ 6,163
================================================================================
A summary of realized investment gains (losses) follows:
1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
Limited Limited
Stocks Bonds Partnership Total Stocks Bonds Partnership Total Stocks Bonds Total
- ------------------------------------------------------------------------------------------------------------------------------------
Gains............... $1,910 $ 73 $ 17 $2,000 $1,743 $ 35 $ 363 $2,141 $1,150 $ 5 $1,155
Losses.............. (411) - - (411) (73) (9) - (82) (260) (25) (285)
Write-downs......... - - - - (162) (166) - (328) - - -
- ------------------------------------------------------------------------------------------------------------------------------------
Total realized
investment gains
(losses), net... $1,499 $ 73 $ 17 $1,589 $1,508 $(140) $ 363 $1,731 $ 890 $ (20) $ 870
====================================================================================================================================
Proceeds from the sale of common and preferred stocks, bonds and other
investments are as follows:
1996 1995 1994
- --------------------------------------------------------------------------------
Common and preferred stocks.............. $ 9,734 $10,199 $ 9,163
Bonds.................................... 25,335 1,730 -
Student loans............................ 6,053 7,278 7,845
Other investments........................ 3,323 1,820 797
- --------------------------------------------------------------------------------
Total proceeds $44,445 $21,027 $17,805
================================================================================
The single investment which exceeds 10% of shareholders' equity at December 31,
1996 was a common stock investment in the Wachovia Corporation with a carrying
value of $18,506 and a cost basis of $3,428.
The Company's bond portfolio included 97% of investment grade securities at
December 31, 1996 as defined by the NAIC.
NOTE 3. INSURANCE RESERVES AND POLICY FUNDS
The following table presents the Company's reserves for life, accident, health
and casualty losses as well as loss adjustment expenses.
Amount of Insurance
in Force
-------------------
1996 1995 1996 1995
-----------------------------------------
Future policy benefits
Life insurance policies
Individual and group life:
Ordinary......................... $ 22,451 $ 20,806 $256,482 $221,450
Mass market...................... 9,364 9,578 21,409 22,896
Individual annuities.............. 856 887 - -
-----------------------------------------
32,671 31,271 $277,891 $244,346
===================
Accident and health insurance
policies......................... 3,714 5,034
--------------------
36,385 36,305
Unearned premiums................... 25,100 24,140
Losses and claims................... 84,074 79,514
Other policy liabilities............ 3,639 3,888
--------------------
Total policy liabilities........... $149,198 $143,847
====================
Annualized premiums for accident and health insurance policies were $15,884 and
$16,595 at December 31, 1996 and 1995, respectively.
16
NOTE 3. INSURANCE RESERVES AND POLICY FUNDS (CONTINUED)
Future Policy Benefits -
Liabilities for life insurance future policy benefits are based upon assumed
future investment yields, mortality rates and withdrawal rates after giving
effect to possible risks of adverse deviation. The assumed mortality and
withdrawal rates are based upon the Company's experience. The interest rates
assumed for life, accident and health are generally: (i) 2.5% to 5.5% for issues
prior to 1977, (ii) 7% graded to 5.5% for 1977 through 1979 issues, (iii) 9% for
1980 through 1987 issues, and (iv) 7% for 1988 and later issues.
Morbidity assumptions for hospital indemnity insurance are based on the 1974
hospital and surgical tables and the 1959 DBD tables, while morbidity
assumptions for Medicare supplement insurance are based on industry studies and
the Company's experience. Hospital indemnity mortality and withdrawal
assumptions are based on the Ultimate 65-70 tables and the Linton Lapse tables.
Medicare supplement mortality and withdrawal assumptions are based on Company
experience.
Losses and Claim Reserves -
Until September 30, 1991, the Company participated in the National Workers'
Compensation Reinsurance Pool, which is a national reinsurance fund for policies
allocated to insurers under various states' workers' compensation assigned risk
laws for companies that cannot otherwise obtain coverage. On December 30, 1994,
the Company satisfied its obligation with respect to all outstanding and future
claims associated with the Company's participation for a cash payment of $9,057.
The redundancy in the losses and claims reserves, as a result of its settlement,
of $4,870 reduced the 1994 provision for insurance benefits and losses incurred
by a corresponding amount.
Activity in the liability for unpaid claims and claim adjustment expenses is
summarized as follows:
1996 1995
- --------------------------------------------------------------------------------
Balance at January 1.................................. $ 79,514 $ 40,730
Less: Reinsurance recoverables....................... (22,467) (12,334)
- --------------------------------------------------------------------------------
Net balance at January 1.......................... 57,047 28,396
- --------------------------------------------------------------------------------
Incurred related to:
Current year........................................ 57,481 17,017
Prior years......................................... (4,802) 5,364
- --------------------------------------------------------------------------------
Total incurred.................................... 52,679 22,381
- --------------------------------------------------------------------------------
Paid related to:
Current year........................................ 28,279 13,743
Prior years......................................... 24,227 8,398
- --------------------------------------------------------------------------------
Total paid........................................ 52,506 22,141
- --------------------------------------------------------------------------------
Reserves acquired due to acquisition, net............. - 28,411
- --------------------------------------------------------------------------------
Net balance at December 31............................ 57,220 57,047
Plus: Reinsurance recoverables................ ....... 26,854 11,893
Reinsurance recoverables acquired due to
acquisition................................... - 10,574
- --------------------------------------------------------------------------------
Balance at December 31................................ $ 84,074 $ 79,514
================================================================================
Following is a reconciliation of total incurred claims to total insurance
benefits and losses incurred:
1996 1995
- --------------------------------------------------------------------------------
Total incurred claims................................. $ 52,679 $ 22,381
Cash surrender value and matured endowments........... 1,522 975
Death benefits........................................ 80 1,333
- --------------------------------------------------------------------------------
Total insurance benefits and losses incurred... $ 54,281 $ 24,689
================================================================================
NOTE 4. REINSURANCE
In accordance with general practice in the insurance industry, portions of the
life, property and casualty insurance written by the Company are reinsured;
however, the Company remains contingently liable with respect to reinsurance
ceded should any reinsurer be unable to meet its obligations. Approximately 79%
of the reinsurance receivables are due from three reinsurers as of December 31,
1996. Reinsurance receivables of $14,400 are with National Reinsurance
Corporation, "A++" (Superior), $3,600 are with First Colony Life Insurance
Company, "A++" (Superior), and $3,200 are with Pennsylvania Manufacturers
Association Insurance Company, "A+" (Superior). In the opinion of management,
the Company's reinsurers are financially stable and allowances for uncollectible
amounts are established against reinsurance receivables, if appropriate.
Premiums assumed of $25,800 include a state contract for premiums of $15,400
(17.9% of total earned premiums). The contract had a five-year term at inception
and was renewed for a second five-year term that will expire January 31, 1998.
17
ATLANTIC AMERICAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1195 AND 1994 (Dollars in Thousands, Except Per Share Data)
NOTE 4. REINSURANCE (CONTINUED)
The Company has no assurance that the contract will be renewed for a third term.
However, the Company's ten-year experience in servicing this business provides
an advantage that could affect renewal. The following table reconciles premiums
written to premiums earned and summarizes the components of insurance benefits
and losses incurred.
1996 1995 1994
- --------------------------------------------------------------------------------
Premiums written................... $ 70,295 $ 46,773 $ 45,230
Plus - premiums assumed............ 25,739 - -
Less - premiums ceded.............. (9,074) (3,037) (2,461)
- --------------------------------------------------------------------------------
Net premiums written............. 86,960 43,736 42,769
- --------------------------------------------------------------------------------
Change in unearned premiums........ (960) (230) (826)
Change in unearned premiums ceded.. 25 (133) (242)
- --------------------------------------------------------------------------------
Net change in unearned premiums. (935) (363) (1,068)
- --------------------------------------------------------------------------------
Net premiums earned............. $ 86,025 $ 43,373 $ 41,701
================================================================================
Provision for benefits and losses
incurred........................ $ 58,801 $ 25,999 $ 22,923
Reinsurance loss recoveries........ (4,520) (1,310) (968)
- --------------------------------------------------------------------------------
Insurance benefits and losses
incurred......................... $ 54,281 $ 24,689 $ 21,955
================================================================================
NOTE 5. INCOME TAXES
A reconciliation of the differences between income taxes on income before
discontinued operations and extraordinary item, computed at the federal
statutory income tax rate is as follows:
1996 1995 1994
- --------------------------------------------------------------------------------
Federal income tax provision at
statutory rate of 35%.................. $ 2,735 $ 1,079 $ 2,281
Tax exempt interest and dividends
received deductions.................... (413) (391) (431)
Reduction of deferred taxes.............. - - (1,000)
Change in asset valuation allowance -
Utilization of net operating loss...... (2,260) (731) (2,622)
Alternative minimum tax.................. 142 9 140
- --------------------------------------------------------------------------------
Provision (benefit) for income taxes
from continuing operations........... 204 (34) (1,632)
Provision for income taxes from
discontinued operations.............. - - 1,086
- --------------------------------------------------------------------------------
Total provision (benefit) for
income taxes..................... $ 204 $ (34) $ (546)
================================================================================
Deferred tax liabilities and assets at December 31, 1996 and 1995 are comprised
of the following:
Tax Effect
1996 1995
- --------------------------------------------------------------------------------
Deferred tax liabilities:
Deferred acquisition costs.............. $ (3,585) $ (3,416)
Net unrealized investment gains......... (6,199) (5,456)
- --------------------------------------------------------------------------------
Total deferred tax liabilities........ $ (9,784) $ (8,872)
================================================================================
Deferred tax assets:
Net operating loss carryforwards....... $ 17,856 $ 23,693
Insurance reserves..................... 7,702 7,466
Bad debts.............................. 404 441
- --------------------------------------------------------------------------------
Total deferred tax assets............ $ 25,962 $ 31,600
- --------------------------------------------------------------------------------
Asset valuation allowance................ (16,178) (22,728)
- --------------------------------------------------------------------------------
Net deferred tax assets.................. $ - $ -
================================================================================
The components of the provision (benefit) are:
1996 1995 1994
- --------------------------------------------------------------------------------
Continuing operations
Current - Federal............................... $ 204 $ (34) $ (632)
Deferred - Federal.............................. - - (1,000)
Discontinued operations
Current:
Federal...................................... - - 816
State........................................ - - 270
- --------------------------------------------------------------------------------
Total..................................... $ 204 $ (34) $ (546)
================================================================================
The Internal Revenue Service ("IRS") examined the 1983 and 1984 federal income
tax returns of the Company, and the Company entered into litigation with the IRS
regarding claims for additional taxes related primarily to intercompany
reinsurance transactions. In 1994, the Company reached a favorable settlement
with the IRS on all disputed matters, and there was an expiration of a time
limitation with respect to another potential tax liability. The settlement with
the IRS resulted in no tax payments by the Company and, accordingly, the
deferred tax reserves were reduced by $1,000. However, in 1995 the Company made
an interest payment of $202 related to the case.
At December 31, 1996, the Company has regular tax loss carryforwards of
approximately $51,018 expiring generally between 2000 and 2009.
The Company has determined, based on its earnings history, that an asset
valuation allowance of $16,178 should be established against its net deferred
tax assets at December 31, 1996. The Company's asset valuation allowance
decreased by $6,550 during 1996, due primarily to the utilization of net loss
carryforwards in the current year from profitable operations and the gain on
sale of the discontinued operations. 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
18
NOTE 5. INCOME TAXES (CONTINUED)
the deferred tax assets will be assessed periodically based on the Company's
current and anticipated results of operations. The Company has a formal
tax-sharing agreement with each of its subsidiaries. The Company files a
consolidated federal income tax return with its subsidiaries.
NOTE 6. CREDIT ARRANGEMENTS
1996 1995
- --------------------------------------------------------------------------------
Arrangements with affiliates
Notes payable with payment of $3,000 in 2001 and final
payment of $2,300 in 2002 (weighted average interest
rate of 9.5% at December 31, 1995)...................... $ - $ 5,300
- --------------------------------------------------------------------------------
Total affiliated arrangements......................... $ - $ 5,300
================================================================================
Arrangements with non-affiliates
8% Convertible subordinated notes due May 15, 1997 ($1,058
held by affiliates at December 31, 1996 and 1995)...... $ 5,617 $ 5,627
Note payable to bank due December 31, 2000 (interest rate
at prime, 8.25% and 8.50% at December 31, 1996 and
1995, respectively)..................................... 18,642 22,642
Note payable to bank at prime plus 1/2% (8.75%) due
December 31, 2000........................................ 11,352 -
Note payable at prime (8.5%) and accrued interest
due October 11, 1996.................................... - 11,352
- --------------------------------------------------------------------------------
Total non-affiliated arrangements..................... $35,611 $39,621
================================================================================
Total arrangements
Due within one year....................................... $ 9,617 $13,352
================================================================================
Long-term debt............................................ $25,994 $31,569
================================================================================
The 8% convertible subordinated notes are convertible into an aggregate of
513,000 shares of common stock at a price of $10.94 per share. The notes are
redeemable at the Company's option at declining premiums until May 15, 1997. The
Company anticipates that the funds to be used to retire the $5,600 in
outstanding principal will come from internal funds and bank financing.
The note payable to bank due December 31, 2000, is payable in four quarterly
payments of $1,000 in 1997 through 2000 with the balance due at maturity.
Interest is paid quarterly in arrears.
The note payable to the seller of American Southern (see Note 7) due October 11,
1996, was repaid with an additional advance by the same bank which holds the
note due December 31, 2000. The rate on the advance is prime plus 1/2%, but will
change to the prime rate of interest effective February 1, 1997, as the Company
repaid $4,000 on the original bank note before January 31, 1997. The Company is
required to maintain certain financial covenants including, among others, ratios
that relate funded debt to consolidated total capitalization, cash flow to debt
service, as well as comply with limitations on capital expenditures and debt
obligations. The Company was in compliance with all of the convenants associated
with the debt payable to bank at December 31, 1996.
Maturities
The Company's principal payments on credit arrangements outstanding at December
31, 1996 are as follows:
Year Amount
-----------------------
1997 $ 9,617
1998 4,000
1999 4,000
2000 17,994
-----------------------
$35,611
=======================
NOTE 7. ACQUISITION OF AMERICAN SOUTHERN INSURANCE COMPANY
On December 31, 1995, the Company acquired a 100% ownership interest in American
Southern for approximately $34,000 ($22,648 in cash and a note to seller of
$11,352). Accordingly, the assets and liabilities of American Southern are
included in the accompanying 1996 and 1995 balance sheets; however, the results
of operations were only included beginning January 1, 1996. American Southern
operates as a multi-line property and casualty insurance company primarily
engaged in the sale of state and municipality automobile insurance.
The acquisition was accounted for as a purchase transaction and, accordingly,
the purchase price was allocated to assets and liabilities based on their
estimated fair values as of the date of acquisition. The excess of the
consideration paid over the estimated fair values of net assets acquired in the
amount of $2,250 was recorded as goodwill and is amortized on a straight-line
basis over 15 years.
The following unaudited pro forma summary combines the consolidated results of
operations of the Company and American Southern as if the acquisition had taken
place at the beginning of the following periods after giving effect to certain
adjustments. These adjustments include adjustments to increase interest expense
on funds used by the Company to purchase American Southern, the amortization of
goodwill, a reduction in American Southern's income tax expense due to the
Company's intercompany tax-sharing agreement and the effect of the conversion of
19
ATLANTIC AMERICAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1195 AND 1994 (Dollars in Thousands, Except Per Share Data)
NOTE 7. ACQUISITION OF AMERICAN SOUTHERN INSURANCE COMPANY (CONTINUED)
$13,400 in debt into 134,000 shares of Series B Preferred Stock (see Note 11).
This pro forma information is not necessarily indicative of the results of
operations that would have occurred had the acquisition taken place at the
beginning of the periods.
1995 1994
- --------------------------------------------------------------------------------
Revenue...........................................$ 95,855 $ 90,040
Net (loss) income:
Continuing operations...........................$ 6,865 $ 12,889
Discontinued operations......................... (10,094) 1,121
Extraordinary gain.............................. - 100
- --------------------------------------------------------------------------------
Net (loss) income.............................$ (3,229) $ 14,110
================================================================================
Net (loss) income per common share data:
Continuing operations...........................$ .29 $ .62
Discontinued operations......................... (.54) .06
- --------------------------------------------------------------------------------
Net (loss) income.............................$ (.25) $ .68
================================================================================
In connection with the December 31, 1995 acquisition of American Southern, the
following assets and liabilities were acquired:
Cash, short-term investments and investments....$ 72,414
Receivables, net................................ 16,716
Deferred acquisition costs...................... 2,082
Goodwill........................................ 2,250
Other assets.................................... 901
- --------------------------------------------------------------------------------
Total assets.................................. 94,363
- --------------------------------------------------------------------------------
Unearned premiums............................... 16,170
Losses and claims............................... 38,985
Short-term debt................................. 11,352
Other policy liabilities........................ 1,600
Other payables.................................. 3,374
- --------------------------------------------------------------------------------
Total liabilities............................. 71,481
- --------------------------------------------------------------------------------
Net assets......................................$ 22,882
================================================================================
NOTE 8. DISCONTINUED OPERATIONS
Subsequent to year end 1995, the Company announced its intent to sell its
approximately 88% interest in Leath Furniture, LLC (f/k/a Leath Furniture,
Inc.), a retail furniture chain. Accordingly, the consolidated financial
statements report separately the net assets and operating results of these
discontinued operations. The Company completed the sale of its interest to Gulf
Capital Services, Ltd., a related party, on April 8, 1996. The gain from this
transaction is reflected as a direct credit to additional paid-in capital.
The following results of operations and financial position are attributable to
discontinued operations:
1996 1995 1994
- --------------------------------------------------------------------------------
Results of Operations:
Net sales.....................................$ 45,502 $ 113,265 $117,554
================================================================================
(Loss) income from discontinued operations....$ (7,885) $ (6,656) $ 1,121
(Provision) benefit for discontinued
operations..................................$ 3,438 $ (3,438) -
- --------------------------------------------------------------------------------
Net (loss) income from discontinued
operations..................................$ (4,447) $ (10,094) $ 1,121
================================================================================
Net (loss) income per share from
discontinued operations.....................$ (.23) $ (.54) $ .06
================================================================================
Financial Position:
Merchandise inventory......................... $ 26,089 $ 25,008
Property and equipment, net................... 21,655 21,459
Goodwill...................................... 9,304 10,483
Other assets.................................. 8,447 7,774
Total liabilities............................. (66,448) (56,705)
- --------------------------------------------------------------------------------
Net assets of discontinued operations........... $ (953) $ 8,019
================================================================================
NOTE 9. COMMITMENTS AND CONTINGENCIES
Litigation
The Company and its subsidiaries are party to litigation occurring in the normal
course of business. In the opinion of management, such litigation will not have
a material adverse effect on the Company's financial position or results of
operations.
Operating Lease Commitments
The Company's rental expense, including common area charges, for operating
leases was $1,222, $1,013 and $1,080 in 1996, 1995 and 1994, respectively. The
Company's future minimum lease obligations under non-cancelable operating leases
are as follows:
Year Ending
December 31,
---------------------------
1997.................$ 808
1998................. 789
1999................. 771
2000................. 590
2001................. 544
Thereafter........... 1,378
------
Total............... $4,880
======
NOTE 10. EMPLOYEE BENEFIT PLANS
Stock Options
In 1992, the shareholders approved the Company's adoption of the 1992 Incentive
Plan ("1992 Plan"). The 1992 Plan originally provided for a maximum of 400,000
stock options subject to issuance. The 1992 Plan was amended by the Board of
Directors in 1995, and subsequently ratified at the 1996 Annual Meeting of
Shareholders, to provide for an additional 400,000 stock options. Prior to the
1992 Plan, the shareholders had approved the Company's 1987 Stock Option Plan
("1987 Plan") which provided for a maximum of 500,000 options subject to
20
NOTE 10. EMPLOYEE BENEFIT PLANS (CONTINUED)
issuance. No options have been issued under the 1987 Plan since the adoption of
the 1992 Plan. Any unexercised options under the 1987 Plan expire by the terms
of the plan on February 24, 1997. The 1992 Plan provides that options of common
stock of the Company may be granted at an option price not less than 85% of the
fair market value of the shares on the date of grant. Options granted under
these plans expire five years from the date of grant. Vesting occurs at 50% upon
issuance of an option, and the remaining portion is vested at 25% in each of the
following two years. In 1996, the Company adopted a Director's Plan which
granted 30,000 options with immediate vesting six months after the grant date.
A summary of the status of the Company's stock option plans at December 31, 1996
and 1995, is as follows:
1996 1995
-------------------------------------------
Weighted Avg. Weighted Avg.
Shares Ex. Price Shares Ex. Price
--------------------------------------------
Options outstanding, beginning
of year..........................430,141 $ 1.74 745,442 $ 1.76
Options granted....................276,000 2.47 125,000 2.50
Options exercised..................(76,750) 1.11 (309,651) 1.93
Options canceled or expired........ (4,000) 1.44 (130,650) 2.08
-------- ---------
Options outstanding, end of year...625,391 2.14 430,141 1.74
======== =========
Options exercisable................441,141 1.98 333,766 1.59
The Company accounts for these plans in accordance with APB Opinion No. 25 and
the disclosure provisions of Statement of Financial Accounting Standards No. 123
("SFAS 123"), and accordingly no compensation cost has been recognized since the
option price approximated fair value. If compensation cost had been recognized
in accordance with the provisions of SFAS 123, the Company's net income (loss)
and earnings (loss) per share would have been as follows:
1996 1995
-------------------
Net income (loss):
As reported................. $ 3,164 $ (6,976)
Pro forma................... 2,899 (6,994)
Earnings (loss) per share:
As reported................. $ 0.09 $ (0.39)
Pro forma................... 0.07 (0.39)
The method of accounting set forth in SFAS 123 has only been applied to options
granted after January 1, 1995, and therefore the resulting pro forma
compensation cost may not be representative of that to be expected in future
years.
Of the 625,391 options outstanding at December 31, 1996, 224,391 have exercise
prices between $1.00 and $1.875 with a weighted average exercise price of $1.54,
a weighted average remaining contractual life of 2.0 years and all are currently
exercisable. 125,000 options have an exercise price of $2.50 with a remaining
contractual life of 3.8 years and 93,750 are currently exercisable. 246,000
options have exercise prices between $2.375 and $3.3125 with a weighted average
exercise price of $2.38, a weighted average remaining contractual life of 4.2
years and 123,000 are currently exercisable. The remaining 30,000 options have
an exercise price of $3.25 with a remaining contractual life of 4.8 years, and
none are currently exercisable.
The weighted average fair value of options granted estimated on the date of
grant using the Black-Scholes option pricing model is $1.11 and $1.25 for grants
in 1996 and 1995 respectively, based on expected dividend yields of zero;
expected lives of 5 years; risk free interest rates of 6.13% and 5.79%; and
expected volatility of 39.80% and 48.75%, for the years ended Decmeber 31, 1996
and 1995, respectively.
401(k) Plan
The Company initiated an employees' savings plan under Section 401(k) of the
Internal Revenue Code in May of 1995. The plan covers substantially all the
Company's employees, except employees of American Southern. The Company
previously had a profit sharing plan for its employees which was subsequently
amended and restated for 401(k) provisions. Under the plan, employees generally
may elect to contribute up to 16% of their compensation to the plan. The Company
makes a matching contribution to each employee in an amount equal to 50% of the
first 6% of such contributions. The Company's matching contribution to the plan
has been funded by reissuance of the Company's treasury stock and was
approximately $102 and $72 in 1996 and 1995, respectively.
Defined Benefit Pension Plans
The Company has two defined benefit pension plans covering the employees of
American Southern. The Company's general funding policy is to contribute
annually the maximum amount that can be deducted for income tax purposes.
Net periodic pension cost for American Southern's qualified and non-qualified
defined benefit plans for the year ended December 31, 1996 included the
following components:
21
ATLANTIC AMERICAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1195 AND 1994 (Dollars in Thousands, Except Per Share Data)
NOTE 10. EMPLOYEE BENEFIT PLANS (CONTINUED)
Service costs $ 103
Interest costs 204
Actual return on plan assets (185)
Net amortization and deferral 14
-------------------------------------------
$ 136
===========================================
The following assumptions were used to measure the projected benefit obligation
for the benefit plans at December 31, 1996 and 1995:
1996 1995
- --------------------------------------------------------------------------------
Discount rate to determine the
projected benefit obligation................ 7.75% 7.25%
Expected long-term rate of return on plan
assets used to determine net periodic
pension cost................................ 8.00% 8.00%
The following table sets forth the benefit plans' funded status at December 31,
1996 and 1995:
1996 1995
- --------------------------------------------------------------------------------
Actuarial present value of benefit obligation:
Vested benefit obligation....................... $ 1,862 $ 1,467
Non-vested benefit obligation................... 7 26
- --------------------------------------------------------------------------------
Accumulated benefit obligation.................... 1,869 1,493
Effect of projected future compensation levels.... 901 611
- --------------------------------------------------------------------------------
Projected benefit obligation...................... 2,770 2,104
Plan assets at fair value......................... 2,371 2,343
- --------------------------------------------------------------------------------
Projected benefit obligation in excess of
(less than) plan assets......................... 399 (239)
Unrecognized net loss............................. 272 (416)
Unrecognized net transition obligation and prior
service costs.................................... (9) 457
- --------------------------------------------------------------------------------
Accrued (prepaid) pension cost.................... $ 118 $ (198)
================================================================================
NOTE 11. PREFERRED STOCK
Annual dividends on the Series A Convertible Preferred Stock ("Series A
Preferred Stock") are $10.50 per share and are cumulative. The Series A
Preferred Stock is convertible into approximately 752,000 shares of the
Company's common stock at a conversion price of $3.99 per share and is
redeemable at the Company's option at declining premiums until March 15, 1997,
and thereafter at $100 per share, plus unpaid dividends.
As part of the American Southern acquisition and effective December 31, 1995,
the Company issued 134,000 shares of Series B Preferred Stock ("Series B
Preferred Stock") having a stated value of $100 per share. Annual dividends to
be paid are $9.00 per share and are cumulative. The Series B Preferred Stock is
not currently convertible, but may become convertible into shares of the
Company's common stock under certain circumstances. In such event, the Series B
Preferred Stock would be convertible into an aggregate of approximately
3,358,000 shares of the common stock at a conversion ratio of $3.99 per share.
The Series B Preferred Stock is redeemable at the option of the Company.
NOTE 12. STATUTORY REPORTING
The assets, liabilities and results of operations have been reported on the
basis of GAAP, which varies from statutory accounting practices ("SAP")
prescribed or permitted by insurance regulatory authorities. The principal
differences between SAP and GAAP are that under SAP: (i) certain assets that are
nonadmitted assets are eliminated from the balance sheet; (ii) acquisition costs
for policies are expensed as incurred, while they are deferred and amortized
over the estimated life of the policies under GAAP; (iii) no provision is made
for deferred income taxes; (iv) the timing of establishing certain reserves is
different than under GAAP; (v) certain notes are considered surplus rather than
debt; (vi) valuation allowances are established against investments; and (vii)
goodwill is limited to 10% of an insurer's surplus, subject to a ten year
amortization period.
The amount of statutory net income and surplus (shareholders' equity) for the
insurance subsidiaries for the years ended December 31 were as follows:
1996 1995 1994
- --------------------------------------------------------------------------------
Life and Health............................ $ 1,315 $ 3,021 $ 2,643
Property and Casualty...................... 7,567 1,466(1) 5,091(1)
- --------------------------------------------------------------------------------
Net income............................... $8,882 $ 4,487 $ 7,734
================================================================================
Life and Health............................ $25,792 $24,724 $19,858
Property and Casualty...................... 42,416 38,995 9,663(1)
- --------------------------------------------------------------------------------
Surplus.................................. $68,208 $63,719 $29,521
================================================================================
(1) Excludes American Southern which was acquired effective December 31, 1995.
Under the Insurance Code of the State of Georgia, dividend payments to the
Company by its insurance subsidiaries have certain limitations without the prior
approval of the Insurance Commissioner. In 1996, dividend payments by the
insurance companies in excess of $7,500 would have required prior approval. The
Company received dividends of $6,850 and $2,684 in 1996 and 1995, respectively,
from its insurance subsidiaries. Approval from the Insurance Commissioner was
required for $2,250 of the 1996 dividend paid by Atlantic American Life due to
the accumulated statutory deficit. No dividends were paid in 1994. As of
December 31, 1996 and 1995, the Company's subsidiaries must individually
maintain minimum statutory capital and surplus of $3,000. In 1997, dividend
payments by the insurance companies in excess of $10,100 would require prior
approval.
22
NOTE 12. STATUTORY REPORTING (CONTINUED)
For statutory purposes, in April of 1994, Georgia Casualty received permission
from the Georgia Insurance Department to (1) close out its accumulated deficit
in its unassigned funds account, (2) have the Company contribute its remaining
$11,200 in surplus notes to capital, and (3) in the future to pay up to the
maximum dividends allowed under the applicable regulations. This transaction in
effect was a statutory recapitalization of the casualty subsidiary.
NOTE 13. RELATED PARTY AND OTHER TRANSACTIONS
In the normal course of business, and in management's opinion, at terms
comparable to those available from unrelated parties, the Company has engaged in
transactions with its Chairman and his affiliates. These transactions include
leasing of office space, investing and financing. A brief description of each of
these is discussed below.
The Company leases approximately 54,637 square feet of office and covered garage
space from an affiliated company. In the years ended December 31, 1996, 1995 and
1994, the Company paid $957, $960, and $1,044, respectively, under the lease.
A majority of the financing of the Company has historically been through
affiliates of the Company or its Chairman, in the form of debt and the Series A
Preferred Stock. Effective December 31, 1995, the Company issued 134,000 shares
of Series B Preferred Stock in exchange for cancellation of approximately
$13,400 in outstanding debt to the Company's Chairman and certain of his
affiliates (see Note 11).
The Company has mortgage loans to finance properties owned by its discontinued
furniture subsidiary. At December 31, 1996 and 1995, the balance of mortgage
loans owed to various of the Company's insurance subsidiaries was $6,391 and
$6,400, respectively. For 1996, 1995 and 1994, interest on the mortgage loans
totaled $688, $730, and $650, respectively.
Certain members of management are on the Board of Directors of Bull Run
Corporation and Gray Communications Systems, Inc. At both December 31, 1996 and
1995, the Company owned 600,000 common shares of Bull Run Corporation and
236,040 common shares of Gray Communications Systems, Inc.
On April 8, 1996, the Company completed the sale of its 88% interest in Leath
Furniture, LLC (f/k/a Leath Furniture, Inc.) to Gulf Capital Services, Ltd., in
exchange for $5,300. Gulf Capital is controlled by certain affiliates of the
Company.
Delta Life Insurance Company purchases credit life insurance policies with face
amounts greater than $50 from Atlantic American Life Insurance. Atlantic
American Life receives premiums for these policies from Delta Life and pays
benefits directly to policyholders. At December 31, 1996 1995, the face amount
of these policies was $416 and $310, respectively and the reserve balance was $9
and $7, respectively.
NOTE 14. SEGMENT INFORMATION
The following summary sets forth the Company's business segments by revenue,
income (loss) before income tax provision (benefit), discontinued operations,
and extraordinary gain and assets. The Company, after discontinuation of its
furniture segment, operates in three segments: Property and Casualty Insurance,
Life Insurance, and Accident and Health Insurance.
Property Accident Adjustments
and and Discontinued and
Casualty Life Health Operations Other Eliminations Consolidated
- ------------------------------------------------------------------------------------------------------------------------------------
Revenue
1996..............................$ 67,468 $ 14,450 $ 16,972 $ - $ 144 $ 37 $ 99,071
1995.............................. 21,532(1) 12,435 18,508 - 2 (807) 51,670
1994.............................. 17,808(1) 11,225 20,745 - 2 (581) 49,199
Income (loss) before
income tax provision (benefit),
discontinued operations,
and extraordinary gain
1996.............................. 8,834 2,012 431 - (3,588) 126 7,815
1995.............................. 2,353(1) 2,033 1,025 - (2,419) 92 3,084
1994.............................. 5,880(1) 1,199 1,100 - (1,783) 121 6,517
Assets
1996.............................. 160,502 74,798 15,884 - 1,810 - 252,994
1995.............................. 150,505 71,532 19,603 - 3,854 - 245,494
1994.............................. 53,462(1) 61,703 22,339 8,019 3,217 - 148,740
<FN>
(1) Excludes American Southern which was acquired effective December 31, 1995.
</FN>
23
ATLANTIC AMERICAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1195 AND 1994 (Dollars in Thousands, Except Per Share Data)
NOTE 15. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following table sets forth a summary of the quarterly unaudited results of
operations for the two years ended December 31, 1996 and 1995:
1996 1995 (1)
- ------------------------------------------------------------------------------------------------------------------------------------
First Second Third Fourth First Second Third Fourth
Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
- ------------------------------------------------------------------------------------------------------------------------------------
Revenue.................................$ 24,773 $ 24,414 $ 25,681 $ 24,203 $ 11,911 $ 12,772 $ 13,588 $ 13,399
Income:
Income before income tax (provision)
benefit, net........................$ 1,977 $ 1,849 $ 2,169 $ 1,820 $ 228 $ 723 $ 1,207 $ 926
Income tax (provision) benefit, net... - (59) (101) (44) (9) - - 43
- ------------------------------------------------------------------------------------------------------------------------------------
Continuing operations................. 1,977 1,790 2,068 1,776 219 723 1,207 969
Discontinued operations............... - (4,447) - - 225 (3,205) (1,404) (5,710)(2)
- ------------------------------------------------------------------------------------------------------------------------------------
Net income (loss)...................$ 1,977 $ (2,657) $. 2,068 $ 1,776 $ 444 $ (2,482) $ (197) $ (4,741)
====================================================================================================================================
Per common share data:
Continuing operations.................$ .08 $ .08 $ .09 $ .07 $ .01 $ .03 $ .06 $ .05
Discontinued operations............... - (.24) - - .01 (.17) (.07) (.30)
- ------------------------------------------------------------------------------------------------------------------------------------
Net income (loss)....................$ .08 $ (.16) $ .09 $ .07 $ .02 $ (.14) $ (.01) $ (.25)
====================================================================================================================================
<FN>
(1)Excludes American Southern which was acquired effective December 31, 1995.
(2)Includes provision for discontinued operations of $3,438 (see Note 8).
</FN>
NOTE 16. DISCLOSURES ABOUT FAIR VALUE FINANCIAL INSTRUMENTS
The estimated fair value amounts have been determined by the Company using
available market information and appropriate valuation methodologies. However,
considerable judgment is necessary to interpret market data and to develop the
estimates of fair value. Accordingly, the estimates presented herein are not
necessarily indicative of the amounts which the Company could realize in a
current market exchange. The use of different market assumptions and/or
estimation methodologies may have a material effect on the estimated fair value
amounts.
1996 1995
- --------------------------------------------------------------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
- --------------------------------------------------------------------------------
Assets:
Cash and short-term investments....$45,499 $45,499 $15,069 $15,069
Bonds.............................. 91,310 91,310 113,313 113,313
Common and preferred stocks........ 37,762 37,762 42,116 42,116
Mortgage loans..................... 6,812 7,732 6,952 7,291
Insurance premiums receivable...... 13,485 13,485 11,878 11,878
Liabilities:
Debt - affiliated.................. 1,058 952 6,358 6,490
- non-affiliated.............. 34,553 34,097 38,563 37,877
Accounts payable and accrued
liabilities...................... 9,049 9,049 8,010 8,010
The fair value estimates as of December 31, 1996 and 1995 are based on pertinent
information available to management as of the respective dates. Although
management is not aware of any factors that would significantly affect the
estimated fair value amounts, current estimates of fair value may differ
significantly from amounts that might ultimately be realized.
The following describes the methods and assumptions used by the Company in
estimating fair values:
Cash, Short-term Investments, Insurance Premiums Receivable, Payable, Accounts
Payable, and Accrued Liabilities
The carrying amount approximates fair value.
Bonds, Common and Preferred Stocks
The carrying amount is determined in accordance with methods prescribed by
the National Association of Insurance Commissioners ("NAIC"), which do not
differ materially from nationally quoted market prices. The fair value of
certain municipal bonds is assumed to be equal to amortized cost where
market quotations exist.
Mortgage Loans
The fair values are estimated based on quoted market prices for those or
similar investments.
Debt Payable
The fair value is estimated based on the quoted market prices for the same
similar issues or on the current rates offered for debt having the same or
similar returns and remaining maturities.
NOTE 17. SUBSEQUENT EVENT
Effective January 1, 1997 the Company's two life and health insurance companies,
Bankers Fidelity Life Insurance Company and Atlantic American Life Insurance
Company, were consolidated in a merger, with Bankers Fidelity Life Insurance
Company being the surviving corporation.
24
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Management's discussion of financial condition and results of operations for the
three years ended December 31, 1996, 1995, and 1994 analyzes the results of
operations, consolidated financial condition, liquidity and capital resources of
Atlantic American Corporation (the "Company" or "Parent Company") and
consolidated subsidiaries American Southern Insurance Company ("American
Southern"), Atlantic American Life Insurance Company and Bankers Fidelity Life
Insurance Company (collectively the "Life and Health Division") and Georgia
Casualty & Surety Company ("Georgia Casualty" and together with American
Southern, the "Casualty Division"). Effective January 1, 1997, Atlantic American
Life Insurance Company was merged into Bankers Fidelity Life Insurance Company
(see Note 17 of the Notes to Consolidated Financial Statements). The following
discussion should be read in conjunction with the consolidated financial
statements and notes thereto.
OVERVIEW
Atlantic American Corporation's net income for 1996 was $3.2 million ($.09 per
share), compared to a net loss of $7.0 million ($.39 per share), in 1995, and
net income of $9.4 million ($.49 per share), in 1994. The increase in earnings
in 1996 was attributable to the insurance operations which had net income of
$7.6 million compared to $3.1 million in 1995 and $8.1 million in 1994,
primarily due to the inclusion of American Southern's 1996 earnings ($4.3
million). 1994 earnings included recognition of redundant reserves of $4.9
million following the settlement of a significant portion of the insurance
segment's workers' compensation insurance liabilities.
ACQUISITION
On December 31, 1995, the Company acquired American Southern for an aggregate of
$34.0 million. American Southern, a highly rated property and casualty insurance
company which specializes in state and municipality automobile insurance, was
acquired to complement the Company's position as a niche insurance holding
company. American Southern's balance sheet has been consolidated in the
Company's December 31, 1996 and 1995 balance sheets, while results of operations
and cash flows are not reflected until 1996 (see Note 7 of the Notes to
Consolidated Financial Statements).
DISCONTINUED OPERATIONS
In early 1996, the Company announced its intent to sell its furniture
operations. The furniture division, which consisted of Leath Furniture, Inc.
("Leath") and its subsidiaries, Modernage Furniture, Inc. and Jefferson Home
Furniture Company, Inc., suffered severe losses in light of an industry wide
downturn. Management anticipated continued losses in the future and, therefore,
decided to exit the retail furniture business and concentrate on its core
insurance businesses (see Note 8 of the Notes to Consolidated Financial
Statements). The Company completed the sale of its approximately 88% interest in
Leath on April 8, 1996, to Gulf Capital Services, Ltd., a related party (see
Note 13 of the Notes to Consolidated Financial Statements).
Leath's operating losses for 1995 totaled $6.7 million, compared to earnings of
$1.1 million in 1994. The Company recorded an additional charge to earnings of
$3.4 million in 1995 for estimated losses to be incurred prior to disposition,
bringing the total loss from discontinued operations in 1995 to $10.1 million.
The losses anticipated prior to disposition were inadequate, and the Company
incurred an additional loss from discontinued operations of $4.4 million in
1996. Previously separated intersegment revenues attributable to mortgage loans
from the insurance companies to Leath have been included in investment income of
the continuing operations of the insurance segment.
RESULTS OF CONTINUING OPERATIONS
Revenue
The Company markets insurance through various distribution channels. The
following table summarizes the insurance premiums during each of the three years
ended December 31, 1996, 1995, and 1994 by company and line of business.
American Southern is included only for 1996.
25
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Insurance Premium by Company by Line
(in thousands)
Year Ended December 31,
- --------------------------------------------------------------------------------
1996 1995 1994
- --------------------------------------------------------------------------------
Amount % of Amount % of Amount % of
Total Total Total
- --------------------------------------------------------------------------------
Life and Health Companies:
Ordinary Life $ 8,937 10.39% $ 7,037 16.22% $ 6,716 16.11%
Mass Market Life 1,303 1.51% 1,260 2.91% 1,395 3.35%
- -------------------------------------------------------------------------------
Total Life 10,240 11.90% 8,297 19.13% 8,111 19.46%
- -------------------------------------------------------------------------------
Medicare Supplement 11,560 13.44% 11,882 27.39% 13,347 32.01%
Convalescent Care/
Short-Term Care 955 1.11% 1,191 2.75% 1,385 3.32%
Medical Surgical 160 0.19% 211 0.49% 289 0.69%
Cancer 1,982 2.30% 2,221 5.12% 2,457 5.89%
Hospital Indemnity 282 0.33% 337 0.77% 414 0.99%
Accident Expense 677 0.79% 790 1.82% 892 2.14%
Disability 122 0.14% 142 0.33% 155 0.37%
- --------------------------------------------------------------------------------
Total Accident
and Health 15,738 18.30% 16,774 38.67% 18,939 45.41%
- --------------------------------------------------------------------------------
Total Life and
Health Companies 25,978 30.20% 25,071 57.80% 27,050 64.87%
- --------------------------------------------------------------------------------
Georgia Casualty:
Workers' Compensation 13,826 16.07% 14,954 34.48% 11,958 28.68%
Business Automobile 2,550 2.96% 1,436 3.31% 1,054 2.53%
General Liability 1,152 1.34% 1,025 2.36% 1,065 2.55%
Property 1,269 1.48% 887 2.05% 574 1.38%
- --------------------------------------------------------------------------------
Total Georgia
Casualty 18,797 21.85% 18,302 42.20% 14,651 35.13%
- --------------------------------------------------------------------------------
American Southern:
Automobile Physical
Damage 4,865 5.66%
Automobile Liability 30,889 35.91%
General Liability 1,947 2.26%
Property 3,461 4.02%
Surety 88 0.10%
- --------------------------------------------------------------------------------
Total American
Southern 41,250 47.95%
- --------------------------------------------------------------------------------
Total Consolidated $86,025 100.00% $43,373 100.00% $41,701 100.00%
================================================================================
Premium revenues increased 98% in 1996 to $86.0 million from $43.4 million in
1995 and $41.7 million in 1994. Inclusion of American Southern's earnings
accounted for 96.7% of the increased premium revenue in 1996, or $41.3 million.
Medicare supplement and workers' compensation have historically made up the
majority of insurance premium revenue, while the addition of American Southern's
automobile liability category made it the largest portion of 1996 premiums,
representing 35.9% of total premiums. The Life and Health Division's premiums
increased in 1996 by $907,000, after decreasing by $2.0 million in 1995 and $1.1
million in 1994. The main reason for the increase was a $1.9 million increase in
ordinary life premiums in 1996, combined with an accident and health premiums
decrease of only $1.0 million in 1996. Accident and health premiums improved
principally because Medicare supplement decreased only $322,000 in 1996 compared
to $1.5 million in 1995. This was caused mainly by the introduction of a new
Medicare supplement product with lower commissions and preferred underwriting
classification. For the first time since 1986, annualized premiums for the Life
and Health Division increased from the preceding year to $26.7 million for 1996,
compared to $26.3 million for 1995 and $28.7 million for 1994. Georgia
Casualty's premiums increased in 1996 to $18.8 million from $18.3 million in
1995 and $14.7 million in 1994. increases occurred in all lines for Georgia
Casualty in 1996 except workers' compensation, which declined to $13.8 million
from $15.0 million in 1995 and increased from $12.0 million in 1994. The decline
from 1995 was due to a decrease of $1.6 million in net earned premiums from
direct-assignment workers' compensation policies, over which Georgia Casualty
has no control.
Investment income increased to $11.5 million in 1996 while it remained constant
at $6.6 million for 1995 and 1994. The inclusion of American Southern for the
first time in 1996 accounted for $4.3 million of the total increase. Management
has continued to focus on increasing the Company's investments in short and
26
medium maturity bonds and government backed securities. The carrying value of
funds available for investment (which include cash, short-term investments,
bonds, and common and preferred stocks) at December 31, 1996, increased
approximately $4.8 million from 1995, primarily due to cash provided by
operations of $8.4 million.
Realized investment gains were $1.6 million for 1996, compared to $1.7 million
for 1995 and $870,000 for 1994. The changes in realized investment gains for
these periods were primarily the result of adjustments made in the investment
portfolio to increase the yield on invested assets.
Benefits and Expenses
Total insurance benefits and losses increased to $54.3 million in 1996 from
$24.7 million in 1995 and $22.0 million in 1994. An increase of $27.9 million in
1996 was attributed to the Casualty Division, and $1.7 million was attributed to
the Life and Health Division. The Casualty Division's increase is due to
inclusion of American Southern's benefits and losses, accounting for $28.6
million of the increase, offset by a decrease in Georgia Casualty's benefits and
losses of $698,000. The Life and Health Division's 1996 increase is mainly
caused by an increase in reserves and claims resulting from increased life
premiums, whereas 1995 reflected a decrease in reserves due to the elimination
of a block of life insurance business sold through funeral homes.
As a percentage of premium revenue, insurance benefits and losses increased to
63.1% in 1996 from 56.9% in 1995 and 52.6% in 1994. The Life and Health
Division's percentages increased to 54.0% in 1996 from 49.1% in 1995 and
decreased from 57.1% in 1994. Georgia Casualty's percentages decreased to 62.0%
in 1996 from 67.5% in 1995 and 77.2% in 1994. American Southern's percentage was
69.3% in its first year of operations as a subsidiary of the Company.
Commission and underwriting expenses increased to $27.0 million in 1996 from
$15.2 million in 1995 and $13.3 million in 1994. The inclusion of American
Southern accounted for $10.3 million of the $11.7 million increase in 1996. As a
percentage of premium revenue, commission and underwriting expenses decreased to
31.3% in 1996 from 35.2% in 1995 and 32.0% in 1994. The Company had a net
deferral of deferred acquisition costs of $280,000 in 1996 compared to a net
amortization of deferred acquisition costs in 1995 of $736,000 and $113,000 in
1994. The net deferral of acquisition costs in 1996 was due to increased life
sales, which have high first year commissions. The increase in the amortization
of deferred acquisition costs in 1995 was due mainly to the elimination of the
block of funeral home business. Underwriting expenses increased to $13.4 million
in 1996 from $7.8 million in 1995 and $7.0 million in 1994. The increase in 1996
underwriting expense was primarily attributable to $4.3 million from newly
acquired American Southern. Commissions have risen in the past three years from
$6.4 million in 1994 and $6.7 million in 1995 to $13.8 million in 1996 due to
the increased premiums in the Casualty Division, increased life insurance sales,
and the acquisition of American Southern ($6.0 million of the 1996 increase in
commissions).
Interest expense increased to $3.3 million in 1996 from $2.5 million in 1995 and
$2.0 million in 1994. The increase in 1996 was due to the financing of the
American Southern acquisition. Other expense increased by $534,000 in 1996 to
$6.7 million, and by $786,000 in 1995 to $6.2 million from $5.4 million in 1994.
The primary cause of the increase in other expense in 1996 was due to increased
expenses of the Parent Company, primarily due to legal expenses. The increase in
1995 other expense was due in part to an increase of $248,000 in the expenses
related to claims of the Company's self-insured employee group medical plan.
The Company's net tax provision of $204,000 in 1996 was for alternative minimum
taxes, while the tax benefit in 1995 consisted of $9,000 of alternative minimum
taxes offset by a benefit of $43,000 from overpayments of alternative taxes in
the prior year. The Company's tax benefit in 1994 was $1.6 million, consisting
primarily of the Company's reduction of its deferred tax balance in the
27
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
insurance division by $350,000 upon settlement of a tax case with the IRS
regarding tax years 1983 and 1984 and by $650,000 upon expiration of a time
limitation with respect to another potential tax liability.
LIQUIDITY AND CAPITAL RESOURCES
The major cash needs of the Company are for the payment of claims and expenses
as they come due and maintaining adequate statutory capital and surplus to
satisfy state regulatory requirements. The Company's primary sources 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, when earnings warrant such
payment. By statute, the state regulatory authorities establish minimum
liquidity standards primarily to protect policyholders.
The Company's insurance subsidiaries reported a combined statutory profit of
$8.9 million in 1996 compared to $4.5 million in 1995 and $7.7 million in 1994.
The 1996 statutory results were due to a profit of $5.6 million from American
Southern, $2.0 million from Georgia Casualty, and $1.3 million from the Life and
Health Division. The 1995 statutory results were due to a profit of $1.5 million
from Georgia Casualty and a profit of $3.0 million in the Life and Health
Division. The 1994 statutory results were comprised of a profit of $5.1 million
in the Casualty Division (which includes the $4.9 million redundancy realized on
the settlement of the workers' compensation liability previously discussed) and
a profit of $2.6 million in the Life and Health Division.
Statutory results differ from the generally accepted accounting principles
("GAAP") results of operations for the Casualty Division due to the deferral of
acquisition costs and interest expense on surplus notes being a direct charge to
surplus and not an income statement item. The Life and Health Division's
statutory results differ from GAAP primarily due to deferral of acquisition
costs and different reserve methods. Management attempts to keep the maximum
premium to surplus ratio at three to one for Georgia Casualty. As of December
31, 1996, Georgia Casualty had annualized premiums of $18.8 million and surplus
of $13.6 million. Georgia Casualty's statutory surplus is no longer a concern
since it has more than adequate statutory surplus due to a statutory
recapitalization completed in the second quarter of 1994. In conjunction with
the recapitalization, Georgia Casualty no longer pays the Company interest on
the surplus notes that were subsequently converted to equity. The Company
received dividends of $1.0 million in 1996 and $2.0 million in 1995 from Georgia
Casualty.
On April 1, 1996, the Company completed a merger transaction pursuant to which
the Company acquired the remaining publicly-held interest in Bankers Fidelity
that the Company did not own. As a result of the merger, the Company owns 100%
of the equity of Bankers Fidelity, and the public shareholders of Bankers
Fidelity received $6.25 in cash per share, for an aggregate payout of
approximately $1.3 million. The source of funds for the payment of the merger
consideration, together with an estimated $225,000 in related expenses, was
Bankers Fidelity's surplus account.
On November 26, 1996, the Company acquired the remaining publicly-held interest
in Georgia Casualty. The transaction was completed through the merger of a newly
formed wholly-owned subsidiary of the Company into Georgia Casualty, with
Georgia Casualty being the surviving corporation in the merger. As a result of
the transaction, the Company owns 100% of the equity of Georgia Casualty, and
the remaining public shareholders of Georgia Casualty received $9.00 in cash per
share, for an aggregate payout of approximately $20,000.
In connection with the acquisition of American Southern on December 31, 1995,
the Company entered into a Credit Agreement with Wachovia Bank of Georgia, N.A.
The Credit Agreement provides for aggregate borrowings of approximately $34.0
million, of which $22.6 million was immediately drawn on December 31, 1995, to
finance the cash portion of the purchase price. The remaining amount was
28
borrowed on October 11, 1996 to finance the $11.4 million balance of the
purchase price due on that date. At December 31, 1996, the Company had
outstanding borrowings under the Credit Agreement of $30.0 million, of which
approximately $4.0 million will become due and payable during 1997. The Company
intends to repay its obligations under the Credit Agreement using dividend
payments received from its subsidiaries and through receipts from its
tax-sharing agreement.
In connection with entering into the Credit Agreement, the Company converted,
effective December 31, 1995, approximately $13.4 million in outstanding debt to
affiliates into a new series of preferred stock, which accrues dividends at 9%
per year. The Company did not pay the cumulative dividends on this preferred
stock during 1996, nor does it intend to pay such dividends in 1997. At December
31, 1996, the Company had accrued but not paid dividends on its Series B
preferred stock totaling $1.2 million.
The Company provides certain administrative and other services to each of its
insurance subsidiaries. The amounts charged to and paid by the subsidiaries
remained constant at $5.6 million in 1996 and 1995, but increased approximately
$140,000 from 1994. In addition, the Company has a formal tax-sharing agreement
between the Company and its insurance subsidiaries, to which American Southern
was added in 1996. A net total of $3.4 million and $1.4 million were paid to the
Company under the tax-sharing agreement in 1996 and 1995, respectively. 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 $51 million at December 31, 1996.
Approximately 93% of the investment assets of the insurance subsidiaries,
including American Southern, 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. At December 31, 1996, Georgia Casualty had $8.5 million
of accumulated statutory earnings, Bankers Fidelity Life had $7.0 million of
accumulated statutory earnings, Atlantic American Life had $1.4 million of
accumulated statutory deficit, and American Southern had $18.4 million of
accumulated statutory earnings. The Company believes that the fees and charges
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. The Company anticipates that the funds
to be used to retire the $5.6 million in outstanding principal amount of the
Company's 8% convertible subordinated notes due May 15, 1997, will come from
internal funds and bank financing. 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.
Net cash provided by operating activities totaled $8.4 million in 1996, compared
to $3.2 million in 1995 and net cash used of $9.8 million in 1994. The Company
incurred a total of $1.6 million in 1996 and $1.1 million in 1995 for additions
to property and equipment, which mainly represent leasehold improvements and
additions to the new computer system. Cash and short-term investments
attributable to continuing operations increased from $4.0 million at December
31, 1994, to $15.1 million at December 31, 1995, due to the $3.2 million of cash
provided by operations, net investment proceeds of $5.1 million, and the
acquisition of American Southern's cash balance of $5.5 million at December 31,
1995. Cash and short-term investments increased to $45.5 million in 1996, an
increase of $30.4 million due primarily to the sale of American Southern's tax
free investments and reinvestment of the proceeds in short-term investments.
This shift of American Southern's investments from long-term to short-term also
accounts for the decrease in total investments (excluding short-term
investments) to $142.5 million at December 31, 1996. Total investments
(excluding short-term investments) increased to $168.1 million at December 31,
1995, from $96.4 million at December 31, 1994, due primarily to the purchase of
American Southern.
29
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
DEFERRED TAXES
At December 31, 1996, the Company had a net cumulative deferred tax asset of
zero. The net cumulative deferred tax asset consists of $26.0 million of
deferred tax assets, offset by $9.8 million of deferred tax liabilities, and a
$16.2 million valuation allowance. SFAS No. 109 requires that a valuation
allowance be recorded against tax assets which are not likely to be realized.
The Company's carryforwards expire at specific future dates and utilization of
certain carryforwards is limited to specific amounts each year. However, 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.
IMPACT OF INFLATION
Insurance premiums are established before the amount of losses and loss
adjustment expenses, or the extent to which inflation may affect such losses and
expenses, are known. Consequently, the insurance segment attempts, in
establishing its premiums, to anticipate the potential impact of inflation. For
competitive reasons, however, premiums cannot be increased to anticipate
inflation, in which event the Company's inflation costs would be absorbed.
Inflation also affects the rate of investment return on the Company's investment
portfolio with a corresponding effect on investment income.
30
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of
Atlantic American Corporation:
We have audited the accompanying consolidated balance sheets of Atlantic
American Corporation (a Georgia corporation) and subsidiaries as of December 31,
1996 and 1995, and the related consolidated statements of operations,
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits. We did not audit the 1995 consolidated
balance sheet of American Southern Insurance Company, which reflects total
assets of 38% of the consolidated 1995 assets. That balance sheet was audited by
other auditors whose report has been furnished to us and our opinion, insofar as
it relates to the 1995 amounts included for that entity, is based solely on the
report of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of other auditors provide a reasonable
basis for our opinion.
In our opinion, based on the audits and the report of other auditors, the
financial statements (pages 8 through 32) referred to above present fairly, in
all material respects, the financial position of Atlantic American Corporation
and subsidiaries as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
March 14, 1997
31
SUBSIDIARIES
Bankers Fidelity Life Insurance Company
J. MACK ROBINSON
Chairman
EUGENE CHOATE
President
HILTON H. HOWELL, JR.
Executive Vice President
JOHN W. HANCOCK
Senior Vice President and Treasurer
ANTHONY D. CHAPMAN
Vice President and Chief Marketing Officer, Agency Division
ROBERT E. OREAN
Vice President and Actuary
SHARON A. BUSCH
Assistant Vice President
PATRICIA F. MAYNE
Assistant Treasurer
JANIE L. RYAN
Assistant Secretary
GAIL T. ARNOLD
Assistant Secretary
Georgia Casualty & Surety Company
J. MACK ROBINSON
Chairman and President
HILTON H. HOWELL, JR.
Executive Vice President
LINDA S. COOK
Vice President, Secretary and Treasurer
GEORGE G. CLEMENTS
Vice President, Claims
SANDRA W. DOAR
Vice President, Underwriting
JACK R. BAKER
Assistant Vice President
JANIE L. RYAN
Assistant Secretary
American Southern Insurance Company
American Safety Insurance Company
ROY S. THOMPSON, JR.
Chairman
CALVIN L. WALL
Vice Chairman and Chief Executive Officer
SCOTT G. THOMPSON
President and Chief Financial Officer
THOMAS J. WHITTY
Senior Vice President, Claims
DAVID I. WEEKS
General Vice President
WANDA J. HULSEY
Vice President, Underwriting
BRIAN G. HAURYLAK
Vice President
JOHN R. HUOT
Vice President
GLENDA N. BATES
Treasurer
GAIL A. PARSONS
Secretary and Vice President
FRANK J. CICCONE
Vice President
ERNEST E. GRANT, JR.
Vice President
WILLIAM E. LYNCH
Vice President
BRIAN C. MOSS
Vice President
MICHAEL D. WINSTON
Vice President
TERESA P. GANN
Assistant Secretary
MARKET INFORMATION (UNAUDITED)
The common stock of the Company is traded in the over-the-counter market and is
quoted on the NASDAQ National Market under the symbol "AAME". As of December 31,
1996, the Company had approximately 6,536 stockholders, including beneficial
owners holding shares in nominee or "street" name. The following tables show for
the periods indicated the range of the reported high and low prices of the
common stock on the NASDAQ National Market and the closing price of the stock
and percent of change at December 31. No common stock dividends have been paid
since 1988.
1996 1995
- --------------------------------------------------------------------------------
High Low High Low
- --------------------------------------------------------------------------------
First quarter................ $3 1/4 $2 1/8 $2 3/4 $2
Second quarter............... 4 2 3/4 2 1/2 2
Third quarter................ 3 5/8 3 2 7/8 1 7/8
Fourth quarter............... 3 5/8 3 3 2 1/8
1996 1995 1994 1993 1992
- --------------------------------------------------------------------------------
December 31, stock price
close per share............ $3 1/16 $2 5/16 $2 1/4 $1 3/4 $1 5/8
Stock price percentage of
change from prior year..... +32.4% +2.8% +28.6% +8% +116%
32
Shareholder Information
Annual Meeting
Atlantic American's annual meeting of shareholders will be held on Tuesday, May
6, 1997, at 9:00 a.m. in the Peachtree Insurance Center, 4370 Peachtree Road,
N.E., Atlanta, Georgia. Holders of common stock of record at the close of
business on March 7, 1997, are entitled to vote at the meeting. A notice of
meeting, proxy statement and proxy were mailed to shareholders with this annual
report.
Independent Accountants
Arthur Andersen LLP
Atlanta, Georgia
Legal Counsel
Jones, Day, Reavis & Pogue
Atlanta, Georgia
Stock Exchange Listing
Symbol: AAME
Traded over-the-counter market
Quoted on the NASDAQ National
Market System
Transfer Agent and Registrar
Atlantic American Corporation
Attn: Janie L. Ryan, Corporate Secretary
P. O. Box 190720
Atlanta, Georgia 31119-0720
(800) 241-1439 or (404) 266-5532
Form 10-K and Other Information For investors and others seeking additional data
regarding Atlantic American Corporation or copies of the Corporation's annual
report to the Securities and Exchange Commission (Form 10-K), please contact
Janie L. Ryan Corporate Secretary, (800) 241-1439 or (404) 266-5532.
Atlantic
American
Corporation
4370 Peachtree Road, N.E.
Atlanta, Georgia 30319-3000
Telephone: 404-266-5500
Telecopier: 404-266-5596
404-266-5699