-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TrpL7WNQbioDh+SM4InWTkcz8ZFu31kef3UDbVRfpzTCwuX40VhiB2cXVJWIoAtQ 3P/2Z1Ul6mPp/0YTE2VeUQ== 0000005103-97-000015.txt : 19970520 0000005103-97-000015.hdr.sgml : 19970520 ACCESSION NUMBER: 0000005103-97-000015 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970515 SROS: NYSE SROS: PSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN GENERAL CORP /TX/ CENTRAL INDEX KEY: 0000005103 STANDARD INDUSTRIAL CLASSIFICATION: LIFE INSURANCE [6311] IRS NUMBER: 740483432 STATE OF INCORPORATION: TX FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-07981 FILM NUMBER: 97606049 BUSINESS ADDRESS: STREET 1: 2929 ALLEN PKWY CITY: HOUSTON STATE: TX ZIP: 77019 BUSINESS PHONE: 7135221111 10-Q 1 AMERICAN GENERAL CORPORATION FORM 10-Q For the Quarter Ended March 31, 1997 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________________ to _____________________ Commission file number 1-7981 American General Corporation (Exact name of registrant as specified in its articles of incorporation) Texas 74-0483432 (State of Incorporation) (I.R.S. Employer Identification No.) 2929 Allen Parkway, Houston, Texas 77019-2155 (Address of principal executive offices) (Zip Code) (713) 522-1111 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X . No . As of April 30, 1997, there were 203,601,402 shares (excluding shares held in treasury and by a subsidiary) of American General's Common Stock and 2,317,701 shares of American General's 7% Convertible Preferred Stock outstanding. AMERICAN GENERAL CORPORATION FORM 10-Q For the Quarter Ended March 31, 1997 INDEX TO FORM 10-Q Page Part I. FINANCIAL INFORMATION. Item 1. Financial Statements. Consolidated Statement of Income for the three months ended March 31, 1997 and 1996 ............. 2 Consolidated Balance Sheet at March 31, 1997 and December 31, 1996 ................................ 3 Consolidated Condensed Statement of Cash Flows for the three months ended March 31, 1997 and 1996 ... 4 Notes to Consolidated Financial Statements ......... 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations .............. 9 Part II. OTHER INFORMATION. Item 1. Legal Proceedings .................................. 24 Item 6. Exhibits and Reports on Form 8-K ................... 24 -1- AMERICAN GENERAL CORPORATION FORM 10-Q For the Quarter Ended March 31, 1997 PART I. FINANCIAL INFORMATION Item 1. Financial Statements. AMERICAN GENERAL CORPORATION Consolidated Statement of Income (Unaudited) (In millions, except per share data) Three Months Ended March 31, 1997 1996 Revenues Premiums and other considerations ................ $ 487 $ 480 Net investment income ............................ 846 800 Finance charges .................................. 320 371 Realized investment gains (losses) ............... (7) 27 Equity in earnings of Western National Corporation 13 8 Other ............................................ 33 25 Total revenues ............................... . 1,692 1,711 Benefits and expenses Insurance and annuity benefits ................... 762 774 Policyholder dividends ........................... 23 23 Operating costs and expenses ..................... 274 264 Commissions ...................................... 136 125 Change in deferred policy acquisition costs and cost of insurance purchased ..................... (19) (16) Provision for finance receivable losses .......... 68 109 Interest expense Corporate ....................................... 27 30 Consumer Finance ................................ 113 126 Total benefits and expenses .................. 1,384 1,435 Earnings Income before income tax expense ................. 308 276 Income tax expense ............................... 109 97 Income before net dividends on preferred securities of subsidiaries....................... 199 179 Net dividends on preferred securities of subsidiaries .................................... 17 10 Net income ................................... $ 182 $ 169 Net income per share ............................. $ .88 $ .81 Dividends paid per common share .................. $ .35 $ .325 Average fully diluted shares outstanding (in thousands) .................................. 210,709 212,653 -2- AMERICAN GENERAL CORPORATION FORM 10-Q For the Quarter Ended March 31, 1997 Item 1. Financial Statements (continued). AMERICAN GENERAL CORPORATION Consolidated Balance Sheet (Unaudited) (In millions, except share data) March 31, December 31, 1997 1996 Assets Investments Fixed maturity securities (amortized cost: $37,833; $37,194) ........................... $38,138 $38,490 Mortgage loans on real estate ................. 2,944 2,970 Equity securities (cost: $95; $107) ........... 116 133 Policy loans .................................. 1,744 1,728 Investment real estate ........................ 591 598 Other long-term investments ................... 207 191 Short-term investments ........................ 405 160 Total investments ......................... 44,145 44,270 Cash ........................................... 164 149 Finance receivables, net ....................... 7,064 7,230 Investment in Western National Corporation ..... 506 535 Deferred policy acquisition costs .............. 2,542 2,169 Cost of insurance purchased .................... 796 755 Acquisition-related goodwill ................... 550 557 Assets held for sale ........................... 634 667 Other assets ................................... 2,109 2,059 Assets held in Separate Accounts ............... 8,157 7,863 Total assets .............................. $66,667 $66,254 Liabilities Insurance and annuity liabilities .............. $40,614 $40,232 Debt (short-term) Corporate ($393; $362) ........................ 1,565 1,533 Consumer Finance ($3,037; $3,131) ............. 7,330 7,630 Income tax liabilities ......................... 815 1,020 Other liabilities .............................. 1,263 1,128 Liabilities related to Separate Accounts ....... 8,157 7,863 Total liabilities ......................... 59,744 59,406 Redeemable equity Company-obligated mandatorily redeemable preferred securities of subsidiaries holding solely company subordinated notes Non-convertible ............................. 1,479 982 Convertible ................................. 246 245 Total redeemable equity.................... 1,725 1,227 Shareholders' equity Convertible preferred stock (shares issued and outstanding: 2,317,701)..... 85 85 -3- AMERICAN GENERAL CORPORATION FORM 10-Q For the Quarter Ended March 31, 1997 Common stock (shares issued: 220,122,120; outstanding: 200,478,385; 203,090,677)......... 395 398 Net unrealized gains on securities ............. 142 559 Retained earnings .............................. 5,203 5,093 Cost of treasury stock ......................... (627) (514) Total shareholders' equity ................ 5,198 5,621 Total liabilities and equity .............. $66,667 $66,254 Item 1. Financial Statements (continued). AMERICAN GENERAL CORPORATION Consolidated Condensed Statement of Cash Flows (Unaudited) (In millions) Three Months Ended March 31, 1997 1996 Operating activities Net cash provided by operating activities ... $ 629 $ 657 Investing activities Investment purchases .............................. (3,623) (2,040) Investment dispositions and repayments ............ 3,068 1,589 Finance receivable originations and purchases ..... (1,017) (1,010) Finance receivable principal payments received .... 1,082 1,270 Net (increase) decrease in short-term investments . (245) 13 Acquisition of Independent Life ................... - (106) Other, net ........................................ 5 (64) Net cash used for investing activities ...... (730) (348) Financing activities Retirement Services and Life Insurance Policyholder account deposits ................... 708 677 Policyholder account withdrawals ................ (616) (590) Total Retirement Services and Life Insurance.. 92 87 Consumer Finance Net decrease in short-term debt ................. (94) (268) Long-term debt issuances ........................ 2 30 Long-term debt redemptions ...................... (208) (151) Total Consumer Finance ....................... (300) (389) Corporate Net increase in short-term debt ................. 31 104 Issuance of preferred securities of subsidiaries. 498 - Dividends on common and preferred stock ......... (72) (66) Common stock repurchases ........................ (123) (22) Other, net ...................................... (10) 4 Total Corporate .............................. 324 20 Net cash provided by (used for) financing activities ....................... 116 (282) -4- AMERICAN GENERAL CORPORATION FORM 10-Q For the Quarter Ended March 31, 1997 Net increase in cash ............................... 15 27 Cash at beginning of period ........................ 149 161 Cash at end of period .............................. $ 164 $ 188 Supplemental disclosure of cash flow information: Cash paid (received) during the period for Income taxes .................................... $ (13) $ (49) Interest Corporate ...................................... 16 32 Consumer Finance ............................... 130 121 Dividends on preferred securities of subsidiaries ................................... 14 14 Item 1. Financial Statements (continued). AMERICAN GENERAL CORPORATION Notes to Consolidated Financial Statements March 31, 1997 1. Accounting Policies. The accompanying unaudited consolidated financial statements of American General Corporation (American General) and its subsidiaries (collectively, the company) have been prepared in accordance with generally accepted accounting principles for interim periods. In the opinion of management, these statements include all adjustments, consisting only of normal recurring accruals, that are necessary for a fair presentation of the company's consolidated financial position at March 31, 1997, and the consolidated results of operations and cash flows for the three months ended March 31, 1997 and 1996. To conform with the 1997 presentation, certain items in the prior period have been reclassified. 2. New Accounting Standard. In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) 128, "Earnings per Share." This statement, which changes certain requirements for computing and disclosing earnings per share, is effective for interim and annual periods ending after December 15, 1997. Earlier application is not permitted. Retroactive restatement for all periods presented will be required upon adoption. Application of this statement will change disclosures related to earnings per share, but is not expected to have a material impact on reported per share amounts. 3. Derivative Financial Instruments. Derivative financial instruments related to investment securities did not have a material effect on net investment income during the three months ended March 31, 1997 or 1996. Derivative financial instruments related to debt securities did not have a material effect on the weighted-average borrowing rate or reported interest expense during the three months ended March 31, 1997 or 1996. 4. Assets Held for Sale. During fourth quarter 1996, the company decided to offer for sale $875 million of non-strategic, underperforming credit card -5- AMERICAN GENERAL CORPORATION FORM 10-Q For the Quarter Ended March 31, 1997 and private label finance receivable portfolios. These assets held for sale are carried at net realizable value, after considering related expenses. The decrease in assets held for sale during first quarter 1997 was due to the net activity of the associated finance receivables and their related results of operations. In April 1997, the company repurchased $100 million of private label and credit card receivables that previously had been sold through securitization. No gain or loss resulted from this transaction. These Item 1. Financial Statements (continued). repurchased credit card receivables will be offered for sale along with the company's other credit card receivables, increasing the carrying amount of assets held for sale by approximately $70 million in April 1997. 5. Company-Obligated Mandatorily Redeemable Preferred Securities of Subsidiary (Preferred Securities). On March 14, 1997, American General Institutional Capital B, a subsidiary trust of American General, issued 500,000 shares, or $500 million, of non-convertible preferred securities. The non-convertible preferred securities pay semi-annual cash dividends at an annual rate of 8-1/8%. The sole assets of the subsidiary trust are Junior Subordinated Debentures (Subordinated Debentures) issued by American General. The subsidiary trust has no independent operations. The Subordinated Debentures are eliminated in the consolidated financial statements. The interest terms and other payment dates of the company's Subordinated Debentures held by the subsidiary trust correspond to those of the subsidiary trust's preferred securities. American General's obligations under the Subordinated Debentures and related agreements, when taken together, constitute a full and unconditional guarantee of payments due on the preferred securities. The Subordinated Debentures are redeemable at the option of the company. Upon such event, the preferred securities are redeemable on a proportionate basis. 6. Subsequent Events. Home Beneficial Life. On April 16, 1997, American General completed the acquisition of Home Beneficial Corporation, the holding company of Home Beneficial Life Insurance Company (Home Beneficial Life), for $665 million. The purchase price consisted of $283 million cash (43%) and 9.5 million shares of American General common stock (57%). The acquisition will be accounted for using the purchase method. Share Repurchase. On April 15, 1997, American General purchased 6.4 million shares of its common stock in an accelerated share buyback -6- AMERICAN GENERAL CORPORATION FORM 10-Q For the Quarter Ended March 31, 1997 transaction. The shares were purchased from an investment bank for $234 million based upon the April 14, 1997 closing price of $36.50 per share, subject to a market price adjustment provision. In order to complete the transaction, the investment bank borrowed American General common stock and will purchase replacement shares in the open market. This buyback, combined with 3.0 million shares repurchased since the announcement of the definitive agreement to acquire Home Beneficial Life, has the effect of repurchasing substantially all of the shares issued in the Home Beneficial Life acquisition. Item 1. Financial Statements (continued). 7. Legal Contingencies. Two real estate subsidiaries of American General were defendants in a lawsuit that alleged damages based on lost profits and related claims arising from certain loans and joint venture contracts. On July 16, 1993, a judgment was entered against the subsidiaries for $47 million in compensatory damages and for $189 million in punitive damages. On September 17, 1993, a Texas state district court reduced the previously awarded punitive damages by $60 million, resulting in a reduced judgment in the amount of $176 million plus post-judgment interest. On January 29, 1996, the Texas First Court of Appeals rendered a decision that affirmed the trial court judgment and held both companies liable to pay the punitive damages. The company intends to continue to vigorously contest the matter through the appellate process. Although substantial risks and uncertainties remain with respect to the ultimate outcome, legal counsel has advised the company that it is not probable within the meaning of SFAS 5, "Accounting for Contingencies," that the company will ultimately incur a material liability in connection with this matter. Accordingly, no provision has been made in the consolidated financial statements related to this contingency. Based upon information presently available, the company believes that the total amount that will ultimately be paid, if any, arising from this lawsuit will not have a material adverse effect on the company's consolidated results of operations and financial position. In April 1992, the Internal Revenue Service (IRS) issued Notices of Deficiency for the 1977-1981 tax years of certain insurance subsidiaries. The basis of the dispute was the tax treatment of modified coinsurance agreements. The company elected to pay all related assessments plus associated interest, totaling $59 million. A claim for refund of tax and interest was disallowed by the IRS in January 1993. On June 30, 1993, a representative suit for refund was filed in the United States Court of Federal Claims. On February 7, 1996, the court ruled in favor of the company on all legal issues related to this contingency, and a judgment was entered in favor of the company on July 9, 1996, for the portion of the contingency related to the representative case. The government has appealed this judgment; however, the company intends to pursue a full -7- AMERICAN GENERAL CORPORATION FORM 10-Q For the Quarter Ended March 31, 1997 refund of the amounts paid. Accordingly, no provision has been made in the consolidated financial statements related to this contingency. The company is a party to various other lawsuits and proceedings arising in the ordinary course of business. Many of these lawsuits and proceedings arise in jurisdictions, such as Alabama, that permit damage awards disproportionate to the actual economic damages incurred. Based upon information presently available, the company believes that the total Item 1. Financial Statements (continued). amounts that will ultimately be paid, if any, arising from these lawsuits and proceedings will not have a material adverse effect on the company's consolidated results of operations and financial position. However, it should be noted that the frequency of large damage awards, including large punitive damage awards, that bear little or no relation to actual economic damages incurred by plaintiffs in jurisdictions like Alabama continues to increase and creates the potential for an unpredictable judgment in any given suit. Certain of American General's subsidiaries are defendants in lawsuits filed as purported class actions asserting claims related to sales practices of certain life insurance products. Because these cases are in the early stages of litigation, it is premature to address their materiality. The claims are being defended vigorously by the subsidiaries. 8. Status of Federal Tax Return Examinations. The company and the majority of its subsidiaries file a consolidated federal income tax return. The IRS is currently examining the company's tax returns for 1988 through 1992. One issue from prior tax returns has been the subject of litigation, as described in Note 7. 9. Ratio of Earnings to Fixed Charges and Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends. The ratio of earnings to fixed charges and the ratio of earnings to combined fixed charges and preferred stock dividends were as follows: Three Months Ended March 31, 1997 1996 Ratio of Earnings to Fixed Charges: Consolidated operations .................... 2.90 2.65 Consolidated operations, -8- AMERICAN GENERAL CORPORATION FORM 10-Q For the Quarter Ended March 31, 1997 corporate fixed charges only .............. 10.18 8.40 American General Finance, Inc. ............. 1.48 1.34 Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends: Consolidated operations .................... 2.47 2.44 Consolidated operations, corporate fixed charges and preferred stock dividends only ............ 5.51 6.01 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. This item presents specific comments on material changes to the company's consolidated results of operations, capital resources, and liquidity for the periods reflected in the interim financial statements filed with this report. The reader is presumed to have read or have access to the company's 1996 Annual Report to Shareholders, including Management's Discussion and Analysis on pages 16 through 25 thereof. This analysis should be read in conjunction with the consolidated financial statements and related notes on pages 2 through 8 of this Quarterly Report on Form 10-Q. CORPORATE DEVELOPMENT On February 13, 1997, American General announced a definitive agreement under which USLIFE Corporation (USLIFE) will merge into American General in a transaction valued at $1.8 billion. Under the agreement, USLIFE shareholders will exchange each share of USLIFE common stock for American General common stock valued at $49. The exchange ratio will be based on an average trading price of American General common stock prior to closing, subject to a minimum of 1.0919 shares and a maximum of 1.2937 shares of American General common stock. The transaction, which is subject to approval by American General and USLIFE shareholders and to requisite regulatory approvals, is expected to close by June 30, 1997. The merger will be accounted for using the pooling of interests method. To complete the merger with USLIFE, American General expects to issue approximately 39 million to 47 million shares of common stock. Additionally, the company will assume USLIFE's debt of approximately $600 million. Non- recurring costs of approximately $170 million ($167 million aftertax) directly -9- AMERICAN GENERAL CORPORATION FORM 10-Q For the Quarter Ended March 31, 1997 attributable to the merger, including change in control costs and fees for investment bankers, accountants, and attorneys, will be charged to expense in second quarter 1997. CONSOLIDATED RESULTS OF OPERATIONS Three Months Ended (In millions, March 31, except share data) 1997 1996 Net income $ 182 $ 169 Net income per share .88 .81 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued). Net income for the three months ended March 31, 1997 increased 7% compared to the same period in the prior year. This increase was due to higher earnings in the Consumer Finance segment, inclusion of three months of operations for Independent Life (acquired February 29, 1996) in the Life Insurance segment, and growth in the Retirement Services segment. Net income per share for the three months ended March 31, 1997 increased 9% compared to the same period of 1996. Net income per share increased to a greater degree than net income, primarily due to the effect of 7.2 million shares of common stock repurchased during the last twelve months, partially offset by 3.7 million shares of common stock and 2.3 million shares of convertible preferred stock, issued for the acquisition of Independent Life, being outstanding only one month in first quarter 1996. BUSINESS SEGMENTS The company reports its business operations in three segments. To facilitate meaningful period-to-period comparisons, earnings of each business segment include earnings from its business operations and earnings on that amount of equity considered necessary to support its business, and exclude net realized investment gains (losses) and other non-recurring items. Segment earnings were as follows: Three Months Ended March 31, (In millions) 1997 1996 Retirement Services $ 63 $ 60 Life Insurance 104 91 -10- AMERICAN GENERAL CORPORATION FORM 10-Q For the Quarter Ended March 31, 1997 Consumer Finance 39 28 Total segment earnings $ 206 $ 179 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued). Retirement Services The Retirement Services segment offers retirement products and planning services to employees of educational, health care, public sector, and other not-for-profit organizations. Asset growth through sales and deposits, as well as management of the investment spread and operating expenses, contribute to the segment's profitability. Segment results were as follows: Three Months Ended March 31, (In millions) 1997 1996 Segment earnings $ 63 $ 60 Assets Investments 21,956 21,460 Separate Accounts 7,435 5,106 Sales 448 307 Deposits Fixed 424 426 Variable 421 282 Segment earnings for the three months ended March 31, 1997, compared to the same period of 1996, increased 6%, primarily due to asset growth over the past twelve months. Asset growth, excluding the fair value adjustment on securities, was $3.5 billion, or 13%, from March 31, 1996 to March 31, 1997 and $.7 billion, or 2%, from December 31, 1996, reflecting strong sales, an increase in total deposits, and market appreciation in Separate Accounts. Sales for the three months ended March 31, 1997 increased $141 million, or 46%, compared to the same period in 1996 primarily due to increased sales of -11- AMERICAN GENERAL CORPORATION FORM 10-Q For the Quarter Ended March 31, 1997 the Portfolio Director and Portfolio Director 2 product series, which provide numerous variable investment options. Variable deposits increased 49% for the three months ended March 31, 1997, compared to the same period in 1996, as a result of policyholders' demand for equity investments due to the strong performance of the stock market. The segment's Separate Account assets, which relate to variable account options, increased $2.3 billion from March 31, 1996 to March 31, 1997 and $.3 billion from December 31, 1996, reflecting both the increased sales and the strong market appreciation. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued). Investment results and crediting rates on fixed accounts were as follows: Three Months Ended March 31, ($ in millions) 1997 1996 Net investment income $ 420 $ 411 Investment yield 7.93% 8.10% Average crediting rate 6.18 6.25 Investment spread - fixed accounts 1.75 1.85 Net investment income, the primary component of revenues, increased 2% for the first three months of 1997 compared to the same period of 1996, reflecting growth in invested assets, partially offset by a decrease in investment yield. Investment yield for the three months ended March 31, 1997 decreased 17 basis points compared to the same period in 1996. In response to these declining yields, the company adjusted the rates credited to its policyholders during first quarter 1997. As a result, the investment spread on fixed accounts declined only 10 basis points in comparison to first quarter 1996. The rate of policyholder surrenders of fixed accounts was 5.74% of average reserves for the first three months of 1997 compared to 5.44% for the same period in 1996. The increase was primarily due to customer preference for variable account options, competition from mutual funds and other financial institutions, and the trend toward lower fixed interest crediting rates. The ratio of operating expenses to average assets improved to .48% for first quarter 1997 from .52% for first quarter 1996 due to an increase in average -12- AMERICAN GENERAL CORPORATION FORM 10-Q For the Quarter Ended March 31, 1997 assets, which more than offset an increase in operating expenses related to growth in the business. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued). Life Insurance The Life Insurance segment provides traditional and interest-sensitive life insurance and annuities to three defined markets, based on household income and product needs. Recent acquisitions of companies that complement the segment's existing markets and distribution systems have contributed to growth and profitability. Segment profitability is a function of premiums, investment spread, mortality, and operating expenses. Segment results were as follows: Three Months Ended March 31, (In millions) 1997 1996 Segment earnings $ 104 $ 91 Premiums and other considerations 416 412 Net investment income 389 372 Insurance and annuity benefits 447 464 Assets 24,918 24,672 Segment earnings for first quarter 1997 compared to first quarter 1996 increased 14% primarily due to the acquisition of Independent Life on February 29, 1996. Premiums and other considerations increased 1% and insurance and annuity benefits decreased 4% primarily due to first quarter 1996 including a $27 million group annuity purchase and the effect of the Independent Life acquisition. Asset growth, excluding the fair value adjustment on securities, was $513 million, or 2%, from March 31, 1996 to March 31, 1997 and $180 million, or 1%, from December 31, 1996, primarily due to sales and an increase -13- AMERICAN GENERAL CORPORATION FORM 10-Q For the Quarter Ended March 31, 1997 in deposits. Information regarding sales and deposits was as follows: Three Months Ended March 31, (In millions) 1997 1996 Life Insurance Sales $ 78 $ 69 Deposits 181 170 Annuities Sales 92 97 Deposits 128 109 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued). Life insurance sales and deposits for first quarter 1997 exceeded comparable 1996 amounts by 14% and 7%, respectively, due to a number of new marketing initiatives and the acquisition of Independent Life on February 29, 1996. Annuity sales for the three months ended March 31, 1997 were 5% below comparable prior year sales, primarily due to increasingly competitive market conditions. Annuity deposits for such periods increased 17% primarily due to increased structured settlement sales. Net investment income increased $17 million for the first three months of 1997 compared to the same period in 1996, primarily due to the acquisition of Independent Life on February 29, 1996. The average investment yield, interest crediting rate, and investment spread for the primary operating companies were as follows: Three Months Ended March 31, 1997 1996 American General Life Investment yield 7.72% 7.78% Average crediting rate 5.89 5.87 Investment spread 1.83 1.91 American General Life and Accident Investment yield 8.39% 8.56% Average crediting rate 6.50 6.74 Investment spread 1.89 1.82 -14- AMERICAN GENERAL CORPORATION FORM 10-Q For the Quarter Ended March 31, 1997 Franklin Life Investment yield 8.36% 8.48% Average crediting rate 6.28 6.59 Investment spread 2.08 1.89 Investment yields decreased at the primary operating companies for the first three months of 1997 compared to the same period in 1996, reflecting declining interest rates on new investments purchased in 1996 and 1997, combined with the inclusion of Independent Life (at American General Life and Accident), which has a lower yield, for a full quarter in 1997. Although investment spreads have fluctuated at the primary operating companies, these spreads are still within product pricing assumptions. Death claims, included in insurance and annuity benefits, increased 5% from 1996 to 1997, primarily due to the acquisition of Independent Life. Death claims per $1,000 of in force were $4.58 for the first three months of 1997 compared to $4.49 for the same period in 1996. Overall, mortality experience was within product pricing assumptions. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued). The ratio of operating expenses to direct premiums and deposits increased to 16.62% for the first three months of 1997, compared to 14.70% for the same period in 1996, due to the higher expense ratio at Independent Life. Independent Life's expense ratio exceeds those of the company's other life insurance subsidiaries because anticipated expense savings from consolidation of its operations have not been fully realized to date. Consumer Finance The Consumer Finance segment provides consumer and home equity loans and other credit-related products. Segment results are influenced by the amount and mix of finance receivables, credit quality, borrowing cost, and operating expenses. Segment results were as follows: Three Months Ended March 31, ($ in millions) 1997 1996 Segment earnings $ 39 $ 28 Finance receivables 7,454 8,020 Yield on finance receivables 17.09% 18.14% Borrowing cost 6.71 6.93 Spread 10.38 11.21 Segment earnings for the three months ended March 31, 1997, increased $11 million, or 37%, compared to the same period of 1996. The increase primarily relates to an improvement in credit quality during first quarter 1997. -15- AMERICAN GENERAL CORPORATION FORM 10-Q For the Quarter Ended March 31, 1997 The company's strategy in prior years of emphasizing higher-yielding receivables, with higher credit risk, resulted in higher than anticipated levels of delinquencies and charge offs beginning in third quarter 1995. The company responded by initiating an action program to improve credit quality, beginning with a comprehensive review of the consumer finance operations in fourth quarter 1995. This review indicated a need for an increase in the allowance for losses on finance receivables. As a result, the company increased the allowance $216 million ($140 million aftertax) in fourth quarter 1995. Other components of the action program included raising underwriting standards, slowing branch expansion, increasing collection efforts, and rebalancing the finance receivable portfolio to increase the proportion of real estate-secured receivables. During 1996, the company purchased real estate-secured receivables totaling $754 million, which increased the proportion of these receivables to 51% at March 31, 1997, compared to 36% at March 31, 1996. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued). Total finance receivables at March 31, 1997 decreased $566 million from March 31, 1996 and $171 million from December 31, 1996. All lines of receivables, except for real estate-secured consumer loans, decreased compared to December 31, 1996 and March 31, 1996, due to management's action program to improve credit quality and the December 1996 reclassification of two non-strategic, underperforming finance receivable portfolios to assets held for sale. These portfolios consisted of $520 million of bank credit card receivables and $355 million of private label finance receivables. The assets held for sale are carried at net realizable value, after considering related expenses. The carrying amount at March 31, 1997 was $634 million, compared to $667 million at December 31, 1996. The decrease was due to the net activity of the associated finance receivables and their related results of operations. Discussions with potential purchasers are continuing; however, no definitive sale agreement has been signed to date. Finance charge revenues decreased $51 million for the first three months of 1997, compared to the same period in 1996, due to lower average receivables, resulting from reclassification of the receivables to assets held for sale, combined with a 105 basis points decline in yield on finance receivables. The yield decline resulted from the change in the portfolio mix to a higher proportion of real estate-secured loans, which generally have lower yields, partially offset by the decreased proportion of non-accrual delinquent finance receivables during 1997. The spread between yield and borrowing cost decreased 83 basis points resulting from the decrease in yield, partially offset by lower short-term borrowing cost. The allowance for finance receivable losses, delinquencies, and charge offs -16- AMERICAN GENERAL CORPORATION FORM 10-Q For the Quarter Ended March 31, 1997 were as follows: Three Months Ended March 31, ($ in millions) 1997 1996 Allowance for finance receivable losses $ 390 $ 487 % of finance receivables 5.23% 6.07% Delinquencies $ 304 $ 354 % of finance receivables 3.76% 4.03% Charge offs $ 73 $ 114 % of average finance receivables 3.83% 5.50% Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued). The allowance, delinquency, and charge off ratios decreased for the three months ended March 31, 1997 compared to the same period in 1996 primarily due to the increased proportion of real estate-secured receivables and the reclassification of the portfolios to assets held for sale. Excluding the portfolios held for sale, the delinquency and charge off ratios were 3.76% and 4.62%, respectively, for the three months ended March 31, 1996. The delinquency ratio decreased 7 basis points from 3.83% at December 31, 1996 to 3.76% at March 31, 1997 and the charge off ratio, excluding the portfolios held for sale, decreased 120 basis points from 5.03% for fourth quarter 1996 to 3.83% for first quarter 1997. These decreases resulted from the positive impact of management's action program to improve credit quality. The allowance ratio increased 5 basis points from 5.18% at December 31, 1996 to 5.23% at March 31, 1997 due to a decrease in average finance receivables, partially offset by a $5 million decrease in the allowance for finance receivable losses in first quarter 1997 resulting from improved credit quality of the receivables portfolio. Operating expenses decreased $14 million, or 10%, for the three months ended March 31, 1997, compared to the same period in 1996. As a percentage of average finance receivables, operating expenses were 6.04% and 6.09% for the three months ended March 31, 1997 and 1996, respectively. The decrease in operating expenses is primarily due to reclassifying operating expenses (associated with servicing the portfolios for sale) to assets held for sale, decreased collection expenses, and lower expenses due to workforce reduction, partially offset by a decrease in deferral of finance receivable origination -17- AMERICAN GENERAL CORPORATION FORM 10-Q For the Quarter Ended March 31, 1997 costs. Management believes that the anticipated sale of the non-strategic, underperforming portfolios combined with the ongoing credit quality improvement program will continue to result in improved earnings. However, adverse changes in credit fundamentals within the consumer finance market, including the current high level of personal bankruptcies, could negatively impact expected results. INVESTMENTS Invested assets consist primarily of fixed maturity securities, mortgage loans on real estate, policy loans, and investment real estate. The company reviews invested assets on a regular basis and records write-downs for declines in fair value below cost that are considered other than temporary. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued). Fair Value of Securities (SFAS 115). An increase in market interest rates and resulting decreases in bond values during the first three months of 1997 caused a $1.0 billion decrease in the fair value adjustment to fixed maturity securities and a related $414 million decrease in shareholders' equity. The components of the adjustment to report fixed maturity and equity securities at fair value at March 31, 1997 and December 31, 1996, and the change, were as follows: March 31, December 31, (In millions) 1997 1996 Change Fair value adjustment to fixed maturity securities $ 323 $ 1,355 $(1,032) Adjusted by: Decrease in DPAC/CIP (118) (512) 394 Increase in deferred income taxes (77) (301) 224 Net unrealized gains on fixed maturity securities 128 542 (414) Net unrealized gains on equity securities 14 17 (3) Net unrealized gains on securities $ 142 $ 559 $ (417) Accounting rules do not permit adjustment to fair value of the insurance liabilities supported by these securities, thereby creating volatility in -18- AMERICAN GENERAL CORPORATION FORM 10-Q For the Quarter Ended March 31, 1997 shareholders' equity as interest rates change. Care should be exercised in drawing conclusions based on balance sheet amounts that are only partially adjusted to fair value. Fixed Maturity Securities. Fixed maturity securities represented 86% of invested assets at March 31, 1997. Information regarding the fixed maturity securities portfolio, which included bonds and redeemable preferred stocks, at March 31, 1997 was as follows: March 31, Average Credit (In millions) 1997 % Rating Investment grade $27,339 72% A Mortgage-backed 9,307 24 AAA Below investment grade 1,492 4 BB- Total fixed maturities $38,138 100% A+ Collateralized mortgage obligations (CMOs) are purchased to diversify the portfolio risk characteristics from primarily corporate credit risk to a mix of credit and cash flow risk. CMOs represented 89% and 88% of mortgage-backed securities at March 31, 1997 and December 31, 1996, respectively. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued). Below investment grade fixed maturity securities, those rated below BBB-, were $1.5 billion at March 31, 1997 and December 31, 1996. These investments represented 4% of total fixed maturity securities at both balance sheet dates. Net investment income from below investment grade fixed maturity securities, including realized investment gains and losses, was $23 million for the first three months of 1997 and 1996. Non-performing fixed maturity securities, defined as securities for which payment of interest is sufficiently uncertain as to preclude accrual of interest, represented less than .01% of total fixed maturity securities at March 31, 1997 and December 31, 1996. Mortgage Loans. Mortgage loans on real estate represented 7% of invested assets at March 31, 1997. Information regarding the mortgage loan portfolio at March 31, 1997 was as follows: March 31, Non-Performing Loans (In millions) 1997 Amount % Commercial loans $ 3,021 $ 150 5.0% Allowance for losses (77) (22) Total mortgage loans $ 2,944 $ 128 Non-performing mortgage loans include loans delinquent 60 days or more and -19- AMERICAN GENERAL CORPORATION FORM 10-Q For the Quarter Ended March 31, 1997 commercial loans that have been restructured and are currently performing under the modified terms. These loans represented 5.0% of total commercial loans at March 31, 1997, compared to 5.2% at December 31, 1996. At March 31, 1997, $264 million of performing commercial mortgage loans were included on the company's watch list because they were either delinquent 30-59 days, the borrower was in bankruptcy, or the loan was determined to be under- collateralized. This amount compares to $282 million at December 31, 1996. The decrease in the watch list amount was primarily due to loans that are no longer undercollaterized or were reinstated, refinanced, or repaid. While the watch list loans may be predictive of higher non-performing loans in the future, the company does not anticipate a significant effect on operations, liquidity, or capital from these loans. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued). Realized Investment Gains (Losses). Realized investment gains (losses) were as follows: Three Months Ended March 31, (In millions) 1997 1996 Sales and calls Fixed maturity securities $ (14) $ 14 Equity securities 1 16 Write-downs/reserve changes 1 (4) Other 5 1 Total realized investment gains (losses) $ (7) $ 27 Write-downs and reserve changes were related to mortgage loans for the three months ended March 31, 1997 and to fixed maturity securities and mortgage loans in the comparable prior period. CAPITAL RESOURCES Corporate Debt. Corporate debt is incurred primarily to fund acquisitions, share repurchases, and capital needs of subsidiaries. Corporate debt increased -20- AMERICAN GENERAL CORPORATION FORM 10-Q For the Quarter Ended March 31, 1997 $32 million from December 31, 1996 to March 31, 1997, primarily due to an increase in borrowings to fund increased capitalization of the business segments and repurchases of American General's common stock, partially offset by the net proceeds from the March 1997 issuance of 8-1/8% preferred securities. Interest expense on corporate debt decreased $3 million, or 9%, for the three months ended March 31, 1997 compared to the same period in 1996, primarily due to lower average short-term borrowings in the first three months of 1997 due to the proceeds from issuance of preferred securities being used to reduce short-term debt. The ratio of corporate debt to corporate capital (excluding the fair value adjustment on securities) was 18.7% at March 31, 1997, compared to 19.6% at December 31, 1996. Management expects to maintain the ratio at or below 25% during the remainder of 1997. Consumer Finance Debt. The capital of American General's Consumer Finance segment varies directly with the amount of finance receivables outstanding. The mix of capital between debt and equity is based primarily on maintaining leverage at a level that supports cost-effective funding. Consumer finance debt decreased $300 million from December 31, 1996 to March 31, 1997, primarily due to the decline in finance receivables and management's actions to return the Consumer Finance segment's debt to tangible net worth ratio to the target level of 7.5 to 1. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued). Interest expense on Consumer Finance debt decreased $13 million, or 10%, for the three months ended March 31, 1997 compared to the same period in 1996, primarily due to the reclassification of interest expense to assets held for sale. Redeemable Equity. Redeemable equity increased $498 million from December 31, 1996 to March 31, 1997, due to the March 1997 issuance of 8-1/8% preferred securities. Net proceeds from this issuance were used to reduce short-term debt. Shareholders' Equity. Shareholders' equity decreased from $5.6 billion at December 31, 1996 to $5.2 billion at March 31, 1997, primarily due to the $417 million decrease in net unrealized gains on securities. Due to the requirements of certain accounting rules, shareholders equity will be subject to future volatility from the effects of interest rate fluctuations on the fair value of fixed maturity securities (see "Investments - Fair Value of Securities (SFAS 115)" on page 18). Rating Agencies. Following the disclosure of the merger with USLIFE, Standard & Poor's (S&P), Duff & Phelps, Moody's, and other rating agencies announced that the ratings of certain securities of American General and certain of its -21- AMERICAN GENERAL CORPORATION FORM 10-Q For the Quarter Ended March 31, 1997 subsidiaries and the claims-paying ability ratings of American General's principal life insurance subsidiaries would be reviewed for possible downgrade or other action. Subsequently, S&P indicated that it expects to reduce its ratings of certain securities of American General and certain of its subsidiaries by one notch, upon completion of the merger with USLIFE. In addition, Duff & Phelps confirmed its ratings while reducing the rating of American General's preferred securities from "A+" to "A". American General's ratings remain under review by Moody's. LIQUIDITY Management believes that the overall sources of cash and liquidity available to the company will continue to be sufficient to satisfy its foreseeable financial obligations. Dividends from subsidiaries are one of the primary sources of cash for the parent company's operating requirements and are used to fund debt repayments, dividends to shareholders, acquisitions, and repurchases of American General's common stock. American General's insurance subsidiaries are restricted by state insurance laws as to the amounts they may pay as dividends without prior notice to, or in some cases prior approval from, their respective state insurance departments. Certain non-insurance subsidiaries are similarly restricted by long-term debt agreements. These restrictions have not affected, and are not expected to affect, the ability of the company to meet its cash obligations. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued). Parent Company Cash Flows Three Months Ended March 31, (In millions) 1997 1996 Net cash (used for)/provided by operating activities $ (51) $ 132 Dividends paid by Life Insurance and Retirement Services segments - 78 Dividends paid by Consumer Finance segment - 27 Net cash provided by operating activities decreased in first quarter 1997 compared to first quarter 1996 since no dividends were paid to American General because the company is currently re-evaluating the capital requirements for its business segments. The business segments expect to resume payment of dividends to American General later in 1997. Segment Cash Flows Three Months Ended March 31, (In millions) 1997 1996 -22- AMERICAN GENERAL CORPORATION FORM 10-Q For the Quarter Ended March 31, 1997 Life Insurance and Retirement Services Net cash provided by operating activities $ 510 $ 520 Net cash provided by fixed policyholder account deposits, net of withdrawals 92 87 Variable account deposits, net of withdrawals 469 404 Consumer Finance Net cash provided by operating activities 169 173 Net cash flows generated by the Life Insurance and Retirement Services segments include cash provided by operating activities and cash provided by fixed policyholder account deposits, net of withdrawals. Cash flows from these sources in first quarter 1997 approximated the amounts in the same period in 1996. Variable account deposits, net of withdrawals, related to Separate Accounts that are not included in the consolidated condensed statement of cash flows, increased $65 million in the first three months of 1997 compared to the same period of 1996 due to strong sales in the Retirement Services segment. The Consumer Finance segment's cash provided by operating activities for the first three months of 1997 approximated the amount in the first three months of 1996. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued). Investing Activities. Cash flows related to investing activities were as follows: Calls, Maturities, Purchases and Sales Three Months Ended Three Months Ended (In millions) March 31, March 31, 1997 1996 1997 1996 Fixed maturity securities $3,486 $1,958 $2,889 $1,370 Mortgage loans 92 61 120 95 Equity securities - 1 19 87 Other 45 20 40 37 Total $3,623 $2,040 $3,068 $1,589 Credit Facilities. American General and certain of its subsidiaries use commercial paper to meet short-term funding requirements. Unsecured bank credit facilities are used to support commercial paper borrowings. At March 31, 1997, committed credit facilities totaled $3.5 billion, which increased to $3.8 billion at May 5, 1997. There were no outstanding borrowings under these facilities. -23- AMERICAN GENERAL CORPORATION FORM 10-Q For the Quarter Ended March 31, 1997 FORWARD-LOOKING STATEMENTS The statements contained in this filing on Form 10-Q that are not historical facts are forward-looking statements within the meaning of the Private Securities Litigation Reform Act. Actual results may differ materially from those included in the forward-looking statements. These forward-looking statements involve risks and uncertainties including, but not limited to, the following: changes in general economic conditions, including the performance of financial markets, interest rates, and the level of personal bankruptcies; customer responsiveness to both new products and distribution channels; competitive, regulatory, or tax changes that affect the cost of or demand for the company's products; adverse litigation results; and the company's failure to achieve anticipated levels of earnings or operational efficiencies related to recently acquired companies, as well as other cost-saving initiatives. The Consumer Finance segment's future results also could be adversely affected if finance receivable delinquencies and net charge offs increase or fail to achieve levels anticipated by management, despite the company's initiatives to improve credit quality. Failure to dispose of assets held for sale for carrying value could also adversely affect this segment's future results. Investors are also directed to other risks and uncertainties discussed in documents filed by the company with the Securities and Exchange Commission. PART II. OTHER INFORMATION Item 1. Legal Proceedings. In addition to those lawsuits or proceedings disclosed in the company's 1996 Form 10-K, the company is a party to various other lawsuits and proceedings arising in the ordinary course of business. Many of these lawsuits and proceedings arise in jurisdictions, such as Alabama, that permit damage awards disproportionate to the actual economic damages incurred. Based upon information presently available, the company believes that the total amounts that will ultimately be paid, if any, arising from these lawsuits and proceedings will not have a material adverse effect on the company's consolidated results of operations and financial position. However, it should be noted that the frequency of large damage awards, including large punitive damage awards, that bear little or no relation to actual economic damages incurred by plaintiffs in jurisdictions like Alabama continues to increase and creates the potential for an unpredictable judgment in any given suit. Certain of American General's subsidiaries are defendants in lawsuits filed as purported class actions asserting claims related to sales practices of certain life insurance products. Because these cases are in the early stages of litigation, it is premature to address their materiality. The claims are being defended vigorously by the subsidiaries. -24- AMERICAN GENERAL CORPORATION FORM 10-Q For the Quarter Ended March 31, 1997 Item 6. Exhibits and Reports on Form 8-K. a. Exhibits. Exhibit 11 Computation of Earnings per Share. Exhibit 12 Computation of Ratio of Earnings to Fixed Charges and Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends. Exhibit 27 Financial Data Schedule. b. Reports on Form 8-K. (1) Current Report on Form 8-K dated February 12, 1997, with respect to the issuance of a joint news release announcing the signing of a definitive agreement under which USLIFE will merge into American General in a transaction valued at $1.8 billion, or $49.00 per share, subject to approval by USLIFE and American General shareholders and requisite regulatory authorities. (2) Current Report on Form 8-K dated February 21, 1997, with respect to the filing of American General's Consolidated Financial Statements and the related Management's Discussion and Analysis for the three years ended December 31, 1996. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. AMERICAN GENERAL CORPORATION (Registrant) By: PAMELA J. PENNY Pamela J. Penny Vice President and Controller (Duly Authorized Officer and Chief Accounting Officer) -25- AMERICAN GENERAL CORPORATION FORM 10-Q For the Quarter Ended March 31, 1997 Date: May 14, 1997 EXHIBIT INDEX Exhibit 11 Computation of Earnings per Share. 12 Computation of Ratio of Earnings to Fixed Charges and Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends. 27 Financial Data Schedule. -26- EX-11 2 AMERICAN GENERAL CORPORATION FORM 10-Q For the Quarter Ended March 31, 1997 Exhibit 11 COMPUTATION OF EARNINGS PER SHARE (Unaudited) (In millions, except share data) Three Months Ended March 31, 1997 1996 Primary: Net income available to common stock ....... $ 182 $ 169 Average shares outstanding Common stock ............................. 201,414,263 205,083,849 Assumed conversion of convertible preferred stock ........................ 1,915,349 652,481 Assumed exercise of stock options ........ 832,698 635,510 Total .................................. 204,162,310 206,371,840 Net income per share ....................... $ .89 $ .82 Fully Diluted: Net income ................................. $ 182 $ 169 Plus: Net dividends on convertible preferred securities of subsidiary ........ 3 3 Net income available to common stock ... $ 185 $ 172 Average shares outstanding Common stock ............................. 201,414,263 205,083,849 Assumed conversion of convertible preferred securities of subsidiary ...... 6,144,016 6,144,016 Assumed conversion of convertible preferred stock ........................ 2,317,701 789,546 Assumed exercise of stock options ........ 832,698 635,510 Total .................................. 210,708,678 212,652,921 Net income per share ....................... $ .88 $ .81 EX-12 3 Exhibit 12 COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS (Unaudited) ($ in millions) Three Months Ended March 31, 1997 1996 Consolidated operations: Income before income tax expense and net dividends on preferred securities of subsidiaries .......... $ 308 $ 276 Fixed charges deducted from income Interest expense ................................. 153 158 Implicit interest in rents ....................... 4 4 Total fixed charges deducted from income ....... 157 162 Earnings available for fixed charges.......... $ 465 $ 438 Fixed charges per above ............................ $ 157 $ 162 Capitalized interest ............................... 3 3 Total fixed charges ............................ 160 165 Dividends on preferred stock and securities .... 28 15 Combined fixed charges and preferred stock dividends ............................ $ 188 $ 180 Ratio of earnings to fixed charges ......... 2.90 2.65 Ratio of earnings to combined fixed charges and preferred stock dividends ............ 2.47 2.44 Consolidated operations, corporate fixed charges and preferred stock dividends only: Income before income tax expense and net dividends on preferred securities of subsidiaries ........ $ 308 $ 276 Corporate fixed charges deducted from income - corporate interest expense ..................... 31 34 Earnings available for fixed charges ........... $ 339 $ 310 Total corporate fixed charges per above .......... $ 31 $ 34 Capitalized interest related to real estate operations ..................................... 3 3 Total corporate fixed charges .................. 34 37 Dividends on preferred stock and securities .... 28 15 Combined corporate fixed charges and preferred stock dividends .................. $ 62 $ 52 Ratio of earnings to corporate fixed charges 10.18 8.40 Ratio of earnings to combined corporate fixed charges and preferred stock dividends ................................ 5.51 6.01 American General Finance, Inc.: Income before income tax expense ................... $ 62 $ 44 Fixed charges deducted from income Interest expense ................................. 125 126 Implicit interest in rents ....................... 3 3 Total fixed charges deducted from income ....... 128 129 Earnings available for fixed charges ......... $ 190 $ 173 Ratio of earnings to fixed charges ......... 1.48 1.34 EX-27 4
7 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000,000 3-MOS DEC-31-1997 JAN-01-1997 MAR-31-1997 38,138 0 0 116 2,944 591 44,145 164 0 3,338 66,667 38,480 197 184 1,753 8,895 1,725 85 395 4,718 66,667 487 846 (7) 366 785 82 (101) 308 109 182 0 0 0 182 0.89 0.88 0 0 0 0 0 0 0 ALL FIXED MATURITY SECURITIES ARE CLASSIFIED AS AVAILABLE-FOR-SALE AND RECORDED AT FAIR VALUE. INCLUDES COST OF INSURANCE PURCHASED (CIP). THE SUM OF POLICY LOSSES, UNEARNED PREMIUMS, POLICY-OTHER, AND POLICYHOLDER FUNDS COMPRISES INSURANCE AND ANNUITY LIABILITIES. CONSISTS OF NON-CONVERTIBLE AND CONVERTIBLE MANDATORILY REDEEMABLE PREFERRED SECURITIES OF SUBSIDIARIES. CONSISTS OF CONVERTIBLE PREFERRED STOCK. CONSISTS OF NET OF THE FOLLOWING: NET UNREALIZED GAINS (LOSSES) ON SECURITIES; RETAINED EARNINGS; AND COST OF TREASURY STOCK. INCLUDES INSURANCE CHARGES. INCLUDES PRIMARILY FINANCE CHARGES ON FINANCE RECEIVABLES. CONSISTS OF AMORTIZATION OF POLICY ACQUISITION COSTS AND CIP, NET OF ACCRETION OF INTEREST. CONSISTS OF CAPITALIZATION OF POLICY ACQUISITION COSTS AND CIP. EXCLUDES $26 MILLION OF DIVIDENDS ON PREFERRED SECURITIES OF SUBSIDIARIES, SHOWN SEPARATELY, NET OF TAX, IN THE CONSOLIDATED INCOME STATEMENT. EXCLUDES $9 MILLION TAX BENEFIT FOR TAX DEDUCTIBLE DIVIDENDS RELATED TO PREFERRED SECURITIES OF SUBSIDIARIES.
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