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
The following table sets forth certain data for the periods indicated (dollars in millions).
Management's Discussion and Analysis of Financial Condition and Results of Operations GENERAL
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.
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
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.
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.
sales of former manufacturing properties. The subsidiary has reserved $10.6 million at December 31, 1993.
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.
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.
1998 19,223 261 261 1999-2002 343,605 184,928 11,469 2003-2004 154,279 375,296 548,755
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, AFC had gross unrealized gains and losses on bonds and redeemable preferred stocks and equity securities as follows (in millions):
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.
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
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.
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.
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 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.
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.
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.
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%.
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.
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
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
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.
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.
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.
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.
Consolidated Statement of Operations: Years ended December 31, 1993, 1992 and 1991
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 Vice President of AMM James E. Evans 48 Vice President and General Counsel 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.
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.
James E. Evans has served as a Vice President and the General Counsel 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.
The information required by the following Items will be provided within 120 days after end of Registrant's fiscal year.
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.
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 have audited the consolidated financial statements and related schedules of General Cable Corporation and subsidiaries listed in Item 14(a) of the
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.
We have audited the consolidated balance sheet of American Annuity Group,
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.
AMERICAN FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF OPERATIONS (In Thousands)
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)
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:
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%
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
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.
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
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
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)
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
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):
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.
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.
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.
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
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.
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:
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.
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
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.
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)
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.
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.
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".
Realized gains (losses) on sales of securities and charges for possible losses on investments for the respective quarters amounted to (in millions):
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
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.
Page II - Amounts Receivable from Related Parties and Under- writers, Promoters, and Employees other than Related Parties S-2
Date of Report Items Reported February 23, 1994 1. Exchange Offer for AFC Debentures 2. Proposal to sell personal lines business to American Premier
AMERICAN FINANCIAL CORPORATION - PARENT ONLY SCHEDULE III - CONDENSED FINANCIAL INFORMATION OF REGISTRANT (In Thousands)
AMERICAN FINANCIAL CORPORATION AND SUBSIDIARIES SCHEDULE XIV - SUPPLEMENTAL INFORMATION CONCERNING PROPERTY-CASUALTY INSURANCE OPERATIONS THREE YEARS ENDED DECEMBER 31, 1993 (IN MILLIONS)
3 Articles of Incorporation and Code of Regulations, filed as Exhibit 3 to AFC's Form 10-K for 1988. *
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.
EXHIBIT 28 - INFORMATION FROM REPORTS FURNISHED TO STATE INSURANCE REGULATORY AUTHORITIES
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
Carl H. Lindner Chairman of the Board and Chief Executive Officer