AFC's insurance subsidiaries lease the majority of their office and storage facilities in numerous cities throughout the United States, including Great American's and AAG's home offices in Cincinnati. An AAG subsidiary owns an office building in Mobile, Alabama which is being marketed for sale or lease; one-fifth of its 82,000 square feet is company occupied.
Ratio of Earnings to Fixed Charges (a) 3.44 4.20 4.99 3.10 1.69 Ratio of Earnings to Fixed Charges and Preferred Dividends (a) 3.15 3.52 3.96 2.60 1.40
Ratios AFC's debt to total capital ratio at the parent holding company level (excluding amounts due AFG) improved from nearly 60% at the date of the Mergers to approximately 17% at December 31, 1998. Including amounts due AFG, the ratio was 28% at the end of 1998.
Sources of Funds AFC and American Premier are organized as holding companies with almost all of their operations being conducted by subsidiaries. These parent corporations, however, have continuing cash needs for administrative expenses, the payment of principal and interest on borrowings, shareholder dividends and taxes. Funds to meet these obligations come primarily from dividend and tax payments from their subsidiaries.
Management believes these parent holding companies have sufficient resources to meet their liquidity requirements through operations in the short-term and long-term future. If funds generated from operations, including dividends and tax payments from subsidiaries, are insufficient to meet fixed charges in any period, AFC would be required to generate cash through borrowings, sales of securities or other assets, or similar transactions.
In December 1997, AFC entered into a reciprocal Master Credit Agreement with the various AFG holding companies under which these companies make funds available to each other for general corporate purposes.
The senior debentures of AFC and AAG are rated investment grade by three nationally recognized rating agencies; the subordinated debentures of APU and AAG are rated investment grade by two of the agencies.
American Premier have now been dismissed with prejudice, and, although USX has appeals pending, American Premier and its outside legal counsel continue to believe that American Premier will not suffer a material loss from this litigation.
Great American's liability for unpaid losses and loss adjustment expenses includes amounts for various liability coverages related to environmental, hazardous product and other mass tort claims. At December 31, 1998, Great American had recorded $866 million (before reinsurance recoverables of $241 million) for such 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.
Year 2000 Status AFC's Year 2000 Project is a corporate-wide program designed to ensure that its computer systems and other equipment using date-sensitive computer chips will function properly in the year 2000. The Project also encompasses communicating with agents, vendors, financial institutions and others with which the companies conduct business to determine their Year 2000 readiness and resulting effects on AFC. AFC's Year 2000 Project Office monitors and coordinates the work being performed by the various business units and reports monthly to the Audit Committee of the Board of Directors and more frequently to senior management.
Projected Year 2000 costs and completion dates are based on management's best estimates. However, there can be no assurances that these estimates will be achieved. Should software modifications and new software installations not be completed on a timely basis, the resulting disruptions could have a material adverse effect on operations.
Fixed Maturity Portfolio The fair value of AFC's fixed maturity portfolio ($10.3 billion at December 31, 1998) is directly impacted by changes in market interest rates. AFC's fixed maturity portfolio is comprised of substantially all fixed rate investments with primarily short-term and intermediate-term maturities. This practice allows flexibility in reacting to fluctuations of interest rates. The portfolios of AFC's property and casualty insurance and life and annuity operations are managed with an attempt to achieve an adequate risk-adjusted return while maintaining sufficient liquidity to meet policyholder obligations. AFC's life and annuity operations use various actuarial models in an attempt to align the duration of their invested assets to the projected cash flows of policyholder liabilities.
1999 2000 2001 2002 2003 Remaining Total $660 $620 $560 $500 $450 $2,610 $5,400
Debt and Preferred Securities The following table shows scheduled principal payments (in millions) on fixed-rate and variable-rate long- term debt of AFC and its subsidiaries and related weighted average interest rates. At December 31, 1998, there were $225 million of subsidiary trust preferred securities outstanding, none of which are scheduled for redemption during the next five years. The weighted average interest rate on these securities is 8.46%.
Fixed income investment funds are generally invested in securities with short-term and intermediate-term maturities with an objective of optimizing total return while allowing flexibility to react to changes in market conditions. At December 31, 1998, the average life of AFC's fixed maturities was just under 6 years.
Investments in MBSs represented approximately one-fourth of AFC's fixed maturities at December 31, 1998. AFC invests primarily in MBSs which have a reduced risk of prepayment. In addition, the majority of MBSs held by AFC were purchased at a discount. Management believes that the structure and discounted nature of the MBSs will mitigate the effect of prepayments on earnings over the anticipated life of the MBS portfolio. Approximately 90% of AFC's MBSs are rated "AAA" with substantially all being of investment grade quality. 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 or liquidity) is inherent in holding such investments.
Because most income of the property and casualty insurance subsidiaries has been sheltered from income taxes through 1997, nontaxable municipal bonds represent only a small portion (less than 1%) of the portfolio.
Prior to the Mergers, the realization of capital gains, primarily through sales of equity securities, was an integral part of AFC's investment program. Individual securities are sold creating gains or losses as market opportunities exist. Pretax capital gains recognized upon disposition of securities, including investees, during the past five years have been: 1998 - $16 million; 1997 - $57 million; 1996 - $166 million; 1995 - $84 million and 1994 - $50 million. At December 31, 1998, the net unrealized gain (before income taxes) on AFC's fixed maturity and equity securities was $403 million and $223 million, respectively.
Results for 1997 include $91 million in pretax gains, primarily on the sales of affiliates and other securities, and reflect declines of $41 million in underwriting results in AFC's property and casualty insurance business.
Net written premiums and combined ratios for AFC's property and casualty insurance subsidiaries were as follows (dollars in millions):
Special A&E Charge Operating results for 1998 and 1996 were adversely impacted by increases in A&E reserves (exposures for which AFC may be liable under general liability policies written years ago) and higher catastrophe losses. A standard insurance measure used in testing the reasonableness of A&E reserves has been the "survival ratio" (reserves divided by average annual paid losses for the preceding three years). Due in part to the greater uncertainties inherent in estimating A&E claims, management has evaluated its survival ratio in relation to those published for the industry. Based primarily on industry survival ratios published in mid-1996, AFC increased A&E reserves of its discontinued insurance lines by $120 million in 1996 by recording a third quarter, noncash pretax charge of $80 million and reallocating $40 million, or approximately 2%, of its Specialty group reserves (approximately $2.1 billion at December 31, 1996).
Under the agreement covering the sale of its Commercial lines division in 1998, AFC retained liabilities for certain A&E exposures. Prompted by this retention and as part of the continuing process of monitoring reserves, AFC began a thorough study of its A&E exposures. Based on this study and observations of industry trends in this regard, AFC decided that the survival ratio may not be the best basis for measuring ultimate A&E exposures. AFC's study was reviewed by independent actuaries who used state of the art actuarial techniques that have wide acceptance in the industry. The methods used involved sampling and statistical modeling incorporating external data bases that supplement the internal information. AFC recorded a fourth
Net written premiums increased $101.8 million (7%) in 1997 due primarily to premiums recorded by a newly acquired aviation division and the return of premiums in 1996 related to the withdrawal from a voluntary pool. The Specialty group had a combined ratio of 100% in 1997 despite a significant decline in the results of AFC's California workers' compensation business relating to (i) deteriorating underwriting margins on business written in 1996 and 1997, (ii) reserve reductions in 1996 primarily for business written prior to 1995 in response to a fundamental change in the California workers' compensation market and actuarial evaluations and (iii) several current year commercial casualty losses as well as adverse development in certain prior year claims. The Specialty group's combined ratio was unusually low in 1996 due primarily to the reallocation of $40 million in reserves to A&E reserves (a combined ratio impact of 3.0 percentage points) and the 1996 reductions in California workers' compensation reserves mentioned above.
1998 compared to 1997 Investment income increased $16.9 million (2%) from 1997 due primarily to an increase in the average amount of investments held partially offset by decreasing market interest rates.
Investee Corporation Equity in net losses of investee corporation represents AFC's proportionate share of the results of Chiquita Brands International. Equity in net losses excludes AFC's share of amounts included in extraordinary items; the amount for 1996 includes $1.5 million in earnings from Citicasters which was sold in 1996.
Gains on Sales of Investees The gains on sales of investees in 1998 and 1997 represent pretax gains to AFC as a result of Chiquita's public issuance of shares of its common stock. The gain on sale of investee in 1996 represents a pretax gain, before $6.5 million of minority interest, on the sale of Citicasters common stock.
1998 compared to 1997 Interest expense decreased $14.5 million (17%) from 1997 due primarily to a decrease in borrowings from AFG.
Income Taxes See Note K to the Financial Statements for an analysis of items affecting AFC's effective tax rate.
Accounting Standard Subject of Standard (Year Implemented) Reference SFAS #130 Comprehensive Income (1998) "Comprehensive Income" SFAS #131 Segment Information (1998) "Segment Information" SFAS #133 Derivatives (2000) "Derivatives" SOP 98-5 Start-up Costs (1999) "Start-up Costs"
We have audited the accompanying consolidated balance sheet of American Financial Corporation and subsidiaries as of December 31, 1998 and 1997, and the related consolidated statements of earnings, changes in shareholders' equity and cash flows for each of the three years in the period ended December 31, 1998. 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 Company's management. Our responsibility is to express an opinion on these financial statements and schedules based on our audits.
AMERICAN FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (Dollars In Thousands)
Liabilities and Capital: Unpaid losses and loss adjustment expenses $ 4,773,377 $ 4,225,336 Unearned premiums 1,232,848 1,328,910 Annuity benefits accumulated 5,449,633 5,528,111 Life, accident and health reserves 341,595 709,899 Payable to American Financial Group, Inc. 270,500 352,766 Other long-term debt: Holding companies 315,536 286,661 Subsidiaries 176,896 194,084 Liabilities related to separate accounts 120,049 300,491 Accounts payable, accrued expenses and other liabilities 1,112,442 908,622 Total liabilities 13,792,876 13,834,880
Year ended December 31, 1998 1997 1996 Income: Property and casualty insurance premiums $2,698,738 $2,824,381 $2,844,512 Life, accident and health premiums 170,365 121,506 103,552 Investment income 885,591 868,689 845,330 Equity in net losses of investees (13,198) (5,564) (16,955) Realized gains (losses) on sales of: Securities 6,275 46,006 (3,470) Investees 9,420 11,428 169,138 Subsidiaries 158,673 33,602 36,837 Other investments 5,293 - - Other income 137,674 152,854 134,904 4,058,831 4,052,902 4,113,848
Costs and Expenses: Property and casualty insurance: Losses and loss adjustment expenses 2,001,783 2,075,616 2,051,421 Special asbestos and environmental charge 213,500 - 80,000 Commissions and other underwriting expenses 772,917 790,324 793,800 Annuity benefits 261,666 278,829 271,821 Life, accident and health benefits 131,652 110,082 92,315 Interest charges on borrowed money 72,625 87,155 86,148 Minority interest expense 45,279 45,477 54,748 Other operating and general expenses 348,588 331,655 344,052 3,848,010 3,719,138 3,774,305 Earnings before income taxes and extraordinary items 210,821 333,764 339,543 Provision for income taxes 81,418 125,227 89,658
A. Accounting Policies I. Minority Interest B. Acquisitions and Sales of Subsidiaries J. Shareholders' Equity and Investees K. Income Taxes C. Segments of Operations L. Extraordinary Items D. Investments M. Commitments and Contingencies E. Investment in Investee Corporations N. Quarterly Operating Results F. Cost in Excess of Net Assets Acquired O. Insurance G. Payable to American Financial Group P. Additional Information H. Other Long-Term Debt Q. Subsequent Event
Basis of Presentation At the close of business on December 31, 1996, American Financial Group, Inc. ("AFG"), which owns 100% of the Common Stock of American Financial Corporation ("AFC"), contributed to AFC 81% of the common stock of its wholly-owned subsidiary, American Premier Underwriters, Inc. ("American Premier" or "APU"). Since AFC and American Premier were under AFG's common control, the acquisition of American Premier has been recorded by AFC at AFG's historical cost in a manner similar to a pooling of interests.
Investment in Investee Corporation Investments in securities of 20%- to 50%-owned companies are generally carried at cost, adjusted for AFC's proportionate share of their undistributed earnings or losses.
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 reinsured policies. AFC's insurance subsidiaries 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. AFC's insurance subsidiaries also assume reinsurance from other companies. Income on reinsurance assumed is recognized based on reports received from ceding reinsurers.
Policyholder Dividends Dividends payable to policyholders are included in "Accounts payable, accrued expenses and other liabilities" and represent estimates of amounts payable on participating policies which share in favorable underwriting results. The estimate is accrued during the period in which the related premium is earned. Changes in estimates are included in income in the period determined. Policyholder dividends do not become legal liabilities unless and until declared by the boards of directors of the insurance companies.
Income Taxes AFC files consolidated federal income tax returns which include all 80%-owned U.S. subsidiaries, except for certain life insurance subsidiaries and their subsidiaries. Deferred income taxes are calculated using the liability method. Under this method, deferred income tax assets and liabilities are determined based on differences between financial reporting and tax bases and are measured using enacted tax rates. Deferred tax assets are recognized if it is more likely than not that a benefit will be realized.
Start-up Costs Certain costs associated with introducing new products and distribution channels are deferred by AAG and are amortized on a straight-line basis over 5 years. Statement of Position ("SOP") 98-5, "Reporting on the Costs of Start-Up Activities," was issued during the second quarter of 1998 and is effective for fiscal years beginning after December 15, 1998. The SOP requires that (i) costs of start-up activities be expensed as incurred and (ii) unamortized balances of previously deferred costs be expensed no later than the first quarter of 1999 and reported as the cumulative effect of a change in accounting principle. AAG had approximately $7 million in capitalized start- up costs at December 31, 1998.
Funeral Services division In September 1998, AAG sold its Funeral Services division for approximately $165 million in cash. The division held assets of approximately $1 billion at the sale date. AFC realized a third quarter pretax gain of $21.6 million, before $2.7 million of minority interest, on this sale.
Buckeye In 1996, AFC sold Buckeye Management Company to Buckeye's management (including an AFG director who resigned in March 1996) and employees for $60 million in cash, net of transaction costs. AFC recognized a $33.9 million pretax gain on the sale.
Effective January 1, 1998, AFC implemented SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." SFAS No. 131 requires segment information to be reported based on how management internally evaluates the operating performance of its business units. Implementation of this standard had no impact on AFC's financial position or results of operations.
1998 1997 1996 Assets Property and casualty insurance (a) $ 8,278,898 $ 7,517,856 $ 7,116,088 Annuities and life 7,174,544 7,693,463 7,009,127 Other 202,287 325,949 674,297 15,655,729 15,537,268 14,799,512 Investment in investees 192,138 200,714 199,651
Operating Profit (Loss) Property and casualty insurance: Underwriting: Personal $ 34,029 $ 21,235 ($ 55,989) Specialty (67,131) (324) 155,405 Other lines (d) (256,360) (62,470) (180,125) (289,462) (41,559) (80,709) Investment and other income 505,801 311,169 359,002 216,339 269,610 278,293 Annuities and life 128,074 93,794 77,119 Other (e) (120,394) (24,076) 1,086 224,019 339,328 356,498 Equity in net losses of investees (13,198) (5,564) (16,955)
Fixed Equity Tax Maturities Securities Effects Total Realized(*) $ 25,841 ($ 19,566) ($ 2,196) $ 4,079 Change in Unrealized 4,982 (69,900) 22,721 (42,197)
Maturities and Gross Gross Purchases Redemptions Sales Gains Losses Held to Maturity (*) $ .8 $ 584.8 $ 45.3 $12.1 ($ .5) Available for Sale 2,154.4 663.8 750.2 24.9 (17.5) Total $2,155.2 $1,248.6 $ 795.5 $37.0 ($18.0)
(*)Prior to reclassification to available for sale at December 31, 1998.
Securities classified as "held to maturity" having amortized cost of $41.8 million, $8.2 million and $9.5 million were sold for gains (losses) of $603,000, ($170,000) and ($159,000) in 1998, 1997 and 1996, respectively, due to significant deterioration in the issuers' creditworthiness.
Summarized financial information for Chiquita at December 31, is shown below (in millions).
Operating income for 1998 includes $74 million of fourth quarter write-downs and costs resulting from widespread flooding in Honduras and Guatemala caused by Hurricane Mitch.
Also, subsequent to the Mergers, American Premier entered into a credit agreement with AFG under which American Premier and AFG made loans of up to $250 million available to each other. The balance outstanding under the credit line bore interest at a variable rate of one percent over LIBOR.
In February 1998, AAG borrowed under the credit line and retired its 11-1/8% Notes. In June 1998, AAG issued $100 million principal amount of 6-7/8% Senior Notes due 2008 and used the net proceeds to reduce outstanding indebtedness under the credit line.
J. Shareholders' Equity At December 31, 1998 and 1997, American Financial Group owned all of the outstanding shares of AFC's Common Stock. The number of shares of AFC Common Stock outstanding were reduced from 45,000,000 to 10,593,000 in connection with the retirement of Series F and G Preferred Stock in December 1997.
Preferred Stock Under provisions of both the Nonvoting (4.0 million shares authorized) and Voting (4.0 million shares authorized) Cumulative Preferred Stock, the Board of Directors may divide the authorized stock into series and set specific terms and conditions of each series. At December 31, 1998 and 1997, the outstanding voting shares of AFC's Preferred Stock consisted of the following:
Series J, no par value; $25.00 liquidating value per share; annual dividends per share $2.00; redeemable at $25.75 per share beginning December 2005 declining to $25.00 at December 2007; 2,886,161 shares (stated value $72.2 million) outstanding at December 31, 1998 and 1997.
In December 1997, AFC retired all shares of its Series F and G Preferred Stock in exchange for approximately $244 million in cash and 2,886,161 shares of the Series J Preferred Stock. AFC recognized a charge to retained earnings of $153.3 million representing the excess of total consideration paid over the stated value of the preferred stock retired.
In 1996, AFC redeemed 1.6 million shares of its Series F Preferred Stock for $31.9 million and purchased 250,000 shares of Series F from its retirement plan for $5.0 million. In 1996, AFC issued 1.6 million shares of its Series G Preferred Stock to its retirement plan for $16.8 million.
Unrealized holding gains (losses) on securities arising during the period ($ 94.3) $ 21.5 $11.5 ($61.3) Less reclassification adjustment for realized gains included in net income 4.7 (1.7) 1.2 4.2 Change in net unrealized gain on marketable securities ($ 89.6) $ 19.8 $12.7 ($ 57.1)
K. Income Taxes The following is a reconciliation of income taxes at the statutory rate of 35% and income taxes as shown in the Statement of Earnings (in thousands): 1998 1997 1996 Earnings before income taxes and extraordinary items $210,821 $333,764 $339,543 Extraordinary items before income taxes (1,258) (11,201) (34,892)
1998 1997 1996 Current taxes (credits): Federal $ 61,501 $ 27,875 $22,450 Foreign 94 - (1,735) State 652 (2,544) 6,369 Deferred taxes: Federal 18,254 96,301 55,250 Foreign 422 (459) 321
L. Extraordinary Items Extraordinary items represent AFC's proportionate share of gains and losses related to debt retirements by the following companies. Amounts shown are net of minority interest and income tax benefits (in thousands):
M. Commitments and Contingencies Loss accruals (included in other liabilities) have been recorded for various environmental and occupational injury and disease claims and other contingencies arising out of the railroad operations disposed of by American Premier's predecessor, Penn Central Transportation Company ("PCTC"), prior to its bankruptcy reorganization in 1978. Under purchase accounting in connection with the Mergers, any such excess liability will be charged to earnings in AFC's financial statements.
N. 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, tornadoes, etc.) may be seasonal. Historically, Chiquita's operations are significantly stronger in the first and second quarters than in the third and fourth quarters. 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, 1998 (in millions).
AFC has realized substantial gains on sales of subsidiaries and investees in recent years. See Note B for a more detailed description of these and other transactions. Sales of subsidiaries also includes pretax charges of $10.5 million and $5.0 million in the third and fourth quarters of 1998, respectively, and $17.0 million in the fourth quarter of 1997 relating to operations expected to be disposed of. Realized gains on sales of securities, affiliates and other investments amounted to (in millions):
O. Insurance Securities owned by insurance subsidiaries having a carrying value of approximately $900 million at December 31, 1998, were on deposit as required by regulatory authorities.
Gross unpaid losses and LAE included in the Balance Sheet $4,773 $4,225 $4,124
1998 1997 Carrying Fair Carrying Fair Value Value Value Value Assets: Fixed maturities $10,323 $10,323 $10,860 $10,951 Other stocks 430 430 446 446 Investment in investee corporation 192 229 201 391
Liabilities: Annuity benefits accumulated $ 5,450 $ 5,307 $ 5,528 $ 5,319 Long-term debt: Holding companies 315 326 287 301 Subsidiaries 177 176 194 195 Trust preferred securities 225 231 225 230
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. Under applicable restrictions, the maximum amount of dividends available to AFC in 1999 from its insurance subsidiaries without seeking regulatory clearance is approximately $281 million. Total "restrictions" on intercompany transfers from AFC's subsidiaries cannot be quantified due to the discretionary nature of the restrictions.
Benefit Plans AFC expensed approximately $22 million in 1998, $21 million in 1997 and $17 million in 1996 for contributions to its retirement and employee savings plans.
AAG has a line of credit with a company owned in part by AFC Holding and a brother of AFC's Chairman. Under the agreement, this company may borrow up to $8 million at 13% with interest deferred and added to principal. At December 31, 1998, $6.1 million was due under the credit line.
In a 1997 transaction, AAG purchased for $4.9 million a minority ownership position in a company engaged in the production of ethanol and AFC's Chairman purchased the remaining ownership. During 1998, this company borrowed $4.0 million from AAG under a subordinated note bearing interest at 14% and paid a $6.3 million capital distribution, including $3.1 million to AAG. AAG's equity investment in this company at December 31, 1998 was $1.8 million. In addition, AAG and Great American have each extended a $5 million line of credit to this company; no amounts have been borrowed under the credit lines.
Q. Subsequent Event (Unaudited) In January 1999, AFC agreed to acquire Worldwide Insurance Company (formerly Providian Auto and Home Insurance Company) from AEGON Insurance Group for approximately $160 million. Worldwide is a provider of direct response private passenger automobile insurance and generated net written premiums in 1998 of approximately $121 million. Completion of the transaction is expected to occur in the first half of 1999.
December 31, 1998 1997 Assets: Cash and short-term investments $ 4,767 $ 10,793 Investment in securities 3,129 908 Receivables from affiliates 72,772 577,661 Investment in subsidiaries 2,769,112 1,960,328 Investment in investee corporation 22,364 22,680 Other assets 8,623 9,550
$2,880,767 $2,581,920 Liabilities and Shareholders' Equity: Accounts payable, accrued expenses and other liabilities $ 122,564 $ 95,513 Payables to affiliates 1,060,469 1,004,865 Long-term debt 167,078 88,059 Shareholders' equity 1,530,656 1,393,483
Year Ended December 31, 1998 1997 1996 Income: Dividends from: Subsidiaries $ 50,061 $ 1,247 $861,178 Investees 177 177 177 50,238 1,424 861,355 Equity in undistributed earnings of subsidiaries and investees 237,599 358,816 (470,879) Realized gains (losses) on sales of: Securities 11 (2,618) 963 Investees 347 421 33,950 Subsidiaries - 731 - Investment and other income 10,978 55,404 46,980 299,173 414,178 472,369
Earnings before income taxes and extraordinary items 210,821 333,764 339,543 Provision for income taxes 81,418 125,227 89,658
Year Ended December 31, 1998 1997 1996 Operating Activities: Net earnings $128,640 $201,390 $221,996 Adjustments: Extraordinary items 763 7,147 27,889 Equity in earnings of subsidiaries (180,328) (224,949) (291,270) Equity in net losses of investees 486 212 379 Depreciation and amortization 647 1,086 505 Realized losses (gains) on sales of subsidiaries and investments (358) 2,262 (34,913) Change in receivables from and payables to affiliates (8,155) 69,603 (10,497) Increase in payables 15,596 57,017 12,790 Dividends from subsidiaries and investees 21,359 1,424 105,485 Other 939 841 7,522 (20,411) 116,033 39,886
Financing Activities: Additional long-term borrowings 112,488 150 75 Reductions of long-term debt (79,418) (94,049) (177,899) Borrowings from affiliates 46,213 315,000 407,500 Repayments of borrowings from affiliates (77,621) (153,500) (263,564) Issuances of Preferred Stock - - 16,800 Repurchases of Preferred Stock - (243,939) (36,912) Capital contributions from parent 18,667 18,667 18,666 Cash dividends paid (5,772) (15,071) (24,898) 14,557 (172,742) (60,232)
Net Increase (Decrease) in Cash and Short-term Investments (6,026) (35,700) 41,395
Cash and short-term investments at beginning of period 10,793 46,493 5,098
Cash and short-term investments at end of period $ 4,767 $ 10,793 $ 46,493
Signed: March 29, 1999 BY:s/CARL H. LINDNER Carl H. Lindner Chairman of the Board and Chief Executive Officer