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.
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.
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.
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.
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
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
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.
1994 $ 12,080 $ 3,231 $ 3,231 1995 10,883 261 261 1996 11,843 261 261 1997 17,818 5,493 5,493
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.
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.
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
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.
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.
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.
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.
Many of the improvements experienced by Great American and the market in general in recent years are expected to continue in 1994.
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
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).
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.
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.
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
1993 1992 1991 Minority interest $35 $38 $44 Writeoff of debt discount and issue costs 24 - -
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.
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.
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.
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.
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.
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.
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)
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.
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
AMERICAN FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN CAPITAL ACCOUNTS (In Thousands)
D. Investments Bonds, redeemable preferred stocks and other stocks at December 31, consisted of the following (in millions):
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.
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.
Investment in other stocks at December 31, 1992 consisted of (in thousands):
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.
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):
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.
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.
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)
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.
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.
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.
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.
Mandatory Redeemable Preferred Stock The outstanding shares of Mandatory Redeemable Preferred Stock are nonvoting, cumulative and consist of the following:
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.
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.
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.
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):
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)
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.
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):
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.
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.
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.
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.
2. Financial Statement Schedules: A. Selected Quarterly Financial Data is included in Note Q to the Consolidated Financial Statements.
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.
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.
EXHIBIT 12 - COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES AND FIXED CHARGES AND PREFERRED DIVIDENDS (Dollars in Thousands)
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.
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.
s/CARL H. LINDNER Chairman of the Board March 28, 1994 Carl H. Lindner of Directors
s/FRED J. RUNK Vice President and March 28, 1994 Fred J. Runk Treasurer (principal financial and accounting officer)