AFG's insurance subsidiaries lease the majority of their office and storage facilities in numerous cities throughout the United States, including GAI's and AAG's home offices in Cincinnati. Two AAG subsidiaries own office buildings in Rapid City, South Dakota and Mobile, Alabama. The office building in Rapid City contains about 52,000 square feet, approximately three-fourths of which is utilized for company purposes. The building in Mobile is being marketed for sale or lease; one-fifth of its 82,000 square feet is company occupied.
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 from subsidiaries, are insufficient to meet fixed charges in any period, these companies would be required to generate cash through borrowings, sales of securities or other assets, or similar transactions.
1996 compared to 1995 AFG's equity in net earnings of investee corporations decreased $32 million in 1996 compared to 1995. Chiquita reported a decrease in earnings attributable to common shareholders of $63 million in 1996 due primarily to the pretax writedowns and costs of $70 million mentioned above. Earnings attributable to common shareholders for 1995 were $946,000 and included a pretax gain of $19 million primarily resulting from divestitures of operations and other actions taken as part of the company's ongoing program to improve shareholder value. These divestitures and other actions included sales of older ships, the sale of Chiquita's Costa Rican edible oils operations, the shut- down of a portion of Chiquita's juice operations and the reconfiguration of banana production assets.
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.
Chiquita During the second half of 1997, Chiquita issued 4.6 million shares of its common stock in acquisitions of operating businesses. AFG recorded a pretax gain in the fourth quarter of 1997 of approximately $11 million representing the excess of AFG's equity in Chiquita following the issuances of its common stock over AFG's previously recorded carrying value.
Minority Interest Expense Minority interest expense is comprised of (in thousands): 1997 1996 1995 Interest of non-controlling shareholders in earnings of subsidiaries $16,142 $19,851 $14,238 Accrued distributions by subsidiaries on preferred securities: Trust issued securities 24,599 2,780 - AFC preferred stock 13,715 25,190 19,026
Statutory Information AFG's insurance subsidiaries are required to file financial statements with state insurance regulatory authorities prepared on an accounting basis prescribed or permitted by such authorities (statutory basis). Net earnings and policyholders' surplus on a statutory basis for the insurance subsidiaries were as follows (in millions):
The valuation of American Premier's net assets was determined based on the fair market value of the AFG shares issued to shareholders other than AFC and was allocated to American Premier's assets and liabilities based on their fair values at the date of acquisition.
To facilitate the AFG Reorganization, AFG became a wholly-owned subsidiary of a newly formed holding company ("AFG Holdings") and shareholders of AFG received AFG Holdings common stock on a one- for-one basis. Upon consummation of the AFG Reorganization, AFG Holdings changed its name to American Financial Group, Inc. and AFG changed its name to AFC Holding Company. As a result, shareholders of AFG immediately prior to the AFG Reorganization became shareholders of a new parent company having the same name. No material change in AFG's financial condition or in the rights of AFG security holders occurred as a result of the AFG Reorganization.
Investments Debt securities are classified as "held to maturity" and reported at amortized cost if AFG has the positive intent and ability to hold them to maturity. Debt and equity securities are classified as "available for sale" and reported at fair value with unrealized gains and losses reported as a separate component of shareholders' equity if the securities are not classified as held to maturity or bought and held principally for selling in the near term. Only in certain limited circumstances, such as significant issuer credit deterioration or if required by insurance or other regulators, may a company change its intent to hold a certain security to maturity without calling into question its intent to hold other debt securities to maturity in the future.
Fair Value of Financial Instruments Methods and assumptions used in estimating fair values are described in Note Q to the financial statements. These fair values represent point-in-time estimates of value that might not be particularly relevant in predicting AFG's future earnings or cash flows.
The following tables (in thousands) show AFG's assets, revenues and operating profit (loss) by significant business segment. Capital expenditures, depreciation and amortization are not significant. Operating profit (loss) represents total revenues less operating expenses. Goodwill and its amortization have been allocated to the various segments to which they apply. General corporate assets and expenses have not been identified or allocated by segment.
1997 1996 Deferred tax assets: Net operating loss carryforwards $ 66.6 $ 83.7 Capital loss carryforwards 32.0 68.2 Insurance claims and reserves 287.5 289.8 Other, net 148.8 142.2 534.9 583.9 Valuation allowance for deferred tax assets (97.9) (131.9) 437.0 452.0 Deferred tax liabilities: Deferred acquisition costs (127.4) (124.9) Investment securities (268.2) (189.8) (395.6) (314.7)