Operations Statement Data: 1993 1992 1991 1990 1989 __________________________ ____ ____ ____ ____ ____ Net investment income $353.3 $ 3.6 $ 1.9 $ 0.4 $ 1.2 Total revenues 387.2 3.6 1.9 0.4 1.2 Earnings (loss) from continuing operations 53.0 (9.0) (4.7) (6.0) (6.9) Loss from discontinued operations (9.6) (16.8) (47.8) (43.3) (89.9) Extraordinary item (3.4) - - - - Change in accounting principle - (3.1) - - - ______ _____ _____ _____ _____ Net earnings (loss) $ 40.0 ($28.9) ($52.5) ($49.3) ($96.8) ______ _____ _____ _____ _____
Balance Sheet Data: ___________________ Total assets $4,913.8 $4,480.4 $170.1 $294.8 $382.6 Long-term debt 225.9 230.9 27.9 30.6 65.7 Total stockholders' equity 250.3 186.6 108.5 171.8 216.7
Management's Discussion and Analysis of Financial Condition and Results of Operations ________________________________________________
AAG is organized as a holding company with nearly all of its operations being conducted by Great American Life Insurance Company ("GALIC"), which was acquired by AAG on December 31, 1992. The parent corporation, however, has continuing expenditures for administrative expenses, corporate services, liabilities in connection with discontinued operations and, most importantly, for the payment of interest on borrowings and dividends on preferred stock. Since its business is financial in nature, AAG does not prepare its consolidated financial statements using a current-noncurrent format. Consequently, certain traditional ratios and financial analysis tests are not meaningful.
AAG's ability to make interest and principal payments on its debt, and pay dividends on its preferred stock and other holding company costs is dependent on cash payments from GALIC. In 1993, AAG received $53.6 million in tax allocation payments (including $19 million for 1992) and $18.2 million in capital distributions from GALIC. In the second quarter of 1993, AAG made a capital contribution of $13.0 million to GALIC.
Capital distributions by GALIC are subject to various laws and regulations which limit the amount of dividends that can be paid without regulatory approval. (See Note L to the financial statements.) The maximum amount of dividends payable by GALIC in 1994 without approval is approximately $44.0 million.
In January 1994, AAG entered into a four-year $20 million revolving line of credit agreement with a bank. AAG has not made any cash draws under this agreement. Based upon the current level of GALIC's operations and anticipated growth, AAG believes that it will have sufficient resources from GALIC's dividends and tax allocation payments to meet its liquidity requirements.
Investments The National Association of Insurance Commissioners ("NAIC") ___________ assigns quality ratings to publicly traded as well as privately placed securities. At December 31, 1993, 95% of GALIC's fixed maturity portfolio was comprised of investment grade bonds (NAIC rating of "1" or "2") compared to 91% at December 31, 1992. Management believes that the high credit quality of GALIC's investment portfolio should generate a stable and predictable investment return.
The following table provides a comparison of certain amounts for GALIC (in millions):
Net Investment Income GALIC's net investment income increased 7% over the _____________________ comparable 1992 period. An increase in average fixed maturity investments more than offset a decrease in interest rates available in the marketplace. Investment income is reflected in the Statement of Operations net of investment expenses of $4.9 million in 1993.
Discontinued Operations The Company has sold virtually all of its former _______________________ manufacturing businesses. A small Belgium based subsidiary continues to be held for sale along with certain properties, most of which are currently leased to companies using them for manufacturing operations.
The Company has certain obligations related to its former business activities. Among these obligations is the funding of pension plans, environmental remediation costs, lease payments for two former plant sites, certain retiree medical benefits, and certain obligations associated with the sales of the Company's manufacturing operations. In 1992, the Company recorded pretax charges related to discontinued operations totalling $24.5 million. In the fourth quarter of 1993, AAG recorded pretax charges for discontinued operations totalling $14.8 million. These charges included employee related obligations of approximately $9.7 million resulting primarily from a decrease (from 9.5% to 7.125%) in the discount rate used to calculate pension obligations. The remaining charges reflected write-downs and other estimated expenses associated with the Company's former manufacturing properties. (See Note H to the financial statements.)
While it is difficult to estimate future environmental remediation costs accurately, management believes the aggregate cost of remediation at all sites for which it has responsibility will range from $10 million to $15 million. The reserve for environmental remediation work was $10.6 million at December 31, 1993. Changes in regulatory standards and further investigation of these sites could affect estimated costs in the future. Management believes, based on the costs incurred by the Company over the past several years and discussions with its independent environmental consultants, that reserves recorded for such clean-up activities are sufficient to satisfy the known liabilities and that the outcome of the contingencies will not, individually or in the aggregate, have a material adverse effect on the financial condition or results of operations of AAG.
Extraordinary Item In August 1993, AAG prepaid its Bank Term Loan and wrote __________________ off $5.2 million ($3.4 million net of tax) of related unamortized debt issuance costs.
Accounting Change Effective January 1, 1992, AAG implemented Statement of _________________ Financial Accounting Standards ("SFAS") No. 106, "Accounting for Postretirement Benefits Other Than Pensions", and recorded a provision of $3.1 million for the projected future costs of providing postretirement benefits to retirees in its discontinued manufacturing operations.
Consolidated Statement of Changes in Stockholders' Equity: Years Ended December 31, 1993, 1992 and 1991
"Selected Quarterly Financial Data" has been included in Note M to the Consolidated Financial Statements.
The information required by the following Items will be included in American Annuity's definitive Proxy Statement for the 1994 Annual Meeting of Stockholders which will be filed with the Securities and Exchange Commission within 120 days of the Company's fiscal year end and is herein incorporated by reference: