-----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, Q7aV9XVYTZ6dCY4ARGGYPIfqqNW8c9dutqDSGX7B519tIgB9YJcAU6hjjnxUOMcY efWzA8rDkfuuqF4OLNun0w== 0000005103-96-000035.txt : 19960812 0000005103-96-000035.hdr.sgml : 19960812 ACCESSION NUMBER: 0000005103-96-000035 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960809 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: 96606746 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 June 30, 1996 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 June 30, 1996 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 July 31, 1996, there were 204,581,189 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 June 30, 1996 INDEX TO FORM 10-Q Page Part I. FINANCIAL INFORMATION. Item 1. Financial Statements. Consolidated Statement of Income for the six months and quarter ended June 30, 1996 and 1995 .. 2 Consolidated Balance Sheet at June 30, 1996 and December 31, 1995 ................................ 3 Consolidated Condensed Statement of Cash Flows for the six months ended June 30, 1996 and 1995 ...... 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 .................................. 23 Item 4. Submission of Matters to a Vote of Security Holders ................................. 23 Item 6. Exhibits and Reports on Form 8-K ................... 24 -1- AMERICAN GENERAL CORPORATION FORM 10-Q For the Quarter Ended June 30, 1996 PART I. FINANCIAL INFORMATION Item 1. Financial Statements. AMERICAN GENERAL CORPORATION Consolidated Statement of Income (Unaudited) (In millions, except share data) Six Months Ended Quarter Ended June 30, June 30, 1996 1995 1996 1995 Revenues Premiums and other considerations. $ 976 $ 842 $ 496 $ 439 Net investment income ............ 1,620 1,494 820 772 Finance charges .................. 734 729 363 370 Realized investment gains ........ 32 3 5 1 Equity in earnings of Western National Corporation ............ 17 21 9 12 Other ............................ 53 56 28 33 Total revenues ............... 3,432 3,145 1,721 1,627 Benefits and expenses Insurance and annuity benefits ... 1,538 1,416 764 739 Policyholder dividends ........... 45 41 22 25 Operating costs and expenses ..... 552 476 288 242 Commissions ...................... 263 260 138 134 Change in deferred policy acquisition costs and cost of insurance purchased ............. (36) (89) (20) (46) Provision for finance receivable losses .......................... 211 147 102 75 Interest expense Corporate ....................... 61 83 31 44 Consumer Finance ................ 247 255 121 130 Total benefits and expenses .. 2,881 2,589 1,446 1,343 Earnings Income before income tax expense.. 551 556 275 284 Income tax expense ............... 195 199 98 102 Income before net dividends on preferred securities of subsidiaries .................... 356 357 177 182 Net dividends on preferred securities of subsidiaries ...... 19 2 9 2 Net income ................... $ 337 $ 355 $ 168 $ 180 Net income per share .............. $ 1.60 $ 1.73 $ .79 $ .88 Dividends paid per common share ... $ .65 $ .62 $ .325 $ .31 -2- AMERICAN GENERAL CORPORATION FORM 10-Q For the Quarter Ended June 30, 1996 Average fully diluted shares outstanding (in thousands) ...... 214,118 206,279 215,560 207,363 -3- AMERICAN GENERAL CORPORATION FORM 10-Q For the Quarter Ended June 30, 1996 Item 1. Financial Statements (continued). AMERICAN GENERAL CORPORATION Consolidated Balance Sheet (Unaudited) (In millions, except share amounts) June 30, December 31, 1996 1995 Assets Investments Fixed maturity securities (amortized cost: $36,118; $34,590) ............................ $36,737 $37,213 Mortgage loans on real estate ................. 3,184 3,041 Equity securities (cost: $114; $138) .......... 144 186 Policy loans .................................. 1,675 1,605 Investment real estate ........................ 606 577 Other long-term investments ................... 167 179 Short-term investments ........................ 167 103 Total investments ......................... 42,680 42,904 Cash ........................................... 190 161 Finance receivables, net ....................... 7,571 7,918 Investment in Western National Corporation ..... 357 407 Deferred policy acquisition costs .............. 2,301 1,625 Cost of insurance purchased .................... 776 504 Acquisition-related goodwill ................... 567 577 Other assets ................................... 2,081 1,887 Assets held in Separate Accounts ............... 6,494 5,170 Total assets .............................. $63,017 $61,153 Liabilities Insurance and annuity liabilities .............. $39,478 $37,983 Debt (short-term) Corporate ($677; $553) ........................ 1,847 1,723 Consumer Finance ($2,442; $2,490) ............. 7,097 7,470 Income tax liabilities ......................... 846 1,268 Other liabilities .............................. 1,212 1,009 Liabilities related to Separate Accounts ....... 6,494 5,170 Total liabilities ......................... 56,974 54,623 Redeemable equity Company-obligated mandatorily redeemable preferred securities of subsidiaries holding solely company subordinated notes Non-convertible ............................. 486 485 Convertible ................................. 245 244 Total redeemable equity ................... 731 729 Shareholders' equity Mandatorily convertible preferred stock (shares issued and outstanding: 2,317,701) ... 85 - -4- AMERICAN GENERAL CORPORATION FORM 10-Q For the Quarter Ended June 30, 1996 Common stock (shares issued: 220,122,120; outstanding: 205,391,487; 203,948,246) ....... 398 364 Net unrealized gains on securities ............. 268 1,100 Retained earnings .............................. 4,989 4,787 Cost of treasury stock ......................... (428) (450) Total shareholders' equity ................ 5,312 5,801 Total liabilities and equity .............. $63,017 $61,153 -5- AMERICAN GENERAL CORPORATION FORM 10-Q For the Quarter Ended June 30, 1996 Item 1. Financial Statements (continued). AMERICAN GENERAL CORPORATION Consolidated Condensed Statement of Cash Flows (Unaudited) (In millions) Six Months Ended June 30, 1996 1995 Operating activities Net cash provided by operating activities ... $ 966 $ 999 Investing activities Investment purchases .............................. (4,914) (3,978) Investment calls, maturities, and sales ........... 4,465 2,560 Finance receivable originations or acquisitions ... (2,403) (3,081) Finance receivable principal payments received .... 2,530 2,448 Finance receivables sold through securitization ... - 100 Net (increase) decrease in short-term investments . (61) 168 Acquisition of Independent ........................ (106) - Acquisition of Franklin Life ...................... - (920) Other, net ........................................ (94) (95) Net cash used for investing activities ...... (583) (2,798) Financing activities Retirement Annuities and Life Insurance Policyholder account deposits ................... 1,320 1,573 Policyholder account withdrawals ................ (1,228) (883) Total Retirement Annuities and Life Insurance 92 690 Consumer Finance Net decrease in short-term debt ................. (48) (468) Long-term debt issuances ........................ 31 1,340 Long-term debt redemptions ...................... (358) (519) Total Consumer Finance ....................... (375) 353 Corporate Net increase in short-term debt ................. 124 167 Long-term debt issuances ........................ - 286 Long-term debt redemption ....................... - (100) Issuance of preferred securities of subsidiaries, net of commissions paid Non-convertible ............................... - 277 Convertible ................................... - 244 Common stock dividend payments .................. (133) (127) Preferred stock dividend payments ............... (2) - Common stock purchases .......................... (81) - Other, net ...................................... 21 2 Total Corporate .............................. (71) 749 Net cash provided by (used for) financing activities ....................... (354) 1,792 Net increase (decrease) in cash .................... 29 (7) -6- AMERICAN GENERAL CORPORATION FORM 10-Q For the Quarter Ended June 30, 1996 Cash at beginning of period ........................ 161 45 Cash at end of period .............................. $ 190 $ 38 Supplemental disclosure of cash flow information: Cash paid during the period for Income taxes .................................... $ 153 $ 91 Interest Corporate ..................................... 63 84 Consumer Finance .............................. 249 238 Dividends on preferred securities of subsidiaries ................................... 28 3 -7- AMERICAN GENERAL CORPORATION FORM 10-Q For the Quarter Ended June 30, 1996 Item 1. Financial Statements (continued). AMERICAN GENERAL CORPORATION Notes to Consolidated Financial Statements June 30, 1996 1. Accounting Policies. The accompanying unaudited consolidated financial statements of American General Corporation ("American General" or "the company") and its subsidiaries 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 June 30, 1996, and the consolidated results of operations for the three months and six months ended June 30, 1996 and 1995, and the consolidated cash flows for the six months ended June 30, 1996 and 1995. To conform with the 1996 presentation, certain items in the prior period have been reclassified. 2. New Accounting Standard. In June 1996, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities." This statement provides accounting standards for determining whether transfers of financial assets are sales or secured borrowings. The statement must be applied prospectively to all applicable transactions occurring after December 31, 1996. Earlier or retroactive application is not permitted. The company does not anticipate a material effect on consolidated results of operations and financial position related to adoption of this statement. 3. Acquisitions. Independent Insurance Group, Inc. On February 29, 1996, American General, through its wholly-owned subsidiary, AGC Life Insurance Company (AGC Life), acquired Independent Insurance Group, Inc. (Independent) for $362 million. Prior to closing, Independent shareholders could elect to exchange each share of Independent stock for $27.50 in cash, .7480 share of American General common stock, or .7480 share of American General 7% mandatorily convertible preferred stock. The exchange ratio was based on $36.7625, the average market price of American General common stock during the ten trading days ending on and including the fifth trading day prior to closing. The consideration at closing consisted of: 1) $139 million of cash (38%), 2) 3.7 million shares of common stock (38%), and 3) 2.3 million shares of preferred stock (24%). The acquisition was accounted for using the purchase method, and the results of operations of Independent were included in the company's consolidated statement of income from the date of acquisition. The acquired assets and liabilities were reflected in American General's -8- AMERICAN GENERAL CORPORATION FORM 10-Q For the Quarter Ended June 30, 1996 Item 1. Financial Statements (continued). consolidated balance sheet as of February 29, 1996, at management's best estimate of their fair values. Evaluation of fair values assigned to Independent's assets and liabilities, primarily related to insurance, employee benefits, and litigation liabilities, is continuing, and allocation of the purchase price may be adjusted when additional information is available. Noncash investing and financing activities related to the acquisition of Independent that are not reflected in the consolidated condensed statement of cash flows for the six months ended June 30, 1996 were as follows: (In millions) Fair value of assets acquired, excluding $34 million of cash $1,280 Liabilities assumed (951) Issuance of common treasury shares (138) Issuance of mandatorily convertible preferred stock (85) Net cash paid for acquisition of Independent $ 106 Franklin Life Insurance Company. On January 31, 1995, American General, through AGC Life, acquired American Franklin Company (AFC), the holding company of The Franklin Life Insurance Company (Franklin Life). The following unaudited proforma information presents the consolidated results of operations of the company and AFC for the six months ended June 30, 1995. The proforma information is presented as if the acquisition and its permanent financing had been effective at January 1, 1995. This information is intended for informational purposes only and may not necessarily be indicative of American General's future results of operations. Proforma Six Months Ended June 30, 1995 (In millions, except share data) Total revenues $ 3,225 Income before income tax expense $ 574 Income before net dividends on preferred securities of subsidiaries $ 369 Net income $ 354 Net income per share $ 1.72 Average fully diluted shares outstanding (thousands) 206,279 Included in net income above are aftertax realized gains of $2 million. -9- AMERICAN GENERAL CORPORATION FORM 10-Q For the Quarter Ended June 30, 1996 Item 1. Financial Statements (continued). 4. Mandatorily Convertible Preferred Stock. In connection with the acquisition of Independent, American General issued 2.3 million shares, or $85 million, of mandatorily convertible preferred stock. Holders of the preferred stock are entitled to receive annual cumulative dividends of 7% and have the right to vote, together with holders of American General common stock, on the basis of four-fifths of one vote for each share of preferred stock. The preferred stock is non-callable for four years, and each share is mandatorily convertible into not more than one share of American General common stock during the fifth year. 5. Derivative Financial Instruments. During the six months ended June 30, 1996, the company entered into interest rate swap agreements with a total notional amount of $44.5 million to convert specific investment securities from a floating to a fixed-rate basis, or vice versa. No other transactions involving derivative financial instruments were entered into during the period. Derivative financial instruments related to investment securities did not have a material effect on net investment income in the six months ended June 30, 1996 or 1995. Derivative financial instruments related to debt securities did not have a material effect on the weighted-average borrowing rate or reported interest expense in the six months ended June 30, 1996 or 1995. 6. Legal Contingencies. Two real estate subsidiaries of the company 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 $47.3 million in compensatory damages and for $189.2 million in punitive damages. On September 17, 1993, a Texas state district court reduced the previously-awarded punitive damages by $60.0 million, resulting in a reduced judgment in the amount of $176.5 million plus post-judgment interest. On January 29, 1996, the Texas First Court of Appeals rendered a two-to-one decision that affirmed the trial court judgment and held both companies liable to pay the punitive damages. The company intends 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. 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 suit for refund was filed in the United States Court of Federal Claims. -10- AMERICAN GENERAL CORPORATION FORM 10-Q For the Quarter Ended June 30, 1996 On February 7, 1996, the court ruled in favor of the company on all legal Item 1. Financial Statements (continued). issues related to this contingency, and a judgment was entered in favor of the company on July 7, 1996. The company does not yet know whether the IRS will appeal this decision; however, the company intends to pursue a full refund of the amounts paid. Accordingly, no provision has been made in the consolidated financial statements related to this contingency. American General and certain of its subsidiaries are parties 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 ultimately will be paid, if any, arising from these lawsuits and proceedings will have no 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. 7. 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 1986 through 1992. One issue from prior tax returns has been the subject of litigation, as described in Note 6. 8. 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: Six Months Ended Quarter Ended June 30, June 30, 1996 1995 1996 1995 Ratio of Earnings to Fixed Charges: Consolidated operations ......... 2.67 2.53 2.68 2.53 Consolidated operations, corporate fixed charges only ... 8.32 6.61 8.24 6.51 American General Finance, Inc. .. 1.36 1.75 1.38 1.75 Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends: Consolidated operations .......... 2.43 2.51 2.43 2.48 Consolidated operations, -11- AMERICAN GENERAL CORPORATION FORM 10-Q For the Quarter Ended June 30, 1996 corporate fixed charges and preferred stock dividends only .. 5.84 6.40 5.68 6.13 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 1995 Annual Report to Shareholders, including the Management's Discussion and Analysis on pages 16 through 25 thereof, and the company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1996. 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. CONSOLIDATED RESULTS OF OPERATIONS Six Months Ended Quarter Ended (In millions, June 30, June 30, except share data) 1996 1995 1996 1995 Net income $ 337 $ 355 $ 168 $ 180 Net income per share 1.60 1.73 .79 .88 Net income for the six months and quarter ended June 30, 1996 decreased 5% and 7%, respectively, compared to the same periods in the prior year, primarily due to lower earnings in the Consumer Finance segment, partially offset by positive contributions from the acquisitions of Franklin Life (first quarter 1995) and Independent (first quarter 1996) in the Life Insurance segment, as well as growth in the Retirement Annuities segment. In addition, net income includes a $19 million increase in net realized investment gains for the six months ended June 30, 1996 compared to 1995, and a $3 million increase for the quarters then ended. Net income per share for the six months and quarter ended June 30, 1996 decreased 8% and 10%, respectively, compared to the same periods of 1995. Net income per share decreased to a greater degree than net income, primarily due to the issuance of convertible preferred securities of a subsidiary in June 1995. BUSINESS SEGMENTS The company reports its business operations in three segments. To facilitate meaningful period-to-period comparisons of business segment results, earnings of each segment include income from its business operations and earnings on -12- AMERICAN GENERAL CORPORATION FORM 10-Q For the Quarter Ended June 30, 1996 that amount of equity considered necessary to support its business, and exclude net realized investment gains, non-recurring items, and the effect of accounting changes. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued). Segment earnings were as follows: Six Months Ended Quarter Ended June 30, June 30, (In millions) 1996 1995 1996 1995 Retirement Annuities $ 118 $ 108 $ 58 $ 54 Consumer Finance 59 122 31 62 Life Insurance 191 170 100 86 Total segment earnings $ 368 $ 400 $ 189 $ 202 A discussion of each segment's results follows. The reasons for any significant variations between the quarters ended June 30, 1996 and 1995 are the same as those discussed below for the respective six month periods, unless otherwise noted. Retirement Annuities Six Months Ended Quarter Ended June 30, June 30, ($ in millions) 1996 1995 1996 1995 Segment earnings $ 118 $ 108 $ 58 $ 54 Assets 28,308 24,968 28,308 24,968 Deposits Fixed 812 905 386 450 Variable 593 376 311 194 Net investment income 822 779 411 393 Investment spread 1.84% 1.84% 1.83% 1.77% Segment earnings for the six months ended June 30, 1996, compared to the same period of 1995, increased $10 million, or 10%, primarily due to an increase in fixed investment margin (net investment income less interest credited to policyholders), resulting from asset growth over the past twelve months. Assets (excluding the fair value adjustment related to fixed maturity securities) increased $3.6 billion, or 14%, from June 30, 1995 to June 30, 1996 (and $1.7 billion, or 7%, since December 31, 1995), reflecting strong sales and an increase in total deposits. The increase in total deposits for the first six months of 1996 compared to the same period of 1995 reflects an increase in variable account deposits, partially offset by a decrease in fixed deposits, due to policyholders' preference for equity-based investments and -13- AMERICAN GENERAL CORPORATION FORM 10-Q For the Quarter Ended June 30, 1996 lower interest crediting rates on fixed accounts. Assets and liabilities related to Separate Accounts increased $2.3 billion from June 30, 1995 to Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued). June 30, 1996 (and $1.3 billion from December 31, 1995 to June 30, 1996), also reflecting the demand for equity-based products, as well as the accumulation of investment returns due to the strong performance of the stock market. Net investment income, the primary component of revenues, increased 5% for the first six months of 1996 compared to the same period of 1995, reflecting growth in invested assets, partially offset by a decrease in the investment yield. The yield decreased 13 basis points in the six months ended June 30, 1996 compared to June 30, 1995 (14 basis points during the comparable quarters). Management's ability to make corresponding reductions in rates credited to policyholders resulted in the stable investment spread for the first half of 1996 compared to the same period of 1995, and the 6 basis point increase during the comparable quarters. The stable investment spread, combined with growth in invested assets, contributed to the increase in fixed investment margin. The ratio of operating expenses to average assets improved to .51% for the six months ended June 30, 1996 from .53% for the same period in 1995 due to an increase in average assets, which more than offset an $8 million increase in operating expenses related to the growth in business. The ratio of policyholder surrenders to average fixed deferred annuity liabilities increased to 5.31% for the first six months of 1996 compared to 3.99% for the same period in 1995. The increase was primarily due to policyholders' increased interest in variable investment options, lower fixed interest crediting rates, and an increase in systematic withdrawals. Consumer Finance Six Months Ended Quarter Ended June 30, June 30, ($ in millions) 1996 1995 1996 1995 Segment earnings $ 59 $ 122 $ 31 $ 62 Finance receivables 8,053 8,335 8,053 8,335 Yield on finance receivables 18.13% 17.95% 18.13% 17.95% Loss-adjusted yield on finance receivables 12.72 15.07 12.80 15.01 Operating expenses $ 259 $ 219 $ 129 $ 111 Operating expense ratio 6.29% 5.21% 6.50% 5.28% As expected, segment earnings were below prior period levels, reflecting a significant decline in credit quality in the last six months of 1995, and -14- AMERICAN GENERAL CORPORATION FORM 10-Q For the Quarter Ended June 30, 1996 subsequent corrective actions to improve credit quality. Segment earnings for the six months ended June 30, 1996 decreased $63 million, or 52%, from the same period a year ago. For second quarter 1996, segment earnings were down Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued). $31 million, or 50%, compared to second quarter 1995. The declines were primarily due to increased provision for loan losses, minimal growth in finance charges due to lower finance receivables, and increased operating expenses. Total finance receivables at June 30, 1996 decreased $357 million from December 31, 1995 and $282 million from June 30, 1995. Real estate secured consumer loans increased to $3.1 billion at June 30, 1996 from $2.9 billion at December 31, 1995 and June 30, 1995, primarily due to a second quarter 1996 purchase of a $200 million block of receivables. Other lines of receivables decreased as compared to December 31, 1995 and June 30, 1995, due to management s action program to improve credit quality. An 18 basis point improvement in yield on finance receivables for the three months and six months ended June 30, 1996, compared to the same periods of 1995, contributed to a $5 million increase in year-to-date finance charge revenues although average finance receivables decreased during the same period. Finance charge revenues for second quarter 1996 decreased $7 million compared to the prior year period, due to lower average finance receivables, partially offset by the higher yield. The Consumer Finance segment's strategy in recent years has emphasized improvement of loss-adjusted yield (yield less net charge off percentage) by extending credit to customers with risk characteristics somewhat higher than those traditionally serviced by the company. As expected, growth in higher- yielding finance receivables adversely affected credit quality; however, the delinquencies and charge offs experienced by this segment sharply increased to greater than anticipated levels beginning in third quarter 1995. As a result, loss-adjusted yield on finance receivables decreased 235 basis points in the six months ended June 30, 1996 compared to the same period in 1995. In response to this unanticipated increase in delinquencies and charge offs, a comprehensive review of the Consumer Finance segment's loan portfolio was initiated in fourth quarter 1995. This review, which consisted of extensive internal analysis, together with credit loss development projections supplied by outside credit consultants, indicated a need for an increase in the allowance for finance receivable losses. A $216 million increase in the allowance was recorded in fourth quarter 1995. In addition, the company adopted an action program for improving credit quality that included raising underwriting standards, expanding the use of credit scoring, and slowing branch expansion and receivable growth (other than real estate loan growth), -15- AMERICAN GENERAL CORPORATION FORM 10-Q For the Quarter Ended June 30, 1996 while stressing collections and improved branch office training. This action program is being accomplished primarily by redirecting segment resources rather than employing additional resources. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued). Information regarding the provision for finance receivable losses and charge offs was as follows: Six Months Ended Quarter Ended June 30, June 30, ($ in millions) 1996 1995 1996 1995 Provision for finance receivable losses $ 211 $ 147 $ 102 $ 75 Charge offs, net of recoveries 221 117 107 61 Net charge offs as percentage of average finance receivables 5.41% 2.88% 5.33% 2.94% Compared to the same periods of 1995, the provision for finance receivable losses increased $64 million, or 43%, for the six months ended June 30, 1996 and $27 million, or 37%, for the quarter then ended. The increases were due to higher net charge offs, partially offset by a decrease in the amounts provided for the allowance for finance receivable losses. Net charge offs as a percentage of average finance receivables improved from 6.04% and 5.50% for the quarters ended December 31, 1995 and March 31, 1996, respectively. Information regarding the allowance for finance receivable losses and delinquencies was as follows: June 30, December 31, June 30, ($ in millions) 1996 1995 1995 Allowance for finance receivable losses $ 482 $ 492 $ 256 Allowance as percentage of finance receivables 5.99% 5.85% 3.07% Delinquencies as percentage of finance receivables 3.99% 4.11% 3.04% The allowance for finance receivable losses decreased $10 million from December 31, 1995 to June 30, 1996, while it increased as a percentage of finance receivables by 14 basis points, as a result of the decline in finance receivables. Delinquencies as a percentage of finance receivables improved -16- AMERICAN GENERAL CORPORATION FORM 10-Q For the Quarter Ended June 30, 1996 from December 31, 1995 to June 30, 1996, primarily as a result of the action program to improve credit quality. Management believes that the allowance for finance receivable losses is adequate given the current level of delinquencies and net charge offs. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued). Operating expenses increased $40 million, or 19%, for the six months ended June 30, 1996, compared to the same period in 1995. Operating expenses as a percentage of average finance receivables increased 108 basis points for the same periods, due to the higher expenses and a decrease in finance receivables. The increase in operating expenses reflects lower deferrals of loan origination costs, higher salaries to support branch expansion and account growth that occurred in 1994 and 1995, and increased collection efforts associated with the higher levels of delinquent receivables. Operating expenses for the quarter ended June 30, 1996 included $7 million of non-recurring expenses related to marketing initiatives that have either been restructured or discontinued based on the comprehensive review of operations. This review and the decrease in finance receivables during 1996 resulted in a second quarter workforce reduction of approximately 450 positions throughout the United States, primarily through attrition. Management believes the improvement programs implemented in late 1995 and throughout 1996 will continue to address the overall credit quality issues and lead to further expense reductions. During the second half of the year, charge offs and provisions for losses are expected to moderate. However, adverse changes in general economic conditions, which include the recent increase in the level of personal bankruptcies, could negatively impact expected results. Life Insurance Six Months Ended Quarter Ended June 30, June 30, ($ in millions) 1996 1995 1996 1995 Segment earnings $ 191 $ 170 $ 100 $ 86 Revenues Premiums 838 712 426 373 Net investment income 759 673 387 358 Insurance and annuity benefits 914 812 450 434 Operating expense ratio 15.77% 12.97% 16.80% 13.27% Results for the first half of 1996 for the Life Insurance segment reflect six months of operations for Franklin Life, acquired January 31, 1995, and four months of operations for Independent, acquired February 29, 1996. Increases -17- AMERICAN GENERAL CORPORATION FORM 10-Q For the Quarter Ended June 30, 1996 in segment earnings of $21 million, or 12%, segment revenues (consisting principally of premiums and net investment income) of $217 million, or 15%, and insurance and annuity benefits of $102 million, or 12%, were primarily due to the acquisitions. For second quarter 1996, the increase in insurance and annuity benefits was partially offset by reinsurance of the credit life and health lines of business at Franklin Life. 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 in the first six months of 1996 compared to the same period of 1995, reflecting Independent's higher overall expense ratio and a lower level of annuity deposits in two operating companies. Information regarding sales and deposits was as follows: Six Months Ended Quarter Ended June 30, June 30, (In millions) 1996 1995 1996 1995 Sales Life insurance $153 $185 $ 84 $ 94 Annuities 163 324 79 158 Deposits Life insurance 339 329 169 158 Annuities 227 371 118 199 Strict adherence to pricing standards, which is essential to long-term profitability objectives, has caused short-term pressure on both life insurance and annuity sales in 1996. Life insurance sales for the first six months of 1996 were 17% below comparable 1995 sales due to price competition in higher-end products and major changes in field administration systems. Annuity sales for the six months ended June 30, 1996 were 50% below comparable prior year sales, primarily due to increasingly competitive market conditions related to interest crediting rates. The lower 1996 sales resulted in a reduction in the deferral of acquisition costs for the six months ended June 30, 1996 compared to the same period in 1995. Annuity deposits for such periods decreased 39%, primarily due to lower fixed and variable annuity sales. Selected balance sheet information was as follows: June 30, December 31, (In millions) 1996 1995 Invested assets $19,659 $19,444 Cost of insurance purchased 776 504 -18- AMERICAN GENERAL CORPORATION FORM 10-Q For the Quarter Ended June 30, 1996 Insurance and annuity liabilities 18,520 17,403 Excluding the fair value adjustment related to fixed maturity securities, the Life Insurance segment's invested assets increased $1.2 billion, cost of insurance purchased increased $127 million, and insurance and annuity liabilities increased $1.1 billion from December 31, 1995 to June 30, 1996, primarily due to the acquisition of Independent. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued). Guaranty Associations. State guaranty fund expense included in operating costs and expenses was $4 million and $3 million for the six months ended June 30, 1996 and 1995, respectively. Amounts assessed American General's life insurance and annuity subsidiaries by state life and health insurance guaranty funds resulting from past industry insolvencies were $7 million during the first six months of 1996, compared to $12 million for the same period in 1995. These assessments are expected to be partially recovered against the payment of future premium taxes. At June 30, 1996, the accrued liability for anticipated assessments was $50 million, compared to $51 million at December 31, 1995. The company has recorded receivables of $45 million at June 30, 1996, compared to $44 million at December 31, 1995, for expected recoveries against the payment of future premium taxes. 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. Fair Value of Securities (SFAS 115). An increase in market interest rates and resulting decreases in bond values during the first six months of 1996 caused an $821 million decrease in shareholders' equity related to the fair value adjustment to fixed maturity securities under SFAS 115, "Accounting for Certain Investments in Debt and Equity Securities", at June 30, 1996. The components of the adjustment to report fixed maturity and equity securities at fair value at June 30, 1996 and December 31, 1995, and the change, were as follows: June 30, December 31, (In millions) 1996 1995 Change Fair value adjustment to fixed maturity securities $ 619 $ 2,623 $(2,004) -19- AMERICAN GENERAL CORPORATION FORM 10-Q For the Quarter Ended June 30, 1996 Adjusted by: Decrease in DPAC/CIP (261) (1,061) 800 Increase in deferred income taxes (138) (586) 448 Equity in WNC's unrealized gains 28 93 (65) Net unrealized gains on fixed maturity securities 248 1,069 (821) Net unrealized gains on equity securities 20 31 (11) Net unrealized gains on securities $ 268 $ 1,100 $ (832) Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued). Accounting rules do not permit adjustment to fair value of the insurance liabilities supported by these securities, thereby creating volatility in 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 June 30, 1996. Fixed maturity securities are carried at fair value. Information regarding the fixed maturity securities portfolio, which included bonds and redeemable preferred stocks, at June 30, 1996 was as follows: June 30, Average Credit (In millions) 1996 % Rating Investment grade $ 24,413 67% A Mortgage-backed 10,807 29 AAA Below investment grade 1,517 4 BB- Total fixed maturities $ 36,737 100% AA- 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 90% of mortgage-backed securities at June 30, 1996 and December 31, 1995, respectively. At June 30, 1996, below investment grade fixed maturity securities, those rated below BBB-, were $1.5 billion compared to $1.4 billion at December 31, 1995. These investments represented 4% of total fixed maturity securities at both balance sheet dates. Net income from below investment grade fixed maturity securities, including realized investment gains and losses, was $44 million and $37 million for the first six months of 1996 and 1995, respectively. Non-performing fixed maturity securities, defined as securities for which payment of interest is sufficiently uncertain as to preclude accrual of interest, represented .01% of total fixed maturity securities at June 30, 1996 -20- AMERICAN GENERAL CORPORATION FORM 10-Q For the Quarter Ended June 30, 1996 and December 31, 1995. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued). Mortgage Loans. Mortgage loans on real estate totaled 7% of invested assets at June 30, 1996. Information regarding the mortgage loan portfolio at June 30, 1996 was as follows: June 30, Non-Performing Loans (In millions) 1996 Amount % Commercial $3,197 $183 5.7% Residential 70 3 4.1% Allowance for losses (83) (28) Total mortgage loans $3,184 $158 Non-performing mortgage loans include loans delinquent 60 days or more and commercial loans that have been restructured. These loans represented 5.7% of total commercial loans at June 30, 1996, compared to 5.5% at December 31, 1995. The increase in non-performing loans was a result of the Independent acquisition. At June 30, 1996, $251 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 potentially under- collateralized. This amount compares to $263 million at year-end 1995. 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. Investment Real Estate. Investment real estate totaled 1% of invested assets at June 30, 1996 and December 31, 1995. The breakdown of investment real estate was as follows: June 30, December 31, (In millions) 1996 1995 Land development projects $ 360 $ 366 American General Center, Houston 114 115 -21- AMERICAN GENERAL CORPORATION FORM 10-Q For the Quarter Ended June 30, 1996 Income-producing real estate 69 56 Foreclosed real estate 91 75 Allowance for losses (28) (35) Total investment real estate $ 606 $ 577 The increases in income-producing and foreclosed real estate primarily related to the acquisition of Independent and foreclosures of $14 million in 1996. American General's principal exposure to environmental regulation arises from its ownership of investment real estate. Probable costs related to environmental cleanup are immaterial. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued). Realized Investment Gains. Realized investment gains (losses) were as follows: Six Months Ended Quarter Ended June 30, June 30, (In millions) 1996 1995 1996 1995 Sales of fixed maturity securities $ (34) $ (11) $ (37) $ (3) Calls of fixed maturity securities 18 7 7 5 Sales/calls of equity securities 40 - 24 - Write-downs/reserve increases (5) (12) (1) (13) Other 13 19 12 12 Total realized investment gains $ 32 $ 3 $ 5 $ 1 Write-downs and reserve increases primarily related to mortgage loans for the six months ended June 30, 1996 and to investment real estate in the comparable prior period. CAPITAL RESOURCES Corporate Debt. Corporate debt is incurred primarily to fund acquisitions, the share buyback program, and capital needs of subsidiaries. Corporate debt increased $124 million from December 31, 1995 to June 30, 1996, primarily due to $139 million in short-term debt used to finance the cash portion of the Independent acquisition. Interest expense on corporate debt decreased $22 million, or 27%, for the six months ended June 30, 1996 compared to the same period in 1995, primarily due to higher average short-term borrowings in the first six months of 1995 due to the initial financing of the Franklin Life acquisition. The company issued preferred securities of a subsidiary in 1995 to refinance a portion of this and other short-term debt. The ratio of corporate debt to corporate capital (excluding the fair value adjustment related to fixed maturity securities) was 24.2% at June 30, 1996, compared to 24.0% at December 31, 1995. Management expects to maintain the -22- AMERICAN GENERAL CORPORATION FORM 10-Q For the Quarter Ended June 30, 1996 ratio at or below 25% in 1996. 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 that supports cost-effective funding. Consumer finance debt decreased $373 million from December 31, 1995 to June 30, 1996, due to the decline in finance receivables. Interest expense on Consumer Finance debt decreased $8 million, or 3%, for the six months ended June 30, 1996 compared to the same period in 1995, primarily due to the lower average borrowings. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued). Shareholders' Equity. Shareholders' equity decreased from $5.8 billion at December 31, 1995 to $5.3 billion at June 30, 1996, primarily due to the $832 million decrease in net unrealized gains on securities, partially offset by issuances of stock in connection with the acquisition of Independent. The issuances consisted of 3.7 million shares of common stock from treasury, which increased shareholders' equity by $138 million, and 2.3 million shares of American General 7% mandatorily convertible preferred stock, which increased shareholders' equity by $85 million. 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 16). LIQUIDITY Management believes that the overall sources of cash and liquidity available to the company and its subsidiaries will continue to be sufficient to satisfy its foreseeable financial obligations. Parent Company Cash Flows Six Months Ended June 30, (In millions) 1996 1995 Net operating cash flows $187 $ 65 Dividends paid by Life Insurance and Retirement Annuities segments 163 - Dividends paid by Consumer Finance segment 57 70 Dividends from subsidiaries are the primary source of cash for operating requirements of the company and are used to fund interest obligations, -23- AMERICAN GENERAL CORPORATION FORM 10-Q For the Quarter Ended June 30, 1996 dividends to shareholders, acquisitions, and to buy back common stock. The company'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. During the first six months of 1996, the Life Insurance and Retirement Annuities segments paid $183 million of cash dividends to AGC Life, a subsidiary of American General. Of this amount, $20 million was used by AGC Life to reduce intercompany borrowings and the remaining $163 million was dividended to American General. During the first six months of 1995, the Life Insurance and Retirement Annuities segments paid $117 million of cash Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued). dividends to AGC Life, all of which was used to reduce intercompany borrowings. The increase in dividends paid by the Life Insurance and Retirement Annuities segments is primarily attributable to cash dividends paid by Franklin Life in the first six months of 1996. Segment Cash Flows Six Months Ended June 30, (In millions) 1996 1995 Life Insurance and Retirement Annuities Cash provided by operating activities $778 $761 Cash provided by fixed policyholder account deposits, net of withdrawals 92 690 Variable account deposits, net of withdrawals 908 555 Consumer Finance Cash provided by operating activities 335 377 Net cash flows generated by the Life Insurance and Retirement Annuities segments include cash provided by operating activities and cash provided by fixed policyholder account deposits, net of withdrawals. The $17 million increase in cash provided by operating activities was primarily due to an increase in premiums and net investment income in the first six months of 1996, partially offset by an increase in insurance and annuity benefits. The decrease of $598 million in cash provided by fixed policyholder account deposits, net of withdrawals, was primarily due to policyholders' increased demand for variable accounts. Variable account deposits, net of withdrawals, related to Separate Accounts that are not included in the consolidated condensed statement of cash flows, increased $353 million in the first six months of 1996 compared to the same period of 1995. The Consumer Finance segment's cash provided by operating activities decreased -24- AMERICAN GENERAL CORPORATION FORM 10-Q For the Quarter Ended June 30, 1996 $42 million for the first six months of 1996 compared to the first six months of 1995, primarily due to higher operating expenses. Investing Activities. Cash flows related to investing activities were as follows: Calls, Maturities, Purchases and Sales Six Months Ended Six Months Ended (In millions) June 30, June 30, 1996 1995 1996 1995 Fixed maturity securities $4,646 $3,832 $4,041 $2,153 Mortgage loans 229 95 199 174 Equity securities 1 20 145 105 Other 38 31 80 128 Total $4,914 $3,978 $4,465 $2,560 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued). Income Taxes Paid. In the first six months of 1996, the company paid income taxes of $153 million compared to $91 million for the same period in 1995. The increase in income taxes paid is primarily due to a tax refund received in 1995 resulting from the 1994 capital gains offset program. Credit Facilities. Committed credit facilities are maintained by American General and certain of its subsidiaries to support the issuance of commercial paper and to provide an additional source of cash for operating requirements. At June 30, 1996, committed credit facilities totaled $3.1 billion; there were no outstanding borrowings under these facilities. Share Buyback. During the first six months of 1996, the company purchased 2.4 million shares of its common stock at a cost of $87 million, pursuant to its share buyback program. 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; competitive, regulatory, or tax changes that affect the cost of or demand for the company's products; adverse litigation results; and failure to achieve the company's anticipated levels of expense savings from cost-saving initiatives. The Consumer Finance segment's future results also could be adversely affected if finance receivable volume is lower than anticipated (which could occur, for example, as a result of the company's recently implemented action program to -25- AMERICAN GENERAL CORPORATION FORM 10-Q For the Quarter Ended June 30, 1996 tighten underwriting standards) or if, despite the company's initiatives to improve credit quality, finance receivable delinquencies and net charge offs fail to trend downward to the extent anticipated by management. 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 1995 Form 10-K, American General and certain of its subsidiaries are parties 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 ultimately will be paid, if any, arising from these lawsuits and proceedings will have no 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. Item 4. Submission of Matters to a Vote of Security Holders. Election of Directors. American General's Annual Meeting of Shareholders was held on April 25, 1996. The following directors, constituting American General's entire board, were elected to terms ending in 1997: Number of Number of Name Votes For Votes Withheld J. Evans Attwell 178,240,286 4,310,103 Brady F. Carruth 179,790,311 2,760,078 W. Lipscomb Davis Jr. 179,805,667 2,744,722 Robert M. Devlin 179,729,190 2,821,199 Harold S. Hook 178,195,797 4,354,592 Larry D. Horner 179,780,428 2,769,961 -26- AMERICAN GENERAL CORPORATION FORM 10-Q For the Quarter Ended June 30, 1996 Richard J. V. Johnson 179,802,029 2,748,360 Jon P. Newton 179,753,123 2,797,266 Robert E. Smittcamp 179,814,263 2,736,126 Anne M. Tatlock 179,757,391 2,792,998 Independent Auditors. The appointment of Ernst & Young LLP as Independent Auditors was ratified with 181,737,491 votes for, 404,070 votes against, and 408,828 abstentions. 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. None. -27- AMERICAN GENERAL CORPORATION FORM 10-Q For the Quarter Ended June 30, 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) Date: August 9, 1996 -28- AMERICAN GENERAL CORPORATION FORM 10-Q For the Quarter Ended June 30, 1996 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. -29- EX-11 2 AMERICAN GENERAL CORPORATION FORM 10-Q For the Quarter Ended June 30, 1996 Exhibit 11 COMPUTATION OF EARNINGS PER SHARE (Unaudited) (In millions, except share data) Six Months Ended June 30, 1996 1995 Primary: Net income available to common stock ....... $ 337 $ 355 Average shares outstanding Common stock ............................. 205,773,050 204,797,065 Assumed conversion of mandatorily convertible preferred stock ............. 1,283,915 - Assumed exercise of stock options ........ 605,758 396,104 Total .................................. 207,662,723 205,193,169 Net income per share ....................... $1.62 $1.73 Fully Diluted: Net income ................................. $ 337 $ 355 Plus: Net dividends on convertible preferred securities of subsidiary ........ 5 1 Net income available to common stock ... $ 342 $ 356 Average shares outstanding Common stock ............................. 205,773,050 204,797,065 Assumed conversion of convertible preferred securities of subsidiary ...... 6,144,016 1,018,345 Assumed conversion of mandatorily convertible preferred stock ............. 1,553,624 - Assumed exercise of stock options ........ 646,841 463,313 Total .................................. 214,117,531 206,278,723 Net income per share ....................... $1.60 $1.73 EX-12 3 Exhibit 12 COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS (Unaudited) ($ in millions) Six Months Ended June 30, 1996 1995 Consolidated operations: Income before income tax expense and net dividends on preferred securities .......................... $ 551 $ 556 Fixed charges deducted from income Interest expense ................................. 311 339 Implicit interest in rents ....................... 9 9 Total fixed charges deducted from income ....... 320 348 Earnings available for fixed charges.......... $ 871 $ 904 Fixed charges per above ............................ $ 320 $ 348 Capitalized interest ............................... 6 9 Total fixed charges ............................ 326 357 Dividends on preferred stock and securities .... 32 3 Combined fixed charges and preferred stock dividends ............................ $ 358 $ 360 Ratio of earnings to fixed charges ......... 2.67 2.53 Ratio of earnings to combined fixed charges and preferred stock dividends ............ 2.43 2.51 Consolidated operations, corporate fixed charges and preferred stock dividends only: Income before income tax expense and net dividends on preferred securities ........................ $ 551 $ 556 Corporate fixed charges deducted from income - corporate interest expense ..................... 69 89 Earnings available for fixed charges ........... $ 620 $ 645 Total corporate fixed charges per above .......... $ 69 $ 89 Capitalized interest related to real estate operations ..................................... 5 9 Total corporate fixed charges .................. 74 98 Dividends on preferred stock and securities .... 32 3 Combined corporate fixed charges and preferred stock dividends .................. $ 106 $ 101 Ratio of earnings to corporate fixed charges 8.32 6.61 Ratio of earnings to combined corporate fixed charges and preferred stock dividends ................................ 5.84 6.40 American General Finance, Inc.: Income before income tax expense ................... $ 92 $ 195 Fixed charges deducted from income Interest expense ................................. 247 255 Implicit interest in rents ....................... 6 6 Total fixed charges deducted from income ....... 253 261 Earnings available for fixed charges ......... $ 345 $ 456 Ratio of earnings to fixed charges ......... 1.36 1.75 Exhibit 12 (continued) COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS (Unaudited) ($ in millions) Quarter Ended June 30, 1996 1995 Consolidated operations: Income before income tax expense and net dividends on preferred securities .......................... $ 275 $ 284 Fixed charges deducted from income Interest expense ................................. 153 174 Implicit interest in rents ....................... 5 5 Total fixed charges deducted from income ....... 158 179 Earnings available for fixed charges.......... $ 433 $ 463 Fixed charges per above ............................ $ 158 $ 179 Capitalized interest ............................... 3 4 Total fixed charges ............................ 161 183 Dividends on preferred stock and securities .... 17 3 Combined fixed charges and preferred stock dividends ............................ $ 178 $ 186 Ratio of earnings to fixed charges ......... 2.68 2.53 Ratio of earnings to combined fixed charges and preferred stock dividends ............ 2.43 2.48 Consolidated operations, corporate fixed charges and preferred stock dividends only: Income before income tax expense and net dividends on preferred securities ........................ $ 275 $ 284 Corporate fixed charges deducted from income - corporate interest expense ..................... 35 47 Earnings available for fixed charges ........... $ 310 $ 331 Total corporate fixed charges per above .......... $ 35 $ 47 Capitalized interest related to real estate operations ..................................... 2 4 Total corporate fixed charges .................. 37 51 Dividends on preferred stock and securities .... 17 3 Combined corporate fixed charges and preferred stock dividends .................. $ 54 $ 54 Ratio of earnings to corporate fixed charges 8.24 6.51 Ratio of earnings to combined corporate fixed charges and preferred stock dividends ................................ 5.68 6.13 American General Finance, Inc.: Income before income tax expense ................... $ 48 $ 99 Fixed charges deducted from income Interest expense ................................. 121 130 Implicit interest in rents ....................... 3 3 Total fixed charges deducted from income ....... 124 133 Earnings available for fixed charges ......... $ 172 $ 232 Ratio of earnings to fixed charges ......... 1.38 1.75 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 6-MOS DEC-31-1996 JAN-01-1996 JUN-30-1996 36,737 0 0 144 3,184 606 42,680 190 0 3,077 63,017 37,258 225 190 1,805 8,944 731 85 398 4,829 63,017 976 1,620 32 804 1,583 168 (204) 551 195 337 0 0 0 337 1.62 1.60 0 0 0 0 0 0 0 ALL FIXED MATURITY SECURITIES ARE CURRENTLY CLASSIFIED AS AVAILABLE-FOR-SALE AND ARE 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 MANDATORILY CONVERTIBLE PREFERRED STOCK. CONSISTS OF NET OF THE FOLLOWING: NET UNREALIZED GAINS (LOSSES) ON SECURITIES; RETAINED EARNINGS; AND COST OF TREASURY STOCK. INCLUDES TOTAL 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 $29 MILLION OF DIVIDENDS ON PREFERRED SECURITIES OF SUBSIDIARIES SHOWN SEPARATELY, NET OF TAX, IN THE CONSOLIDATED INCOME STATEMENT. EXCLUDES $10 MILLION TAX BENEFIT FOR TAX DEDUCTIBLE DIVIDENDS ON PREFERRED SECURITIES OF SUBSIDIARIES.
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