SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
Current Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
November 13, 1995 Commission File No.: 1-11632
(Date of earliest event reported)
AMERICAN ANNUITY GROUP, INC.
Incorporated in the State of Delaware IRS Employer Identification
No. 06-1356481
250 East Fifth Street
Cincinnati, Ohio 45202
Registrant's Telephone Number
Including Area Code: 513/333-5300
Item 2. Acquisition of Assets.
On November 13, 1995, American Annuity Group, Inc. ("AAG") acquired all
of the outstanding shares of Laurentian Capital Corporation ("Laurentian" or
"LCC") by means of a merger of L.Q. Acquisition Corp., a wholly owned
subsidiary of AAG, into LCC. Laurentian is a life insurance holding company
with total assets of approximately $1.1 billion and revenues of $138 million
in 1994 and $112 million in the first nine months of 1995. Laurentian's
principal insurance subsidiaries are Loyal American Life Insurance Company
("Loyal") and Prairie States Life Insurance Company ("Prairie").
Based on arms-length negotiations between the parties, AAG paid
approximately $106 million for the outstanding common stock of Laurentian
and repaid $45 million of Laurentian indebtedness concurrently with the
acquisition. Great American Life Insurance Company ("GALIC"), a 100% owned
subsidiary of AAG, provided approximately $90 million of the purchase price
in exchange for Loyal and Prairie. AAG funded the balance of the cost of
acquiring Laurentian with the proceeds from a Common Stock Rights Offering
completed in August, borrowings under its line of credit and cash on hand.
Item 7. Financial Statements, Pro Forma Financial Information and
Exhibits.
(a) (i) LCC's audited financial statements for the year ended December
31, 1994 are incorporated by reference to AAG's Registration Statement on
Form S-2 dated July 18, 1995.
(ii) LCC's unaudited financial statements for the nine months
ended September 30, 1995 are incorporated by reference to Laurentian's
quarterly report on Form 10-Q for the quarterly period ended September 30,
1995.
(b) (i) AAG's unaudited pro forma financial information for the year
ended December 31, 1994 is incorporated by reference to AAG's Registration
Statement on Form S-2 dated July 18, 1995.
(ii) AAG's unaudited pro forma financial information for the nine
months ended September 30, 1995:
The accompanying Unaudited Pro Forma Combined Financial Statements
illustrate the estimated effects of the acquisition of Laurentian and are
based on the estimates and assumptions set forth herein and in the notes to
such statements. This pro forma information has been prepared utilizing the
historical financial statements of AAG and Laurentian. This information
should be read in conjunction with the historical financial statements of
AAG and Laurentian and the notes thereto, which are included in their
respective Quarterly Reports on Form 10-Q for the quarter ended September
30, 1995, which are incorporated herein by reference.
The pro forma combined financial statements are unaudited and reflect
the combination of AAG with LCC. The pro forma combined financial
statements have been prepared under the purchase method of accounting for
the acquisition of LCC. The pro forma financial information is presented as
if the acquisition had occurred on (i) January 1, 1995 for purposes of the
pro forma combined income statement for the nine months ended September 30,
1995 and (ii) as of September 30, 1995 for purposes of the pro forma
combined balance sheet. In August 1995, AAG raised $37.2 million in cash
through a Common Stock Rights Offering. The pro forma combined income
statement is presented as if the Rights Offering occurred on January 1,
1995.
Changes to the purchase accounting adjustments included in the
unaudited pro forma combined financial statements are anticipated as the
valuations of acquired assets and assumed liabilities at the date of
acquisition are finalized. The pro forma combined financial statements are
intended for informational purposes only and may not necessarily be
indicative of AAG's future financial position or future results of
operations.
The pro forma financial statements reflect AAG's payment of (i) $13.875
per share for the 6.2 million shares of Laurentian common stock owned by
subsidiaries of Desjardins Laurentian Financial Corporation, and (ii)
$14.125 for the remaining 1.4 million shares of Laurentian common stock.
The total cost of acquiring all outstanding Laurentian common stock will be
approximately $106 million. AAG also repaid $45 million of Laurentian
indebtedness concurrently with the consummation of the acquisition.
The cost of acquiring Laurentian was funded with (i) $90 million from
GALIC in exchange for Laurentian's insurance subsidiaries, (ii) the net
proceeds from the Rights Offering of approximately $37.2 million, (iii)
borrowings under AAG's line of credit and (iv) cash on hand.
AMERICAN ANNUITY GROUP, INC.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
SEPTEMBER 30, 1995
(In millions)
Pro AAG
AAG LCC Forma Pro
Historical Historical Adjustments Forma
Assets
Investments:
Bonds-held to
maturity (@ cost) $3,433.6 $266.9 ($ 2.3)(A-2) $3,698.2
Bonds-available
for sale (@ market) 1,473.6 206.8 (123.4)(B) 1,557.0
Equity securities 25.0 8.3 - 33.3
Investment in investees 22.6 - - 22.6
Mortgage loans 47.6 18.7 - 66.3
Investment in real
estate, net 36.0 3.6 - 39.6
Policy loans 202.4 49.8 - 252.2
Short-term investments 19.3 41.9 - 61.2
5,260.1 596.0 (125.7) 5,730.4
Cash 36.0 52.4 (16.0)(B) 72.4
Accrued investment income 86.8 5.9 - 92.7
Deferred policy
acquisition costs 75.0 77.8 (77.8)(A-3) 75.0
Prepaid and other assets 33.8 93.2 (5.4)(A-4,9) 121.6
Assets held in separate
accounts - 234.8 - 234.8
Value of business
acquired ("VOBA") - - 89.7 (A-7) 89.7
Intangibles 7.1 7.1 (7.1)(A-12) 7.1
$5,498.8 $1,067.2 ($142.3) $6,423.7
Liabilities
Annuity and insurance
liabilities $4,885.3 $ 638.2 $ - $5,523.5
Notes payable 149.7 45.0 (23.0)(B) 171.7
Other liabilities 113.5 31.9 (2.0)(C) 143.4
Liabilities related to
separate accounts - 234.8 - 234.8
5,148.5 949.9 (25.0) 6,073.4
Equity
Common stock, including
paid-in capital 407.2 56.9 (56.9) 407.2
Retained earnings (96.3) 58.9 (58.9) (96.3)
Unrealized gains, net 39.4 1.5 (1.5) 39.4
Total stockholders' equity 350.3 117.3 (117.3) 350.3
$5,498.8 $1,067.2 ($142.3) $6,423.7
AMERICAN ANNUITY GROUP, INC.
UNAUDITED PRO FORMA COMBINED INCOME STATEMENT
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995
(In millions, except per share amounts)
Pro Forma Adjustments AAG
AAG LCC Rights LCC Pro
Historical Historical Offering Acquisition Forma
Revenues
Life, accident and
health premiums $ - $70.8 $ - $ - $ 70.8
Net investment income 297.1 35.1 1.9 (8.2)(E) 325.9
Realized gains 7.1 2.6 - - 9.7
Equity in earnings
of affiliate 2.2 - - - 2.2
Other income 1.6 3.7 - - 5.3
308.0 112.2 1.9 (8.2) 413.9
Costs and Expenses
Benefits to
policyholders 194.2 66.9 - - 261.1
Interest and debt
expenses 13.4 2.7 - (1.5)(F) 14.6
Amortization of
deferred policy
acquisition costs 6.2 10.5 - (10.5)(G) 6.2
Amortization of VOBA - - - 7.9 (D) 7.9
Other operating and
general expenses 32.1 22.6 - (4.4)(H) 50.3
245.9 102.7 - (8.5) 340.1
Income from continuing
operations before
income taxes 62.1 9.5 1.9 0.3 73.8
Provision for income
taxes 21.9 3.2 0.7 0.1 25.9
Net income from
continuing operations $ 40.2 $ 6.3 $1.2 $ 0.2 $47.9
Less preferred dividend
requirements - (0.1) - 0.1 (I) -
Income from continuing
operations applicable
to common stock $ 40.2 $ 6.2 $1.2 $ 0.3 $47.9
Net income from
continuing operations
per share of common
stock $1.01 $1.11
Average number of
shares of common
stock outstanding 39.7 - 3.4 - 43.1
Notes to Unaudited Pro Forma Combined Financial Statements
(In millions)
(A) For accounting purposes, the purchase price of Laurentian common stock
was allocated as follows:
(1) Historical stockholders' equity of LCC $117.3
(2) Mark LCC held to maturity bonds to market (2.3)
(3) Write off LCC deferred policy acquisition costs (77.8)
(4) Write off LCC debt financing costs (0.4)
(5) Additional SAR and stock option expense (4.2)
(6) Severance payments (1.9)
(7) Record estimated value of business acquired 89.7
(8) Transaction fee (0.6)
(9) Record fixed assets at fair market value (5.0)
(2.5)
(10) Deferred taxes 0.9
(11) Phase III deferred tax liability (3.0)
(12) Write off LCC intangibles (7.1)
Total purchase price adjustments, net of tax (11.7)
Purchase price of common stock $105.6
(B) AAG's sources and uses of cash for the acquisition of Laurentian were
as follows:
Sources of cash:
Sale of bonds $123.4
Cash on hand 16.0
Total investments and cash on hand 139.4
Borrowings on AAG credit line 22.0*
$161.4
Uses of cash:
Purchase price of common stock ($105.6)
Repay LCC note payable (45.0)*
Severance and other employee payments (10.2)
Transaction fee (0.6)
($161.4)
* Net reduction in Notes Payable equals $23 million.
(C) To record deferred taxes of $2.1 million and payment of acquisition
related liabilities of $4.1 million.
(D) Present value of future profits reflects the estimated fair value of
the business in force and represents the portion of the cost to acquire
LCC that is allocated to the value of the right to receive future cash
flows from insurance contracts existing at the assumed date of
acquisition. Such value is the present value of the actuarially
determined projected cash flows from the acquired policies.
The 12% discount rate used to determine such value is the rate of
return sought by AAG to invest in the businesses acquired. In
determining the rate of return used to value the policies purchased,
AAG's management considered the magnitude of the risk associated with
each of the actuarial assumptions used in determining expected future
cash flows, cost of capital available to fund the acquisition and the
perceived likelihood of changes in insurance regulations and tax laws.
The amount allocated to the present value of future profits for the
inforce business acquired is based on a preliminary determination.
Assuming an acquisition date of September 30, 1995, expected gross
amortization using current assumptions and accretion of interest based
on an interest rate equal to the liability or contract rates (ranging
from 4% to 7.6%) for the next five years was as follows (in millions):
Year Beginning Gross Accretion Net Ending
Ended Balance Amortizat of Amortizat Balance
September ion Interest ion
30
1996 $89.7 ($15.0) $4.5 ($10.5*) $79.2
1997 79.2 (13.1) 4.0 (9.1) 70.1
1998 70.1 (11.6) 3.5 (8.1) 62.0
1999 62.0 (10.0) 3.1 (6.9) 55.1
2000 55.1 (8.8) 2.8 (6.0) 49.1
* Pro forma VOBA amortization expense for the nine months ended
September 30, 1995 is assumed to be $7.9 million.
(E) Investment income foregone on net cash and investments used to fund
the acquisition ($139.4 million @ 7.8% x 9 months)
(F) Interest expense adjustments consist of (i) the elimination of LCC
interest of $2.7 million in the first nine months of 1995 due to the
assumed repayment of LCC debt, offset by (ii) additional interest
expense of $1.2 million in the first nine months of 1995, based on
AAG's assumed borrowing of $22.0 million at average interest rate of
6.8125%.
(G) Reverse LCC's amortization of deferred policy acquisition costs.
(H) Other operating and general expense adjustments consist of the
following:
Reverse acquisition related expenses ($1.3)
Reverse SAR and stock option expense (0.7)
Estimated reduction in operating and
general expenses (2.5)
Other 0.1
($4.4)
(I) Laurentian's outstanding preferred stock was redeemed in August 1995.
The pro forma combined income statement assumes the redemption occurred
January 1, 1995.
(c) Exhibits:
Exhibit Number
(Referenced to Item 601 of Regulation S-K)
99 Agreement and Plan of Merger dated as of May 25, 1995
incorporated by reference to the Schedule 13D filed by
American Premier Group, Inc. on June 2, 1995 with
respect to the equity securities of Laurentian Capital
Corporation.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMERICAN ANNUITY GROUP, INC.
Date: November 28, 1995 BY: /s/ William J. Maney
William J. Maney
Senior Vice President,
Treasurer and Chief Financial Officer