SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Fiscal Year Ended Commission File
December 31, 1993 No. 1-7361
AMERICAN FINANCIAL CORPORATION
Incorporated under IRS Employer I.D.
the Laws of Ohio No. 31-0624874
One East Fourth Street, Cincinnati, Ohio 45202
(513) 579-2121
Securities Registered Pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on which Registered
Nonvoting Cumulative Preferred Stock:
Series E, F and G Cincinnati and Pacific
9-1/2% Debentures due April 22, 1999 Cincinnati and Pacific
10% Debentures due October 20, 1999 Cincinnati and Pacific
10% Debentures Series A due October 20, 1999 Cincinnati and Pacific
12% Debentures due September 3, 1999 Cincinnati and Pacific
12% Debentures Series A due September 3, 1999 Cincinnati and Pacific
12% Debentures Series B due September 3, 1999 Cincinnati and Pacific
12-1/4% Debentures due September 15, 2003 Cincinnati and Pacific
13-1/2% Debentures due September 14, 2004 Cincinnati and Pacific
13-1/2% Debentures Series A due September 14, 2004Cincinnati and Pacific
Securities Registered Pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months, and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and need not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. [X]
As of March 1, 1994, there were 18,971,217 shares of Common Stock
outstanding, all of which were privately owned.
Documents Incorporated by Reference: None
AMERICAN FINANCIAL CORPORATION
INDEX TO ANNUAL REPORT
ON FORM 10-K
Part I Page
Item 1 - Business:
Introduction 1
Great American Insurance Group 2
American Annuity Group and Great American
Life Insurance Company 12
American Premier 16
Chiquita Brands International 20
Great American Communications 22
General Cable 24
Spelling Entertainment Group 24
Other Companies 24
Investment Portfolio 25
Seasonality 26
Competition 27
Regulation 27
Item 2 - Properties 29
Item 3 - Legal Proceedings 30
Item 4 - Submission of Matters to a Vote of Security Holders *
Part II
Item 5 - Market for Registrant's Common Equity and Related
Stockholder Matters 31
Item 6 - Selected Financial Data 31
Item 7 - Management's Discussion and Analysis of Financial
Condition and Results of Operations:
General 32
Liquidity and Capital Resources 32
Results of Operations 38
Item 8 - Financial Statements and Supplementary Data 43
Item 9 - Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure *
Part III
Item 10 - Directors and Executive Officers of the Registrant 44
Item 11 - Executive Compensation 45
Item 12 - Security Ownership of Certain Beneficial Owners
and Management 45
Item 13 - Certain Relationships and Related Transactions 45
Part IV
Item 14 - Exhibits, Financial Statement Schedules and
Reports on Form 8-K S-1
* The response to this Item is "none".
PART I
ITEM 1
Business
Introduction
American Financial Corporation ("AFC") was incorporated as an Ohio
Corporation in 1955. Its address is One East Fourth Street, Cincinnati,
Ohio, 45202; its phone number is (513) 579-2121. Carl H. Lindner and
certain members of the Lindner family own all of the outstanding common
stock of AFC.
AFC is a holding company operating through wholly-owned and
majority-owned subsidiaries and other companies in which it holds
significant minority ownership interests. These companies operate in a
variety of financial businesses, including property and casualty insurance,
annuities, and portfolio investing. In non-financial areas, these companies
have substantial operations in the food products industry, television and
radio station operations and industrial manufacturing.
The following table shows AFC's percentage ownership of voting
securities of the significant companies over the past several years:
Ownership at December 31,
1993 1992 1991 1990 1989
Great American Insurance Group 100% 100% 100% 100% 100%
Great American Life Insurance
Company (a) (a) 100% 100% 100%
American Annuity Group 80% 82% 39% 32% 32%
American Premier Underwriters 41% 51% 50%+ 42% 34%
(formerly Penn Central Corporation)
Chiquita Brands International 46% 46% 48% 54% 82%
Great American Communications 20% 40% 40% 65% 62%
General Cable (b) 45% 45% - - -
Spelling Entertainment Group (c) 48% 53% 53% 51%
(formerly The Charter Company)
(a) Sold to American Annuity Group in December 1992.
(b) 100%-owned by American Premier prior to spin-off in July 1992.
Ownership percentage excludes shares held by American Premier for
future distribution aggregating 12%.
(c) Sold on March 31, 1993.
(d) Generally, companies have been included in AFC's consolidated financial
statements when AFC's ownership of voting securities has exceeded 50%;
for investments below that level but above 20%, AFC has accounted for
the investments as investees. (See Note E to AFC's financial
statements.)
The following summarizes the more significant changes in
ownership percentages shown in the above table.
American Annuity Group American Annuity is the successor to STI
Group, Inc., formerly known as Sprague Technologies, Inc. ("STI"). Between
1990 and 1992, American Annuity disposed of substantially all of its
operations and on December 31, 1992, purchased Great American Life Insurance
Company ("GALIC") from Great American Insurance Company ("GAI"). In
connection with the acquisition, GAI purchased 5.1 million shares of
American Annuity's common stock pursuant to a cash tender offer and
17.1 million additional shares directly from American Annuity.
American Premier Underwriters Between 1989 and 1991, American
Premier repurchased and retired approximately 26 million shares of its
common stock, resulting in AFC's ownership being increased. During 1991,
AFC purchased an additional 1.6 million shares of American Premier common.
In August 1993, American Financial Enterprises, Inc., an 83%-owned
subsidiary of AFC, whose assets consist primarily of investments in American
Annuity Group, American Premier and General Cable, sold 4.5 million shares
of American Premier common stock in a secondary public offering.
Chiquita Brands International In 1988 and 1990, Great American
Communications sold 5.25 million and 2.2 million shares of Chiquita to
Chiquita and an additional 5 million shares in a secondary public offering
in 1990. In 1990 and 1991, Chiquita sold 5.3 million and 5 million shares
of its stock in public offerings. Also in 1990, Chiquita issued 1.7 million
shares upon conversion of debentures.
Great American Communications In 1991, GACC issued 21.6 million
shares in connection with debt restructurings. In December 1993, GACC
completed a joint prepackaged plan of reorganization. Under the terms of
the restructuring, GACC's outstanding stock was reduced in a 1-for-300
reverse split. In the restructuring, AFC's previous holdings of GACC stock
and debt were exchanged for 20% of the new common stock.
General Cable In July 1992, American Premier distributed to its
shareholders approximately 88% of the stock of General Cable Corporation,
which was formed to own certain of American Premier's manufacturing
businesses. American Premier retained the remaining shares of General Cable
for distribution under American Premier's 1978 Plan of Reorganization and to
reserve for potential option and convertible preference stock exercises.
AFC and its subsidiaries, excluding American Premier, received approximately
45% of General Cable in the spin-off.
Spelling Entertainment Group During 1992, The Charter Company
issued 5.8 million shares of its common stock in a merger with Spelling
Entertainment Inc., resulting in AFC's ownership of Charter being decreased
below 50%. Subsequent to the merger, Charter changed its name to Spelling
Entertainment Group Inc. ("Spelling") to reflect the nature of its business.
In March 1993, AFC sold its common stock investment in Spelling to
Blockbuster Entertainment Corporation.
General
The following discussion concerning AFC's businesses is
organized along the lines of the major company investments as shown in the
table above. Reference to the table and to AFC's consolidated financial
statements is recommended for a better understanding of this section and
Item 6 - "Selected Financial Data".
Great American Insurance Group
AFC's primary insurance business is multi-line property and
casualty insurance, headed by Great American Insurance Company ("GAI").
Hereafter, GAI and its property and casualty insurance subsidiaries will be
referred to collectively as "Great American". They employ approximately
3,300 persons.
According to the most recent ranking published in "Best's
Review", Great American was the 42nd largest among all property and casualty
insurance groups operating in the United States on the basis of total net
premiums written in 1992. GAI is rated "A" (Excellent) by A.M. Best
Company, Inc. This rating is given to companies that "have a strong ability
to meet their obligations to policyholders over a long period of time."
On December 31, 1990, GAI sold its non-standard automobile
insurance group ("NSA group") to American Premier. The NSA group accounted
for approximately one-fourth of Great American's earned premiums and had a
1990 statutory combined ratio of 95.5%. Data in this section includes the
NSA Group for the periods it was owned by GAI.
In February 1994, American Premier announced that it was
considering a proposal from AFC to purchase GAI's personal lines business
(primarily insurance of private passenger automobiles and residential
property) for $380 million. These operations had earned premiums of $342
million in 1993 and represented approximately 25% of the premiums earned by
all of Great American's insurance operations. GAI has estimated that the
accident year statutory combined ratio for the personal lines business was
about 99% in each of the last two years. The purchase would include the
transfer of a portfolio of principally investment grade securities with a
market value of approximately $450 million. GAI has estimated the net book
value, based on generally accepted accounting principles ("GAAP"), of the
business to be transferred would be approximately $200 million.
Unless otherwise indicated, all tables concerning insurance are
presented on the statutory basis prescribed by the National Association of
Insurance Commis-sioners and each insurer's domiciliary state. In general,
this method results in lower capital surplus and net earnings than result
from application of GAAP which are utilized in preparing the financial
statements found elsewhere herein. These differences include charging
policy acquisition costs to expense as incurred rather than spreading the
costs over the periods covered by the policies, requiring additional loss
reserves, establishing valuation reserves for investments held by life
insurance subsidiaries and charging to surplus certain assets, such as
furniture and fixtures and agents' balances over 90 days old.
The following table shows (in millions) the performance of Great
American in various categories. While financial data is reported on a
statutory basis for insurance regulatory purposes, it is reported in
accordance with GAAP for shareholder and other investment purposes.
1993 1992 1991 1990 1989
Statutory Basis
Premiums Earned $1,243 $1,220 $1,214 $1,635 $1,488
Admitted Assets 3,882 3,760 3,893 3,644 3,847
Unearned Premiums 562 517 514 521 559
Loss and Loss Adjustment
Expense Reserves 2,144 2,151 2,194 2,200 2,316
Capital and Surplus 887 851 840 688 665
GAAP Basis
Premiums Earned $1,241 $1,220 $1,197 $1,619 $1,474
Total Assets 5,340(*) 5,299(*) 4,518 4,438 4,517
Unearned Premiums 675(*) 595(*) 506 512 552
Loss and Loss Adjustment
Expense Reserves 2,724(*) 2,670(*) 2,129 2,137 2,246
Shareholder's Equity 1,434 1,439 1,261 1,270 1,148
<FN>
(*) Grossed up for reinsurance recoverables. See "Loss and Loss Adjustment
Expense Reserves".
Underwriting
The profitability of a property and casualty insurance company
depends on two main areas of operation: underwriting of insurance and
investment of assets. Underwriting profitability is measured by the
combined ratio which is a sum of the ratio of underwriting expenses to
premiums written and the ratio of losses and loss adjustment expenses to
premiums earned. When the combined ratio is under 100%, underwriting
results are generally considered profitable; when the ratio is over 100%,
underwriting results are generally considered unprofitable. The combined
ratio does not reflect investment income, other income or federal income
taxes. The following table shows certain underwriting data of Great
American (dollars in millions):
1993 1992 1991 1990 1989
Premiums Written $1,287 $1,224 $1,202 $1,712 $1,487
Premiums Earned 1,243 1,220 1,214 1,635 1,488
Loss Ratio 58.7% 59.3% 57.9% 62.4% 62.0%
Loss Adjustment Expense Ratio 12.1 11.9 12.1 11.1 11.5
Underwriting Expense Ratio 33.1 33.3 32.4 30.4 30.3
Combined Ratio 103.9 104.5 102.4 103.9 103.8
Combined Ratio (after
policyholders' dividends):
Great American 103.9 105.0 103.2 104.8 104.7
Industry (stock
companies)(*) 110.3 116.1 109.1 109.1 109.3
<FN>
(*) Source: Conning & Company, Property and Casualty Model and Forecast
Service, March 1994.
As shown in the table above, Great American's underwriting
results, although not profitable, have been significantly better than the
industry's. Great American's results reflect an emphasis on writing
commercial lines coverages of specialized niche products where company
personnel are experts in particular lines of business. During 1993,
approximately half of Great American's premiums were written in these
specialized niche product areas. Great American's combined ratio (after
policyholder dividends) for 1993 excluding its personal lines business
(which may be sold to American Premier) was 104.7%.
Certain natural disasters (hurricanes, tornados, forest fires,
etc.) and other incidents of major loss (explosions, civil disorder, fires,
etc.) are classified as catastrophes by industry associations. Losses from
these incidents are usually tracked separately from other business of
insurers because of their sizable effects on overall operations. Major
catastrophes in recent years included flooding in the Midwest in 1993;
Hurricanes Andrew and Iniki, Chicago flooding, and Los Angeles civil
disorder in 1992; Oakland fires in 1991; and Hurricane Hugo and the San
Francisco earthquake in 1989. Total net losses to AFC's insurance
operations from catastrophes were $26 million in 1993; $42 million in 1992;
$22 million in 1991; $13 million in 1990; and $32 million in 1989. These
amounts are included in the tables herein.
Insurance regulations in various states require prior approval
of premium rate increases on approximately 85% of Great American's personal
lines business. The commercial business generally does not require prior
approval, although a number of states impose some degree of review of
commercial rates.
Information for the major classes of business written by Great
American is as follows (dollars in millions). Losses incurred and loss
ratios exclude loss adjustment expenses. Combined ratios are stated before
policyholders' dividends.
1993 1992 1991 1990 1989
Auto Liability and Physical
Damage (A)
Premiums Written $424 $397 $364 $820 $687
Premiums Earned 403 389 362 785 670
Losses Incurred 249 259 187 504 423
Loss Ratio 61.8% 66.6% 51.5% 64.1% 63.1%
Combined Ratio 103.4% 107.7% 92.2% 102.5% 101.6%
Property and Multiple
Peril (B)
Premiums Written $349 $329 $368 $387 $353
Premiums Earned 337 347 378 374 351
Losses Incurred 189 228 235 203 208
Loss Ratio 56.0% 65.6% 62.3% 54.3% 59.3%
Combined Ratio 103.9% 117.3% 110.6% 102.4% 104.4%
Workers' Compensation and
Other Liability (C)
Premiums Written $340 $349 $349 $390 $352
Premiums Earned 338 349 357 369 374
Losses Incurred 216 173 235 267 252
Loss Ratio 64.2% 49.6% 65.7% 72.6% 67.4%
Combined Ratio 108.6% 92.7% 109.9% 114.8% 111.6%
All Other (D)
Premiums Written $174 $149 $121 $115 $ 95
Premiums Earned 165 135 117 107 93
Losses Incurred 75 64 46 47 40
Loss Ratio 45.6% 47.6% 38.8% 43.9% 43.0%
Combined Ratio 95.3% 93.1% 82.0% 87.8% 92.6%
(A) Includes related bodily injury, property damage and physical damage.
Unusually low Combined Ratio in 1991 generally reflects the effects
of a program to reduce exposure to certain commercial "bad risk"
groups while retaining previous pricing, followed by reductions in
pricing in later years.
(B) Includes extended coverage, tornado, windstorm, cyclone, hail on
growing crops, personal multiple peril, riot and civil commotion,
vandalism and malicious mischief, and sprinkler leakage and water
damage. Unusually high Combined Ratio in 1992 generally reflects
the effects of Hurricanes Andrew and Iniki.
(C) Includes other bodily injury, property damage and directors and
officers' liability. Unusually low Combined Ratio in 1992 generally
reflects reductions in redundant reserves on certain matured lines of
commercial liability coverages written in the late 1980s.
(D) Includes accident and health, credit, burglary, glass, earthquake,
aircraft physical damage and boiler and machinery. Unusually low
Combined Ratio in 1991 generally reflects especially good operations
for the Inland Marine and Surety operations.
The table above includes the results of GAI's personal lines business
which AFC has proposed to sell to American Premier. Information for this
business for 1993 follows (dollars in millions):
Automobile Homeowners Other Total
Premiums Written $250 $80 $21 $351
Premiums Earned 242 79 21 342
Losses Incurred 150 51 8 209
Loss Ratio 61.8% 64.7% 38.2% 61.1%
Combined Ratio 100.8% 111.3% 74.6% 101.6%
The following table shows the ratio of net premiums written to
policy-holders' surplus for Great American and the industry on a
consolidated basis. Increases in this ratio beyond the informal industry
standard of 3:1 may cause insurance commissioners to require companies to
reduce underwriting activities or obtain additional capitalization.
1993 1992 1991 1990 1989
Great American 1.45 1.44 1.43 2.49 2.24
Industry (stock companies) (*) 1.24 1.30 1.33 1.53 1.51
(*) Source: Conning & Company, Property and Casualty Model and Forecast
Service, March 1994.
Great American is represented by several thousand agents and
brokers who are paid on a commission basis; most also represent other
insurance companies. The geographical distribution of direct premiums
written in 1993 compared to 1989, before giving effect to reinsurance, was
as follows (dollars in millions):
1993 1989
Location Premiums % Premiums %
California $ 216 13.6% $ 188 11.4%
New York 135 8.5 79 4.8
Connecticut 114 7.2 112 6.8
New Jersey 90 5.7 74 4.5
North Carolina 81 5.1 95 5.8
Pennsylvania 78 4.9 40 2.4
Texas 75 4.7 49 3.0
Florida 68 4.3 103 6.3
Illinois 56 3.5 69 4.2
Ohio 56 3.5 63 3.8
Oklahoma 53 3.3 85 5.2
Massachusetts 52 3.3 37 2.3
Michigan 49 3.1 61 3.7
Maryland 36 2.3 * *
Washington 35 2.2 32 2.0
Kentucky 32 2.0 * *
Georgia * * 96 5.9
Virginia * * 46 2.8
Tennessee * * 37 2.3
All others, including
foreign, each less
than 2% 359 22.8 375 22.8
$1,585 100.0% $1,641 100.0%
(*) Less than 2%.
In 1988, a California ballot initiative, Proposition 103, was
passed by a very small margin of voters. The consumer-sponsored initiative
sought to (i) increase rate regulation, (ii) mandate rate rollbacks and
freezes for most lines of property and casualty insurance and (iii) make
changes in antitrust laws applicable to the insurance industry. The
California Supreme Court upheld the validity of most of the major portions
of the initiative but permitted insurers to seek exemptions from the rate
rollback if such a rollback would not enable them to make a fair and
reasonable profit. In 1991, the newly elected Insurance Commissioner of
California promulgated a new set of regulations on rate rollbacks and prior
approval of rates, replacing those adopted by the former Insurance
Commissioner under Proposition 103. Although these regulations are not
finalized, there have been some company specific hearings and there are
ongoing appellate proceedings challenging the regulations. Great American
has not received a notice of the Insurance Department's assessment of its
rollback liability or a hearing date, although it is exploring settlement
possibilities. Since, at present, there is no finalized regulatory
arrangement, Great American cannot determine the actual amount of the
liability, if any, for a refund pursuant to the rollback provision of
Proposition 103. By its terms, Proposition 103 does not affect workers'
compensation insurance.
Loss and Loss Adjustment Expense Reserves
The consolidated financial statements include the estimated
liability for unpaid losses and loss adjustment expenses ("LAE") of Great
American. This liability represents estimates of the ultimate net cost of
all unpaid losses and LAE and is determined by using case-basis evaluations
and statistical projections. These estimates are subject to the effects of
claim amounts and frequency and are continually reviewed and adjusted as
additional information becomes known. In accordance with industry
practices, such adjustments are reflected in current year operations.
Increases in claim payments are caused by a number of factors
that vary with the individual types of policies written. Future costs of
claims are projected based on historical trends adjusted for changes in
underwriting standards, policy provisions, the anticipated effect of
inflation and general economic trends. These anticipated trends are
monitored based on actual development and are reflected in estimates of
ultimate claim costs.
The liability for losses and LAE for certain long-term scheduled
payments under workers' compensation, auto liability and other liability
insurance has been discounted at rates ranging from 3.5% to 8%. As a
result, the total liability for losses and LAE at December 31, 1993, 1992
and 1991 has been reduced by $56 million, $51 million and $51 million,
respectively.
The limits on risks retained vary by type of policy and risks in
excess of certain retention limits are reinsured. Each insurance company
within the group establishes its own retention limits based on the
individual company's surplus.
Generally, reserves for reinsurance and involuntary pools and
associations are reflected in Great American's results at the amounts
reported by those entities.
The following table provides an analysis of changes in the
liability for losses and LAE, net of reinsurance (and grossed up), over the
past three years on a GAAP basis (in millions):
1993 1992 1991
Balance at beginning of period $2,123 $2,129 $2,137
Provision for losses and loss
adjustment expenses occurring
in the current year 879 882 877
Net decrease in provision for claims
occurring in prior years (3) (14) (29)
876 868 848
Payments for losses and loss
adjustment expenses occurring
during:
Current year (320) (313) (298)
Prior years (566) (561) (558)
(886) (874) (856)
Balance at end of period $2,113 $2,123 $2,129
Add back reinsurance recoverables (*) 611 547
Unpaid losses and LAE included in
Balance Sheet, gross of
reinsurance $2,724 $2,670
<FN>
(*) New accounting rules effective in 1993 require that
insurance liabilities be reported without deducting
reinsurance amounts. Balance Sheet amounts for 1992 have
been conformed to the 1993 presentation.
Major components of the net decrease in the provision for claims
occurring in prior years as reflected in the table above were as follows
(dollars in millions):
1993 1992 1991
Adjustment for reserve data reported
by reinsureds and involuntary
pools and associations $62 $32 $30
Adjustment for claim payments and
anticipated claim payments in amounts
less than previously anticipated (70) (47) (60)
Amortization of discount on certain
long-term reserves 5 1 1
Net decrease ($ 3) ($14) ($29)
Net decrease as a percent of
prior year's liability (0.1%) (0.7%) (1.4%)
The following table presents the development of the liability for
losses and LAE, net of reinsurance, on a GAAP basis for the last ten years.
The top line of the table shows the estimated liability (in millions) for
unpaid losses and LAE recorded at the balance sheet date for the indicated
years. The remainder of the table presents development as percentages of
the estimated liability. The development results from additional
information and experience in subsequent years. The middle line shows a
cumulative deficiency (redundancy) which represents the aggregate percentage
increase (decrease) in the liability initially estimated. The lower portion
of the table indicates the cumulative amounts paid as of successive periods
as a percentage of the original loss reserve liability.
1983 1984 1985 1986 1987 1988 1989 1990
LIABILITY FOR UNPAID LOSSES
AND LOSS ADJUSTMENT EXPENSES $1,094 $1,302 $1,605 $1,843 $2,024$2,209 $2,246 $2,137
LIABILITY RE-ESTIMATED AS OF:
ONE YEAR LATER 105.9% 108.2% 109.2% 102.7% 102.5% 99.8% 100.4% 98.6%
TWO YEARS LATER 111.6% 120.5% 116.7% 107.3% 103.6% 100.0% 99.3% 97.7%
THREE YEARS LATER 122.8% 126.2% 123.4% 109.7% 103.1% 99.7% 98.4% 97.4%
FOUR YEARS LATER 126.8% 132.8% 129.9% 110.8% 102.5% 98.7% 98.2%
FIVE YEARS LATER 131.6% 138.8% 132.3% 111.8% 102.6% 99.1%
SIX YEARS LATER 136.9% 142.2% 134.8% 112.7% 103.5%
SEVEN YEARS LATER 141.4% 145.5% 136.6% 115.3%
EIGHT YEARS LATER 145.6% 148.1% 140.7%
NINE YEARS LATER 148.4% 153.0%
TEN YEARS LATER 153.5%
CUMULATIVE DEFICIENCY
(REDUNDANCY) 53.5% 53.0% 40.7% 15.3% 3.5% (0.9%) (1.8%) (2.6%)
1991 1992 1993
LIABILITY FOR UNPAID LOSSES
AND LOSS ADJUSTMENT EXPENSES$2,129 $2,123 $2,113
LIABILITY RE-ESTIMATED AS OF:
ONE YEAR LATER 99.3% 99.9%
TWO YEARS LATER 98.7%
THREE YEARS LATER
FOUR YEARS LATER
FIVE YEARS LATER
SIX YEARS LATER
SEVEN YEARS LATER
EIGHT YEARS LATER
NINE YEARS LATER
TEN YEARS LATER
CUMULATIVE DEFICIENCY
(REDUNDANCY) (1.3%) (0.1%) N/A
CUMULATIVE PAID AS OF: 1983 1984 1985 1986 1987 1988 1989 1990
ONE YEAR LATER 41.1% 44.8% 45.5% 33.0% 29.2% 29.4% 32.3% 26.1%
TWO YEARS LATER 65.6% 68.3% 69.0% 52.5% 49.0% 48.6% 48.2% 43.2%
THREE YEARS LATER 82.1% 87.0% 84.6% 67.7% 63.5% 59.8% 59.2% 55.3%
FOUR YEARS LATER 94.9% 99.6% 96.6% 79.3% 72.2% 67.9% 67.6%
FIVE YEARS LATER 103.8% 109.3% 106.4% 86.4% 78.5% 74.0%
SIX YEARS LATER 110.9% 117.7% 112.4% 91.9% 83.6%
SEVEN YEARS LATER 118.0% 123.3% 117.3% 96.1%
EIGHT YEARS LATER 122.7% 127.9% 121.3%
NINE YEARS LATER 127.0% 131.8%
TEN YEARS LATER 131.1%
CUMULATIVE PAID AS OF: 1991 1992 1993
ONE YEAR LATER 26.4% 26.7%
TWO YEARS LATER 43.0%
THREE YEARS LATER
FOUR YEARS LATER
FIVE YEARS LATER
SIX YEARS LATER
SEVEN YEARS LATER
EIGHT YEARS LATER
NINE YEARS LATER
TEN YEARS LATER
This table does not present accident or policy year development
data. Further-more, in evaluating the re-estimated liability and cumulative
deficiency (redundancy), it should be noted that each percentage includes
the effects of changes in amounts for prior periods. For example, a
deficiency related to losses settled in 1993, but incurred in 1983, would be
included in the re-estimated liability and cumulative deficiency percentage
for each of the years 1983 through 1992. Conditions and trends that have
affected development of the liability in the past may not necessarily exist
in the future. Accordingly, it may not be appropriate to extrapolate future
redundancies or deficiencies based on this table.
Management believes that Great American's development is similar
to that of companies with similar mixes of business. The adverse
development in earlier years in the table above was partially caused by the
effect of higher than projected inflation on medical, hospitalization,
material, repair and replacement costs. Additionally, changes in the legal
environment have influenced the development patterns over the past ten
years. Two significant changes in the early to mid-1980s were the trend
towards an adverse litigious climate and the change from contributory to
comparative negligence.
The adverse litigious climate is evidenced by an increase in
lawsuits and damage awards, changes in judicial interpretation of legal
liability and of the scope of policy coverage, and a lengthening of time it
takes to settle cases. In addition, a trend has developed in the manner and
timeliness of first claim notices. Historically, the first notification of
claim came directly from the claimant; in recent years, however, there has
been a gradual increase in the number of notifications in the form of direct
legal action. Not only has this notification been less timely, it has been
more adversarial in nature.
The change in rules of negligence governing tort claims has also
influenced the loss development trend. During the early to mid-1980s, most
states changed from contributory to comparative negligence rules. When
contributory negligence rules control, a plaintiff seeking damages is barred
from recovering damages for a loss if it can be demonstrated that the
plaintiff's own negligence contributed in any way to the cause of the
injury.
When comparative negligence rules control, a plaintiff's
negligence is no longer a bar to recovery. Instead, the degree of
plaintiff's negligence is compared to the negligence of any other party.
Generally, if the plaintiff's negligence is 50% or less of the cause of the
injury, the plaintiff can recover damages, but in an amount reduced by the
portion of damage attributable to the plaintiff's own negligence.
Many claims which would have been successfully defended under
contributory negligence rules now result in an award of damages or a
settlement during suit under the comparative negligence rules.
The differences between the liability for losses and LAE
reported in the annual statements filed with the state insurance departments
in accordance with statutory accounting principles ("SAP") and that reported
in the accompanying consolidated financial statements in accordance with
GAAP at December 31, 1993, are as follows (in millions):
Liability reported on a SAP basis $2,144
Additional discounting of GAAP reserves in excess
of the statutory limitation for SAP reserves (11)
Estimated salvage and subrogation recoveries recorded on
a cash basis for SAP and on an accrual basis for GAAP (1)
Reinsurance reserve included in other liabilities (19)
Reinsurance recoverables 611
Liability reported on a GAAP basis $2,724
Environmental
Property and casualty insurers have experienced a significant
increase in the number of claims and legal actions related to hazardous
products and environmental pollution. Ensuing litigation extends to issues
of when the loss occurred and what policies provide coverage, what claims
are covered, extent of coverage, whether there is an insured obligation to
defend and other policy provisions. To date, court decisions have been
inconsistent on several coverage issues; these issues are not likely to be
resolved in the near future.
Great American's liability for loss and loss adjustment expenses
includes amounts for various liability coverages related to environmental
and hazardous product claims. Establishing reserves for those types of
claims is subject to uncertainties that are greater than those represented
by other types of claims. Factors contributing to those uncertainties
include a lack of historical data, long reporting delays, uncertainty as to
the number and identity of insureds with potential exposure and the extent
and timing of any such contractual liability. Management believes that its
reserves are adequate to cover the claims reported.
Although Great American establishes reserves for reported
environmental claims, it does not establish reserves for unreported claims
and related litigation expenses because such amounts cannot be reasonably
estimated. Although future results may be adversely affected, management
does not believe any such effect is likely to be material to AFC's financial
condition or results of operations.
Following is an analysis (in millions) of net reported
environmental pollution and hazardous products claims for those subsidiaries
capable of retrieving such data. These companies accounted for over 95% of
AFC's insurance claims and reserves at December 31, 1993.
1993 1992 1991
Reserves at beginning of year $51.2 $51.3 $40.0
Incurred losses and LAE 18.5 25.8 28.0
Paid losses and LAE (24.6) (25.9) (16.7)
Reserves at end of year $45.1 $51.2 $51.3
Figures above do not include asbestos abatement and underground
storage tank coverage written by certain AFC subsidiaries in recent years.
The table above includes exposures where Great American has been held liable
for coverage on general liability policies written years ago where
environmental coverage was not intended. In contrast, asbestos abatement
and underground storage tank coverage is written with the intent of covering
environmental-related losses. Net loss reserves on this coverage totaled
$53 million, $51 million and $42 million at December 31, 1993, 1992 and
1991, respectively.
Reinsurance
In accordance with industry practice, Great American reinsures a
portion of its business with other insurance companies and assumes
reinsurance from other insurers. Ceding reinsurance permits diversification
of risks and limits maximum loss arising from large or unusually hazardous
risks or a localized catastrophe. Although reinsurance does not legally
discharge the original insurer from primary liability, risks that are
reinsured are, in practice, treated as though they were transferred to the
reinsurers.
Reinsurance is provided on one of two bases: the facultative
basis or the treaty basis. Facultative reinsurance is generally provided on
a risk by risk basis. Individual risks are ceded and assumed based on an
offer and acceptance of risk by each party to the transaction. Treaty
reinsurance provides for risks to be automatically ceded and assumed
according to contract provisions.
In addition to various facultative reinsurance coverages, GAI
has current treaty reinsurance programs which generally provide for
retention maximums. For workers' compensation policies, the retention
maximum is $5 million per loss occurrence with reinsurance coverage for the
next $45 million. For all other casualty policies, the retention maximum is
$5 million per loss occurrence with reinsurance coverage for the next $15
million. For property coverages, the retention is $5 million per risk with
reinsurance coverage for the next $25 million; for catastrophe coverage on
property risks, the retention is $20 million with reinsurance covering 89%
of the next $110 million in losses. Contracts relating to reinsurance are
subject to periodic renegotiation and no assurance can be given concerning
the future terms of such reinsurance.
Great American's major reinsurers include American Re-Insurance
Company, Employers Reinsurance Corporation, General Reinsurance, Mitsui
Marine and Fire Insurance Company, Ltd. and Taisho Marine & Fire Insurance
Company. Great American regularly monitors the financial strength of its
reinsurers. This process periodically results in the transfer of risks to
more financially stable reinsurers. Management believes that its present
group of reinsurers is financially sound. However, market conditions over
the past few years have forced many reinsurers into financial difficulties
or liquidation proceedings. At December 31, 1993, Great American had an
allowance of approximately $56 million for doubtful collection of
reinsurance recoverables. The collectibility of a reinsurance balance is
based upon the financial condition of a reinsurer as well as individual
claim considerations. Included in "recoverables from reinsurers and prepaid
reinsurance premiums" were $80 million on paid losses and LAE and
$611 million on unpaid losses and LAE at December 31, 1993.
Premiums written for reinsurance ceded and assumed are presented
in the following table (in millions):
1993 1992 1991 1990 1989
Reinsurance ceded $422 $328 $284 $219 $214
Reinsurance assumed:
From companies under
management contract 63 17 8 8 6
Other, primarily non-voluntary
pools and associations 61 71 55 71 54
Investment Results
The following table, prepared on a GAAP basis, shows the
performance of Great American's investment portfolio, excluding equity
investments in affiliates (dollars in millions):
1993 1992 1991 1990 1989
Average Cash and Investments at Cost $2,822 $2,743 $2,538 $2,445 $2,300
Investment Income 205 222 217 236 245
Net Realized Gains (Losses) 77 (56) 14 29 9
Credit (Provision) for Impairment on
Investments (2) 32 (33) (69) (22)
Percentage Earned:
Excluding Realized Gains (Losses) (A) 7.3% 8.1% 8.5% 9.7% 10.7%
Including Realized Gains (Losses) (A)10.0% 6.1% 9.1% 10.9% 11.0%
Including Realized Gains (Losses)
and Credit (Provision) for
Impairment on Investments 10.0% 7.3% 7.8% 8.0% 10.1%
Increase (Decrease) in Unrealized
Gains on Marketable Securities
(Net of Realized Gains) $68 $61 ($110) ($41) $103
(A) Excludes provision for losses on investments.
American Annuity Group and Great American Life Insurance Company
Data in this section relating to the period following the sale
of GALIC to STI generally has been taken from the 1993 Form 10-K of American
Annuity.
General
American Annuity is a holding company whose only significant
asset is the capital stock of GALIC which it acquired from GAI on December
31, 1992. GALIC is engaged principally in the sale of tax-deferred
annuities to employees of qualified not-for-profit organizations. GALIC is
currently rated "A" (Excellent) by A.M. Best. American Annuity and GALIC
employ approximately 440 persons.
The following table (in millions) presents information
concerning GALIC on a GAAP basis, unless otherwise noted.
1993 1992 1991 1990 1989
Total Assets (A) $4,883 $4,436 $4,686 $3,847 $3,285
Annuity Policyholders' Funds
Accumulated 4,257 3,974 3,727 3,398 2,913
GAAP Stockholders' Equity 520 418 358 355 277
Statutory Basis:
Capital and Surplus 251 216 219 192 103
Asset Valuation Reserve (B)(C) 70 71 112 10 124
Interest Maintenance Reserve (C) 36 17 - - -
Interest on Annuity Policy-
holders' Funds 229 242 258 240 222
Annuity Receipts:
Flexible Premium:
First Year $ 49 $ 48 $ 67 $ 73 $ 72
Renewal 223 232 240 220 204
272 280 307 293 276
Single Premium 128 80 153 238 91
Total Annuity Receipts $400 $360 $460 $531 $367
<FN>
(A) Includes the following amounts for securities purchased in
December and paid for in the subsequent year: 1993 - $68 million;
1992 - $0.2 million; 1991 - $557 million; 1990 - $46 million and
1989 - $50 million.
(B) For years prior to 1992, amounts reflect the Mandatory Securities
Valuation Reserve.
(C) Allocation of surplus for statutory reporting purposes.
Annuity Products
Annuities are long-term retirement savings plans that benefit
from interest accruing on a tax-deferred basis. Certain employees of
educational institutions and other not-for-profit groups are eligible to
save for retirement through contributions made on a before-tax basis to
purchase annuities. Contributions are made at the discretion of the
participants, generally through payroll deductions. Federal income taxes
are not payable on contributions or earnings until amounts are withdrawn.
GALIC's principal products are Flexible Premium Deferred
Annuities ("FPDAs") and Single Premium Deferred Annuities ("SPDAs"). FPDAs
are characterized by premium payments that are flexible in amount and timing
as determined by the policyholder. SPDAs require a one-time lump sum
premium payment. Since January 1, 1988, approximately three-fourths of
GALIC's SPDA receipts have resulted from rollovers of tax-deferred funds
previously maintained by policyholders with other insurers. In 1993, FPDAs
accounted for approximately two-thirds of GALIC's total annuity receipts,
with SPDAs accounting for the remainder.
Annuity contracts can be either variable rate or fixed rate.
With a variable rate annuity, the rate at which interest is credited to the
contract is tied to an underlying securities portfolio or other performance
index. With a fixed rate annuity, an interest crediting rate is set by the
issuer, periodically reviewed by the issuer, and changed from time to time
as determined to be appropriate. GALIC has issued only fixed rate annuities
and its products offer minimum interest rate guarantees of 3% to 4%.
All of GALIC's annuity policies permit GALIC to change the
crediting rate at any time (subject to the minimum guaranteed interest
rate). In determining the frequency and extent of changes in the crediting
rate, GALIC takes into account the profitability of its annuity business and
the relative competitive position of its products. The average rate being
credited on funds held by GALIC was approximately 5.3%, 6.2% and 7.2% at
December 31, 1993, 1992 and 1991, respectively.
GALIC seeks to maintain a desired spread between the yield on
its investment portfolio and the rate it credits to its policies. GALIC
accomplishes this by (i) offering flexible crediting rates, (ii) designing
annuity products that encourage persistency and (iii) maintaining an
appropriate matching of assets and liabilities. Such incentives typically
take the form of "two-tier" annuities which, in general, reward persistency
by offering higher effective interest rates or lower "upfront" fees to
policyholders who annuitize than are offered on prematurely withdrawn funds.
Over the past five years, the annual persistency rate of GALIC's
annuity products has averaged 92%. Policyholders maintain access to their
funds without incurring penalties through a provision in the contract which
allows policy loans.
At December 31, 1993, GALIC had approximately 230,000 annuity
policies in force, nearly all of which were individual contracts. GALIC's
policyholders are employees of over 8,300 institutions nationwide. Of the
$4.3 billion in total statutory reserves held by GALIC as of December 31,
1993, approximately 95% were attributable to policies in the accumulation
phase. Annuity surrender payments represented 6.9%, 7.8% and 9.4%, of
average statutory reserves in 1993, 1992 and 1991, respectively.
Marketing and Distribution
GALIC markets its annuities principally to employees of
educational institutions in the kindergarten through high school segment.
GALIC's management believes that this market segment is attractive because
of the growth potential and persistency rate it has demonstrated. In 1993,
written premiums from this market segment represented 90% of GALIC's total
tax-qualified premiums, with sales of annuities to other not-for-profit
groups accounting for the balance.
GALIC markets its annuity products through approximately 55
managing general agents ("MGAs") who, in turn, direct more than 1,000
actively producing independent agents. GALIC has developed its business
since 1980 on the basis of its relationships with MGAs and independent
agents primarily through a consistent marketing approach and responsive
service.
GALIC is licensed to sell its products in all states (except
Kansas and New York) and the District of Columbia. The geographical
distribution of GALIC's annuity premiums written in 1993 compared to 1989
was as follows (dollars in millions):
1993 1989
Location Premiums % Premiums %
California $ 87 21.8% $ 98 26.7%
Florida 39 9.8 22 6.0
Michigan 34 8.5 39 10.6
Massachusetts 32 8.0 30 8.2
New Jersey 22 5.5 27 7.4
Ohio 22 5.5 * *
Connecticut 21 5.2 31 8.4
Illinois 13 3.3 10 2.7
North Carolina 13 3.3 * *
Texas 13 3.3 12 3.3
Washington 10 2.4 10 2.7
Rhode Island 9 2.2 12 3.3
All others, each less
than 2% 85 21.2 76 20.7
$400 100.0% $367 100.0%
(*) Less than 2%.
Sales of annuities are affected by many factors, including: (i)
competitive rates and products; (ii) the general level of interest rates;
(iii) the favorable tax treatment of annuities; (iv) commissions paid to
agents; (v) services offered; (vi) ratings from independent insurance rating
agencies; and (vii) general economic conditions.
Investment Results
GALIC's annuity products are structured to generate a stable
flow of investable funds. GALIC earns a spread by investing these funds at
an investment earnings rate in excess of the crediting rate payable to its
policyholders.
Investments comprise approximately 96% of GALIC's assets and are
the principal source of its income. The following table shows the
performance of GALIC's investment portfolio, excluding equity investments in
affiliates (dollars in millions):
1993 1992 1991 1990 1989
Average Cash and Investments at Cost $4,455 $4,078 $3,828 $3,278 $2,796
Investment Income 358 334 340 304 295
Net Realized Gains (Losses) 35 27 4 (32) (13)
Credit (Provision) for Impairment on
Investments - - 51 (23) (47)
Percentage Earned:
Excluding Realized Gains (Losses) (A) 8.0% 8.2% 8.9% 9.3% 10.5%
Including Realized Gains (Losses) (A) 8.8% 8.9% 9.0% 8.3% 10.1%
Including Realized Gains (Losses)
and Credit (Provision) for
Impairment on Investments 8.8% 8.9% 10.4% 7.6% 8.4%
Increase (Decrease) in Unrealized
Gains on Marketable Securities
(Net of Realized Gains) $58 $51 $22 ($27) $7
(A) Excludes provision for losses on investments.
American Premier
Data in this section generally has been taken from the 1993 Form
10-K of American Premier.
American Premier's principal operations are conducted by a group
of insurance subsidiaries which write non-standard automobile insurance and
workers' compensation coverage. In March 1994, American Premier changed its
name from The Penn Central Corporation to reflect its identity as a property
and casualty insurance company. American Premier employs approximately
5,400 persons.
Insurance
American Premier acquired Republic Indemnity Company of America
in March 1989. Republic writes workers' compensation and employers'
liability insurance coverage in California. In addition to highly
regulating the industry, the State of California establishes minimum premium
levels and is a major competitor in providing coverage. Republic
successfully competes by emphasizing service to customers and brokers.
Management believes that Republic Indemnity's record and reputation for
paying relatively high policyholder dividends have enhanced its competitive
position. Republic reported a statutory combined ratio (after
policyholders' dividends) of 88.1% for 1993.
American Premier purchased Great American's non-standard
automobile insurance companies on December 31, 1990, and Leader National
Insurance Company in May 1993. These companies (collectively the "NSA
Group") write auto insurance coverage for physical damage and personal
liability for (i) individuals perceived to be higher than normal risks due
to factors such as age, prior driving violations, occupation or type of
vehicle driven, or (ii) those who have been cancelled or rejected by another
insurance company. Because of the risk, such policies are issued at greater
than normal premiums. The NSA Group has been successful in profitably
underwriting this specialty insurance niche, reporting a statutory combined
ratio of 96.9% in 1993.
In February 1994, American Premier announced that it was
considering a proposal to purchase GAI's personal lines insurance business
for $380 million. Refer to Item 1 - "Great American Insurance Group" for a
discussion of these operations.
Unless otherwise indicated, data in this section is presented on
the statutory basis prescribed by the NAIC and each insurer's domiciliary
state.
The profitability of a property and casualty insurance company
depends on both the underwriting of insurance and investment of assets.
When the combined ratio is under 100%, underwriting results are generally
considered profitable; conversely, a ratio over 100% generally indicates
unprofitable underwriting results. The statutory ratios for the major
classes of business written by American Premier's Insurance Group are as
follows.
1993 1992 1991
Workers' Compensation
Loss and Loss Adjustment
Expense Ratio 59.0% 69.1% 66.5%
Underwriting Expense Ratio 15.4% 16.0% 16.2%
Policyholder Dividend Ratio 13.7% 11.6% 17.7%
Combined Ratio 88.1% 96.7% 100.4%
Industry Combined Ratio (*) 111.5% 121.5% 122.6%
Non-standard Automobile
Loss and Loss Adjustment
Expense Ratio 72.5% 69.7% 70.5%
Underwriting Expense Ratio 24.4% 26.1% 26.5%
Combined Ratio 96.9% 95.8% 97.0%
Industry Combined Ratio (*) 102.0% 102.0% 104.7%
<FN>
(*) Source: Best's Insurance Management Reports, Property/Casualty
Supplement (January 3, 1994); 1993 is an estimate. The
combined ratio for non-standard automobile represents
the private passenger automobile insurance industry.
While there is no reliable regularly published combined
ratio data for the non-standard automobile industry,
American Premier believes such a ratio would be lower
than the private passenger automobile industry average
shown above.
Republic's favorable loss and expense ratio record has been
attributable to strict underwriting standards, loss control services, a
disciplined claims philosophy and expense containment. These factors, as
well as Republic's favorable reputation with insureds for paying
policyholder dividends, have contributed to a high policy renewal rate.
From 1991 through 1993, the percentage of Republic's policies renewed
increased from 73% to 84% and the percentage of premiums represented by
policy renewals increased from 77% to 89% of the premiums eligible for
renewal.
The NSA Group has achieved underwriting profits over the past several
years as a result of refinement of various risk profiles, thereby dividing
the consumer market into more defined segments which can either be excluded
from coverage or surcharged adequately. Effective cost control measures,
both in the underwriting and claims handling areas, have further contributed
to the underwriting profitability of the NSA Group. In addition, the NSA
Group generally writes policies of short duration, allowing more frequent
evaluation of the rates on individual risks.
American Premier's Insurance Group writes business throughout
the United States. The geographical distribution of gross premiums written
in 1993 compared to 1992, was as follows (dollars in millions):
1993 1992
Premiums % Premiums %
Workers' Compensation
California $469 100.0% $402 100.0%
Non-standard Automobile
Florida $121 13.3% $132 19.8%
Georgia 111 12.2 91 13.7
Texas 96 10.6 37 5.6
California 54 5.9 52 7.9
Arizona 54 5.9 39 5.9
Tennessee 41 4.6 31 4.7
Alabama 34 3.8 27 4.1
Connecticut 33 3.7 23 3.5
Missouri 31 3.4 15 2.2
Indiana 29 3.2 23 3.4
All others 304 33.4 194 29.2
$908 100.0% $664 100.0%
The withdrawal from the Southern California market by several
large workers' compensation carriers due to continuing underwriting losses
contributed to Republic's 1993 premium growth.
The NSA Group attributes its premium growth in recent years
primarily to the overall growth in the non-standard market, entry into new
states, increased market penetration in its existing states and the 1993
purchase of Leader National. The non-standard market has experienced
significant growth in recent years as standard insurers have become more
restrictive in the types of risks they will write.
Loss and Loss Adjustment Expense Reserves
The following table provides an analysis of changes in American
Premier's liability for losses and LAE, net of reinsurance (and grossed up),
over the past three years on a GAAP basis (in millions):
1993 1992 1991
Balance at beginning of period $764 $664 $602
Provision for losses and loss adjustment
expenses occurring in the current year914 707 601
Net decrease in provision for claims
occurring in prior years(*) (58) (20) (22)
856 687 579
Reserves of subsidiaries purchased 54 - -
Payments for losses and loss adjustment
expenses occurring during:
Current year (413) (295) (258)
Prior years (345) (292) (259)
(758) (587) (517)
Balance at end of period $916 $764 $664
Add back reinsurance recoverables 45
Unpaid losses and LAE, gross of
reinsurance $961
<FN>
(*) Represents adjustments for claim payments and anticipated
claim payments in amounts less than previously
anticipated. The decrease in the provision for claims
occurring in prior years as a percent of prior year's
liability was 7.6% in 1993, 3.0% in 1992 and 3.5% in 1991.
The following table presents the development of American Premier's
liability for losses and LAE (in millions), net of reinsurance, on a GAAP
basis since 1989 (the year American Premier acquired its first insurance
subsidiary).
1989 1990 1991 1992 1993
Liability for Unpaid Losses
and Loss Adjustment Expenses$369 $602 $664 $764 $916
Liability Re-estimated as of:
One year later 97.0% 96.5% 97.0% 92.4%
Two years later 89.7% 93.0% 93.4%
Three years later 85.7% 91.0%
Four years later 85.5%
Cumulative Redundancy (14.5%)( 9.0%)( 6.6%)( 7.6%) N/A
Cumulative Paid as of:
One year later 19.5% 43.0% 44.1% 40.6%
Two years later 49.1% 64.4% 64.5%
Three years later 64.6% 75.2%
Four years later 71.4%
Other
In December 1992, American Premier announced its intention to
pursue the sale of all of its non-insurance operating businesses. The sale
of these businesses is intended to further implement American Premier's
strategy of concentrating on its property and casualty businesses.
In August 1993, American Premier sold its defense services
operations for approximately $94 million in cash, subject to post-closing
working capital adjustments. In May and November 1993, American Premier
sold securities of investees in public offerings for approximately $178
million in cash. At December 31, 1993, the aggregate book value of
businesses remaining to be sold was $36.1 million.
Chiquita Brands International
Data in this section generally has been taken from the 1993 Form
10-K of Chiquita.
Chiquita is a leading international marketer, processor and
producer of quality fresh and processed food products. Chiquita employs
approximately 45,000 persons in its continuing operations, 39,000 of whom
are employed in Central and South America. In recent years, the Company has
capitalized on its "Chiquita" and other premium brand names by building on
its worldwide leadership position in the marketing, distribution and
sourcing of bananas; by expanding its quality fresh fruit and vegetable
operations; and by further developing its business in value-added processed
foods.
Chiquita's fresh foods products include:
* Bananas, grapefruit, kiwi, mangos and pineapples sold under
the "Chiquita" brand name;
* Bananas, citrus and other quality fresh fruit including
apples, grapes, papaya, peaches, pears, plums, strawberries
and tomatoes sold under the "Consul," "Chico," "Amigo,"
"Frupac" and other brand names; and
* A wide variety of fresh vegetables including asparagus,
beans, broccoli, carrots, celery, lettuce, onions and
potatoes sold under the "Premium" and various other brand
names.
The core of Chiquita's fresh foods operations is the marketing,
distribution and sourcing of bananas. Approximately 60% of Chiquita's
consolidated net sales comes from the sale of bananas.
Chiquita's sales of bananas in 1993 in its principal markets, as
a percent of its total banana revenues, were: Europe, 45%; North America,
34%; and Other (principally the Far East and Middle East), 21%. Chiquita
has generally been able to obtain a premium price for its bananas due to its
reputation for quality and its innovative marketing techniques.
Chiquita has a greater number and geographic diversity of
sources of bananas than any of its competitors. During 1993, approximately
30% of all bananas sold by Chiquita were sourced from Panama. Bananas were
also sourced from Colombia, Costa Rica, Guatemala, Honduras, Mexico and the
Philippines. Approximately two-thirds of the bananas sourced by Chiquita
were produced by subsidiaries and the remainder were purchased under
arrangements from suppliers. Chiquita's low concentration of sources in
individual producing locations reduces its overall risk of business
interruption from localized weather conditions and crop disease as well as
from political changes.
Transportation expenses comprise approximately one-fourth of the
total costs incurred by Chiquita in its sale of tropical fruit. Chiquita
ships its tropical fruit in vessels it owns or charters. All of Chiquita's
tropical fruit shipments into the North American market are delivered using
pallets or containers that minimize damage to the product by eliminating the
need to handle individual boxes. As a result of a multi-year investment
program, now nearly completed, and the elimination of a substantial amount
of chartered ship capacity under its restructuring program, Chiquita now
owns or controls through long-term lease approximately 60% of its aggregate
shipping capacity. Most of the remaining capacity is operated under
contractual arrangements having terms of three years or less. Chiquita also
operates loading and unloading facilities which it owns or leases in Central
and South America and various ports of destination.
Chiquita's processed foods products include:
* Fruit and vegetable juices and other processed fruits and
vegetables, including banana puree, marketed under the
"Chiquita," "Friday" and other brands;
* Wet and dry salads sold under the "Club Chef" and "Chef
Classic" brands; and
* Margarine, shortening and other consumer packaged foods sold
under the "Numar," "Clover" and various regional brand names.
Chiquita's branded juices are available throughout most of the
United States and are manufactured by others to the Company's
specifications. Chiquita also sells banana puree, sliced bananas and other
specialty banana products to producers of baby food, fruit beverages and
baked goods and to others. Chiquita manufactures and markets shortening,
margarine and vegetable oil products primarily in Costa Rica and Honduras
from oil palm grown on the Company's plantations located in these countries.
Chiquita owns one of the largest private-label vegetable processors in the
U.S. which markets a full line of over twenty-five types of processed
vegetables to retail and food service customers throughout the U.S. and
other countries.
During the fourth quarter of 1992, after evaluation of
reorganization plans announced earlier that year and completion of other
preparatory actions, Chiquita adopted a plan of disposal for its Meat
Division operations. Pursuant to the plan, Chiquita sold a component of its
Meat Division in December 1992 and has made significant progress since,
including: (i) successful ongoing cost reduction efforts resulting in
breakeven operating results for 1993; (ii) progress toward obtaining
substantial cost reductions relating to retiree medical costs; (iii) grants
of subsidies and concessions from state and local governments; (iv) stand
alone working capital financing; and (v) sale of the Division's specialty
meat operations in February 1994 for approximately $50 million in cash.
Chiquita expects to complete the divestures of these operations by the end
of 1994.
Chiquita's Meat Division is engaged in the processing and
marketing primarily of fresh pork and processed meat products which are sold
principally in the U.S. and for export to Japan, Mexico, Canada and other
Central American and Pacific Rim countries.
The operations of the Meat Division involve supplying a
consistent quality product to a broad market, including large food chains.
Profit margins in the fresh meat business are low, and the availability of
adequate supplies and cost of livestock is significant to the profitability
of the Meat Division's fresh meat operations.
Great American Communications
Data in this section generally has been taken from the 1993 Form
10-K of GACC.
GACC is engaged in the ownership and operation of television and
radio stations; its operations are conducted through Great American
Television and Radio Company, Inc. ("GATR"). At December 31, 1993, GATR and
its subsidiaries employed approximately 1,300 full-time employees and 250
part-time employees.
Following its acquisition of Taft Broadcasting in 1987, GACC was
highly leveraged. In the ensuing years, GACC restructured substantial
amounts of its debt and sold assets to meet debt maturities. However, the
downturn in the per-formance and values of the TV and radio businesses
caused GACC's cash flow from operations to be insufficient to meet all of
its obligations as they came due.
In December 1993, GACC completed a comprehensive financial
restructuring which included a joint prepackaged plan of reorganization
under Chapter 11 of the Bankruptcy Code for GACC and two of its non-
operating subsidiaries. GACC also negotiated a new credit facility with its
bank lenders. Through the reorgani-zation, GACC reduced its total
outstanding debt and preferred stock from $910 million to $433 million and
lowered its annual fixed charges (interest and preferred stock dividends)
from more than $94 million to approximately $41 million.
Under GACC's restructuring, AFC exchanged its investment in GACC
stock and debt for approximately 2.3 million shares of new GACC common
stock. In addition, AFC contributed $7.5 million of new capital to GACC in
exchange for additional common stock and 14% notes. At December 31, 1993,
AFC owned 20% of GACC's voting common stock; AFC's Chairman owned an
additional 12% of the stock.
At December 31, 1993, GATR owned and/or operated six network-
affiliated television stations, twelve FM radio stations and five AM radio
stations. The following tables give the location, network affiliation and
market information for these stations.
Television Stations
Station Rank(A) Cable
Market and TV HomesStation and Network Adults Commercial Sub-
National Market in DMA First Year Affili- Market Aged Stations in scriber-
Rank (A) (000's) Owned ation Share 25-54 Market ship
VHF UHF
Tampa, FL 15 1,384 WTSP 1985 ABC 3 3 3 6 67%
Phoenix, AZ 20 1,097 KSAZ* 1985 CBS 1 Tie 2 Tie 4 4 53%
Cincinnati, OH 30 770 WKRC 1949 ABC 3 1 Tie 3 2 58%
Kansas City, MO 31 768 WDAF 1964 NBC 3 2 Tie 3 3 60%
Greensboro/
Highpoint, NC 48 538 WGHP 1991 ABC 2 Tie 2 Tie 3 4 58%
Birmingham, AL 51 522 WBRC 1957 ABC 1 1 2 3 62%
<FN>
* Formerly KTSP
(A) Rankings are based on TV households in Designated Market Area ("DMA"),
6:00 a.m. to 2:00 a.m., Sunday-Saturday.
The source of all television stations' market information is the Nielsen
Station Index, November 1993.
Radio Stations
Market and Metro Station and Rank In Stations
National Market Population First Year Format Targeted In
Rank (A) (000's) Owned (B) Market Audience Market
FM
Detroit, MI 6 3,643 WRIF 1987* AOR 13 Tie 2 30
Atlanta, GA 12 2,682 WKLS 1985 AOR 8 3 19
Phoenix, AZ 21 1,880 KSLX 1992 CR 16 7 26
Tampa, FL 22 1,869 WXTB 1989 AOR 2 1 24
Denver, CO 24 1,637 KBPI 1990** AOR 9 Tie 3 33
Cincinnati, OH 25 1,529 WKRQ 1947** CHR 3 3 24
Portland, OR 26 1,512 KKRZ 1984 CHR 3 2 25
Milwaukee, WI 28 1,342 WLZR 1987* AOR 4 2 26
Sacramento, CA 29 1,340 KSEG 1988 CR 6 5 25
Sacramento, CA 29 1,340 KRXQ *** AOR 8 Tie 2 25
Kansas City, MO 30 1,338 KYYS 1964 AOR 11 6 25
Columbus, OH 34 1,197 WLVQ 1954 AOR 5 1 23
AM
Phoenix, AZ 21 1,880 KOPA 1992 CR (C) (C) 26
Portland, OR 26 1,512 KEX 1984 AC 2 5 25
Milwaukee, WI 28 1,342 WLZR 1987* AOR (C) (C) 26
Kansas City, MO 30 1,338 WDAF 1964 C 1 9 25
Columbus, OH 34 1,197 WTVN 1954 AC 2 3 23
<FN>
* Under agreement for sale as of March 1, 1994.
** An agreement in principal has been reached for the sale of KBPI in Denver and
the acquisition of WWNK-FM in Cincinnati. The transaction is pending execution
of a definitive agreement and is subject to the approval of the FCC.
*** Operated under a local marketing arrangement as of December 31, 1993;
under agreement for purchase as of March 1, 1994.
(A) Rankings are based on Arbitron Radio Report services, generally for all persons aged
12 and over and for all hours of the week except overnight.
(B) AOR - Album Oriented Rock C - Country
AC - Adult Contemporary CHR - Contemporary Hit Radio
CR - Classic Rock
(C) Separate rating not meaningful. These stations are operated in conjunction with the
related FM station.
Substantially all of GATR's broadcast revenues come from the sale of
advertising time to local and national advertisers. Local advertisements
are sold by each station's sales personnel and national spots are sold by
independent national sales representatives.
GATR's television stations receive a significant portion of their
programming from their respective networks; the networks sell commercial
advertising time within such programming. The competitive position of the
stations is directly affected by viewer acceptance of network programs. In
recent years, the national audience shares obtained by the networks have
declined as a result of increased competition from cable television networks
and other competing program sources. As of 1991, these declines began to
diminish and it is expected that significant declines will not occur during
the next several years. The non-network programs broadcast by the stations
are either produced by the stations or acquired from other sources. Locally
originated programs include a wide range of show types such as
entertainment, news, sports, public affairs and religious programs.
Because most radio programming originates locally, network affiliation
has little effect upon the station's competitive position within the market.
GATR's AM radio stations offer their listeners a wide range of programs
including news, music, discussion, commentary and sports. GATR's FM radio
stations offer primarily album oriented rock, classic rock and contemporary
hit music programming, designed to appeal to a more youthful audience.
Federal Communication Commission ("FCC") rules permitting ownership of
two FM and/or two AM radio stations in certain markets (a "duopoly") have
created opportunities for GATR to increase advertising revenues and may
reduce operating expenses. GATR expects in the near future to purchase,
sell or exchange radio stations in order to take advantage of the
considerable operating opportunities presented from the duopoly rules.
General Cable
Data in this section generally has been taken from the 1993 Form 10-K
of General Cable.
General Cable Corporation was formed in 1992 to hold American Premier's
wire and cable and heavy equipment manufacturing businesses. In July 1992,
American Premier distributed approximately 88% of all the outstanding shares
of General Cable common stock to American Premier shareholders. In February
1994, General Cable sold the equipment manufacturing businesses in order to
concentrate on the wire and cable business. General Cable employs
approximately 4,600 persons.
General Cable is comprised of (i) the Electrical Group which
manufactures and sells electrical wire and cable for industrial, commercial
and residential uses; (ii) the Telecommunications & Electronics Group which
manufacturers and markets telecommunications and electronic wire and cable
for a variety of voice and data communications applications; and (iii) the
Consumer Products Group which manufactures and sells wire and cable products
to consumers and original equipment manufacturers.
Spelling Entertainment Group
AFC was engaged in the distribution and production of filmed
entertainment programming through its subsidiary Spelling Entertainment
Group. In March 1993, AFC sold its common stock investment in Spelling to
Blockbuster Entertainment Corporation in exchange for 7.6 million shares of
Blockbuster common stock and warrants to purchase an additional two million
Blockbuster shares at $25 per share.
Other Companies
Through subsidiaries, AFC is engaged in a variety of other
businesses, including The Golf Center at Kings Island (golf and tennis
facility) and Provident Travel Agency, both in the Greater Cincinnati area;
commercial real estate operations in Cincinnati (offices and hotel),
Louisiana (hotel), Florida (resort) and Massachusetts (resort) and
apartments in Alabama, Florida, Kentucky, Louisiana, Minnesota, Oklahoma and
Texas; and Financial World Magazine. These operations employ approximately
500 full-time employees.
In October 1993, AFC sold its insurance brokerage operation,
American Business Insurance, Inc., to Acordia, Inc., an Indianapolis-based
insurance broker. In the sale, AFC received approximately $50 million in
cash, 800,000 shares of Acordia common stock and warrants to purchase an
additional 1.5 million Acordia shares at $25 per share.
AFC was engaged in the theme park business through its wholly-
owned subsidiary, Kings Island, one of the top ten theme parks in the United
States based on attendance. In October 1992, AFC sold Kings Island to an
unaffiliated party for approximately $210 million in cash.
Investment Portfolio
General
A breakdown of AFC's December 31, 1993, investment portfolio by
business segment follows (excluding investment in equity securities of
investee corporations) (in millions).
Total
Carrying Value Market
P&C Annuity Other Total Value
Cash and Short-term Investments $ 85 $ 62 $21 $ 168 $ 168
Bonds and Redeemable
Preferred Stocks 1,948 4,186 4 6,138 6,309
Other Stocks, Options
and Warrants 300 26 13 339 339
Loans Receivable 185 421 25 631 631(*)
Real Estate and Other Investments 96 30 14 140 140(*)
$2,614 $4,725 $77 $7,416 $7,587
<FN>
(*) Carrying value used since market values are not readily available.
The following tables present the percentage distribution and
yields of AFC's investment portfolio (excluding investment in equity
securities of investee corporations) as reflected in its financial
statements.
1993 1992 1991 1990 1989
Cash and Short-term Investments 2.3% 9.3% 15.3% 13.0% 12.1%
Bonds and Redeemable Preferred Stocks:
U.S. Government and Agencies 2.8 5.7 5.3 8.5 6.4
State and Municipal .8 .6 .6 2.6 2.1
Public Utilities 10.2 8.5 10.7 13.2 8.6
Collateralized Mortgage Obligations 24.7 22.9 20.8 16.0 17.8
Corporate and Other 41.1 33.9 31.8 22.6 24.9
Redeemable Preferred Stocks 1.3 .8 .3 .5 1.1
80.9 72.4 69.5 63.4 60.9
Net Unrealized Gain on above items
Available for Sale 1.8 .8 - - -
82.7 73.2 69.5 63.4 60.9
Other Stocks, Options and Warrants 4.6 2.6 3.2 7.5 10.3
Loans Receivable 8.5 12.9 9.9 12.1 13.4
Real Estate and Other Investments 1.9 2.0 2.1 4.0 3.3
100.0% 100.0% 100.0% 100.0% 100.0%
Yield on Fixed Income Securities (A):
Excluding realized gains and losses 8.0% 8.8% 9.5% 10.3% 11.3%
Including realized gains and losses 8.7% 9.8% 9.0% 8.0% 10.7%
Yield on Stocks (A):
Excluding realized gains and losses 4.4% 6.4% 2.2% 6.7% 5.0%
Including realized gains and losses 16.9% 15.5% 29.7% 15.9% 9.7%
Yield on Investments (B):
Excluding realized gains and losses (A) 7.9% 8.7% 9.2% 10.1% 10.7%
Including realized gains and losses (A) 9.0% 10.0% 10.0% 8.6% 10.6%
Including realized gains and losses and
provisions for losses on investments 9.0% 10.0% 9.4% 6.6% 8.6%
<FN>
(A) Excludes provision for losses on investments.
(B) Excludes "Real Estate and Other Investments".
Unlike most insurance groups which have portfolios that are
invested heavily in tax-exempt bonds, AFC has historically invested
substantial amounts in taxable corporate bonds. In addition, AFC has
generally followed a practice of concentrating its investments in a
relatively limited number of issues rather than maintaining relatively
limited positions in a larger number of issues, although this practice has
moderated in recent years.
The NAIC assigns quality ratings to publicly traded as well as
privately placed securities. These ratings range from Class 1 (highest
quality) to Class 6 (lowest quality). The following table shows AFC's bonds
and redeemable preferred stocks, by NAIC designation (and comparable
Standard & Poor's Corporation rating) as of December 31, 1993 (dollars in
millions).
% of
NAIC Amortized Market Total
Rating Comparable S&P Rating Cost Value Market
1 AAA, AA, A $3,537 $3,704 59%
2 BBB 2,172 2,267 36
Total investment grade 5,709 5,971 95
3 BB 222 233 4
4 B 74 92 1
5 CCC, CC, C - 8 *
6 D - 5 *
Total non-investment grade 296 338 5
Total $6,005 $6,309 100%
<FN>
(*)less than 1%
Risks inherent in connection with fixed income securities
include loss upon default and market price volatility. Factors which can
affect the market price of securities include: credit worthiness, changes in
interest rates and economic growth, fewer market makers and investors,
defaults by major issuers of securities and public concern about
concentrations in certain types of securities by institutions.
AFC's primary investment objective for bonds and redeemable
preferred stocks is interest and dividend income rather than realization of
capital gains. AFC invests in bonds and redeemable preferred stocks that
have primarily short-term and intermediate-term maturities. This practice
allows additional flexibility in reacting to fluctuations of interest rates.
AFC's practice permits concentration of attention on a
relatively limited number of companies in relatively few industries,
principally insurance, utilities, financial services, food products, energy
and communications. Some of the investments, because of their size, may not
be as readily marketable as the typical small investment position.
Alternatively, a large equity position may be attractive to persons seeking
to control or influence the policies of a company and AFC's concentration in
a relatively small number of companies and industries may permit it to
identify investments with above average potential to increase in value.
This concentration of size is less prominent in fixed income security
investments than in equity investments.
Seasonality
The operations of certain of AFC's business segments are
seasonal in nature. While insurance premiums are recognized on a relatively
level basis, claim losses related to adverse weather (snow, hail, flooding,
hurricanes, tornados, etc.) may be seasonal. The banana portion of the food
products segment is affected by variations in consumer demand based on the
availability of other fruits. The resulting seasonal pricing generally
produces the strongest period during the first six months of the year.
Television broadcast revenues tend to be higher in the second and fourth
quarters.
Competition
Most areas of AFC's operations are highly competitive, with
competition coming from a variety of sources, many of which are larger and
have financial resources greater than AFC or its subsidiaries.
The Insurance Groups and GALIC compete with other insurers
primarily in service and price. Since they sell policies through
independent agents, they must also compete for agents. Such competition is
based on service to policyholders and agents, product design, commissions
and profit sharing. No single insurer dominates the marketplace.
Competitors include individual insurers and insurance groups of varying
sizes, some of which are mutual companies possessing competitive advantages
in that all their profits inure to their policyholders, and many of which
possess financial resources in excess of those available to the Insurance
Groups and GALIC. In a broader sense, GALIC competes for retirement savings
with a variety of financial institutions offering a full range of financial
services.
Chiquita's principal competitors consist of a limited number of
large international companies. In order to compete successfully, Chiquita
must be able to source bananas of uniformly high quality and distribute them
in worldwide markets on a timely basis. Chiquita believes that it sells
more bananas than any of its competitors, accounting for approximately one-
fourth of all bananas imported into its principal markets throughout the
world.
GACC's television and radio stations compete for revenues with
other stations in their respective signal coverage areas as well as with all
other advertising media. The broadcast stations also compete for audience
with other forms of home entertainment, such as cable television, pay
television systems of various types and home video and audio recordings.
General Cable's electrical group competes against numerous
building wire suppliers. General Cable believes it is one of the three
leaders in this market, each of which has at least a 20% market share. Its
telecommunications and electronics group is in a highly competitive market
which is dominated by AT&T Technologies, Inc.
Regulation
AFC's insurance subsidiaries are regulated under the insurance
and insurance holding company laws of their states of domicile and other
states in which they operate. These laws, in general, require approval of
the particular insurance regulators prior to certain actions by the
insurance companies, such as the payment of dividends in excess of statutory
limitations and certain transactions and continuing service arrangements
with affiliates. Regulation and supervision of each insurance subsidiary is
administered by a state insurance commissioner who has broad statutory
powers with respect to the granting and revoking of licenses, approvals of
premium rates, forms of insurance contracts and types and amounts of
business which may be conducted in light of the policyholders' surplus of
the particular company. AFC's largest insurance subsidiaries, GAI and
GALIC, are Ohio domiciled insurers. State insurance departments conduct
periodic financial examinations of insurance companies, with GAI's and
GALIC's most recent such examinations being as of December 31, 1990.
Insurance departments also perform market conduct examinations to determine
compliance with rate and form filings and to monitor treatment of
policyholders and claimants. State insurance laws also regulate the
character of each insurance company's investments, reinsurance and security
deposits. The statutes of most states provide for the filing of premium
rate schedules and other information with the insurance commissioner, either
directly or through rating organizations, and the commissioner generally has
powers to disapprove such filings or make changes to the rates if they are
found to be excessive, inadequate or unfairly discriminatory. The
determination of rates is based on various factors, including loss and loss
adjustment expense experience.
The National Association of Insurance Commissioners ("NAIC") is
an organization which is comprised of the chief insurance regulator for each
of the 50 states and the District of Columbia. In 1990, the NAIC began an
accreditation program to ensure that states have adequate procedures in
place for effective insurance regulation, especially with respect to
financial solvency. The accreditation program requires that a state meet
specific minimum standards in over 15 regulatory areas to be considered for
accreditation. The accreditation program is an ongoing process and once
accredited, a state must enact any new or modified standards approved by the
NAIC within two years following adoption. As of December 1993, 32 states
were accredited, including Ohio.
In December 1993, the NAIC adopted the Risk Based Capital For
Insurers Model Act which applies to both life and property and casualty
companies. The risk-based capital formulas determine the amount of capital
that an insurance company needs to ensure that it has an acceptably low
expectation of becoming financially impaired. The act provides for
increasing levels of regulatory intervention as the ratio of an insurer's
total adjusted capital and surplus decreases relative to its risk-based
capital, culminating with mandatory control of the operations of the insurer
by the domiciliary insurance department at the so-called "mandatory control
level". The risk-based capital formulas became effective in 1993 for life
companies and will become effective with the filing of the 1994 Annual
Statement for property and casualty companies. Based on the 1993 results of
AFC's insurance companies, all such companies are adequately capitalized.
The NAIC's state accreditation criteria require that a state
adopt the NAIC model law governing extraordinary dividends or a law
substantially similar to the model. The current NAIC model for
extraordinary dividends requires prior regulatory approval of any dividend
that exceeds the "lesser of" 10% of statutory surplus or 100% of the prior
year's net income (net gain from operations for life insurance companies),
subject in either case to the existence of sufficient earned statutory
surplus from which such dividends may be paid. The NAIC has adopted a
variety of alternative provisions which may be considered "substantially
similar" to its model, one of which includes the "greater of" rather than
"lesser of" standard with other restrictions. In October 1993, Ohio revised
its dividend law to adopt one of the alternatives. The maximum amount of
dividends which may be paid without (i) prior approval or (ii) expiration of
a 30 day waiting period without disapproval is the greater of statutory net
income or 10% of policyholders' surplus as of the preceding December 31, but
only to the extent of earned surplus as of the preceding December 31. The
Ohio Insurance Department has broad discretion to limit the payment of
dividends by insurance companies domiciled in Ohio.
The NAIC has been considering the adoption of a model investment
law for several years. The current projection for adoption of a model law
is the end of 1994, at the earliest. It is not yet determined whether the
model law would be added to the NAIC accreditation standards so that
consideration of the model for adoption in states would be required for the
achievement or continuation of any state's accreditation. It is not
possible to predict the impact of these activities on AFC's insurance
subsidiaries.
There can be no assurance that existing insurance-related laws
and regulations will not become more restrictive in the future and thereby
have a material adverse effect on the operations of AFC's insurance
subsidiaries and on their ability to pay dividends.
Chiquita is subject to a variety of governmental regulations in
certain countries where it sources and markets its products, including
import quotas and tariffs, currency exchange controls and taxes. In July
1993, the European Union ("EU") implemented a new quota effectively
restricting the volume of Latin American bananas imported into the EU to
approximately 80% of prior levels. Challenges to the quota and many matters
regarding implementation and administration of the quota remain to be
resolved. In May 1993, the principles underlying the new regulation that
discriminate against Latin American banana exporting countries were ruled
illegal under the General Agreement on Tariffs and Trade ("GATT") by a GATT
dispute settlement panel. In January 1994, a GATT dispute settlement panel
ruled on a second lawsuit against the current EU regulation in favor of the
Latin American countries. GATT rulings in favor of the Latin American
countries could result in an increase in the total volume of Latin American
bananas, including banana volume of Chiquita, which could be imported under
the quota. However, there can be no assurance that the EU will comply, or
the manner in which it would comply, with such rulings.
GACC's television and radio broadcasting operations are subject
to the jurisdiction of the FCC. FCC regulations govern issuance, term,
renewal, transfer and cross-ownership of licenses which are necessary for
operation of television and radio stations.
ITEM 2
Properties
AFC and subsidiaries own several buildings located in downtown
Cincinnati, Ohio. These buildings are situated on one block of land owned
by AFC and contain approximately 570,000 square feet of commercial and
office space, one-half of which is occupied by AFC and affiliates.
GAI and its subsidiaries own office and storage facilities in
Cincinnati, Dallas, Tulsa and Oklahoma City. In addition, Great American
leases approximately 204,000 square feet of space for its home office in a
downtown Cincinnati building under leases expiring in 1994 thru 1997. Great
American also leases office space in approximately 75 cities throughout the
United States for its regional and service offices.
In connection with the acquisition of a majority ownership of
American Annuity by AFC, American Annuity relocated its corporate offices to
Cincinnati where it leases approximately 100,000 square feet. In addition,
American Annuity leases office space totaling approximately 60,000 square
feet in Los Angeles under a lease which expires in December 1994 and is not
expected to be renewed. American Annuity also owns approximately 650,000
square feet and leases approximately 150,000 square feet of manufacturing
facilities related to its discontinued operations. American Annuity is
actively engaged in efforts to sell these remaining facilities or extend
existing leases on the properties.
American Premier's insurance subsidiaries lease an aggregate of
approximately 360,000 square feet in nine cities under leases with
expirations ranging from 1994 to 2001.
Chiquita owns about three-fourths of the 178,000 acres (located
primarily in Central America) that it uses for its banana and oil palm
operations. In addition, Chiquita owns power plants, packing stations,
warehouses, irrigation systems and loading and unloading facilities.
Chiquita owns, controls under bareboat leases or uses under time-charter
agreements over 40 ocean-going refrigerated vessels.
GACC owns all of its television station studios and buildings
and all but one of its transmission sites. GACC owns three of its radio
studios and buildings, four of its FM transmission sites and all but one of
its AM transmission sites.
General Cable operates 22 manufacturing facilities in the United
States. Four-fifths of those facilities, consisting of 4.1 million square
feet, are owned. In addition, General Cable owns its Northern Kentucky
headquarters building, consisting of 66,000 square feet of office space and
100,000 square feet of warehouse capacity.
AFC and its subsidiaries own approximately 600 acres northeast
of Cincinnati on which are located The Golf Center at Kings Island and a
campground.
ITEM 3
Legal Proceedings
AFC and its subsidiaries are involved in various litigation,
most of which arose in the ordinary course of business. Except for the
following, management believes that none of the litigation meets the
threshold for disclosure under this Item.
For several years AFC had an ownership interest of less than 50%
in Mission Insurance Group, Inc. That company experienced financial
difficulties culminating in bankruptcy and receivership proceedings in 1985
and 1986. AFC wrote off its investment in Mission in 1986 and sold its
ownership position in 1987. Under the receivership proceedings, the
Insurance Commissioner of California sued numerous reinsurers who had done
business with Mission's insurance subsidiaries in two suits brought in
Superior Court, Los Angeles County, California, styled Insurance
Commissioner of the State of California v. Mission Insurance Company and
Gillespie v. Abeille-Paix et al. During 1989, AFC, Carl H. Lindner and
Ronald F. Walker ("AFC Defendants"), along with other directors of Mission
("Mission Directors"), were added as cross-defendants to that litigation by
both the Commissioner and the reinsurance companies. The trials began in
late 1991 and continue as of March 1, 1994. The Commissioner's
cross-complaint against the AFC Defendants and the Mission Directors alleges
breach of fiduciary duty and seeks indemnity in the event the reinsurers are
not required to pay as a result of any finding of fraud, negligence or
breach of duty. The actions brought by the reinsurers against the AFC
Defendants and Mission Directors were dismissed. The Commissioner has
entered into a Partial Settlement Agreement (which became final in 1990)
with the AFC Defendants and certain of the Mission Directors ("Settling
Parties"). The settlement provides that the Commissioner release the
Settling Parties from all claims except that the Settling Parties may still
be liable in the event that the Commissioner does not recover the full
amount sought from the reinsurers and it is determined that such failure to
recover resulted from misconduct by one or more Settling Parties. The
liability of any Settling Party must be determined on an individual
comparative fault basis. The Settling Parties have denied all material
allegations. Management believes there is little likelihood that this
litigation will have a material impact on AFC's financial statements.
PART II
ITEM 5
Market for Registrant's Common Equity and Related Stockholder Matters
Not applicable - Registrant's Common Stock is owned by fewer
than 20 share-holders. See the Consolidated Financial Statements for
information regarding dividends.
ITEM 6
Selected Financial Data
The following table sets forth certain data for the periods
indicated (dollars in millions).
1993 1992 1991 1990 1989
Operations Statement Data:
Total Revenues $ 2,721 $ 3,929 $ 5,219 $ 7,761 $ 7,038
Earnings (Loss) From
Continuing Operations
Before Income Taxes 262 (145) 119 49 39
Earnings (Loss) From:
Continuing Operations 225 (162) 56 (9) (5)
Discontinued Operations - - 16 3 8
Extraordinary Items (5) - - 28 -
Cumulative Effect of
Accounting Change - 85 - - -
Net Earnings (Loss) 220 (77) 72 22 3
Ratio of Earnings to
Fixed Charges (A) 2.62 2.15 1.54 1.12 .96
Ratio of Earnings to
Fixed Charges and
Preferred Dividends (A) 2.26 1.94 1.42 1.06 .90
Balance Sheet Data:
Total Assets $10,077 $12,389 $12,057 $11,500 $10,770
Long-term Debt:
Parent Company 572 557 559 558 555
Subsidiaries 482 1,452 1,549 2,432 2,249
Capital Subject to
Mandatory Redemption 49 28 82 77 88
Other Capital 537 280 262 256 333
<FN>
(A) Fixed charges are computed on a "total enterprise" basis. For
purposes of calculating the ratios, "earnings" have been
computed by adding to pretax earnings (excluding discontinued
operations) the fixed charges and the minority interest in
earnings of subsidiaries having fixed charges and deducting
(adding) the undistributed equity in earnings (losses) of
investees. Fixed charges include interest (excluding interest
on annuity policyholders' funds), amortization of debt discount
and expense, preferred dividend requirements of subsidiaries and
a portion of rental expense deemed to be representative of the
interest factor.
Earnings exceeded fixed charges by $267 million in 1993, $269
million in 1992, $163 million in 1991 and $54 million in 1990.
Earnings exceeded fixed charges and preferred dividends by $241
million, $243 million, $138 million and $29 million in the same
periods. Fixed charges exceeded earnings by $16 million in
1989; fixed charges plus preferred dividends exceeded earnings
by $46 million in 1989.
ITEM 7
Management's Discussion and Analysis
of Financial Condition and Results of Operations
GENERAL
Following is a discussion and analysis of the financial
statements and other statistical data that management believes will enhance
the understanding of AFC's financial condition and results of operations.
This discussion should be read in conjunction with the financial statements
beginning on page F-1.
AFC is organized as a holding company with almost all of its
operations being conducted by subsidiaries and investees. The parent
corporation, however, has continuing expenditures for administrative
expenses and corporate services and, most importantly, for the payment of
principal and interest on borrowings and redemption of and dividends on AFC
Preferred Stock. Therefore, certain analyses are best done on a parent only
basis while others are best done on a total enterprise basis. In addition,
since many of its businesses are financial in nature, AFC does not prepare
its consolidated financial statements using a current-noncurrent format.
Consequently, certain traditional ratios and financial analysis tests are
not meaningful.
LIQUIDITY AND CAPITAL RESOURCES
Ratios The following ratios may be considered relevant indicators of AFC's
liquidity and are typically presented by AFC in its prospectuses and similar
documents. Management believes that balance sheet ratios (debt-to-equity)
are more meaningful on a parent only basis. On the other hand, earnings
statement ratios (fixed charges) are more meaningful on a total enterprise
basis since the parent only ratio is dependent, to a great degree, on the
discretionary nature of dividend payments from subsidiaries.
Ratios of AFC's (parent only) long-term debt to equity (i)
excluding Capital Subject to Mandatory Redemption, or (ii) including it as
either (a) debt or (b) equity at December 31, 1993, 1992 and 1991 are shown
below. Ratios of earnings to fixed charges, excluding and including
preferred dividends, for the three years ended December 31, 1993 are also
shown below.
1993 1992 1991
Debt to equity 1.06 1.99 2.13
Debt (plus redeemable capital) to equity 1.16 2.09 2.45
Debt to equity (plus redeemable capital) .98 1.81 1.63
Earnings to fixed charges 2.62 2.15 1.54
Earnings to fixed charges plus preferred
dividends 2.26 1.94 1.42
Sources of Funds A wholly-owned subsidiary, Great American Holding
Corporation ("GAHC"), has a revolving credit agreement with several banks
under which it can borrow up to $300 million. The credit line converts to a
four-year term loan with scheduled principal payments to begin in March
1997. Borrowings under the credit line are made by GAHC and are advanced to
AFC. The line is guaranteed by AFC and secured by 50% of the stock of Great
American Insurance Company ("GAI"). Borrowings, repayments and interest
payments on the line are included in "net advances from (to) subsidiaries"
in the following table. At December 31, 1993, GAHC had no outstanding
borrowings under the agreement.
Funds to meet the parent company's expenditures have been
provided from a variety of sources within the holding company, from
subsidiaries and directly from outside sources, as detailed in the following
table (in millions):
Cash provided by: 1993 1992 1991
Operations:
Dividends from subsidiaries $128.2 $ 67.0 $ 64.1
Tax allocation payments from subsidiaries 72.2 128.7 107.6
Interest and dividends from others 5.4 9.0 5.6
Receipts on notes and lease receivables 0.3 .9 2.6
Federal income tax refund - 18.3 -
From operations 206.1 223.9 179.9
Other transactions:
Sales of assets to non-affiliates 107.1 25.6 8.7
Sales of assets to affiliates 17.3 3.2 -
Sales of affiliates 1.8 139.0 -
Sales of Preferred Stock - 15.0 19.4
Additional borrowings 10.0 .8 .9
Other 21.5 6.8 13.2
Total cash provided 363.8 414.3 222.1
Cash utilized for:
Operations:
Interest payments 66.7 67.7 67.8
Dividend payments 28.0 29.0 32.2
Federal income tax payments 48.3 22.2 17.5
Other holding company costs 41.7 36.8 42.6
For operations 184.7 155.7 160.1
Other transactions:
Net advances to affiliates 138.6 225.5 14.8
Purchases of affiliates and other
investments 29.5 42.7 1.8
Principal payments on debt 9.1 17.5 5.5
Repurchases of Preferred Stock 2.6 10.5 6.8
Other 5.4 .6 .6
Total cash utilized 369.9 452.5 189.6
Net increase (decrease) in cash and short-term investments (6.1) (38.2) 32.5
Cash and short-term investments at beginning
of period 8.8 47.0 14.5
Cash and short-term investments at end
of period $ 2.7 $ 8.8 $ 47.0
AFC and certain subsidiaries have arrangements among themselves
under which they may borrow from each other from time to time for short-term
working capital needs. Certain AFC subsidiaries have revolving credit
facilities with banks (including those mentioned herein) which may be used
for various corporate purposes. These facilities aggregated approximately
$320 million of which $305 million was available at December 31, 1993.
Generally, over 90% of the dividends (including non-cash
dividends) received from subsidiaries have been from GAI. Payments of
dividends by GAI are subject to various laws and regulations which limit the
amount of dividends that can be paid without regulatory approval. During
1993, the State of Ohio revised its dividend law for Ohio-domiciled
insurers. Under the new law, the maximum amount of dividends which may be
paid without (i) prior approval or (ii) expiration of a 30 day waiting
period without disapproval is the greater of statutory net income or 10% of
policyholders' surplus as of the preceding December 31, but only to the
extent of earned surplus as of the preceding December 31. While the new law
is generally more restrictive than the prior law regarding the amount of
dividends which can be paid without prior approval, management believes GAI
will be able to gain such approvals due to its strong surplus position. The
maximum amount of dividends payable in 1994 from GAI based on its 1993
earned surplus is approximately $108 million.
For statutory accounting purposes, equity securities are
generally carried at market value with changes in aggregate market value
directly affecting policy-holders' surplus. At December 31, 1993, AFC's
insurance group owned publicly traded equity securities of affiliates with a
market value of $858 million, including equity securities of AFC
subsidiaries of $451 million. Since significant amounts of affiliated
investments are concentrated in a relatively small number of companies,
volatility in the market prices of these stocks could adversely affect the
insurance group's policyholders' surplus, potentially impacting the amount
of dividends available or necessitating a capital contribution.
Under tax allocation agreements with AFC, 80%-owned U.S.
subsidiaries generally compute tax provisions as if filing a separate return
based on book taxable income computed in accordance with generally accepted
accounting principles. The resulting provision (or credit) is currently
payable to (or receivable from) AFC.
Management believes AFC has sufficient resources to meet its
liquidity requirements through operations in the short-term and long-term
future. If funds generated from operations, including dividends from
subsidiaries, are insufficient to meet fixed charges in any period, AFC
would be required to meet such charges through bank borrowings, sales of
securities or other assets, or similar transactions.
Uncertainties In exchange for $5 million, AFC has agreed to indemnify
Spelling Entertainment Group Inc. for up to $35 million in excess of a
threshold amount of $25 million of the costs Spelling may incur in the 12
years beginning April 1, 1993 to resolve Spelling's environmental matters,
bankruptcy claims and certain other matters. Additionally, an AFC
subsidiary has responsibility for environmental remediation costs, which are
estimated to be between $10 million and $15 million, associated with the
sales of former manufacturing properties. The subsidiary has reserved $10.6
million at December 31, 1993.
AFC's insurance subsidiaries do not establish reserves for
unreported environmental claims because such amounts cannot be reasonably
estimated. At December 31, 1993, they had recorded $45.1 million (net of
reinsurance recoverables) for reported environmental pollution and hazardous
products claims on policies written many years ago where, in most cases,
coverage was never intended. Due to inconsistent court decisions on many
coverage issues and the difficulty in determining standards acceptable for
cleaning up pollution sites, significant uncertainties exist which are not
likely to be resolved in the near future.
While the results of all such uncertainties cannot be predicted,
based upon its knowledge of the facts, circumstances and applicable laws,
management believes that sufficient reserves have been provided and that the
ultimate resolution of these uncertainties will not have a material adverse
effect on AFC's financial condition or liquidity.
Capital Requirements AFC is not heavily engaged in capital-intensive
businesses and therefore does not have substantial capital resource
requirements to the same extent that other companies might. Cash
expenditures for property, plant and equipment, excluding Chiquita which
ceased being a subsidiary in 1991, were $32 million, $53 million and
$28 million, in 1993, 1992 and 1991, respectively.
Management of AFC has always believed in the use of leverage
(borrowing funds at predetermined rates) to increase the return on its
equity. Historically, AFC has relied more on the use of fixed-rate debt and
preferred stock issuances in its financing activities. AFC borrows from
both public and private sources, with parent only debt at December 31, 1993,
coming almost entirely from public sources.
Whenever possible, AFC tries to do its financing on a long-term
basis, even if the current costs associated are slightly higher. At
December 31, 1993, the average maturity of AFC's borrowings on a parent only
basis was approximately
6-1/2 years; the average interest rate on those borrowings was 11.6%.
Comparable figures for three years ago are 9 years maturity and 11.6% stated
interest rate (12.8% effective rate).
In February 1994, AFC commenced an offer to issue new 9-3/4%
Debentures due April 20, 2004 and cash in exchange for its publicly traded
debentures. On March 28, 1994, AFC announced that the expiration date had
been extended to April 15, and that in excess of $190 million of old
debentures had been accepted for exchange. The table below shows (in
thousands) total sinking fund and other principal payments on all debt of
AFC (parent only) for 1994 and in subsequent periods on an historical basis
and on a pro forma basis (a) assuming 50% of each issue of the old
debentures are exchanged pursuant to the offer ("50% Accept-ance") and (b)
assuming all of the old debentures are tendered ("100% Accept-ance"). The
scheduled payments shown below assume that debentures purchased are applied
to the earliest scheduled retirements.
Pro Forma
December 31, 1993 50% 100%
Historical Acceptance Acceptance
1994 $ 12,080 $ 3,231 $ 3,231
1995 10,883 261 261
1996 11,843 261 261
1997 17,818 5,493 5,493
1998 19,223 261 261
1999-2002 343,605 184,928 11,469
2003-2004 154,279 375,296 548,755
Total $569,731 $569,731 $569,731
Actual cash outlays will be less than indicated in the above
table to the extent that AFC can satisfy scheduled retirements and sinking
fund requirements by acquiring its debt at discounts from redemption values.
The net annual charge to pretax income for interest expense would decline by
approximately $6.8 million based on 50% Acceptance and approximately $13.5
million based on 100% Acceptance.
Based on the results of this offer and cash availability, AFC
will redeem some or all of the unexchanged debentures. In March 1994, AFC
called for redemption its 13-1/2% Debentures and its 13-1/2% Series A
Debentures. Holders of either issue may accept the exchange offer.
Interest and dividend payments on parent company debt and
preferred stock (all issues) for the subsequent five years, assuming all
sinking fund and other principal payments are made as scheduled and before
effects of the 1994 exchange offers and redemptions, would be approximately
(in millions):
1994 1995 1996 1997 1998
Interest $66.0 $64.7 $63.5 $62.3 $60.8
Dividends 26.0 25.5 25.1 25.1 25.1
Payment of preferred dividends and redemption of AFC Preferred
Stock is subordinate to AFC's obligations to pay principal and interest on
its debt.
At December 31, 1993, sinking fund and other scheduled principal
payments on debt of subsidiaries for the next five years were as follows:
1994 - $4 million; 1995 - $63 million; 1996 - $1 million; 1997 - $16
million; and 1998 - $159 million.
Certain members of the Lindner family have the right to "put" to
AFC their shares of AFC Common Stock or options at any time at a price based
on AFC's book value per share (as defined). The "put" price is paid
one-third in cash and the balance in a five-year installment note bearing
interest at a rate equal to the five-year U.S. Treasury Note rate plus 3%.
The aggregate purchase price for remaining shares and options covered by the
"put" at December 31, 1993, was approximately $40 million.
Investments Approximately three-fifths of AFC's consolidated assets are
invested in marketable securities (excluding investment in equity securities
of investee corporations). AFC's investment philosophy is briefly
summarized in the following paragraphs.
AFC attempts to optimize investment income while building the
value of its portfolio, placing emphasis upon long-term performance. AFC's
goal is to maxi-mize return on an ongoing basis rather than focusing on
year-by-year performance.
Significant portions of equity and, to a lesser extent, fixed
income investments are concentrated in a relatively limited number of major
positions. This approach allows management to more closely monitor these
companies and the industries in which they operate. Some of the
investments, because of their size, may not be as readily marketable as the
typical small investment position. Alternatively, a large equity position
may be attractive to persons seeking to control or influence the policies of
a company. While management believes this investment philosophy will
produce higher overall returns, such concentrations subject the portfolio to
greater risk in the event one of the companies invested in becomes
financially distressed.
Fixed income investment funds are generally invested in
securities with short-term and intermediate-term maturities with an
objective of maximizing interest and dividend yields. This practice allows
additional flexibility in reacting to market conditions.
Approximately 95% of the bonds and redeemable preferred stocks
held by AFC were rated "investment grade" (credit rating of AAA to BBB) at
December 31, 1993, compared to less than 60% at the end of 1988. Investment
grade securities generally bear lower yields and lower degrees of risk than
those that are unrated and non-investment grade.
The realization of capital gains, primarily through sales of
equity securities, has been an integral part of AFC's investment program.
Individual securities are sold creating gains or losses as market
opportunities exist. Pretax capital gains (losses) recognized upon
disposition of securities, including investees, during the past five years
have been: 1993 - $165 million; 1992 - $104 million; 1991 - $38 million;
1990 - ($89 million) and 1989 - $64 million.
At December 31, 1993, AFC had gross unrealized gains and losses
on bonds and redeemable preferred stocks and equity securities as follows
(in millions):
Net
Gross Unrealized Unrealized
Gains Losses Gain
Bonds and redeemable preferred stocks:
Held to maturity $189.2 ($18.5) $170.7
Available for sale 133.2 - 133.2
322.4 (18.5) 303.9
Equity securities 137.2 (5.1) 132.1
$459.6 ($23.6) $436.0
When a decline in the value of a specific investment is
considered to be other than temporary, a provision for impairment is charged
to earnings and the carrying value of that investment is reduced.
At December 31, 1993, collateralized mortgage obligations
("CMOs") represented approximately 30% of AFC's bonds and redeemable
preferred stocks. At that date, interest only (I/Os), principal only (P/Os)
and other "high risk" CMOs represented approximately four-tenths of one
percent of AFC's total CMO portfolio. AFC invests primarily in CMOs which
are structured to minimize prepayment risk. In addition, the majority of
CMOs held by AFC were purchased at a discount to par value. Management
believes that the structure and discounted nature of the CMOs will minimize
the effect of prepayments on earnings over the anticipated life of the CMO
portfolio. Substantially all of AFC's CMOs are rated "AAA" by Standard &
Poor's Corporation and are collateralized by GNMA, FNMA and FHLMC single-
family residential pass-through certificates. The market in which these
securities trade is highly liquid. Aside from interest rate risk, AFC does
not believe a material risk (relative to earnings and liquidity) is inherent
in holding such investments.
RESULTS OF OPERATIONS - THREE YEARS ENDED DECEMBER 31, 1993
General Due to decreases in ownership percentages, AFC ceased
accounting for the following companies as subsidiaries and began accounting
for them as investees: American Premier (April 1993), Spelling (July 1992),
Chiquita (July 1991) and GACC (June 1991). AFC had accounted for American
Premier as a subsidiary from 1992 through the first quarter of 1993 due to
AFC's ownership exceeding 50%. As a result of these changes, current year
income statement components are not comparable to prior years and are not
indicative of future years.
AFC's net earnings reached a record high of $220 million in
1993. Major factors contributing to the increase in earnings included $155
million in pretax gains from the sales of AFC's insurance agency operations,
Spelling Entertainment Group, 4.5 million shares of American Premier and
additional proceeds received on the 1990 sale of the NSA Group in addition
to improved contributions to results from American Premier, Chiquita and
GACC.
Operating difficulties at two major investees caused significant
losses for AFC in 1992, partially offset by the benefit from the effect of
the accounting change as required by SFAS No. 109 and a gain on the sale of
Kings Island. Significant realized gains on securities sales and from the
public issuance of stock by an investee contributed to the $72 million of
earnings in 1991.
Property and Casualty Insurance - Underwriting Underwriting profitability
is measured by the combined ratio which is a sum of the ratio of
underwriting expenses to premiums written and the ratio of losses and loss
adjustment expenses to premiums earned. When the combined ratio is under
100%, underwriting results are generally considered profitable; when the
ratio is over 100%, underwriting results are generally considered
unprofitable. The combined ratio does not reflect investment income, other
income or federal income taxes. The combined underwriting ratio (statutory
basis, after policyholders' dividends) of GAI and its property and casualty
insurance subsidiaries ("Great American") was 103.9% in 1993, 105.0% in 1992
and 103.2% in 1991. Total net losses to AFC's insurance operations from
catastrophes (natural disasters and other incidents of major loss) were
$26 million in 1993, $42 million in 1992 and $22 million in 1991.
To understand the overall profitability of particular lines,
timing of claims payments and the related impact of investment income must
be considered. Certain "short-tail" lines of business (primarily property
coverages) have quick loss payouts which reduce the time funds are held,
thereby limiting investment income earned thereon. On the other hand,
"long-tail" lines of business (primarily liability coverages and workers'
compensation) have payouts that are either structured over many years or
take many years to settle, thereby significantly increasing investment
income earned on related premiums received.
While Great American desires and seeks to earn an underwriting
profit on all of its business, it is not always possible to do so. As a
result, the company attempts to expand in the most profitable areas and
control growth or even reduce its involvement in the least profitable ones.
In recent years, many commercial lines markets have been
extremely competitive as predicted premium rate increases have not
materialized. Workers' compensation, in particular, has been especially
hard hit by competition, rising benefit levels and claims fraud. Many
states have begun to address these problems and, in the last couple of
years, Great American has focused its efforts toward those markets where
improvements are evident.
In 1993, Great American's underwriting results significantly
outperformed the industry average for the eighth consecutive year. Great
American has been able to exceed the industry's results by supplementing its
commercial lines coverages with highly specialized niche products and new
automobile and homeowner products.
Many of the improvements experienced by Great American and the
market in general in recent years are expected to continue in 1994.
See the discussion of Underwriting and Loss and Loss Adjustment
Expense Reserves under Item 1 - "Business - Great American Insurance Group".
1993 compared to 1992 Property and casualty insurance premiums
decreased $657 million (31%) in 1993 reflecting the deconsolidation of
American Premier's insurance operations beginning in the second quarter of
1993. Premiums for the remainder of AFC's insurance group were virtually
unchanged.
1992 compared to 1991 Property and casualty insurance premiums
increased $955 million (80%) in 1992 reflecting the consolidation of
American Premier's insurance operations beginning in 1992. Premiums for the
remainder of AFC's insurance group were virtually unchanged.
Investment Income Changes in investment income reflect fluctuations in
market rates and changes in average invested assets.
1993 compared to 1992 Investment income decreased $87 million
(13%) in 1993 reflecting the deconsolidation of American Premier in 1993,
partially offset by an increase in average investments held.
1992 compared to 1991 Investment income increased $120 million
(21%) in 1992 reflecting primarily the consolidation of American Premier in
1992, partially offset by lower interest rates available in the marketplace.
Investee Corporations Equity in net earnings of investee corporations
(companies in which AFC owns a significant portion of the voting stock)
represents AFC's proportionate share of the investees' earnings and losses.
1993 compared to 1992 AFC's equity in the net earnings of
investees in 1993 was $70 million compared to a loss of $339 million in
1992. The principal items responsible for this improvement were (i) the
absence of losses from GACC in 1993 compared to AFC's loss of $187 million
from that investment in 1992, (ii) a $108 million improvement from
Chiquita's operations and (iii) $92 million in earnings from American
Premier which became an investee in the second quarter of 1993 when AFC's
ownership declined below 50%.
1992 compared to 1991 The decrease in equity in net earnings of
investees in 1992 reflects primarily the results of Chiquita and GACC, both
of which became investees in the third quarter of 1991. Chiquita reported a
net loss of $284 million in 1992 attributable principally to (i) sharply
increased banana costs and expenses and (ii) lower banana prices in the
first half of the year. GACC reported a net loss of $597 million in 1992
which includes a $658 million provision to revalue intangible assets to
reflect estimated current market values of broadcasting assets at December
31, 1992. In addition, significant debt, depreciation and amortization
expenses continued to more than offset broadcasting results. In connection
with a proposed financial restructuring of GACC, AFC transferred all
securities and loans related to GACC to the investee account and reduced the
carrying value of that investment to estimated net realizable value
($35 million).
Gains on Sales of Investees The gains on sales of investees in 1993 include
(i) a pretax gain of $52 million in the first quarter on the sale of
Spelling and (ii) a pretax gain of $28 million in the third quarter on the
public sale by AFEI of 4.5 million shares of American Premier common stock.
Gains on Sales of Subsidiaries The gains on sales of subsidiaries in 1993
include (i) a pretax gain of $44 million from the sale of American Business
Insurance, Inc. and (ii) a pretax gain of $31 million representing an
adjustment on the 1990 sale of AFC's non-standard automobile insurance group
to American Premier.
The gain on sale of subsidiary in 1992 represents a pretax gain
from the sale of Kings Island Theme Park.
The gains on sales of subsidiaries in 1991 include (i) a pretax
gain of $58 million as a result of Chiquita's public issuance of 5 million
shares of its common stock; (ii) a pretax gain of $13 million on Charter's
sale of its interest in an oil producing concession; and (iii) a $7 million
pretax gain on the disposition of 455,000 shares of Chiquita common stock.
These items were partially offset by a pretax loss of $12 million realized
as a result of GACC's issuance of 16.5 million shares of its common stock.
Sales of Other Products and Services Sales shown below (in millions)
include those of American Premier (from January 1992 to March 1993),
Spelling Entertainment Group (through June 1992), GACC (through May 1991),
Spelling Entertainment Inc. (from May 1991 to June 1992), Kings Island Theme
Park (through September 1992) and Chiquita (through June 1991).
1993 1992 1991
Federal Systems $ 99.2 $ 414.0 $ -
Diversified Products and
Services 52.9 255.4 -
Petroleum Products - 159.7 424.0
Broadcasting and Entertainment:
Broadcasting - - 78.0
Entertainment - 118.8 139.4
Kings Island Theme Park - 83.0 79.2
Food Products:
Fresh Foods - - 1,347.5
Prepared Foods - - 1,089.2
$152.1 $1,030.9 $3,157.3
Sales of Federal Systems and Diversified Products and Services
represent American Premier's revenues from systems and software engineering
services and the manufacture and supply of industrial products and services.
Sales of petroleum products reflect Spelling's revenues from petroleum
marketing activities. Broadcasting revenues represent GACC's television and
radio operations. Entertainment revenues reflect Spelling's television
production and distribution operations. Sales of food products represent
Chiquita's revenues.
1993 compared to 1992 The deconsolidation of American Premier
and Spelling and the sale of Kings Island accounted for the decrease in
revenues from sales of other products and services in 1993.
1992 compared to 1991 In July 1992, AFC's ownership of Spelling
decreased below 50%; accordingly, Spelling's revenues are included for only
the first six months of 1992 compared to the entire year for 1991. The
increase in Kings Island revenues in 1992 was due primarily to a 14%
increase in attendance over the comparable period in 1991. Revenues from
several operating days in October and a "Winterfest" operation during the
holiday season were approximately $5 million in the fourth quarter for 1991.
In October 1992, AFC sold the theme park to an unaffiliated party. See
"Gains on Sales of Subsidiaries".
Interest on Annuities For GAAP financial reporting purposes, GALIC's
annuity receipts are accounted for as interest-bearing deposits ("annuity
policyholders' funds accumulated") rather than as revenues. Under these
contracts, policyholders' funds are credited with interest on a tax-deferred
basis until withdrawn by the policyholder. The average crediting rate on
funds held by GALIC has decreased from 7.2% at December 31, 1991 to 6.2% at
December 31, 1992 and 5.3% at December 31, 1993; GALIC's products offer
minimum interest rate guarantees of 3% to 4%. The rate at which GALIC
credits interest on annuity policyholders' funds is subject to change based
on market conditions.
Annuity receipts totaled $400 million in 1993, $360 million in
1992 and $460 million in 1991. Receipts in 1993 increased primarily due to
the introduction of new single premium products in the second half of 1992.
Receipts in 1992 were lower than anticipated due to (i) a reduction in
receipts relating to a new product introduced in 1990 which encouraged
rollovers of other retirement funds and (ii) unfavorable economic and market
conditions, including the impact of the negative publicity associated with a
number of highly publicized insolvencies in the life insurance industry.
Annuity surrender payments represented 6.9%, 7.8% and 9.4% of average
statutory reserves in 1993, 1992 and 1991, respectively.
1993 compared to 1992 Interest on annuity policyholders' funds
decreased $13 million (5%) in 1993 due to a reduction in rates being
credited to policyholders. The effect of this decrease more than offset an
increase of 7% in the average amount of accumulated policyholders' funds
held.
1992 compared to 1991 Interest on annuity policyholders' funds
decreased by $16.3 million (6%) from 1991 due to a reduction in rates being
credited to policyholders, which more than offset an increase of
approximately 7% in the average amount of accumulated policyholders' funds
held.
Interest on Borrowed Money Changes in interest expense result from
fluctuations in market rates as well as changes in borrowings. AFC has
generally financed its borrowings on a long-term basis which has resulted in
higher current costs.
Interest expense included in AFC's consolidated statement of
operations was comprised of (in millions):
1993 1992 1991
AFC Parent $ 71.1 $ 70.6 $ 73.8
Great American Holding 23.4 34.2 37.8
Great American Insurance 14.0 14.3 14.3
American Premier 17.2 69.2 -
American Annuity 21.2 - -
Chiquita - - 41.1
GACC - - 49.6
Spelling - 4.7 8.2
Other Companies 10.3 22.9 26.5
$157.2 $215.9 $251.3
GAHC's interest expense has decreased due to repayments of bank
borrowings in 1992 and 1993. American Annuity borrowed approximately $230
million in December 1992 to acquire GALIC. The decrease in other companies'
interest expense is due primarily to the sale of a subsidiary in 1992 and
repayments of borrowings in 1993.
Other Operating and General Expenses Operating and general expenses
included the following charges (credits) (in millions):
1993 1992 1991
Minority interest $35 $38 $44
Writeoff of debt discount
and issue costs 24 - -
Allowance for bad debts 10 (3) 26
Relocation expenses 8 - -
Book Value Incentive Plan 1 (1) 38
Allowance for bad debts includes charges for possible losses on
agents' balances, reinsurance recoverables and other receivables.
Relocation expenses represent the estimated costs of moving GALIC's
operations from Los Angeles to Cincinnati.
Income Taxes Certain subsidiaries have not been able to recognize tax
benefits on significant operating losses. Accordingly, AFC's effective tax
rates were greater than the normal rate of 34% in 1992 and 1991. See Note L
to the Financial Statements for an analysis of other items affecting AFC's
effective tax rate.
In 1992, AFC implemented SFAS No. 109, "Accounting for Income
Taxes". The cumulative effect of implementing this statement resulted in a
benefit of $85.4 million to net earnings for the recognition of previously
unrecognized tax benefits. The portion of AFC's net deferred tax asset at
December 31, 1992, attributable to American Premier was $245.3 million. The
1993 provision for income tax includes a $15 million first quarter benefit
due to American Premier's revision of estimated future taxable income likely
to be generated during the company's tax loss carryforward period.
The analysis of estimated future taxable income will be reviewed
and updated periodically, and any required adjustments, which may increase
or decrease the net deferred tax asset, will be made in the period in which
the developments on which they are based become known.
Discontinued Operations Earnings from discontinued operations represent the
results of Hunter Savings Association prior to its sale in December 1991.
Earnings from continuing operations do not reflect earnings that would have
been earned on the sales proceeds had the sale of Hunter taken place at the
beginning of 1991.
Recent Accounting Standards The following Statements of Financial
Accounting Standards ("SFAS") have been implemented by AFC in 1992 or 1993
or will be implemented in 1994. The implementation of these standards is
discussed under various subheadings of Note A to the Financial Statements;
effects of each are shown in relevant Notes. Implementation of SFAS Nos.
112 and 114 in the first quarter of 1994 and 1995, respectively, is not
expected to have a significant effect on AFC.
SFAS# Subject of Standard (Year Implemented) Reference
106 Certain Postretirement Benefits(1993) "Benefit Plans"
107 Fair Values (1992) "Fair Value"
109 Income Taxes (1992) "Income Taxes"
112 Certain Employment Benefits (1994) -n/a-
113 Reinsurance (1993) "Reinsurance"
114 Impairment of Loans (1995) -n/a-
115 Investment in Securities (1993) "Investments"
Other standards issued in recent years did not apply to AFC or
had only negligible effects on AFC.
ITEM 8
Financial Statements and Supplementary Data
Page
Reports of Independent Auditors F-1
Consolidated Balance Sheet:
December 31, 1993 and 1992 F-5
Consolidated Statement of Operations:
Years ended December 31, 1993, 1992 and 1991 F-6
Consolidated Statement of Changes in Capital Accounts:
Years ended December 31, 1993, 1992 and 1991 F-7
Consolidated Statement of Cash Flows:
Years ended December 31, 1993, 1992 and 1991 F-8
Notes to Consolidated Financial Statements F-9
"Selected Quarterly Financial Data" has been included in Note Q to the
Consolidated Financial Statements.
PART III
ITEM 10
Directors and Executive Officers of the Registrant
The directors and executive officers of AFC at March 1, 1994, are:
Executive
Name Age Position Since
Carl H. Lindner 74 Chairman of the Board and Chief 1959
Executive Officer
Richard E. Lindner 72 Director 1959
Robert D. Lindner 73 Vice Chairman of the Board 1959
Ronald F. Walker 55 Director, President and Chief 1973
Operating Officer
Carl H. Lindner III 40 President of GAI and President 1987
and Chief Operating Officer of
American Premier
S. Craig Lindner 39 President of AAG and Senior Executive
1981
Vice President of AMM
James E. Evans 48 Vice President and General Counsel
1976
Sandra W. Heimann 51 Vice President 1984
Robert C. Lintz 60 Vice President 1979
Thomas E. Mischell 46 Vice President 1985
Fred J. Runk 51 Vice President and Treasurer 1978
Carl H. Lindner has served as Chairman of the Board and Chief
Executive Officer of AFC for more than five years. He serves in similar
capacities with various AFC subsidiaries. He serves as Chairman of the
Board of the following public companies: American Annuity Group, Inc.
("AAG"), American Financial Enterprises, Inc. ("AFEI"), Chiquita, General
Cable, Great American Communications Company ("GACC") and American Premier.
AFC owns a substantial beneficial interest (over 20%) in all of these
companies.
Richard E. Lindner is owner, Chairman of the Board of Directors,
President and Chief Executive Officer of Thriftway, Inc., a supermarket
chain otherwise unaffiliated with AFC, and has been associated with that
company for over five years.
Robert D. Lindner, for more than five years, has served as Vice
Chairman of the Board of Directors of AFC. In addition, he is Chairman of
the Board of United Dairy Farmers, Inc. ("UDF") which, among other things,
is engaged through subsidiaries in dairy processing and the operation of
convenience stores. He is also a director of AFEI.
Ronald F. Walker has served as President and Chief Operating
Officer of AFC for more than five years. He is also Vice Chairman of the
Board of Directors of GAI and holds executive positions in most of AFC's
other subsidiaries. He is also a director of AAG, AFEI, Chiquita, General
Cable and Tejas Gas Company.
Carl H. Lindner III has been President of GAI for more than five
years. He holds executive positions in many of GAI's subsidiaries. He has
also been President and Chief Operating Officer of American Premier since
1991.
S. Craig Lindner has been Senior Executive Vice President of
American Money Management Corporation ("AMM"), a subsidiary of AFC which
provides investment services to AFC and its subsidiaries, for more than five
years. He was elected President of AAG in March 1993.
James E. Evans has served as a Vice President and the General
Counsel of AFC for more than five years.
Sandra W. Heimann has been a Vice President of AFC and an
executive officer of AMM for more than five years.
Robert C. Lintz has been a Vice President of AFC for more than
five years.
Thomas E. Mischell has been a Vice President of AFC for more than
five years.
Fred J. Runk has served as Vice President and Treasurer of AFC
for more than five years.
Carl H. Lindner, Robert D. Lindner and Richard E. Lindner are
brothers. Carl H. Lindner III and S. Craig Lindner are sons of Carl H.
Lindner.
All of the executive officers of AFC devote substantially all of
their time to the affairs of AFC and its subsidiaries. All of the above are
United States citizens.
The information required by the following Items will be provided
within 120 days after end of Registrant's fiscal year.
ITEM 11 Executive Compensation
ITEM 12 Security Ownership of Certain Beneficial Owners and
Management
ITEM 13 Certain Relationships and Related Transactions
REPORTS OF INDEPENDENT AUDITORS
Board of Directors
American Financial Corporation
We have audited the accompanying consolidated balance sheets of American
Financial Corporation and subsidiaries as of December 31, 1993 and 1992, and
the related consolidated statements of operations, changes in capital
accounts, and cash flows for each of the three years in the period ended
December 31, 1993. Our audits also included the financial statement
schedules listed in the Index at Item 14(a). These financial statements and
schedules are the responsibility of the Corporation's management. Our
responsibility is to express an opinion on these financial statements and
schedules based on our audits. We did not audit the financial statements of
American Premier Underwriters, Inc. (formerly The Penn Central Corporation),
General Cable Corporation and American Annuity Group, Inc. (1991). Those
statements were audited by other auditors whose reports have been furnished
to us. The reports pertaining to the statements of General Cable
Corporation and American Premier Underwriters, Inc. included explanatory
paragraphs that described their change in method of accounting for income
taxes in 1992. Our opinion on the consolidated financial statements and
schedules, insofar as it relates to data included for those corporations as
described in Note E, is based solely on the reports of 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
reports of other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the reports of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of American Financial
Corporation and subsidiaries at December 31, 1993 and 1992, and the
consolidated results of their operations and their cash flows for each of
the three years in the period ended December 31, 1993, in conformity with
generally accepted accounting principles. Also, in our opinion, the related
financial statement schedules, when considered in relation to the basic
financial statements taken as a whole, present fairly in all material
respects the information set forth therein.
As discussed in Note A to the consolidated financial statements, American
Financial Corporation and subsidiaries changed their method of accounting in
1993 for certain investments in debt and equity securities and in 1992 for
income taxes.
ERNST & YOUNG
Cincinnati, Ohio
March 25, 1994
REPORT OF AMERICAN PREMIER'S INDEPENDENT AUDITORS
American Premier Underwriters, Inc.
(formerly The Penn Central Corporation):
We have audited the financial statements and the financial statement
schedules of American Premier Underwriters, Inc. and Consolidated
Subsidiaries listed in the Index to Financial Statements and Financial
Statement Schedules of American Premier Underwriters, Inc.'s Form 10-K for
the year ended December 31, 1993 (included as Exhibit 99 herein). These
financial statements and financial statement schedules are the
responsibility of the Company's management. Our responsibility is to
express an opinion on the financial statements and financial statement
schedules based on our audits.
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 provide a
reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of American Premier Underwriters, Inc. and
Consolidated Subsidiaries at December 31, 1993 and 1992 and the results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1993 in conformity with generally accepted accounting
principles. Also, in our opinion, such financial statement schedules, when
considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information shown therein.
As discussed in Note 1 to the financial statements, in 1992 the Company
changed its method of accounting for income taxes to conform with Statement
of Financial Accounting Standards No. 109.
DELOITTE & TOUCHE
Cincinnati, Ohio
February 16, 1994
(March 25, 1994 with respect
to the change of the Company's
name as discussed in Note 1
to American Premier's financial
statements)
REPORT OF GENERAL CABLE'S INDEPENDENT AUDITORS
General Cable Corporation:
We have audited the consolidated financial statements and related schedules
of General Cable Corporation and subsidiaries listed in Item 14(a) of the
Annual Report on Form 10-K of General Cable Corporation for the year ended
December 31, 1993 (not presented separately herein). These consolidated
financial statements and related schedules are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and related schedules based on our audits.
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 provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of General Cable Corporation
and subsidiaries at December 31, 1993 and 1992 and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1993 in conformity with generally accepted accounting
principles. Also, in our opinion, such consolidated financial statement
schedules, when considered in relation to the basic consolidated financial
statements taken as a whole, present fairly in all material respects the
information shown therein.
As discussed in Notes 1 and 10 to the consolidated financial statements, in
1992 General Cable Corporation changed its method of accounting for income
taxes to conform with Statement of Financial Accounting Standards No. 109.
DELOITTE & TOUCHE
Cincinnati, Ohio
February 18, 1994
REPORT OF AMERICAN ANNUITY'S INDEPENDENT AUDITORS
American Annuity Group, Inc.:
We have audited the consolidated balance sheet of American Annuity Group,
Inc., formerly Sprague Technologies, Inc., and subsidiaries as of December
31, 1991 and the related consolidated statements of operations, common
stockholders' equity and cash flows for the year then ended (before
adjustments and reclassifications to conform with the presentation for
1992). Our audit also included the 1991 financial statement schedule listed
in the Index at Item 14(a) of American Annuity Group, Inc's. Form 10-K for
the year ended December 31, 1993 (not presented separately herein). These
financial statements and the financial statement schedule are the
responsibility of the Company's management. Our responsibility is to
express an opinion on the financial statements and the financial statement
schedule based on our audit.
We conducted our audit 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 audit provides a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements (before adjustments
and reclassifications to conform with the presentation for 1992) present
fairly, in all material respects, the financial position of American Annuity
Group, Inc. and subsidiaries as of December 31, 1991 and the results of
their operations and their cash flows for the year then ended in conformity
with generally accepted accounting principles. Also, in our opinion, such
financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
DELOITTE & TOUCHE
Stamford, Connecticut
March 24, 1992
AMERICAN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(In Thousands)
December 31,
1993 1992
Assets
Cash and short-term investments $ 167,950 $ 837,429
Investments:
Bonds and redeemable preferred stocks:
Held to maturity - at amortized cost
(market - $3,959,400 and $4,705,600) 3,788,732 4,597,544
Available for sale - at market
(amortized cost - $2,216,328 and $1,905,814) 2,349,528 1,976,514
Other stocks - principally at market
(cost - $207,056 and $182,476) 339,156 230,876
Investment in investee corporations 899,800 568,207
Bonds and receivables from investees 6,783 305,701
Loans receivable 624,149 812,436
Real estate and other investments 139,319 179,152
8,147,467 8,670,430
Recoverables from reinsurers and prepaid
reinsurance premiums 756,060 599,204
Trade receivables 298,240 594,834
Other receivables 213,507 318,799
Property, plant and equipment, net 44,950 215,851
Deferred tax asset - 258,300
Prepaid expenses, deferred charges and other assets 275,349 394,319
Cost in excess of net assets acquired 173,965 499,639
$10,077,488 $12,388,805
Liabilities and Capital
Insurance claims and reserves $ 3,422,657 $ 4,279,853
Annuity policyholders' funds accumulated 4,256,674 3,973,524
Long-term debt:
Parent company 571,874 557,161
American Premier - 657,800
Other subsidiaries 482,132 794,217
Accounts payable, accrued expenses and other
liabilities 648,462 1,005,866
Minority interest 109,219 812,707
9,491,018 12,081,128
Capital subject to mandatory redemption 49,232 27,683
Preferred Stock (redemption value - $278,889) 168,588 168,588
Common Stock without par value 904 904
Retained earnings 210,846 42,402
Net unrealized gain on marketable securities,
net of deferred income taxes 156,900 68,100
$10,077,488 $12,388,805
See notes to consolidated financial statements.
AMERICAN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(In Thousands)
Year ended December 31,
1993 1992 1991
Income:
Property and casualty insurance premiums $1,494,796 $2,151,400 $1,196,853
Investment income 601,900 688,604 568,514
Realized gains on sales of securities 82,265 101,474 50,795
Equity in net earnings (losses) of
investee corporations 69,862 (338,710) 11,694
Gains (losses) on sales of investee
corporations 83,211 2,766 (12,348)
Gains on sales of subsidiaries 75,309 64,483 65,220
Provision for impairment of investments (1,500) (2,000) (37,822)
Sales of other products and services 152,100 1,030,877 3,157,271
Other income 162,760 229,956 218,790
2,720,703 3,928,850 5,218,967
Costs and Expenses:
Property and casualty insurance:
Losses and loss adjustment expenses 1,064,108 1,554,702 847,604
Commissions and other underwriting
expenses 449,772 616,200 388,130
Interest charges on:
Annuity policyholders' funds 228,609 241,600 257,859
Borrowed money 157,219 215,900 251,332
Cost of sales 134,900 886,238 2,549,880
Other operating and general expenses 424,110 559,064 805,452
2,458,718 4,073,704 5,100,257
Earnings (loss) from continuing operations
before income taxes 261,985 (144,854) 118,710
Provision for income taxes 37,296 17,446 62,156
Earnings (loss) from continuing operations 224,689 (162,300) 56,554
Discontinued operations - - 15,796
Earnings (loss) before extraordinary items and
cumulative effect of accounting change 224,689 (162,300) 72,350
Extraordinary items (4,559) - -
Cumulative effect of accounting change - 85,400 -
Net Earnings (Loss) $ 220,130($ 76,900) $ 72,350
See notes to consolidated financial statements.
AMERICAN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN CAPITAL ACCOUNTS
(In Thousands)
Year ended December 31,
1993 1992 1991
Capital Subject to Mandatory Redemption:
Balance at beginning of period $ 27,683 $ 81,939 $ 77,419
Other purchases and redemptions (2,103) (10,460) (7,137)
Increase (decrease) in capital subject
to put option 23,652 (43,796) 11,657
Balance at End of Period $ 49,232 $ 27,683 $ 81,939
Preferred Stock:
Balance at beginning of period $168,588 $153,588 $134,179
Sales to employee benefit plans - 15,000 19,409
Balance at End of Period $168,588 $168,588 $153,588
Common Stock:
Balance at Beginning and End of Period $ 904 $ 904 $ 904
Retained Earnings:
Balance at beginning of period $ 42,402 $104,507 $ 74,267
Net earnings (loss) 220,130 (76,900) 72,350
Deduct cash dividends paid or declared on:
Preferred Stock (26,137) (26,155) (24,762)
Common Stock (1,897) (2,846) (5,691)
Decrease (increase) in capital subject
to put option (23,652) 43,796 (11,657)
Balance at End of Period $210,846 $ 42,402 $104,507
Net Unrealized Gain on Marketable Securities,
Net of Deferred Income Taxes:
Balance at beginning of period $ 68,100 $ 2,700 $ 47,100
Change during period 88,800 65,400 (44,400)
Balance at End of Period $156,900 $ 68,100 $ 2,700
See notes to consolidated financial statements.
AMERICAN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(In Thousands)
Year ended December 31,
1993 1992 1991
Operating Activities:
Net earnings (loss) $ 220,130 ($ 76,900) $ 72,350
Adjustments:
Cumulative effect of accounting change - (85,400) -
Depreciation and amortization 37,403 107,615 125,723
Interest on annuity policyholders' funds 228,609 241,600 257,859
Equity in net losses (earnings) of investees
and discontinued operations (69,862) 338,710 (23,760)
Changes in reserves on assets 11,440 (1,452) 63,759
Realized gains on investing activities (242,529) (169,686) (116,458)
Writeoff of debt discount and issue costs 30,054 - -
Decrease (increase) in reinsurance and
other receivables (238,166) 48,878 (12,835)
Increase in prepaid expenses, deferred
charges and other assets (75,308) (115,815) (78,818)
Increase (decrease) in insurance claims
and reserves 241,704 165,684 (33,718)
Increase in other liabilities 50,479 36,163 4,603
Increase in minority interest 37,057 19,656 32,690
Dividends from investees and discontinued
operations 25,575 24,313 50,605
Other, net (32,503) 4,822 19,206
224,083 538,188 361,206
Investing Activities:
Purchases of and additional investments in:
Fixed maturity investments (3,062,435) (4,718,486) (5,718,739)
Equity securities (20,224) (14,386) (60,340)
Investees and subsidiaries (27,578) (23,115) (93,323)
Real estate, property and equipment (41,762) (71,964) (175,962)
Maturities and redemptions of fixed maturity
investments 757,473 1,187,232 638,280
Sales of:
Fixed maturity investments 1,498,432 2,348,529 4,932,862
Equity securities 221,467 88,475 322,935
Investees and subsidiaries 255,517 212,000 46,512
Real estate, property and equipment 65,782 14,155 58,432
Cash and short-term investments of former
subsidiaries and investees (310,225) (16,009) (189,693)
Decrease in other investments 1,435 62,370 56,607
(662,118) (931,199) (182,429)
Financing Activities:
Annuity receipts 400,141 360,702 459,860
Annuity benefits and withdrawals (337,878) (339,406) (372,235)
Additional long-term borrowings 338,010 259,447 529,714
Reductions of long-term debt (601,040) (294,493) (321,578)
Issuances of capital stock - 15,000 19,409
Repurchases of capital stock (2,643) (10,549) (6,756)
Cash dividends paid (28,034) (29,001) (30,453)
(231,444) (38,300) 277,961
Net Increase (Decrease) in Cash and Short-term Investments(669,479)(431,311) 456,738
Cash and short-term investments at beginning of
period 837,429 1,268,740 812,002
Cash and short-term investments at end of period $ 167,950 $ 837,429 $1,268,740
See notes to consolidated financial statements.
AMERICAN FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INDEX TO NOTES
A. Accounting Policies
B. Acquisitions and Sales of Subsidiaries
C. Segments of Operations
D. Investments
E. Investment in Investee Corporations
F. Property, Plant and Equipment
G. Cost in Excess of Net Assets Acquired
H. Long-Term Debt
I. Capital Subject to Mandatory Redemption
J. Other Preferred Stock
K. Common Stock
L. Income Taxes
M. Discontinued Operations
N. Pending Legal Proceedings
O. Benefit Plans
P. Transactions With Affiliates
Q. Quarterly Operating Results (Unaudited)
R. Additional Information
S. Restrictions on Transfer of Funds
and Assets of Subsidiaries
T. Subsequent Event (Unaudited)
A. Accounting Policies
Basis of Presentation The consolidated financial statements include
the accounts of American Financial Corporation ("AFC") and its
subsidiaries except for Hunter Savings Association which was sold in
the fourth quarter of 1991 and is presented in the financial
statements as "discontinued operations". Changes in ownership levels
of other subsidiaries and investees have resulted in certain
differences in the financial statements and have affected
comparability between years. Certain reclassifications have been made
to prior years to conform to the current year's presentation. All
significant intercompany balances and transactions have been
eliminated. All acquisitions have been treated as purchases. The
results of operations of companies since their formation or
acquisition are included in the consolidated financial statements.
AFC's ownership of subsidiaries and significant investees with
publicly traded shares at December 31, was as follows:
1993 1992 1991
American Annuity Group, Inc. ("AAG")
(formerly STI Group, Inc.) 80% 82% 39%
American Financial Enterprises, Inc. ("AFEI") 83% 83% 82%
Chiquita Brands International, Inc. 46% 46% 48%
General Cable Corporation 45% 45% 100%(a)
Great American Communications Company ("GACC")20% 40% 40%
American Premier Underwriters, Inc. 41% 51% 50%+
Spelling Entertainment Group Inc. ("Spelling")
(formerly The Charter Company) (b) 48% 53%
Spelling Entertainment Inc. ("SEI") - (c) 85%
<FN>
(a) Represents ownership by American Premier.
(b) Sold in March 1993.
(c) Became 100%-owned by Spelling Entertainment Group in 1992.
AMERICAN FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Investments AFC implemented Statement of Financial Accounting
Standards ("SFAS") No. 115, "Accounting for Certain Investments in
Debt and Equity Securities," beginning December 31, 1993. This
standard requires (i) debt securities be classified as "held to
maturity" and reported at amortized cost if AFC has the positive
intent and ability to hold them to maturity, (ii) debt and equity
securities be classified as "trading" and reported at fair value, with
unrealized gains and losses included in earnings, if they are bought
and held principally for selling in the near term and (iii) debt and
equity securities not classified as held to maturity or trading be
classified as "available for sale" and reported at fair value, with
unrealized gains and losses reported as a separate component of
shareholders' equity. Only in certain limited circumstances, such as
significant issuer credit deterioration or if required by insurance or
other regulators, may a company change its intent to hold a certain
security to maturity without calling into question its intent to hold
other debt securities to maturity in the future.
Effective September 30, 1992, AFC had reclassified its portfolio of
bonds and redeemable preferred stocks into two categories, held to
maturity and available for sale, and accounted for them in a manner
similar to that required by SFAS No. 115. In connection with
implementing SFAS No. 115, AFC made a comprehensive review of its
investment portfolio. This review resulted in a reclassification of
approximately $704 million of its fixed maturity portfolio (including
$485 million in CMOs) from "held to maturity" to "available for sale"
which, in turn, resulted in (i) an increase of $36 million in the
carrying value of fixed maturity investments, and (ii) an increase of
$19 million in AFC's shareholders' equity. The reclassification
reflected management's intention to reduce the proportion of CMOs
owned and more actively manage the duration of its fixed income
portfolio. Implementation of SFAS No. 115 had no effect on net
earnings.
Premiums and discounts on collateralized mortgage obligations are
amortized over their expected average lives using the interest method.
Gains or losses on sales of securities are recognized at the time of
disposition with the amount of gain or loss determined on the specific
identification basis. When a decline in the value of a specific
investment is considered to be other than temporary, a provision for
impairment is charged to earnings and the carrying value of that
investment is reduced.
Investment in Investee Corporations Investments in securities of 20%-
to 50%-owned companies are carried at cost, adjusted for AFC's
proportionate share of their undistributed earnings or losses.
Investments in less than 20%-owned companies are accounted for by the
equity method when, in the opinion of management, AFC can exercise
significant influence over operating and financial policies of the
investee.
Beginning in 1991, AFC elected not to record earnings from its
investment in GACC, whether from operations or from extraordinary
gains, until that company's financial situation improves. In the
fourth quarter of 1992, in light of GACC's announced intention to
pursue a plan to restructure its debt and capital, AFC reduced the
carrying value of its investment in all securities and loans
AMERICAN FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
receivable related to GACC and its subsidiaries to estimated net
realizable value and ceased accounting for GACC on the equity method.
Following GACC's completion of its plan of reorganization in December
1993, AFC resumed accounting for GACC on the equity method.
Property, Plant, Equipment and Real Estate Facilities and equipment
used primarily to conduct operations are classified in the Balance
Sheet as "property, plant and equipment"; other land and facilities
are classified as investment in "real estate". These assets are based
on cost and provision for depreciation and amortization is made
principally on the straight-line method over the estimated useful life
of the depreciable property or the lease term, whichever is shorter.
Cost in Excess of Net Assets Acquired The excess of cost of
subsidiaries and investees (purchased subsequent to October 1970) over
AFC's equity in the underlying net assets ("goodwill") is being
amortized over 40 years. The excess of AFC's equity in the net assets
of other subsidiaries and investees over its cost of acquiring these
companies ("negative goodwill") has been allocated to AFC's basis in
these companies' fixed assets, goodwill and other long-term assets and
is amortized on a 10- to 40-year basis.
Insurance Claims and Reserves Insurance claims and reserves include
unpaid losses and loss adjustment expenses in addition to unearned
insurance premiums. As discussed under "Reinsurance" below, amounts
have not been reduced for reinsurance recoverable.
The net liabilities stated for unpaid claims and for expenses of
investigation and adjustment of unpaid claims are based upon (a) the
accumulation of case estimates for losses reported prior to the close
of the accounting period on the direct business written; (b) estimates
received from ceding reinsurers and insurance pools and associations;
(c) estimates of unreported losses based on past experience and (d)
estimates based on experience of expenses for investigating and
adjusting claims. These liabilities are subject to the impact of
changes in claim amounts and frequency and other factors. In spite of
the variability inherent in such estimates, management believes that
the liabilities for unpaid losses and loss adjustment expenses are
adequate. Changes in estimates of the liabilities for losses and loss
adjustment expenses are reflected in the Statement of Operations in
the period in which determined.
Unearned insurance premiums represent that portion of premiums written
which is applicable to the unexpired terms of policies in force,
generally computed by the application of daily pro rata fractions. On
reinsurance assumed from other insurance companies or written through
various underwriting organizations, unearned premiums are based on
reports received from such companies and organizations.
Policy acquisition costs (principally commissions, premium taxes and
other underwriting expenses) related to the production of new business
are deferred and included in "Prepaid expenses, deferred charges and
other assets". For the property and casualty companies, the deferral
of acquisition costs is limited based upon their recoverability
without any consideration for anticipated investment income. Deferred
policy acquisition costs ("DPAC") are charged against income ratably
over the terms of the related policies. For the annuity company, DPAC
AMERICAN FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
is amortized, with interest, in relation to the present value of
expected gross profits on the policies.
Reinsurance In the normal course of business, AFC's insurance
subsidiaries cede reinsurance to other companies to diversify risk and
limit maximum loss arising from large claims. To the extent that any
reinsuring companies are unable to meet obligations under the
agreements covering reinsurance ceded, AFC's insurance subsidiaries
would remain liable. Amounts recoverable from reinsurers are
estimated in a manner consistent with the claim liability associated
with the reinsurance policies. AFC's insurance subsidiaries also
assume reinsurance from other companies. Income on reinsurance
assumed is recognized based on reports received from ceding
reinsurers.
In 1993, AFC implemented SFAS No. 113, "Accounting and Reporting for
Reinsurance of Short-Duration and Long-Duration Contracts". This
statement requires ceding insurers to report as assets (a) the
estimated reinsurance recoverable on unpaid losses, including an
estimate for losses incurred but not reported, and (b) amounts paid to
reinsurers applicable to the unexpired terms of policies in force.
Balance sheet amounts for 1992 have been changed to conform to the
1993 presentation. Prior to implementation of SFAS No. 113, these
reinsurance assets ($682 million at December 31, 1992) were recorded
as reductions to the liabilities for unpaid losses and loss adjustment
expenses and unearned premiums. Implementation of SFAS No. 113 had no
impact on earnings.
Annuity Policyholders' Funds Accumulated Annuity premium deposits and
benefit payments are generally recorded as increases or decreases in
"annuity policyholders' funds accumulated" rather than as revenue and
expense. Increases in this liability for interest credited are
charged to expense and decreases for surrender charges are credited to
other income.
Statement of Cash Flows For cash flow purposes, "investing
activities" are defined as making and collecting loans and acquiring
and disposing of debt or equity instruments and property and
equipment. "Financing activities" include obtaining resources from
owners and providing them with a return on their investments,
borrowing money and repaying amounts borrowed. Annuity receipts,
benefits and withdrawals are also reflected as financing activities.
All other activities are considered "operating". Short-term
investments having original maturities of three months or less when
purchased are considered to be cash equivalents for purposes of the
financial statements.
Issuances of Stock by Subsidiaries Changes in AFC's equity in a
subsidiary caused by issuances of the subsidiary's stock are accounted
for as gains or losses where the sale of such shares by the subsidiary
is not a part of a broader reorganization.
Income Taxes AFC files consolidated federal income tax returns which
include all 80%-owned U.S. subsidiaries. Effective January 1, 1992,
AFC implemented SFAS No. 109, "Accounting for Income Taxes". Prior
year financial statements were not restated. Under SFAS No. 109,
deferred income tax assets and liabilities are determined based on
differences between financial reporting and tax bases and are measured
AMERICAN FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
using enacted tax rates. Deferred tax assets are recognized if it is
more likely than not that a benefit will be realized.
Benefit Plans AFC's Employee Stock Ownership Retirement Plan
("ESORP") is a noncontributory, trusteed plan which invests in
securities of AFC and affiliates for the benefit of the employees of
AFC and certain of its subsidiaries. The ESORP covers all employees
of participating companies who are qualified as to age and length of
service. Contributions are discretionary by the directors of
participating companies and are charged against earnings in the year
for which they are declared.
Under AFC's Book Value Incentive Plan, units may be granted at initial
values between 80% and 120% of "book value" to key employees. Units
may be exercised at any time, to the extent vested. Payments are made
to the holder 50% in cash and the remainder in installments over a
ten-year period with an assumed interest factor of 12% per annum.
"Book value" is determined in accordance with generally accepted
accounting principles except that all equity securities (including
investees and subsidiaries with publicly traded shares) are reflected
at market value. The value of the units is the excess of the current
book value of a share of AFC Common Stock, as defined, over the
initial value of the units at the date of grant. This value is being
accrued over the vesting period (five years).
AFC and many of its subsidiaries provide health care and life
insurance benefits to eligible retirees. Prior to 1992, the cost of
these benefits had generally been recognized as claims were incurred.
Effective January 1, 1993, AFC implemented SFAS No. 106, "Accounting
for Postretirement Benefits Other Than Pensions". This standard
requires companies to expense the projected future cost of providing
postretirement benefits as employees render service. The accumulated
postretirement obligation at the date of adoption is being amortized
on a straight-line basis over 20 years. The implementation of SFAS
No. 106 did not have a material effect on AFC's financial position or
results of operations.
Debt Discount Debt discount and expenses are being amortized over the
lives of respective borrowings, generally on the interest method.
Unamortized balances are charged off in the event of early retirement
of the related debt.
Fair Value of Financial Instruments Methods and assumptions used in
estimating fair values are described in the notes containing fair
value disclosures. These fair values represent point-in-time
estimates of value that might not be particularly relevant in
predicting AFC's future earnings or cash flows.
AMERICAN FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
B. Acquisitions and Sales of Subsidiaries
American Business Insurance In October 1993, AFC sold its insurance
brokerage operation, American Business Insurance, Inc., to Acordia,
Inc., an Indianapolis-based insurance broker. AFC received
approximately $50 million in cash, 800,000 shares of Acordia common
stock and warrants to purchase an additional 1.5 million Acordia
shares at $25 per share. AFC recognized a pretax gain of
approximately $44 million on the sale.
American Premier In the fourth quarter of 1991, American Premier
repurchased shares of its common stock, increasing AFC's ownership
percentage above 50%. Accordingly, AFC ceased accounting for American
Premier as an investee and began accounting for it as a consolidated
subsidiary on December 31, 1991. In anticipation of a reduction of
AFC's ownership of American Premier below 50%, AFC ceased accounting
for it as a subsidiary and began accounting for it as an investee in
April 1993.
In August 1993, AFEI, whose assets consist primarily of investments in
American Premier, General Cable and AAG, sold 4.5 million shares of
American Premier common stock in a secondary public offering. AFEI
used the net proceeds of approximately $151 million to retire most of
its debt. AFC recognized a pretax gain of $28.3 million, before
minority interest, on the sale of American Premier stock by AFEI. The
gain includes AFC's recognition of a portion of previously deferred
gains related to sales of assets to American Premier from AFC
subsidiaries.
In December 1993, American Premier paid AFC $52.8 million (including
$12.8 million in interest) representing an adjustment on the 1990 sale
of AFC's non-standard automobile group to American Premier. AFC
recorded an additional pretax gain of $31.4 million on this adjustment
after deferring $21.4 million based on its ownership of American
Premier.
Great American Life Insurance Company In December 1992, AFC sold
Great American Life Insurance Company ("GALIC") to STI Group, Inc.,
previously known as Sprague Technologies, Inc. ("STI") for $468
million in cash. In connection with the sale, AFC purchased 5.1
million shares of STI's common stock pursuant to a tender offer and an
additional 17.1 million newly issued shares, increasing AFC's
ownership from 39% to approximately 82%. No gain or loss was recorded
on the sale of GALIC. Following the purchase of GALIC, STI changed
its name to American Annuity Group, Inc. to reflect the nature of its
business and AFC began accounting for AAG as a subsidiary.
Kings Island Theme Park In October 1992, AFC sold Kings Island to an
unaffiliated party for approximately $210 million in cash. AFC
realized a $64.5 million pretax gain on the transaction.
Hunter Savings Association In December 1991, AFC sold Hunter Savings
Association and, accordingly, classified Hunter as a discontinued
operation in the financial statements. See Note M.
AMERICAN FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Chiquita In 1991, AFC contributed to its ESORP 455,000 Chiquita
shares with a market value of $15.7 million, recording a pretax gain
of $7.4 million.
In the third quarter of 1991, Chiquita sold 5 million shares of newly-
issued common stock resulting in AFC's ownership being decreased below
50%. Accordingly, AFC ceased accounting for Chiquita as a subsidiary
and began accounting for it as an investee. AFC recorded a pretax
gain of $58 million in 1991, representing the excess of AFC's equity
in Chiquita following the issuance of its common stock over its
previously recorded carrying value. These gains are included in
"Gains on sales of subsidiaries" in the Statement of Operations;
deferred income taxes provided thereon are included in "Provision for
income taxes".
GACC In the first half of 1991, GACC issued 16.5 million shares of
its common stock as partial consideration in exchange for certain
debt, reducing AFC's ownership percentage of GACC to less than 50%.
As a result, AFC ceased accounting for GACC as a subsidiary in June
1991 and began accounting for it as an investee. AFC recorded a $12
million pretax loss representing the difference between AFC's equity
in GACC following the transactions and its previously recorded
carrying value.
In connection with the completion of GACC's plan of reorganization in
December 1993, AFC received 2.3 million shares of new common stock in
exchange for its previous holdings of GACC stock and debt. In
connection with the plan, AFC also invested an additional $7.5 million
in GACC common stock and debt securities.
Spelling During the second quarter of 1991, Charter purchased 27.2
million shares of common stock and the outstanding preferred stock
($25 million liquidation value) of SEI for $166.8 million in cash and
$22.7 million principal amount of 10% senior subordinated notes.
Charter purchased 14 mil-lion of the common shares and all of the
preferred stock from GACC for $107.5 million in cash. As a result of
the transactions, AFC's ownership of SEI increased to 85% (including
Charter's 82%); accordingly, AFC ceased accounting for SEI as an
investee and began accounting for it as a consolidated subsidiary in
May 1991.
As a result of a merger between Charter and SEI in July 1992, AFC's
ownership of Charter decreased below 50% and, accordingly, AFC ceased
accounting for Charter as a subsidiary and began accounting for
Charter as an investee. Subsequent to the merger, Charter changed its
name to Spelling Entertainment Group Inc.
In March 1993, AFC sold its common stock investment in Spelling to
Blockbuster Entertainment Corporation in exchange for 7.6 million
shares of Blockbuster common stock and warrants to purchase an
additional two million Blockbuster shares at $25 per share. AFC
realized a $52 million pretax gain on the sale.
AMERICAN FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
C. Segments of Operations Through subsidiaries, AFC is engaged in
several financial businesses, including property and casualty
insurance, annuities and portfolio investing. AFC also owns
significant portions of the voting equity securities of certain
companies (investee corporations - see Note E).
Although most of AFC's operations have been conducted within the
United States, approximately one-sixth of its consolidated revenues
(primarily food sales) in 1991 were derived from sales in Europe,
Central and South America and the Far East.
The following tables (in thousands) show AFC's assets, revenues,
operating profit (loss), capital expenditures and depreciation expense
on property, plant and equipment by significant business segment. The
food products segment accounted for a major portion of AFC's capital
expenditures during the period Chiquita was accounted for as a
subsidiary. The capital expenditures of other segments have not been
significant and are combined in the following table. Operating profit
(loss) represents total revenues less operating expenses. Goodwill
and its amortization have been allocated to the various segments to
which they apply. General corporate assets and expenses have not been
identified or allocated by segment since they are not material.
1993 1992 1991
Assets
Property and casualty insurance (a) $ 4,192,908 $ 5,881,464 $ 4,706,244
Annuities 4,910,182 4,434,865 4,370,982
Other 74,598 1,504,269 1,769,305
9,177,688 11,820,598 10,846,531
Investment in investee
corporations 899,800 568,207 754,121
Investment in discontinued operations - - 456,609
$10,077,488 $12,388,805 $12,057,261
Revenues (b)
Property and casualty insurance:
Underwriting:
Auto liability and physical damage $ 571,084 $ 984,722 $ 361,856
Property and multiple peril 338,555 343,966 375,418
Other liability 226,330 216,450 207,814
Workers' compensation 191,353 462,767 135,556
All other 167,474 143,495 116,209
1,494,796 2,151,400 1,196,853
Investment and other income (c) 481,548 568,184 337,545
1,976,344 2,719,584 1,534,398
Annuities (c)(d) 395,871 356,265 435,360
Food products - - 2,439,882
Broadcasting - - 83,216
Other (c) 278,626 1,191,711 714,417
2,650,841 4,267,560 5,207,273
Equity in net earnings (losses) of
investee corporations 69,862 (338,710) 11,694
$ 2,720,703 $ 3,928,850 $ 5,218,967
AMERICAN FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
1993 1992 1991
Operating Profit (Loss)
Property and casualty insurance:
Underwriting:
Auto liability and physical damage ($ 7,838) $ 4,826 $ 22,239
Property and multiple peril (2,736) (60,137) (41,159)
Other liability (47,497) 83,179 3,638
Workers' compensation 30,094 (54,125) (40,728)
All other 11,396 8,583 19,937
(16,581) (17,674) (36,073)
Investment and other income (c) 304,181 309,680 127,394
287,600 292,006 91,321
Annuities (c) 63,388 65,480 136,850
Food products (c) - - 112,098
Broadcasting - - (24,872)
Other (c)(e) (158,865) (163,630) (208,381)
192,123 193,856 107,016
Equity in net earnings (losses) of
investee corporations 69,862 (338,710) 11,694
$261,985 ($144,854) $118,710
Capital Expenditures
Food products $ - $ - $137,072
Other 32,146 53,193 27,743
$ 32,146 $ 53,193 $164,815
Depreciation Expense
Food products $ - $ - $ 31,600
Other 13,501 43,586 24,429
$ 13,501 $ 43,586 $ 56,029
<FN>
(a) Not allocable to lines of insurance.
(b) Revenues include sales of products and services as well as other income
earned by the respective segments.
(c) Includes the following provisions (credits) for reserves on investments:
Property and casualty insurance -- 1993 - $2 million; 1992 - ($32
million) and 1991 - $33 million; Annuities -- 1993 - $0; 1992 - $0 and
1991 - ($55 million); Food products -- $13 million in 1991; Other -- 1993
- $0; 1992 - $34 million and 1991 - $47 million.
(d) Represents primarily investment income.
(e) Includes holding company expenses.
AMERICAN FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
D. Investments Bonds, redeemable preferred stocks and other stocks at
December 31, consisted of the following (in millions):
1993
Held to Maturity
Amortized Market Gross Unrealized
Cost Value Gains Losses
Bonds and Redeemable
Preferred Stocks:
United States Government
and government agencies
and authorities $ - $ - $ - $ -
States, municipalities and
political subdivisions 26.9 28.8 1.9 -
Foreign government 24.9 23.9 .9 (1.9)
Public utilities 623.8 643.4 24.1 (4.5)
CMO's 703.5 717.7 18.4 (4.2)
All other corporate 2,314.0 2,447.3 141.0 (7.7)
Redeemable preferred stocks 95.6 98.3 2.9 -
$3,788.7 $3,959.4 $189.2 ($18.5)
1993
Available for Sale
Amortized Market Gross Unrealized
Cost Value Gains Losses
Bonds and Redeemable
Preferred Stocks:
United States Government
and government agencies
and authorities $ 208.0 $ 217.1 $ 9.1 $ -
States, municipalities and
political subdivisions 35.0 37.3 2.3 -
Foreign government 15.7 15.7 - -
Public utilities 135.9 141.2 5.3 -
CMO's 1,129.0 1,183.3 54.3 -
All other corporate 692.7 754.9 62.2 -
Redeemable preferred stocks - - - -
$2,216.3 $2,349.5 $133.2 $ -
Other stocks $ 207.1 $ 339.2 $137.2 ($5.1)
1992
Held to Maturity
Amortized Market Gross Unrealized
Cost Value Gains Losses
Bonds and Redeemable
Preferred Stocks:
United States Government
and government agencies
and authorities $ 86.5 $ 87.0 $ .5 $ -
States, municipalities and
political subdivisions 52.9 55.1 2.9 (.7)
Foreign government 22.7 19.3 - (3.4)
Public utilities 742.1 761.9 20.7 (.9)
CMO's 1,176.6 1,197.1 24.5 (4.0)
All other corporate 2,447.0 2,512.5 78.0 (12.5)
Redeemable preferred stocks 69.7 72.7 3.0 -
$4,597.5 $4,705.6 $129.6 ($21.5)
1992
Available for Sale
Amortized Market Gross Unrealized
Cost Value Gains Losses
Bonds and Redeemable
Preferred Stocks:
United States Government
and government agencies
and authorities $ 430.4 $ 441.6 $11.2 $ -
States, municipalities and
political subdivisions - - - -
Foreign government4) - - - -
Public utilities 25.1 25.9 .8 -
CMO's 878.8 919.6 41.6 (.8)
All other corporate 571.5 589.4 21.9 (4.0)
Redeemable preferred stocks - - - -
$1,905.8 $1,976.5 $75.5 ($ 4.8)
The table below sets forth the scheduled maturities of bonds and
redeemable preferred stocks based on carrying value as of December
31, 1993. Data based on market value is generally the same.
Collateralized mortgage obligations have an average life of
approximately 4 years at December 31, 1993.
Held to Available
Maturity Maturity for Sale
One year or less 1% 1%
After one year through five years 7 5
After five years through ten years 18 13
After ten years 55 31
81 50
Collateralized mortgage obligations 19 50
100% 100%
AMERICAN FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Gross gains of $69.4 million, $85.2 million and $208.8 million and
gross losses of $16.5 million, $4.7 million and $236.9 million were
realized on sales of fixed maturity investments during 1993, 1992 and
1991, respectively.
Realized gains (losses) and changes in unrealized appreciation
(depreciation) on fixed maturity and equity security investments are
summarized as follows (in thousands):
Fixed Equity Tax
Maturities Securities Effects Total
1993
Realized $ 52,915 $29,350 ($28,793) $ 53,472
Change in Unrealized 125,112 83,700 (73,084) 135,728
1992
Realized 80,503 20,971 (34,501) 66,973
Change in Unrealized (78,293) 44,300 11,558 (22,435)
1991
Realized (28,076) 78,871 (17,270) 33,525
Change in Unrealized 349,596 (67,200) (96,015) 186,381
Investment in other stocks at December 31, 1992 consisted of
(in thousands):
Reporting
Cost Market Value
Insurance companies' portfolios $178,055 $226,455 $226,455
Other companies' portfolios 4,421 4,633 4,421
$182,476 $231,088 $230,876
At December 31, 1992, gross unrealized gains on other stocks were
$63.7 million and gross unrealized losses were $15.1 million.
Carrying values of investments were determined after deducting
cumulative provisions for impairment aggregating $47 million and $78
million at December 31, 1993 and 1992, respectively.
Fair values for investments are based on prices quoted, when
available, in the most active market for each security. If quoted
prices are not available, fair value is estimated based on present
values, fair values of comparable securities, or similar methods.
Short-term investments are carried at cost; loans receivable are
stated at the aggregate unpaid balance. Carrying amounts of these
investments approximate their fair value.
AMERICAN FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
E. Investment in Investee Corporations Investment in investee
corporations represents AFC's ownership of securities of certain
companies. All of the companies named in the following table are
subject to the rules and regulations of the SEC. Market value of the
investments (excluding $50 million in non-public securities at
December 31, 1992, for which market values are not available) was
approximately $940 million and $700 million at December 31, 1993 and
1992, respectively.
AFC's investment (and common stock ownership percentage) and equity in
net earnings and losses of investees are stated below (dollars in
thousands):
Investment (Ownership %) Equity in Net Earnings (Losses)
12/31/93 12/31/92 1993 1992 1991
American Premier(a) $559,116 (41%) $ - $ 91,700 $ - $24,739
Chiquita 277,854 (46%) 312,589 (46%) (24,038) (132,256) 3,417
GACC 36,892 (20%) 35,000 (40%) - (186,972) -
General Cable(b) 25,938 (45%) 27,619 (45%) (1,682) (17,630) -
Spelling Enter-
tainment Group(c) - 107,556 (48%) 1,782 1,288 -
Sprague(d) - - - (9,440) (17,117)
Other(e) - 85,443 2,100 6,300 655
$899,800 $568,207 $ 69,862 ($338,710) $11,694
<FN>
(a) Accounted for as a subsidiary from December 31, 1991 to March 31, 1993.
(b) Spun-off from American Premier in July 1992.
(c) Sold in March 1993.
(d) Became a subsidiary and changed its name to American Annuity on
December 31, 1992.
(e) Primarily represents investees of American Premier.
American Premier operates businesses primarily in specialty property
and casualty insurance. In March 1994, American Premier changed its
name from The Penn Central Corporation to reflect the nature of its
business. Chiquita is a leading international marketer, processor and
producer of quality fresh and processed food products. GACC is
engaged in the ownership and operation of television and radio
stations. General Cable primarily manufactures and markets electrical
and communication wire and cable products.
Due to GACC's financial difficulties, AFC transferred all GACC
securities and loans to the investee account and reduced the carrying
value of that investment to estimated net realizable value ($35
million) at the end of 1992. AFC resumed equity accounting for its
investment in GACC following GACC's reorganization at the end of 1993.
In July 1992, American Premier distributed to its shareholders
approximately 88% of the stock of General Cable. AFC and its
subsidiaries, excluding American Premier, received approximately 45%
of the shares. The shares retained by American Premier are being held
for distribution to creditors and other persons. Accordingly, those
shares were included in "Other stocks" at December 31, 1992 and
AMERICAN FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
General Cable was not consolidated because control was temporary. The
operating results of General Cable for the first six months of 1992
are included in other income.
Sprague reported net losses of $29 million in 1992 and $53 million in
1991. Over the past few years, Sprague sold substantially all of its
operating businesses and recorded substantial restructuring charges
and loss provisions ($25 million in 1992 and $55 million in 1991).
Included in AFC's consolidated retained earnings at December 31, 1993,
was approximately $145 million applicable to equity in undistributed
net losses of investees. The unamortized negative goodwill in
investees totaled approximately
$62 million at December 31, 1993.
Summarized financial information for AFC's major investees at December
31, 1993, is shown below (in millions). See "Investee Corporations"
in Management's Discussion and Analysis.
American Premier Underwriters, Inc.(*)
1993 1992 1991
Cash and Investments $2,579 $2,142
Other Assets 1,471 1,344
Insurance Claims and Reserves 1,426 1,069
Debt 523 656
Minority Interest 15 17
Shareholders' Equity 1,722 1,503
Revenues of Continuing Operations $1,763 $1,425 $1,275
Income from Continuing Operations 243 51 50
Discontinued Operations (11) 1 (47)
Cumulative Effect of Accounting Change - 253 -
Net Income 232 305 3
<FN>
(*) Amounts for 1992 and 1991 were reclassified by American Premier
in 1993 to reflect a discontinued operation.
Chiquita Brands International, Inc.
1993 1992 1991
Current Assets $ 770 $1,071
Non-current Assets 1,971 1,810
Current Liabilities 504 588
Non-current Liabilities 1,635 1,618
Shareholders' Equity 602 675
Net Sales of Continuing Operations $2,533 $2,723 $2,604
Operating Income (Loss) 104 (97) 198
Income (Loss) from Continuing Operations (51) (222) 111
Discontinued Operations - (62) 17
Net Income (Loss) (51) (284) 128
AMERICAN FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Great American Communications
1993 1992 1991
Contracts, Broadcasting Licenses
and Other Intangibles $575 $540
Other Assets 145 174
Long-term Debt 433 635
Minority Interest - Preferred Stock
of Subsidiary - 275
Shareholders' Equity (Deficit) 139 (339)
Net Revenues of Continuing Operations $205 $211 $202
Operating Income (Loss) 40 (642) 12
Loss from Continuing Operations (67) (613) (33)
Discontinued Operations - 11 40
Extraordinary Items 408 5 77
Net Income (Loss) 341 (597) 84
General Cable Corporation
Six
Year months
ended ended
12/31/93 12/31/92
Current Assets $338 $366
Non-current Assets 282 345
Current Liabilities 110 159
Notes Payable to American Premier 287 255
Non-current Liabilities 83 78
Shareholders' Equity 140 219
Net Sales from Continuing Operations $764 $416
Operating Income (Loss) 2 (29)
Loss From Continuing Operations (26) (53)
Discontinued Operations (32) -
Net Loss (58) (53)
General Cable's 1993 results included a $34.4 million loss on the
disposal of its equipment manufacturing businesses. AFC's share of
this loss reduced negative goodwill and was not included in AFC's
equity in General Cable's earnings. General Cable's results for the
first six months of 1992 (prior to its spin-off from American Premier)
are included in American Premier's results.
F. Property, Plant and Equipment Property, plant and equipment consisted
of the following at December 31, (in thousands):
1993 1992
Land $ 3,654 $ 33,487
Buildings and improvements 21,493 96,523
Machinery, equipment and office furnishings 89,329 278,805
Other - 46,622
114,476 455,437
Less accumulated depreciation (69,526) (239,586)
$ 44,950 $215,851
AMERICAN FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
G. Cost in Excess of Net Assets Acquired At December 31, 1993 and 1992,
accumulated amortization of the excess of cost over net assets of
purchased subsidiaries amounted to approximately $94 million and $176
million, respectively. Amortization expense was $15.0 million in
1993, $25.0 million in 1992 and $37.2 million in 1991.
H. Long-Term Debt Long-term debt consisted of the following at December
31, (in thousands):
1993 1992
American Financial Corporation (Parent Company):
12% Debentures (including Series A, B and BV)
due September 1999, less discount of $554 and
$9,902 (imputed interest rate - 12.1% and 13.2%) $201,319 $199,614
10% Debentures (including Series A) due October 1999,
less discount of $0 and $10,312 (imputed
interest rate - 10.0% and 12.0%) 150,017 147,095
12-1/4% Debentures due September 2003 128,294 121,634
13-1/2% Debentures (including Series A) due September
2004, less discount of $0 and $5,730 (imputed
interest rate - 13.5% and 15.0%) 73,546 67,816
Other, less discount of $0 and $1,030 18,698 21,002
$571,874 $557,161
American Premier:
Subordinated debt due between 1997 and 2011 $ - $633,300
Other - 24,500
$ - $657,800
Other Subsidiaries:
Great American Holding Corporation ("GAHC"):
11% Notes due August 1998, less discount of $894
and $1,034 (imputed interest rate - 11.2%) $149,106 $148,966
Floating Rate Notes due September 1995, less
discount of $175 and $264 49,825 49,736
Notes payable to banks due in installments
to December 2000 - 100,000
American Annuity Group, Inc. ("AAG"):
11-1/8% Senior Subordinated Notes due February 2003 125,000 -
9-1/2% Senior Notes due August 2001 100,000 -
Bank term loan due October 1999 - 180,000
Bridge loan due 1993 - 50,000
American Financial Enterprises, Inc.:
Notes payable to banks due December 1997 15,000 59,000
13-7/8% Notes due September 1993 - 85,500
Other 43,201 121,015
$482,132 $794,217
AMERICAN FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
At December 31, 1993, sinking fund and other scheduled principal
payments on debt for the subsequent five years were as follows (in
thousands):
Parent Other
Company Subsidiaries Total
1994 $12,080 $ 3,669 $ 15,749
1995 10,883 63,050 73,933
1996 11,843 1,064 12,907
1997 17,818 15,667 33,485
1998 19,223 158,821 178,044
In February 1994, AFC commenced an offer to issue new 9-3/4%
Debentures due April 20, 2004 and cash in exchange for its publicly
traded debentures. In December 1993, AFC wrote off $24.3 million in
unamortized original issue discount and debt issue costs related to
the debentures covered in the exchange offer.
Based on the results of this offer and cash availability, AFC will
redeem some or all of the unexchanged debentures. In March 1994, AFC
called for redemption its 13-1/2% Debentures and its 13-1/2% Series A
Debentures. Holders of either issue may accept the Exchange Offer.
Parent company sinking fund and other scheduled principal payments on
debt at December 31, 1993, assuming at least 50% of each issue of the
old debentures are exchanged, would be as follows (in thousands):
1994 1995 1996 1997 1998
$3,231 $261 $261 $5,493 $261
AFC may, at its option, apply debentures otherwise purchased in excess
of scheduled payments to satisfy any sinking fund requirement. The
scheduled principal payments shown above assume that debentures
purchased are applied to the earliest scheduled retirements.
At December 31, 1993, the estimated fair value of all long-term debt
of AFC and its subsidiaries exceeded carrying value by approximately
$23 million. Fair values of debt instruments were calculated using
quoted market prices where available and present values, discounted
cash flows, or similar techniques in other cases.
During 1993, GAHC entered into a new revolving credit agreement with
several banks under which it can borrow up to $300 million.
Borrowings bear interest at prime rate or at LIBOR plus 1.375% and are
collateralized by a pledge of 50% of the stock of AFC's largest
insurance subsidiary. The agreement converts to a four-year term loan
in December 1996 and requires annual facility fees and commitment fees
based upon the unused portion of the credit line. AFC guarantees
amounts borrowed under the credit agreement.
In connection with the acquisition of GALIC, AAG borrowed $180 million
under a Bank Term Loan Agreement and $50 million under a Bridge Loan.
In 1993, AAG sold $225 million principal amount of Notes to the public
and used the proceeds to pay off the Bank and Bridge Loan.
Unamortized debt issue costs of $4.6 million (net of minority
interest) were written off and are included in extraordinary items.
AMERICAN FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
AFEI redeemed its 13-7/8% Notes and paid $40 million of bank debt with
the proceeds from the sale of shares of American Premier in August
1993. Subsequently, AFEI entered into a new revolving credit
agreement which enables it to borrow a maximum of $20 million through
December 1997.
Cash interest payments of $133 million, $206 million and $221 million
were made on long-term debt in 1993, 1992 and 1991, respectively.
I. Capital Subject to Mandatory Redemption Capital subject to mandatory
redemption includes AFC's Mandatory Redeemable Preferred Stock and
capital subject to a put option.
Mandatory Redeemable Preferred Stock The outstanding shares of
Mandatory Redeemable Preferred Stock are nonvoting, cumulative and
consist of the following:
Series E, $10.50 par value - authorized 2,725,000 shares; annual
dividends per share $1; to be retired at par in 1994 and 1995;
504,711 shares (stated value - $5.3 million) outstanding at
December 31, 1993 and 1992.
Series I, $.01 par value - authorized 700,000 shares; annual
dividends per share $2.66 in 1993; redeemable at $28 per share;
150,212 shares (stated value - $4.2 million) and 225,318 shares
(stated value - $6.3 million) outstanding at December 31, 1993 and
1992, respectively.
The fair market value of AFC's Mandatory Redeemable Preferred Stock
approximates stated value.
In February 1994, AFC redeemed the outstanding shares of Series I
Preferred Stock. Approximately 45% of the Series E Preferred Stock is
scheduled to be retired in December 1994; the balance is to be retired
in December 1995.
During 1993, AFC purchased 75,106 shares of Series I Preferred Stock
for approximately $2.1 million. During 1992, AFC purchased 680,369,
115,500 and 75,105 shares of Series D, Series E and Series I Preferred
Stock, respectively, for approximately $10.4 million. During 1991,
AFC purchased 679,689 shares of Series D Preferred Stock for
approximately $7.1 million.
Capital Subject to Put Option Under an agreement entered into in
1983, certain members of the Lindner family (the "Group") who, in the
aggregate, owned 1,848,235 shares of AFC Common Stock, were granted
options to purchase an additional 1,225,000 shares. The options,
which expire two years after the death of Robert D. Lindner, are
exercisable at $6.65 per share plus $.40 per share per year from April
1983. Holders have the right to "put" to AFC any shares of AFC Common
Stock or options at any time at a price equal to
AMERICAN FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
AFC's book value per share, adjusted to reflect all equity securities
(including investees and subsidiaries with publicly traded shares) at
market prices. The purchase price is to be paid one-third in cash and
the balance in a five-year installment note bearing interest at a rate
equal to the five- year U.S. Treasury note rate plus 3%. AFC has the
right to "call" any AFC shares owned by the Group after Robert D.
Lindner's death at the same price as described under the "put" (but
not less than $6.65 per share plus 10% compounded annually from April
1983). Further, AFC has a right of first refusal on shares owned by
members of the Group.
At December 31, 1993, the Group owned 1,533,767 shares of AFC Common
Stock and options to purchase an additional 762,500 shares. The
aggregate purchase price for all shares covered by the put is included
in "capital subject to mandatory redemption" and amounted to $40
million and $16 million at December 31, 1993 and 1992, respectively.
Changes in the aggregate purchase price are charged or credited
directly to retained earnings without affecting earnings.
J. Other Preferred Stock Under provisions of both the Nonvoting
(55,800,000 shares authorized, including the redeemable issues) and
Voting (3,500,000 shares authorized, none outstanding) Cumulative
Preferred Stock, the Board of Directors is authorized to divide the
authorized stock into series and to set specific terms and conditions
of each series.
The outstanding shares of Nonvoting Cumulative Preferred Stock,
excluding those that are mandatorily redeemable, consist of the
following:
Series F, $1 par value - authorized 15,000,000 shares; annual
dividends per share $1.80; 10% annually may be retired at AFC's
option at $20 per share from 1994 to 1996; 13,753,254 shares
(stated value - $168.0 million) outstanding at December 31, 1993
and 1992.
Series G, $1 par value - authorized 2,000,000 shares; annual
dividends per share $1.05; may be retired at AFC's option at $10.50
per share; 364,158 shares (stated value - $600,000) outstanding at
December 31, 1993 and 1992.
In 1992 and 1991, AFC sold 1.0 million and 1.4 million shares of
Series F Preferred Stock to its ESORP for $15.0 million and $19.4
million in cash, respectively.
K. Common Stock At December 31, 1993, Carl H. Lindner and certain
members of the Lindner family owned all of the outstanding Common
Stock of AFC (18,971,217 shares, including 1,533,767 shares subject to
a put option as described in Note I). Of the 32,300,000 authorized
shares of Common Stock at December 31, 1993, 762,500 shares were
reserved for issuance upon exercise of options.
AMERICAN FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
L. Income Taxes The following is a reconciliation of income taxes at the
statutory rate of 35% in 1993 and 34% in 1992 and 1991 and income
taxes as shown in the Statement of Operations (in thousands):
Deferred
Liability Method Method
1993 1992 1991
Earnings (loss) before income taxes:
Continuing operations $261,985 ($144,854) $118,710
Discontinued operations - - 23,335
Extraordinary items (4,559) - -
Adjusted earnings (loss) before
income taxes $257,426 ($144,854) $142,045
Income taxes at statutory rate $ 90,099 ($ 49,250) $ 48,295
Effect of:
Losses (utilized) not utilized (59,141) 54,100 14,805
Minority interest 12,082 13,289 30,164
Dividends received deduction (8,336) (8,774) (7,493)
Amortization of intangibles 2,658 4,223 8,028
State income taxes 820 4,170 2,388
Foreign income taxes 76 992 (8,382)
Tax exempt interest (659) (628) (758)
Fresh start adjustment - - (7,926)
Subsidiaries' issuance of stock - - (11,014)
Equity in earnings of subsidiaries
not included in AFC's tax group - - 4,083
Other (303) (676) (2,495)
Total provision 37,296 17,446 69,695
Less amounts applicable to discontinued
operations - - (7,539)
Provision for income taxes as shown on
the Statement of Operations $ 37,296 $ 17,446 $ 62,156
Adjusted earnings (loss) before income taxes consisted of the following
(in thousands):
1993 1992 1991
Subject to tax in:
United States $255,682($144,854) ($ 45,020)
Foreign jurisdictions 1,744 - 187,065
$257,426($144,854) $142,045
AMERICAN FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
The total income tax provision consists of (in thousands):
Deferred
Liability Method Method
1993 1992 1991
Current taxes:
Federal $43,592 $39,791 $ 5,388
Foreign 503 1,172 34,355
State 1,843 4,736 3,729
Deferred taxes (credits):
Federal (8,256) (28,926) 17,688
Foreign (386) 673 8,535
$37,296 $17,446 $69,695
The 1993 provision for income tax includes a $15 million first quarter
benefit due to American Premier's revision of estimated future taxable
income likely to be generated during the company's tax loss
carryforward period.
The components of the provision for deferred income taxes for 1991 were
(in millions):
Undistributed earnings of subsidiaries
and investees $19.6
Losses not utilized 20.5
Insurance underwriting adjustments (16.3)
Investment income (16.2)
Disposition of assets 35.9
Book value incentive plan (11.9)
Other (5.4)
$26.2
For income tax purposes, certain members of the AFC consolidated tax
group had approximately $180 million of operating loss carryforwards
available at December 31, 1993. The carryforwards are scheduled to
expire as follows: $23 million in 1994, $9 million in 1995 through 2000
and $148 million in 2001 through 2005.
AMERICAN FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
The cumulative effect of implementing SFAS No. 109 in 1992, which
resulted from giving recognition to previously unrecognized tax
benefits, was income of $85.4 million. This income consisted of a
charge of $40 million related to members of the AFC tax group and a
benefit of $125.4 million for AFC's share of American Premier's
accounting change. Deferred income taxes reflect the impact of
temporary differences between the carrying amounts of assets and
liabilities recognized for financial reporting purposes and the amounts
recognized for tax purposes. The significant components of deferred
tax assets and liabilities for AFC's tax group included in the Balance
Sheet at December 31, were as follows (in millions):
1993 1992
American
AFC AFC Premier
Tax Group Tax Group Tax Group
Deferred tax assets:
Net operating loss carryforwards $ 63.0 $ 87.5 $278.4
Capital loss carryforwards - - 80.6
Insurance claims and reserves 172.1 165.7 78.8
Other, net 61.5 34.7 81.9
296.6 287.9 519.7
Valuation allowance for deferred
tax assets (87.6) (183.6) (274.3)
209.0 104.3 $245.4
Deferred tax liabilities:
Deferred acquisition costs (60.3) (53.9)
Investment securities (186.7) (37.5)
(247.0) (91.4)
Net deferred tax asset (liability) ($ 38.0) $ 12.9 $245.4
The gross deferred tax asset was reduced by a valuation allowance based
on an analysis of the likelihood of realization. Factors considered in
assessing the need for a valuation allowance include: (i) recent tax
returns, which show neither a history of large amounts of taxable
income nor cumulative losses in recent years, (ii) opportunities to
generate taxable income from sales of appreciated assets, and (iii) the
likelihood of generating larger amounts of taxable income in the
future. The likelihood of realizing this asset will be reviewed
periodically; any adjustments required to the valuation allowance will
be made in the period in which the developments on which they are based
become known.
Cash payments for income taxes, net of refunds, were $49.6 million,
$9.6 million and $41.2 million for 1993, 1992 and 1991, respectively.
AMERICAN FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
M. Discontinued Operations In December 1991, AFC sold Hunter Savings
Association to Provident Bancorp (an affiliate) for approximately $67.9
million in Provident Bancorp securities and $834,000 in cash. Prior to
the sale, Hunter paid AFC a dividend of approximately $26.8 million in
cash. Discontinued operations for 1991 consisted of the following (in
thousands):
Gain
Operations on Sale
Pretax Earnings $17,683 $5,652
Tax (5,617) (1,922)
Net Earnings $12,066 $3,730
N. Pending Legal Proceedings Counsel has advised AFC that there is little
likelihood of any substantial liability being incurred from any
litigation pending against AFC and subsidiaries.
O. Benefit Plans AFC expensed ESORP contributions of $8.9 million in
1993, $7.4 million in 1992 and $7.5 million in 1991. Other operating
and general expenses include a charge of $1 million in 1993, a credit
of $1 million in 1992 and a charge of $38 million in 1991 for units
outstanding under AFC's Book Value Incentive Plan.
In 1993, AFC began accruing postretirement benefits over the period the
employees qualify for such benefits. Expense for 1993 was $3.1
million. Prior to this change, costs were charged to expense as
incurred.
P. Transactions With Affiliates Various business has been transacted
among AFC and its subsidiaries over the past several years, including
rentals, data processing services, accounting services, investment
management services, loans, leases, insurance, advertising and sales of
assets. Unless otherwise disclosed, none of these transactions had a
material effect on the net earnings or equity of AFC. Aggregate
charges for these services within AFC and its subsidiaries have been
insignificant in relation to consolidated revenues.
In addition, AFC and its subsidiaries have had certain of the above
types of transactions with certain of AFC's officers and directors and
with business entities owned by them. Charges for such services have
been less than one percent of consolidated revenues in 1993, 1992 and
1991.
In 1993 AFC sold stock of an affiliate to certain of its officers and
employees for $1.8 million in cash and $270,000 in 5.25% unsecured
notes due in five equal annual installments beginning in 1996.
In 1991, The Provident Bank purchased a $5 million loan to an AFC
resort real estate subsidiary from an unrelated bank. The loan is
secured by the subsidiary's property and is guaranteed by AFC. At
December 31, 1993, $452,000 is owed to Provident under the loan.
Members of the Lindner family are majority owners of Provident's
parent.
Except as noted otherwise, all of the above transactions have taken
place at approximate market rates or values and, in the opinion of
management, all amounts are fully collectible.
AMERICAN FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Q. Quarterly Operating Results (Unaudited) The operations of certain of
AFC's business segments are seasonal in nature. While insurance
premiums are recognized on a relatively level basis, claim losses
related to adverse weather (snow, hail, hurricanes, tornados, etc.) may
be seasonal. Quarterly results necessarily rely heavily on estimates.
These estimates and certain other factors, such as the nature of
investees' operations and discretionary sales of assets, cause the
quarterly results not to be necessarily indicative of results for
longer periods of time. The following are quarterly results of
consolidated operations for the two years ended December 31, 1993 (in
millions). See Note B for changes in ownership of companies whose
revenues are included in the consolidated operating results and for the
effects of gains on sales of subsidiaries in individual quarters.
Following American Premier's announcement in May 1993 that it was
committed to sell its Federal Systems segment, AFC classified the
operations of this business as "discontinued" for the periods American
Premier was accounted for as a subsidiary. These operations have been
classified as "continuing" operations below since the amounts were not
material ($1.4 million in the first quarter of 1993 and $1.5 million,
$1.5 million and $1.4 million in the first three quarters of 1992). In
addition, AAG's $5.2 million (pretax before minority interest) writeoff
of debt issue costs in the third quarter of 1993 has been reclassified
as "extraordinary".
1st 2nd 3rd 4th Total
Quarter Quarter Quarter Quarter Year
1993
Revenues $1,024.7 $557.0 $555.7 $583.3 $2,720.7
Earnings from continuing
operations 88.6 18.1 75.3 42.7 224.7
Extraordinary items - - (4.6) - (4.6)
Net earnings 88.6 18.1 70.7 42.7 220.1
1992
Revenues $1,028.4 $1,112.0 $969.8 $818.7 $3,928.9
Earnings (loss) from
continuing operations 21.2 11.7 (20.7) (174.5) (162.3)
Cumulative effect of
accounting change 85.4 - - - 85.4
Net earnings (loss) 106.6 11.7 (20.7) (174.5) (76.9)
Realized gains (losses) on sales of securities and charges for
possible losses on investments for the respective quarters amounted
to (in millions):
1st 2nd 3rd 4th Total
Quarter Quarter Quarter Quarter Year
Realized gains:
1993 $17.4 $23.6 $17.7 $23.6 $ 82.3
1992 11.6 11.5 19.5 58.9 101.5
Provisions for impairment:
1993 $ - ($ 1.5) $ - $ - ($ 1.5)
1992 - - (1.0) (1.0) (2.0)
AMERICAN FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
R. Additional Information The following amounts were expensed during the
periods shown (in millions):
1993 1992 1991
Insurance premium taxes $44.2 $59.2 *
Advertising * * $62.7
(*) Amounts less than 1% of consolidated revenues.
Total rental expense for various leases of ships, railroad rolling
stock, office space and data processing equipment was $24 million, $52
million and $160 million for 1993, 1992 and 1991, respectively.
Sublease rental income related to these leases totaled $6.6 million in
1993, $8.2 million in 1992 and $23.8 million in 1991.
Future minimum rentals, related principally to office space and railroad
rolling stock, required under operating leases having initial or
remaining noncancelable lease terms in excess of one year at
December 31, 1993, were as follows: 1994 - $28 million, 1995 - $24
million, 1996 - $18 million, 1997 - $11 million, 1998 - $7 million and
$9 million thereafter. At December 31, 1993, minimum sublease rentals
to be received through the expiration of the leases aggregated
$38 million.
Other operating and general expenses included charges (credits) for
possible losses on agents' balances, reinsurance recoverables and other
receivables in the following amounts: 1993 - $10 million, 1992 -
($3 million) and 1991 - $26 million. The aggregate allowance for such
losses amounted to approximately $91 million and $108 million at
December 31, 1993 and 1992, respectively.
Insurance Securities owned by insurance subsidiaries having a carrying
value of approximately $410 million at December 31, 1993, were on
deposit as required by regulatory authorities. Included in "Prepaid
expenses, deferred charges and other assets" at December 31, 1993 and
1992 were $176 million and $213 million, respectively, of insurance
company deferred policy acquisition costs.
The following table shows (in millions) investment income earned and
investment expenses incurred by AFC's insurance companies.
1993 1992 1991
Insurance group investment income:
Fixed maturities $566.2 $615.8 $502.6
Equity securities 13.3 16.9 10.0
Other 6.7 3.2 3.2
586.2 635.9 515.8
Insurance group investment
expenses (*) (40.9) (41.1) (37.7)
$545.3 $594.8 $478.1
(*) Included in "Other operating and general expenses" in the
Statement of Operations.
AMERICAN FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
"Insurance claims and reserves" at December 31, 1993 and 1992, included
$675 million and $814 million, respectively, of unearned insurance
premiums.
AFC's insurance subsidiaries are required to file financial statements
with state insurance regulatory authorities prepared on an accounting
basis prescribed or permitted by such authorities (statutory basis).
Net earnings and policyholders' surplus on a statutory basis for the
insurance subsidiaries were as follows (in millions):
Policyholders'
Net Earnings Surplus
1993 1992 1991 1993 1992
Property and casualty
companies $179 $200 $67 $887 $1,089
Life insurance company 44 59 93 251 216
New insurance regulations requiring rate rollbacks are being
implemented in California as a result of the 1988 ballot initiative,
Proposition 103. GAI has not received a rollback assessment and
management believes an ultimate liability, if any, cannot be estimated.
Since it is not probable that GAI will pay a material premium refund,
no provision has been made in the financial statements for a potential
liability.
In the normal course of business, AFC's insurance subsidiaries assume
and cede reinsurance with other insurance companies. The following
table shows (in millions) (i) amounts deducted from property and
casualty premium income accounts in connection with reinsurance ceded,
(ii) amounts included in income for reinsurance assumed and (iii)
reinsurance recoveries deducted from losses and loss adjustment
expenses.
1993 1992 1991
Reinsurance ceded $422 $278 $284
Reinsurance assumed:
From companies under management contract 63 17 8
Other, primarily non-voluntary pools
and associations 61 117 55
Reinsurance recoveries 343 151 109
The fair value of the liability for annuities in the payout phase is
assumed to be the present value of the anticipated cash flows,
discounted at current interest rates. Fair value of annuities in the
accumulation phase is assumed to be the policyholders' cash surrender
amount. The aggregate fair value of all annuity liabilities, net of
deferred policy acquisition costs, at December 31, 1993, approximates
the amounts recorded in the financial statements.
AMERICAN FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Financial Instruments with Off-Balance-Sheet Risk In the normal course
of business, AFC and its subsidiaries enter into financial instrument
transactions which may present off-balance-sheet risks, of both credit
and market risk nature. These transactions include interest rate swaps
and collars, commitments to fund loans, loan guarantees and commitments
to purchase and sell securities or loans.
Market risk arises from the possibility that interest and exchange rate
movements may make financial instruments less valuable or more onerous.
Credit risk arises from the possibility of failure of another party to
perform according to the terms of a contract. Appropriate collateral,
credit analysis and other control procedures are considered in the
light of circumstances of individual situations to minimize risk.
Management does not anticipate any material adverse effect on its
financial position resulting from involvement in these instruments.
At December 31, 1993, AFC and its subsidiaries had commitments to fund
credit facilities and contribute limited partnership capital totalling
$35 million at December 31, 1993.
S. Restrictions on Transfer of Funds and Assets of Subsidiaries Payments
of dividends, loans and advances by AFC's subsidiaries are subject to
various state laws, federal regulations and debt covenants which limit
the amount of dividends, loans and advances that can be paid. The
maximum amount of dividends payable in 1994 from GAI based on its 1993
earned surplus is approximately $108 million. Total "restrictions" on
intercompany transfers from AFC's subsidiaries cannot be quantified due
to the discretionary nature of the restrictions.
T. Subsequent Event (Unaudited) In February 1994, American Premier
announced that it was considering a proposal from AFC to purchase GAI's
personal lines business (primarily insurance of private passenger
automobiles and residential property) for $380 million. These
operations had earned premiums of $342 million in 1993 and represented
approximately 25% of the premiums earned by all of GAI's insurance
operations. The purchase would include the transfer of a portfolio of
principally investment grade securities with a market value of
approximately $450 million. The estimated net book value (GAAP basis)
of the business to be transferred would be approximately $200 million.
PART IV
ITEM 14
Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) Documents filed as part of this Report:
1. Financial Statements are included in Part II, Item 8.
2. Financial Statement Schedules:
A. Selected Quarterly Financial Data is included in Note Q to the
Consolidated Financial Statements.
B. Schedules filed herewith for 1993, 1992 and 1991:
Page
II - Amounts Receivable from Related Parties and Under-
writers, Promoters, and Employees other than
Related Parties S-2
III - Condensed Financial Information of Registrant S-4
XIV - Supplemental Information Concerning
Property-Casualty Insurance Operations S-6
All other schedules for which provisions are made in the applicable
regulation of the Securities and Exchange Commission have been
omitted as they are not applicable, not required, or the
information required thereby is set forth in the Financial
Statements or the notes thereto.
C. The annual report on Form 10-K of American Premier Underwriters,
Inc. (File No. 1-1569) for the period ended December 31, 1993, is
hereby incorporated by reference.
Copies of this Annual Report on Form 10-K and all subsequent
reports filed pursuant to Section 13 of the Securities Exchange Act
of 1934 may be obtained from the Commission's principal office at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549,
upon payment of the fees prescribed by the rules and regulations of
the Commission or may be examined without charge at Room 1024 of
the Commission's public reference facilities at the same address.
Copies of material filed with the Commission may also be inspected
at the following regional offices: 500 West Madison Street, Suite
1400, Chicago, Illinois 60661; and 7 World Trade Center, New York,
New York 10048.
3. Exhibits - see Exhibit Index on page E-1.
(b) Reports on Form 8-K:
Date of Report Items Reported
February 23, 1994 1. Exchange Offer for AFC Debentures
2. Proposal to sell personal lines
business to American Premier
March 17, 1994 1. Amended Exchange Offer terms
2. Call for redemption of 13-1/2%
Debentures
AMERICAN FINANCIAL CORPORATION AND SUBSIDIARIES
SCHEDULE II - AMOUNTS RECEIVABLE FROM RELATED PARTIES
AND UNDERWRITERS, PROMOTERS AND EMPLOYEES OTHER THAN RELATED PARTIES
THREE YEARS ENDED DECEMBER 31, 1993
(In Thousands)
COLUMN B COLUMN D
Balance at Deductions
COLUMN A beginning COLUMN C Amounts Amount
Name of Debtor of period Additions CollectedWritten Out
American Financial Corporation
Year ended December 31, 1993:
Rodger M. Miller $ 85(a) $110(b) $ - $ -
Year ended December 31, 1992:
James E. Evans $ 335 $ - $ 250 $ -
Fred J. Runk 136 - 136 -
Ronald F. Walker 370 - 285 -
Year ended December 31, 1991:
James E. Evans $1,301 $ 85 $1,051 $ -
Sandra W. Heimann 565 85 565 -
Rodger M. Miller 141 85 141 -
Thomas E. Mischell 351 85 351 -
Fred J. Runk 51 85 - -
Ronald F. Walker 401 119 150 -
COLUMN E
Balance at end
of period
COLUMN A Not
Name of Debtor Current Current
American Financial Corporation
Year ended December 31, 1993:
Rodger M. Miller $ - $195
Year ended December 31, 1992:
James E. Evans - $ 85(a)
Fred J. Runk - -
Ronald F. Walker - 85(a)
Year ended December 31, 1991:
James E. Evans - $335
Sandra W. Heimann - 85
Rodger M. Miller - 85
Thomas E. Mischell - 85
Fred J. Runk - 136
Ronald F. Walker - 370
<FN>
(a) Represents unsecured 7% note due in 1996.
(b) Represents unsecured 5.25% note due in five equal annual installments
beginning in 1996.
See Note P to Financial Statements - "Transactions with Affiliates" for
additional amounts due from related parties.
AMERICAN FINANCIAL CORPORATION AND SUBSIDIARIES
SCHEDULE II - AMOUNTS RECEIVABLE FROM RELATED PARTIES
AND UNDERWRITERS, PROMOTERS AND EMPLOYEES OTHER THAN RELATED PARTIES
THREE YEARS ENDED DECEMBER 31, 1993
(In Thousands)
COLUMN B COLUMN D
Balance at Deductions
COLUMN A beginning COLUMN C Amounts
Name of Debtor of period Additions Collected Other
Subsidiaries
Year Ended December 31, 1993:
American Premier:
Robert E. Gill $ 117(a) $ - $ - $ 117(#)
Neil M. Hahl 123(a) - - 123(#)
Joseph M. Kampf 332(b) - - 332(#)
Alfred W. Martinelli 8,906(c) - - 8,906(#)
Robert W. Olson 260(a) - - 260(#)
Sandi Stavenhagen 100(d) - - 100(#)
Year Ended December 31, 1992:
Spelling Entertainment:
John T. Brady $ 250 $ - $ - $ 250(#)
Ronald Lightstone 500 - - 500(#)
Richard P. Rubinstein 100 - - 100(#)
American Premier:
Mercad A. Cramer, Jr. 489 - 489 -
Robert E. Gill - 117 - -
Neil M. Hahl - 123 - -
Joseph M. Kampf 403 734 805 -
Alfred W. Martinelli 9,697 1,842 2,633 -
Robert W. Olson 170 118 28 -
Sandi Stavenhagen 101 - 1 -
Year Ended December 31, 1991:
Spelling Entertainment:
John T. Brady $ - $ 250(*) $ - $ -
Jules Haimovitz - 1,350(*) - 1,350(e)
Ronald Lightstone - 500(*) - -
Richard P. Rubinstein - 100(*) - -
American Premier:
Mercad A. Cramer, Jr. - 489(*) - -
Joseph M. Kampf - 403(*) - -
Alfred W. Martinelli - 9,697(*) - -
Robert W. Olson - 170(*) - -
Sandi Stavenhagen - 101(*) - -
COLUMN E
Balance at end
of Period
COLUMN A Not
Name of Debtor Current Current
Subsidiaries
Year Ended December 31, 1993:
American Premier:
Robert E. Gill $ - $ -
Neil M. Hahl - -
Joseph M. Kampf - -
Alfred W. Martinelli - -
Robert W. Olson - -
Sandi Stavenhagen - -
Year Ended December 31, 1992:
Spelling Entertainment:
John T. Brady - -
Ronald Lightstone - -
Richard P. Rubinstein - -
American Premier:
Mercad A. Cramer, Jr. - -
Robert E. Gill - 117(a)
Neil M. Hahl - 123(a)
Joseph M. Kampf - 332(b)
Alfred W. Martinelli - 8,906(c)
Robert W. Olson - 260(a)
Sandi Stavenhagen - 100(d)
Year Ended December 31, 1991:
Spelling Entertainment:
John T. Brady - $ 250
Jules Haimovitz - -
Ronald Lightstone - 500
Richard P. Rubinstein - 100
American Premier:
Mercad A. Cramer, Jr. - 489
Joseph M. Kampf - 403
Alfred W. Martinelli - 9,697
Robert W. Olson - 170
Sandi Stavenhagen - 101
<FN>
(*) Represents balance due at date company became a subsidiary.
(#) Represents balance due at date company ceased to be a subsidiary.
(a) Promissory notes of participants in stock option loan program; secured
by shares purchased, bearing interest at rates ranging from 3.65% to
7.06%.
(b) Note receivable, incidental to employee relocation, bearing interest at
6.49% per annum. Principal and interest are payable on or before June
30, 2000.
(c) Includes recourse promissory notes of participants in American
Premier's stock plan; secured by shares purchased, bearing interest at
9% and due not later than ten years after purchase date.
(d) Mortgage note receivable, incidental to relocation, secured by
homesite. Principal and interest is payable monthly based on an
amortization schedule of 30 years and an annual interest rate of
9-3/4%.
(e) Individual ceased being an employee during the year.
AMERICAN FINANCIAL CORPORATION - PARENT ONLY
SCHEDULE III - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(In Thousands)
Condensed Balance Sheet
December 31,
1993 1992
Assets:
Cash and short-term investments $ 2,681 $ 8,816
Investment in securities 12,217 3,381
Receivables from affiliates 460,915 257,720
Investment in subsidiaries 1,051,028 949,997
Investment in investee corporations 267,219 281,887
Other assets 41,919 62,232
$1,835,979 $1,564,033
Liabilities and Capital:
Accounts payable, accrued expenses and other
liabilities 46,840 $ 65,168
Payables to affiliates 630,795 634,027
Long-term debt 571,874 557,161
Capital subject to mandatory redemption 49,232 27,683
Other capital 537,238 279,994
$1,835,979 $1,564,033
Condensed Statement of Operations
Year ended December 31,
1993 1992 1991
Revenues:
Dividends from:
Subsidiaries $248,168 $185,471 $502,005
Investees 4,035 11,498 6,665
252,203 196,969 508,670
Equity in undistributed earnings (losses)
of subsidiaries and investees 65,435 (309,970) (219,087)
Realized losses on sales of securities (1,743) (2,476) (9,908)
Gains (losses) on sales of investees 59,182 1,772 (9,171)
Gains on sales of subsidiaries - 64,483 36,298
Provision for impairment of investments - (12,300) (47,290)
Investment and other income 21,370 16,397 15,134
396,447 (45,125) 274,646
Costs and Expenses:
Interest charges on intercompany borrowings 3,736 5,632 27,958
Interest charges on other borrowings 71,057 70,619 73,832
Other operating and general expenses 59,669 23,478 54,146
134,462 99,729 155,936
Earnings (loss) from continuing operations
before income taxes 261,985 (144,854) 118,710
Provision for income taxes 37,296 17,446 62,156
Earnings (loss) from continuing operations 224,689 (162,300) 56,554
Discontinued operations - - 15,796
Earnings (loss) before extraordinary items and
cumulative effect of accounting change 224,689 (162,300) 72,350
Extraordinary items (4,559) - -
Cumulative effect of accounting change - 85,400 -
Net Earnings (Loss) $220,130 ($ 76,900) $ 72,350
AMERICAN FINANCIAL CORPORATION - PARENT ONLY
SCHEDULE III - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(In Thousands)
Condensed Statement of Cash Flows
Year ended December 31,
1993 1992 1991
Operating Activities:
Net earnings (loss) $220,130 ($ 76,900) $ 72,350
Adjustments:
Cumulative effect of accounting change - (85,400) -
Equity in earnings of subsidiaries (168,244) (49,407) (207,869)
Equity in net losses (earnings) of
investees (1,963) 222,545 (3,991)
Depreciation and amortization 2,252 4,019 3,971
Provision for impairment of investments - 12,300 47,290
Realized gains on sales of subsidiaries
and investments (57,421) (64,581) (17,219)
Writeoff of debt discount and issue costs 24,814 - -
Change in receivables and payables
from affiliates, net (196,338) (108,462) 96,923
Increase (decrease) in payables (13,146) (17,931) 23,331
Dividends from subsidiaries and investees 131,914 72,651 64,056
Other (15,417) (30,719) (1,877)
(73,419) (121,885) 76,965
Investing Activities:
Purchases of subsidiaries and other
investments (29,501) (42,690) (1,117)
Sales of subsidiaries and other
investments 126,196 167,663 483
Other, net 344 35 (21,524)
97,039 125,008 (22,158)
Financing Activities:
Additional long-term borrowings 9,984 786 915
Reductions of long-term debt (9,062) (17,516) (5,498)
Issuance of capital stock - 15,000 19,409
Repurchases of capital stock (2,643) (10,549) (6,756)
Cash dividends paid (28,034) (29,001) (30,453)
(29,755) (41,280) (22,383)
Net Increase (Decrease) in Cash and Short-term Investments (6,135) (38,157) 32,424
Cash and short-term investments at beginning
of period 8,816 46,973 14,549
Cash and short-term investments at end
of period $ 2,681 $ 8,816 $ 46,973
AMERICAN FINANCIAL CORPORATION AND SUBSIDIARIES
SCHEDULE XIV - SUPPLEMENTAL INFORMATION CONCERNING
PROPERTY-CASUALTY INSURANCE OPERATIONS
THREE YEARS ENDED DECEMBER 31, 1993
(IN MILLIONS)
Column A Column B Column C Column D Column E Column F
(a)
Reserves For
Deferred Unpaid Claims (b)
Affiliation Policy and Claims Discount (c)
With Acquisition Adjustment Deducted In Unearned Earned
Registrant Costs Expenses Column C Premiums Premiums
CONSOLIDATED PROPERTY-CASUALTY ENTITIES
1993 $137 $2,724 $56 $675 $1,495(d)
1992(e) $169 $3,444 $51 $814 $2,151
1991 $1,197
Column A Column G Column H Column I Column J Column K
Claims and Claim Amortization Paid
Adjustment Expensesof Deferred Claims
Affiliation Net Incurred Related To Policy and Claim
With Investment Current Prior Acquisition Adjustment Premiums
Registrant Income Year Years Costs Expenses Written
1993 $206(d) $1,103(d) ($39)(d) $345(d) $1,052(d) $1,587(d)
1992(e) $301 $1,589 ($34) $494 $1,461 $2,222
1991 $192 $ 877 ($30) $292 $ 856 $1,190
<FN>
(a) Grossed up for reinsurance recoverables of $611 and $558 at December 31,
1993 and 1992 respectively.
(b) Discounted at rates ranging from 3.5% to 8%.
(c) Grossed up for prepaid reinsurance premiums of $122 and $82 at December 31,
1993 and 1992 respectively.
(d) Includes American Premier's Insurance Group through March 31, 1993.
(e) Includes American Premier's Insurance Group.
AMERICAN PREMIER INSURANCE GROUP
Information for American Premier is not included since that company files such information
with the Commission as a registrant in its own right.
INDEX TO EXHIBITS
AMERICAN FINANCIAL CORPORATION
Number Exhibit Description
3 Articles of Incorporation and Code
of Regulations, filed as Exhibit 3
to AFC's Form 10-K for 1988. *
4 Instruments defining the The rights of holders of
rights of security holders. Registrant's Preferred Stock
are defined in the Articles
of Incorporation. Registrant
has no outstanding debt
issues exceeding 10% of the
assets of Registrant and
consolidated subsidiaries.
Management Contracts:
10(a) Book Value Incentive Plan, filed as
Exhibit 10(a) to AFC's Form 10-K
for 1983. *
10(b) Option Agreement, filed as Exhibit
10(b) to AFC's Form 10-K for 1983. *
10(c) Nonqualified ESORP Plan, filed as Exhibit
10(e) to AFC's Form 10-K for 1989. *
12 Computation of ratios of earnings
to fixed charges and fixed charges
and preferred dividends.
21 Subsidiaries of the Registrant.
28 Information from reports furnished to
state insurance regulatory authorities.
99 Form 10-K of American Premier Underwriters, Inc.
for 1993.
(*) Incorporated herein by reference.
AMERICAN FINANCIAL CORPORATION AND SUBSIDIARIES
EXHIBIT 12 - COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
AND FIXED CHARGES AND PREFERRED DIVIDENDS
(Dollars in Thousands)
1993 1992 1991 1990 1989
Pretax income (loss) excluding discontinued operations $257,426 ($144,854) $118,710 $ 77,450 $ 38,553
Minority interest in subsidiaries having fixed charges(*) 34,800 37,685 44,369 15,779 (20,904)
Less undistributed equity in losses (earnings) of investees (25,067) 376,020 5,817 (28,362) (27,663)
Fixed charges:
Interest expense 153,836 212,150 245,757 353,220 368,134
Debt discount and expense 5,273 4,698 6,961 9,273 9,214
One-third of rentals 5,801 16,341 45,286 74,166 65,003
EARNINGS $432,069 $502,040 $466,900 $501,526 $432,337
Fixed charges:
Interest expense $153,836 $212,150 $245,757 $353,220 $368,134
Debt discount and expense 5,273 4,698 6,961 9,273 9,214
One-third of rentals 5,801 16,341 45,286 74,166 65,003
Pretax preferred dividend requirements of subsidiaries - - 598 2,913 3,774
Capitalized interest - - 5,495 8,423 2,448
FIXED CHARGES $164,910 $233,189 $304,097 $447,995 $448,573
Fixed charges and preferred dividends:
Fixed charges - per above $164,910 $233,189 $304,097 $447,995 $448,573
Preferred dividends (**) 26,122 26,218 24,899 24,180 29,711
FIXED CHARGES AND PREFERRED DIVIDENDS $191,032 $259,407 $328,996 $472,175 $478,284
Ratio of Earnings to Fixed Charges 2.62 2.15 1.54 1.12 0.96
Earnings sufficient (insufficient) to cover Fixed Charges $267,159 $268,851 $162,803 $ 53,531 ($ 16,236)
Ratio of Earnings to Fixed Charges and Preferred Dividends 2.26 1.94 1.42 1.06 0.90
Earnings sufficient (insufficient) to cover Fixed Charges
and Preferred Dividends $241,037 $242,633 $137,904 $ 29,351 ($ 45,947)
<FN>
(*) Amounts include preferred dividends of subsidiaries.
(**) Amounts represent preferred dividend requirements multiplied by the ratio that pretax earnings bears to
net earnings (within AFC's consolidated tax group) in periods when there is a tax provision.
AMERICAN FINANCIAL CORPORATION
EXHIBIT 21 - SUBSIDIARIES OF THE REGISTRANT
The following is a list of subsidiaries of AFC at December 31, 1993. All
corporations are subsidiaries of AFC and, if indented, subsidiaries of the
company under which they are listed.
Percentage of
State of Common Equity
Name of Company Incorporation Ownership
American Financial Enterprises, Inc. Connecticut 83%
Great American Holding Corporation Ohio 100
Great American Insurance Company Ohio 100
American Annuity Group, Inc. Delaware 80
Great American Life Insurance Company Ohio 100
American Empire Surplus Lines Insurance
Company Delaware 100
American National Fire Insurance Company New York 100
Great American Management Services, Inc. Ohio 100
Mid-Continent Casualty Company Oklahoma 100
Stonewall Insurance Company Alabama 100
Transport Insurance Company Ohio 100
The names of certain subsidiaries are omitted, as such subsidiaries
in the aggregate would not constitute a significant subsidiary.
See Part I, Item 1 of this Report for a description of certain
companies in which AFC owns a significant portion and accounts for under the
equity method.
AMERICAN FINANCIAL CORPORATION
EXHIBIT 28 - INFORMATION FROM REPORTS FURNISHED
TO STATE INSURANCE REGULATORY AUTHORITIES
Schedule P of Annual Statements
A. CONSOLIDATED PROPERTY AND CASUALTY ENTITIES - See Attached Schedules
Schedule P (prepared in accordance with the rules prescribed by
the National Association of Insurance Commissioners) includes the
reserves of AFC's consolidated property and casualty
subsidiaries. The following is a summary of Schedule P reserves
(in millions):
GAI
Insurance
Group
Schedule P - Part 1 Summary - col. 33 $1,823
- col. 34 321
Statutory Loss and Loss Adjustment Expense Reserves $2,144
B. UNCONSOLIDATED SUBSIDIARIES None
C. 50% OR LESS OWNED PROPERTY AND CASUALTY INVESTEES Not Included
Information for American Premier Underwriters, Inc. for 1993 is
not included since that company files such information with the
Commission as a registrant in its own right.
Signatures
Pursuant to the requirements of Section 13 of the Securities
Exchange Act of 1934, American Financial Corporation has duly caused this
Report to be signed on its behalf by the undersigned, duly authorized.
American Financial Corporation
Signed: March 28, 1994 BY:s/CARL H. LINDNER
Carl H. Lindner
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf
of the Registrant and in the capacities and on the dates indicated:
Signature Capacity Date
s/CARL H. LINDNER Chairman of the Board March 28, 1994
Carl H. Lindner of Directors
s/ROBERT D. LINDNER Director March 28, 1994
Robert D. Lindner
s/RONALD F. WALKER Director* March 28, 1994
Ronald F. Walker
s/FRED J. RUNK Vice President and March 28, 1994
Fred J. Runk Treasurer (principal
financial and accounting
officer)
* Member of the Audit Committee