SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Quarterly Period Ended Commission File
June 30, 1999 No. 1-13653
AMERICAN FINANCIAL GROUP, INC.
Incorporated under IRS Employer I.D.
the Laws of Ohio No. 31-1544320
One East Fourth Street, Cincinnati, Ohio 45202
(513) 579-2121
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, and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
As of August 1, 1999, there were 59,651,053 shares of the Registrant's
Common Stock outstanding, excluding 18,666,614 shares owned by
subsidiaries.
Page 1 of 22
<PAGE>
AMERICAN FINANCIAL GROUP, INC. 10-Q
PART I
FINANCIAL INFORMATION
AMERICAN FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Dollars In Thousands)
June 30, December 31,
1999 1998
Assets:
Cash and short-term investments $ 408,571 $ 296,721
Investments:
Fixed maturities - at market
(amortized cost - $10,145,848 and $9,921,344) 10,177,748 10,324,344
Other stocks - at market
(cost - $238,857 and $207,345) 499,057 430,345
Investment in investee corporation 207,176 192,138
Policy loans 217,712 220,496
Real estate and other investments 255,413 271,915
Total investments 11,357,106 11,439,238
Recoverables from reinsurers and prepaid
reinsurance premiums 2,049,570 1,973,895
Agents' balances and premiums receivable 595,402 618,198
Deferred acquisition costs 535,300 464,047
Other receivables 237,699 306,821
Assets held in separate accounts 215,946 120,049
Prepaid expenses, deferred charges and other assets 385,941 344,465
Cost in excess of net assets acquired 311,570 281,769
$16,097,105 $15,845,203
<PAGE>
Liabilities and Capital:
Unpaid losses and loss adjustment expenses $ 4,807,628 $ 4,773,377
Unearned premiums 1,234,112 1,232,848
Annuity benefits accumulated 5,469,517 5,449,633
Life, accident and health reserves 358,034 341,595
Long-term debt:
Holding companies 572,709 415,536
Subsidiaries 223,959 176,896
Liabilities related to separate accounts 215,946 120,049
Accounts payable, accrued expenses and other
liabilities 1,154,752 1,097,316
Total liabilities 14,036,657 13,607,250
Minority interest 499,693 521,776
Shareholders' Equity:
Common Stock, no par value
- 200,000,000 shares authorized
- 59,735,561 and 60,928,322 shares outstanding 59,736 60,928
Capital surplus 758,974 770,721
Retained earnings 563,445 527,028
Net unrealized gain on marketable securities,
net of deferred income taxes 178,600 357,500
Total shareholders' equity 1,560,755 1,716,177
$16,097,105 $15,845,203
2
<PAGE>
AMERICAN FINANCIAL GROUP, INC. 10-Q
AMERICAN FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF EARNINGS
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Income:
Property and casualty insurance
premiums $557,535 $ 707,294 $1,095,001 $1,383,466
Life, accident and health premiums 25,367 48,460 50,955 95,276
Investment income 211,465 228,912 415,375 449,240
Equity in net earnings of investee 1,119 17,996 17,436 31,914
Realized gains on sales of:
Securities 7,292 7,142 11,741 14,588
Investee - 1,716 - 9,420
Other investments - - - 6,843
Other income 28,577 26,326 54,634 63,877
831,355 1,037,846 1,645,142 2,054,624
Costs and Expenses:
Property and casualty insurance:
Losses and loss adjustment expenses 398,819 564,078 764,648 1,063,903
Commissions and other underwriting
expenses 166,601 191,027 334,822 384,632
Annuity benefits 63,520 69,111 128,461 140,221
Life, accident and health benefits 15,994 36,555 34,873 74,661
Interest charges on borrowed money 17,513 13,995 30,947 27,946
Minority interest expense 11,916 12,908 25,337 27,167
Other operating and general expenses 88,119 83,607 164,728 160,800
762,482 971,281 1,483,816 1,879,330
Earnings before income taxes,
extraordinary items and cumulative
effect of accounting change 68,873 66,565 161,326 175,294
Provision for income taxes 23,800 26,000 57,139 67,842
Earnings before extraordinary items and
cumulative effect of accounting change 45,073 40,565 104,187 107,452
Extraordinary items - loss on prepayment
of debt (3,738) (40) (3,738) (727)
Cumulative effect of accounting change - - (3,854) -
Net Earnings $ 41,335 $ 40,525 $ 96,595 $ 106,725
<PAGE>
Basic earnings (loss) per Common Share:
Before extraordinary items and
cumulative effect of accounting
change $.75 $.66 $1.72 $1.75
Loss on prepayment of debt (.06) - (.06) (.01)
Cumulative effect of accounting change - - (.06) -
Net earnings available to Common Shares $.69 $.66 $1.60 $1.74
Diluted earnings (loss) per Common Share:
Before extraordinary items and
cumulative effect of accounting
change $.74 $.65 $1.70 $1.72
Loss on prepayment of debt (.06) - (.06) (.01)
Cumulative effect of accounting change - - (.06) -
Net earnings available to Common Shares $.68 $.65 $1.58 $1.71
Average number of Common Shares:
Basic 59,962 61,353 60,459 61,229
Diluted 60,579 62,595 61,141 62,376
</TABLE>
3
<PAGE>
AMERICAN FINANCIAL GROUP, INC. 10-Q
AMERICAN FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(Dollars in Thousands)
<TABLE>
<CAPTION>
Common Stock Unrealized
Common and Capital Retained Gain on Comprehensive
Shares Surplus Earnings Securities Income (Loss)
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1999 60,928,322 $831,649 $527,028 $357,500
Net earnings - - 96,595 - $ 96,595
Dividends on Common Stock - - (30,226) - -
Shares issued:
Exercise of stock options 64,759 1,793 - - -
Dividend reinvestment plan 6,099 222 - - -
Employee stock purchase plan 31,588 1,165 - - -
401-K plan company match 57,888 2,171 - - -
Portion of bonuses paid in stock 26,900 1,039 - - -
Directors fees paid in stock 1,204 45 - - -
Shares repurchased (1,381,199) (18,867) (29,952) - -
Capital transactions of subsidiaries - (3,200) - - -
Change in unrealized - - - (178,900) (178,900)
Other - 2,693 - - -
Balance at June 30, 1999 59,735,561 $818,710 $563,445 $178,600 ($ 82,305)
Balance at January 1, 1998 61,048,904 $836,738 $477,071 $348,900
Net earnings - - 106,725 - $106,725
Dividends on Common Stock - - (30,604) - -
Shares issued:
Exercise of stock options 235,190 7,012 - - -
Dividend reinvestment plan 5,030 211 - - -
Employee stock purchase plan 33,830 1,408 - - -
401-K plan company match 44,035 1,783 - - -
Portion of bonuses paid in stock 20,300 816 - - -
Directors fees paid in stock 1,099 45 - - -
Shares repurchased (39) - - - -
Capital transactions of subsidiaries - (980) - - -
Change in unrealized - - - (11,900) (11,900)
Other - 258 - - -
Balance at June 30, 1998 61,388,349 $847,291 $553,192 $337,000 $ 94,825
</TABLE>
4
<PAGE>
AMERICAN FINANCIAL GROUP, INC. 10-Q
AMERICAN FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(In Thousands)
Six months ended
June 30,
1999 1998
Operating Activities:
Net earnings $ 96,595 $ 106,725
Adjustments:
Extraordinary items 3,738 727
Cumulative effect of accounting change 3,854 -
Depreciation and amortization 44,124 51,233
Annuity benefits 128,461 140,221
Equity in net earnings of investee (17,436) (31,914)
Realized gains on investing activities (16,519) (44,411)
Deferred annuity and life policy acquisition costs (59,181) (48,936)
Decrease (increase) in reinsurance and other
receivables 5,133 (138,770)
Increase in other assets (54,061) (7,510)
Increase in insurance claims and reserves 10,181 167,165
Increase in other liabilities 61,987 51,508
Increase in minority interest 4,335 8,030
Dividends from investee 2,400 2,400
Other, net (8,587) (7,814)
205,024 248,654
Investing Activities:
Purchases of and additional investments in:
Fixed maturity investments (1,153,888) (1,243,852)
Equity securities (47,901) (33,137)
Subsidiaries (183,886) (30,325)
Real estate, property and equipment (38,594) (34,932)
Maturities and redemptions of fixed maturity
investments 619,073 772,645
Sales of:
Fixed maturity investments 654,858 358,597
Equity securities 33,241 12,194
Real estate, property and equipment 9,201 30,989
Cash and short-term investments of acquired
subsidiaries, net 19,413 20,841
Decrease (increase) in other investments 22,042 (4,843)
(66,441) (151,823)
<PAGE>
Financing Activities:
Fixed annuity receipts 219,250 238,198
Annuity surrenders, benefits and withdrawals (361,498) (354,790)
Additional long-term borrowings 468,100 202,248
Reductions of long-term debt (271,481) (134,164)
Issuances of Common Stock 2,449 8,209
Repurchases of Common Stock (48,040) -
Repurchases of trust preferred securities (5,509) -
Cash dividends paid (30,004) (30,393)
(26,733) (70,692)
Net Increase in Cash and Short-term Investments 111,850 26,139
Cash and short-term investments at beginning
of period 296,721 257,117
Cash and short-term investments at end of period $ 408,571 $ 283,256
5
<PAGE>
AMERICAN FINANCIAL GROUP, INC. 10-Q
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. Accounting Policies
Basis of Presentation The accompanying consolidated financial
statements for American Financial Group, Inc. ("AFG") and subsidiaries
are unaudited; however, management believes that all adjustments
(consisting only of normal recurring accruals unless otherwise
disclosed herein) necessary for fair presentation have been made. The
results of operations for interim periods are not necessarily
indicative of results to be expected for the year. The financial
statements have been prepared in accordance with the instructions to
Form 10-Q and therefore do not include all information and footnotes
necessary to be in conformity with generally accepted accounting
principles.
Certain reclassifications have been made to prior years to conform to
the current year's presentation. All significant intercompany balances
and transactions have been eliminated. All acquisitions have been
treated as purchases. The results of operations of companies since
their formation or acquisition are included in the consolidated
financial statements.
The preparation of the financial statements requires management to make
estimates and assumptions that affect the amounts reported in the
financial statements and accompanying notes. Changes in circumstances
could cause actual results to differ materially from those estimates.
Investments All fixed maturity securities are "available for sale" and
reported at fair value with unrealized gains and losses reported as a
separate component of shareholders' equity. Short-term investments are
carried at cost; loans receivable are carried primarily at the
aggregate unpaid balance. Premiums and discounts on mortgage-backed
securities are amortized over their expected average lives using the
interest method.
Gains or losses on sales of securities are recognized at the time of
disposition with the amount of gain or loss determined on the specific
identification basis. When a decline in the value of a specific
investment is considered to be other than temporary, a provision for
impairment is charged to earnings and the carrying value of that
investment is reduced.
Investment in Investee Corporation Investments in securities of
20%-to 50%-owned companies are generally carried at cost, adjusted for
AFG's proportionate share of their undistributed earnings or losses.
Cost in Excess of Net Assets Acquired The excess of cost of
subsidiaries and investees over AFG's equity in the underlying net
assets ("goodwill") is being amortized over 40 years.
Insurance As discussed under "Reinsurance" below, unpaid losses and
loss adjustment expenses and unearned premiums have not been reduced
for reinsurance recoverable.
<PAGE>
Reinsurance In the normal course of business, AFG's insurance
subsidiaries cede reinsurance to other companies to diversify risk and
limit maximum loss arising from large claims. To the extent that any
reinsuring companies are unable to meet obligations under the
agreements covering reinsurance ceded, AFG's insurance subsidiaries
would remain liable. Amounts recoverable from reinsurers are estimated
in a manner consistent with the claim liability associated with the
reinsured policies. AFG's insurance subsidiaries report as assets
(a) the estimated reinsurance recoverable on unpaid losses, including an
estimate for losses incurred but not reported, and (b) amounts paid to
reinsurers applicable to the unexpired terms of policies in force.
AFG's insurance subsidiaries also assume reinsurance from other
companies. Income on reinsurance assumed is recognized based on
reports received from ceding reinsurers.
6
<PAGE>
AMERICAN FINANCIAL GROUP, INC. 10-Q
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Deferred Acquisition Costs Policy acquisition costs (principally
commissions, premium taxes and other underwriting expenses) related to
the production of new business are deferred ("DPAC"). For the property
and casualty companies, the deferral of acquisition costs is limited
based upon their recoverability without any consideration for
anticipated investment income. DPAC is charged against income ratably
over the terms of the related policies. For the annuity companies,
DPAC is amortized, with interest, in relation to the present value of
expected gross profits on the policies.
Unpaid Losses and Loss Adjustment Expenses The net liabilities
stated for unpaid claims and for expenses of investigation and
adjustment of unpaid claims are based upon (a) the accumulation of case
estimates for losses reported prior to the close of the accounting
period on the direct business written; (b) estimates received from
ceding reinsurers and insurance pools and associations; (c) estimates
of unreported losses based on past experience; (d) estimates based on
experience of expenses for investigating and adjusting claims and
(e) the current state of the law and coverage litigation. These
liabilities are subject to the impact of changes in claim amounts and
frequency and other factors. In spite of the variability inherent in
such estimates, management believes that the liabilities for unpaid
losses and loss adjustment expenses are adequate. Changes in estimates
of the liabilities for losses and loss adjustment expenses are
reflected in the Statement of Earnings in the period in which determined.
Annuity Benefits Accumulated Annuity receipts and benefit payments
are recorded as increases or decreases in "annuity benefits
accumulated" rather than as revenue and expense. Increases in this
liability for interest credited are charged to expense and decreases
for surrender charges are credited to other income.
Life, Accident and Health Reserves Liabilities for future policy
benefits under traditional life, accident and health policies are
computed using the net level premium method. Computations are based on
anticipated investment yield, mortality, morbidity and surrenders and
include provisions for unfavorable deviations. Reserves are modified
as necessary to reflect actual experience and developing trends.
Assets Held In and Liabilities Related to Separate Accounts
Separate account assets and related liabilities represent variable
annuity deposits.
<PAGE>
Premium Recognition Property and casualty premiums are earned over
the terms of the policies on a pro rata basis. Unearned premiums
represent that portion of premiums written which is applicable to the
unexpired terms of policies in force. On reinsurance assumed from
other insurance companies or written through various underwriting
organizations, unearned premiums are based on reports received from
such companies and organizations. For traditional life, accident and
health products, premiums are recognized as revenue when legally
collectible from policyholders. For interest-sensitive life and
universal life products, premiums are recorded in a policyholder
account which is reflected as a liability. Revenue is recognized as
amounts are assessed against the policyholder account for mortality
coverage and contract expenses.
Policyholder Dividends Dividends payable to policyholders are
included in "Accounts payable, accrued expenses and other liabilities"
and represent estimates of amounts payable on participating policies
which share in favorable underwriting results. The estimate is accrued
during the period in which the related premium is earned. Changes in
estimates are included in income in the period determined.
Policyholder dividends do not become legal liabilities unless and until
declared by the boards of directors of the insurance companies.
7
<PAGE>
AMERICAN FINANCIAL GROUP, INC. 10-Q
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Minority Interest For balance sheet purposes, minority interest
represents the interests of noncontrolling shareholders in AFG
subsidiaries, including American Financial Corporation ("AFC")
preferred stock and preferred securities issued by trust subsidiaries
of AFG. For income statement purposes, minority interest expense
represents those shareholders' interest in the earnings of AFG
subsidiaries as well as AFC preferred dividends and accrued
distributions on the trust preferred securities.
Issuances of Stock by Subsidiaries and Investees Changes in AFG's
equity in a subsidiary or an investee caused by issuances of the
subsidiary's or investee's stock are accounted for as gains or losses
where such issuance is not a part of a broader reorganization.
Income Taxes AFC files consolidated federal income tax returns which
include all 80%-owned U.S. subsidiaries, except for certain life
insurance subsidiaries and their subsidiaries. Because holders of AFC
Preferred Stock hold in excess of 20% of AFC's voting rights, AFG
(parent) and its direct subsidiary, AFC Holding Company ("AFC Holding"
or "AFCH"), own less than 80% of AFC, and therefore, file separate
returns.
Deferred income taxes are calculated using the liability method. Under
this method, deferred income tax assets and liabilities are determined
based on differences between financial reporting and tax bases and are
measured using enacted tax rates. Deferred tax assets are recognized
if it is more likely than not that a benefit will be realized.
Stock-Based Compensation As permitted under Statement of Financial
Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation," AFG accounts for stock options and other stock-based
compensation plans using the intrinsic value based method prescribed by
Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees."
Benefit Plans AFG provides retirement benefits to qualified employees
of participating companies through contributory and noncontributory
defined contribution plans contained in AFG's Retirement and Savings
Plan. Under the retirement portion of the plan, company contributions
(approximately 6% of covered compensation in 1998) are invested
primarily in securities of AFG and affiliates. Under the savings
portion of the plan, AFG matches a specific portion of employee
contributions. Contributions to benefit plans are charged against
earnings in the year for which they are declared.
AFG and many of its subsidiaries provide health care and life insurance
benefits to eligible retirees. AFG also provides postemployment
benefits to former or inactive employees (primarily those on
disability) who were not deemed retired under other company plans. The
projected future cost of providing these benefits is expensed over the
period the employees earn such benefits.
<PAGE>
Under AFG's stock option plan, options are granted to officers,
directors and key employees at exercise prices equal to the fair value
of the shares at the dates of grant. No compensation expense is
recognized for stock option grants.
Start-up Costs Prior to 1999, American Annuity Group, Inc. ("AAG"), an
83%-owned subsidiary, deferred certain costs associated with
introducing new products and distribution channels and amortized them
on a straight-line basis over 5 years. In 1999, AAG implemented
Statement of Position ("SOP") 98-5, "Reporting on the Costs of Start-Up
Activities." The SOP requires that (i) costs of start-up activities be
expensed as incurred and (ii) unamortized balances of previously
deferred costs be expensed and reported as the cumulative effect of a
change in accounting principle. Accordingly, AFG expensed previously
capitalized start-up costs of $3.8 million (net of minority interest
and taxes) or $.06 per diluted share, effective January 1, 1999.
8
<PAGE>
AMERICAN FINANCIAL GROUP, INC. 10-Q
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Derivatives The Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities,"
during the second quarter of 1998. AFG must implement SFAS No. 133 no
later than January 1, 2001. SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including derivative
instruments that are embedded in other contracts, and for hedging
activities. SFAS No. 133 requires the recognition of all derivatives
(both assets and liabilities) in the balance sheet at fair value.
Changes in fair value of derivative instruments are included in current
income or as a component of comprehensive income (outside current
income) depending on the type of derivative. Implementation of SFAS
No. 133 is not expected to have a material effect on AFG's financial
position or results of operations.
Earnings Per Share Basic earnings per share is calculated using the
weighted average number of shares of common stock outstanding during
the period. Diluted earnings per share include the effect of the
assumed exercise of dilutive common stock options.
Comprehensive Income Comprehensive income represents the total of net
earnings plus other comprehensive income. For AFG, other comprehensive
income represents the change in net unrealized gain on marketable
securities net of deferred taxes.
Statement of Cash Flows For cash flow purposes, "investing activities"
are defined as making and collecting loans and acquiring and disposing
of debt or equity instruments and property and equipment. "Financing
activities" include obtaining resources from owners and providing them
with a return on their investments, borrowing money and repaying
amounts borrowed. Annuity receipts, benefits and withdrawals are also
reflected as financing activities. All other activities are considered
"operating". Short-term investments having original maturities of
three months or less when purchased are considered to be cash
equivalents for purposes of the financial statements.
B. Acquisitions and Sales of Subsidiaries
Worldwide Insurance Company In April 1999, AFG completed the purchase
of Worldwide Insurance Company (formerly Providian Auto and Home
Insurance Company) for $157 million in cash. Worldwide is a provider
of direct response private passenger automobile insurance.
Old Republic In February 1999, AAG acquired Old Republic Life
Insurance Company of New York for approximately $27 million in cash.
United Teacher Associates In July 1999, AAG reached a definitive
agreement to acquire United Teacher Associates Insurance Company of
Austin, Texas ("UTA"). UTA provides retired and active teachers with
supplemental health products and retirement annuities. Completion of
the acquisition, which is expected to occur in the third quarter of
1999, is subject to certain conditions, including receipt of approval
from the Texas Department of Insurance.
<PAGE>
Commercial lines division In December 1998, AFG completed the sale of
substantially all of its Commercial lines division to Ohio Casualty
Corporation for $300 million plus warrants to purchase 6 million (post
split) shares of Ohio Casualty common stock. AFG deferred a gain of
$103 million on the insurance ceded to Ohio Casualty and recognized a
pretax gain of $153 million on the sale of the other net assets. The
deferred gain is being recognized over the estimated remaining
settlement period (weighted average of 4.25 years) of the claims ceded.
AFG may receive up to an additional $40 million in the year 2000 based
upon the retention and growth of the insurance businesses acquired by
Ohio Casualty. The commercial lines sold generated net written
premiums of approximately $142 million for the six months ended June
30, 1998.
9
<PAGE>
AMERICAN FINANCIAL GROUP, INC. 10-Q
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Funeral Services division In September 1998, AAG sold its Funeral
Services division for approximately $165 million in cash. The division
held assets of approximately $1 billion at the sale date. AFG realized
a pretax gain of $21.6 million, before $2.7 million of minority
interest, on this sale.
C. Segments of Operations Having sold substantially all of its Commercial
lines division in December 1998, AFG's property and casualty group is
engaged primarily in private passenger automobile and specialty
insurance businesses. The Personal group consists of the nonstandard
auto group along with the preferred/standard private passenger auto and
other personal insurance business. The Specialty group includes a
highly diversified group of specialty business units. AFG's annuity
and life business markets primarily retirement products as well as life
and supplemental health insurance. In addition, AFG owns a significant
portion of the voting equity securities of Chiquita Brands
International, Inc. (an investee corporation - see Note D).
The following table (in thousands) shows AFG's revenues and operating
profit (loss) by significant business segment. Operating profit (loss)
represents total revenues less operating expenses.
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Revenues (a)
Property and casualty insurance:
Premiums earned:
Personal $300,765 $ 330,615 $ 586,582 $ 658,587
Specialty 258,115 366,275 508,703 703,184
Other lines - primarily
discontinued (1,345) 10,404 (284) 21,695
557,535 707,294 1,095,001 1,383,466
Investment and other income 116,694 121,255 218,962 253,556
674,229 828,549 1,313,963 1,637,022
Annuities and life (b) 149,858 185,435 303,874 373,992
Other 6,149 5,866 9,869 11,696
830,236 1,019,850 1,627,706 2,022,710
Equity in net earnings of investee 1,119 17,996 17,436 31,914
$831,355 $1,037,846 $1,645,142 $2,054,624
<PAGE>
Operating Profit (Loss)
Property and casualty insurance:
Underwriting:
Personal ($ 2,434) $ 9,295 $ 2,046 $ 21,269
Specialty 972 (49,792) 1,321 (59,105)
Other lines - primarily
discontinued (6,423) (7,314) (7,836) (27,233)
(7,885) (47,811) (4,469) (65,069)
Investment and other income 76,624 94,230 144,265 199,109
68,739 46,419 139,796 134,040
Annuities and life 23,671 26,618 50,431 58,672
Other (c) (24,656) (24,468) (46,337) (49,332)
67,754 48,569 143,890 143,380
Equity in net earnings of investee 1,119 17,996 17,436 31,914
$ 68,873 $ 66,565 $ 161,326 $ 175,294
</TABLE>
(a) Revenues include sales of products and services as well as other
income earned by the respective segments.
(b) Represents primarily investment income.
(c) Includes holding company expenses.
10
<PAGE>
AMERICAN FINANCIAL GROUP, INC. 10-Q
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
D. Investment in Investee Corporation Investment in investee corporation
reflects AFG's ownership of 24 million shares (36%) of Chiquita common
stock. The market value of this investment was $216 million and
$229 million at June 30, 1999 and December 31, 1998, respectively.
Chiquita is a leading international marketer, producer and distributor
of quality fresh fruits and vegetables and processed foods. Summarized
financial information for Chiquita follows (in millions):
Six months ended June 30,
1999 1998
Net Sales $1,370 $1,461
Operating Income 113 144
Net Income 56 94
E. Long-Term Debt The carrying value of long-term debt consisted of the
following (in thousands):
June 30, December 31,
1999 1998
Holding Companies:
AFG 7-1/8% Senior Debentures due April 2009 $347,519 -
AFG 7-1/8% Senior Debentures due December 2007 91,600 $100,000
AFC notes payable under bank line - 80,000
AFC 9-3/4% Debentures due April 2004 - 78,560
American Premier Underwriters, Inc. ("APU")
9-3/4% Subordinated Notes due August 1999 89,049 89,467
APU 10-5/8% Subordinated Notes due April 2000 23,985 41,518
APU 10-7/8% Subordinated Notes due May 2011 11,685 17,473
Other 8,871 8,518
$572,709 $415,536
Subsidiaries:
AAG 6-7/8% Senior Notes due June 2008 $100,000 $100,000
AAG notes payable under bank line 75,000 27,000
Notes payable secured by real estate 37,328 37,602
Other 11,631 12,294
$223,959 $176,896
In April 1999, AFG issued $350 million principal amount of 7-1/8%
Senior Debentures due 2009. The majority of the proceeds from this
offering were used in the second quarter to (i) repay $155 million
borrowed under AFC's bank line; (ii) redeem the AFC 9-3/4% Debentures
for $82.9 million and (iii) repurchase $22.2 million of APU Notes and
$8.4 million of AFG Debentures due 2007 for an aggregate of
$32.4 million.
Between July 1 and August 6, AFG repurchased $33.5 million of its 7-1/8%
Debentures due 2009 for $31.4 million in cash, redeemed the APU 9-3/4%
Notes at maturity and borrowed $40 million under the bank line.
<PAGE>
At June 30, 1999, sinking fund and other scheduled principal payments
on debt for the balance of 1999 and the subsequent five years, adjusted
to reflect the new bank borrowings and the payment of the APU 9-3/4%
Notes, were as follows (in thousands):
Holding
Companies Subsidiaries Total
1999 $ - $ 1,041 $ 1,041
2000 23,667 8,685 32,352
2001 - 1,379 1,379
2002 45,939 1,266 47,205
2003 - 76,294 76,294
2004 - 14,241 14,241
11
<PAGE>
AMERICAN FINANCIAL GROUP, INC. 10-Q
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Debentures purchased in excess of scheduled payments may be applied to
satisfy any sinking fund requirement. The scheduled principal payments
shown above assume that debentures previously purchased are applied to
the earliest scheduled retirements.
AFC and AAG each have an unsecured credit agreement with a group of
banks under which they can borrow up to $300 million and $200 million,
respectively. Borrowings bear interest at floating rates based on
prime or Eurodollar rates. Loans mature December 2002 under the AFC
credit agreement and from 2000 to 2003 under the AAG credit agreement.
F. Minority Interest Minority interest in AFG's balance sheet is
comprised of the following (in thousands):
June 30, December 31,
1999 1998
Interest of noncontrolling shareholders
in subsidiaries' common stock $107,939 $124,622
Preferred securities issued by
subsidiary trusts 319,600 325,000
AFC preferred stock 72,154 72,154
$499,693 $521,776
Preferred Securities Wholly-owned subsidiary trusts of AFCH and AAG
have issued $325 million of preferred securities and, in turn,
purchased a like amount of AFCH and AAG subordinated debt which
provides interest and principal payments to fund the respective trusts'
obligations. The preferred securities must be redeemed upon maturity
or redemption of the subordinated debt. AFCH and AAG effectively
provide unconditional guarantees of their respective trusts'
obligations and AFG guarantees AFCH's obligations.
The preferred securities consisted of the following (in thousands):
<TABLE>
<CAPTION>
Date of June 30, December 31, Optional
Issuance Issue (Maturity Date) 1999 1998 Redemption Dates
<S> <C> <C> <C> <C>
October 1996 AFCH 9-1/8% TOPrS (2026) $100,000 $100,000 On or after 10/22/2001
November 1996 AAG 9-1/4% TOPrS (2026) 74,600 75,000 On or after 11/7/2001
March 1997 AAG 8-7/8% Pfd (2027) 70,000 75,000 On or after 3/1/2007
May 1997 AAG 7-1/4% ROPES (2041) 75,000 75,000 Prior to 9/28/2000 and
after 9/28/2001
</TABLE>
In the first quarter of 1999, AAG repurchased $5.4 million of its
preferred securities for $5.5 million in cash.
<PAGE>
AFC Preferred Stock AFC's Preferred Stock is voting, cumulative, and
consists of the following:
Series J, no par value; $25.00 liquidating value per share;
annual dividends per share $2.00; redeemable at $25.75 per
share beginning December 2005 declining to $25.00 at December
2007; 2,886,161 shares (stated value $72.2 million) outstanding
at June 30, 1999 and December 31, 1998.
12
<PAGE>
AMERICAN FINANCIAL GROUP, INC. 10-Q
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Minority Interest Expense Minority interest expense is comprised of
(in thousands):
Six months ended
June 30,
1999 1998
Interest of noncontrolling shareholders
in earnings of subsidiaries $ 8,649 $10,177
Accrued distributions by subsidiaries
on preferred securities:
Trust issued securities 13,802 14,104
AFC preferred stock 2,886 2,886
$25,337 $27,167
G. Shareholders' Equity At June 30, 1999, the outstanding shares of AFG
Common Stock included 1,366,802 shares held by American Premier for
distribution to certain creditors and other claimants pursuant to a
plan of reorganization relating to American Premier's predecessor. AFG
is authorized to issue 12.5 million shares of Voting Preferred Stock
and 12.5 million shares of Nonvoting Preferred Stock, each without par
value.
At June 30, 1999, there were 6.9 million shares of AFG Common Stock
reserved for issuance upon exercise of stock options. As of that date,
AFG had options for 4.6 million shares outstanding. Options generally
become exercisable at the rate of 20% per year commencing one year
after grant; those granted to non-employee directors of AFG are fully
exercisable upon grant. All options expire ten years after the date of
grant.
The change in net unrealized gain on marketable securities for the six
months ended June 30 included the following (in millions):
<TABLE>
<CAPTION>
Minority
Pretax Taxes Interest Net
1999
<S> <C> <C> <C> <C>
Unrealized holding gains (losses) on
securities arising during the period ($292.3) $100.8 $20.0 ($171.5)
Reclassification adjustment for
realized gains included in net income (11.7) 4.1 .2 (7.4)
Change in net unrealized gain on
marketable securities ($304.0) $104.9 $20.2 ($178.9)
1998
Unrealized holding gains (losses) on
securities arising during the period ($ 6.8) $ 2.5 ($ 1.3) ($ 5.6)
Reclassification adjustment for
realized gains included in net income (10.1) 3.5 .3 (6.3)
Change in net unrealized gain on
marketable securities ($ 16.9) $ 6.0 ($ 1.0) ($ 11.9)
</TABLE>
<PAGE>
H. Extraordinary Items Extraordinary items represent AFG's proportionate
share of gains (losses) related to debt retirements by the following
companies. Amounts shown are net of minority interest and income taxes
(in thousands):
Six months ended
June 30,
1999 1998
Holding Companies:
AFG (parent) $ 258 $ -
AFC (parent) (2,993) (35)
APU (parent) (1,003) (43)
Subsidiaries:
AAG - (649)
($3,738) ($727)
13
<PAGE>
AMERICAN FINANCIAL GROUP, INC. 10-Q
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
I. Cash Flows - Fixed Maturity Investments "Investing activities" related
to fixed maturity investments in AFG's Statement of Cash Flows
consisted of the following (in thousands):
Available Held to
For Sale Maturity(a) Total
1999
Purchases $1,153,888 $ - $1,153,888
Maturities and redemptions 619,073 - 619,073
Sales 654,858 - 654,858
1998
Purchases $1,243,026 $ 826 $1,243,852
Maturities and redemptions 397,871 374,774 772,645
Sales 326,657 31,940(b) 358,597
(a) At December 31, 1998, AFG reclassified all of its "held to
maturity" fixed maturity securities to "available for sale."
(b) Sold (at a gain of $.2 million) due to significant deterioration
in the issuers' creditworthiness.
J. Commitments and Contingencies Other than as disclosed in "Legal
Proceedings" in Part II of this report, there have been no significant
changes to the matters discussed and referred to in Note L "Commitments
and Contingencies" in AFG's Annual Report on Form 10-K for 1998.
14
<PAGE>
AMERICAN FINANCIAL GROUP, INC. 10-Q
ITEM 2
Management's Discussion and Analysis
of Financial Condition and Results of Operations
GENERAL
AFG and its subsidiaries, AFC Holding, AFC and American Premier, are
organized as holding companies with almost all of their operations
being conducted by subsidiaries. These parent corporations, however,
have continuing cash needs for administrative expenses, the payment of
principal and interest on borrowings, shareholder dividends, and taxes.
Therefore, certain analyses are best done on a parent only basis while
others are best done on a total enterprise basis. In addition, since
most of its businesses are financial in nature, AFG does not prepare
its consolidated financial statements using a current-noncurrent
format. Consequently, certain traditional ratios and financial
analysis tests are not meaningful.
Year 2000 Status AFG's Year 2000 Project is a corporate-wide program
designed to ensure that its computer systems and other equipment using
date-sensitive computer chips will function properly in the year 2000.
The Project also encompasses communicating with agents, vendors,
financial institutions and others with which the companies conduct
business to determine their Year 2000 readiness and resulting effects
on AFG. AFG's Year 2000 Project Office monitors and coordinates the
work being performed by the various business units and reports monthly
to the Audit Committee of the Board of Directors and more frequently to
senior management.
To address the Year 2000 issue, AFG's operations have been divided into
separate systems groups. A majority of the groups have met AFG's goal
of having program modifications and new software installations
substantially completed by the end of 1998, with testing continuing in
and through 1999. About two-thirds of the groups are expected to have
completed Year 2000 testing by the end of the third quarter of 1999.
The remainder are now expected to be completed during the fourth
quarter.
Contingency plans are being developed for certain business processes
and systems deemed most critical to operations. These plans provide a
documented order of actions necessary to keep the business functions
operating. Such plans typically include procedures and workflow
processes for developing and operating contingent databases.
Contingency planning for other business processes and systems deemed
critical to operations and reasonably likely not to be modified on
schedule is expected to be substantially completed by the end of the
third quarter.
Many of the systems being replaced were planned replacements which were
accelerated due to the Year 2000 considerations. In addition, a
significant portion of AFG's Year 2000 Project is being completed using
internal staff. Therefore, cost estimates for the Year 2000 Project do
not represent solely incremental costs.
<PAGE>
From the inception of the Year 2000 Project in the early 1990s through
June 30, 1999, AFG estimates that it has incurred approximately
$61 million in costs related to the Project, including capitalized
costs of $15 million for new systems. During the first six months of
1999, $11 million in such costs have been expensed. AFG estimates that
it will incur an additional $13 million of such costs in completing the
Project, about two-thirds of which is projected to be expensed.
15
<PAGE>
AMERICAN FINANCIAL GROUP, INC. 10-Q
Management's Discussion and Analysis
of Financial Condition and Results of Operations - Continued
Projected Year 2000 costs and completion dates are based on
management's best estimates. However, there can be no assurances that
these estimates will be achieved. Should software modifications and
new software installations not be completed on a timely basis, the
resulting disruptions could have a material adverse affect on
operations.
AFG's operations could also be affected by the inability of third
parties such as agents and vendors to become Year 2000 compliant.
Assessments of property and casualty agents have been completed and
those of the life and annuity agents are expected to be completed in
the third quarter. Efforts to evaluate third party vendors have been
intensified and will extend into the fourth quarter. In addition,
AFG's property and casualty insurance subsidiaries are reviewing the
potential impact of the Year 2000 issue on insureds as part of their
underwriting process. They are also reviewing policy forms, issuing
clarifying endorsements where appropriate and examining coverage issues
for Year 2000 exposures. While it is possible that Year 2000 claims
may emerge in future periods, it is not possible to estimate any such
amounts.
Forward-Looking Statements The Private Securities Litigation Reform
Act of 1995 encourages corporations to provide investors with
information about the company's anticipated performance and provides
protection from liability if future results are not the same as
management's expectations. This document contains certain forward-
looking statements that are based on assumptions which management
believes are reasonable, but by their nature, inherently uncertain.
Future results could differ materially from those projected. Factors
that could cause such differences include, but are not limited to:
changes in economic conditions especially with regard to availability
of and returns on capital, regulatory actions, changes in legal
environment, levels of catastrophe and other major losses, availability
of reinsurance, the Year 2000 issue, and competitive pressures. AFG
undertakes no obligation to update any forward-looking statements.
LIQUIDITY AND CAPITAL RESOURCES
Ratios AFG's debt to total capital ratio (at the parent holding
company level) was approximately 25% at June 30, 1999 and 18% at
December 31, 1998. AFG's ratio of earnings to fixed charges (on a
total enterprise basis) was 3.53 for the first six months of 1999 and
3.22 for the entire year of 1998.
Sources of Funds Management believes the parent holding companies have
sufficient resources to meet their liquidity requirements through
operations in the short-term and long-term future. If funds generated
from operations, including dividends and tax payments from
subsidiaries, are insufficient to meet fixed charges in any period,
these companies would be required to generate cash through borrowings,
sales of securities or other assets, or similar transactions.
<PAGE>
AFC has a revolving credit agreement with several banks under which it
can borrow up to $300 million. The credit line provides ample
liquidity and can be used to obtain funds for operating subsidiaries
or, if necessary, for the parent companies. While there were no
borrowings outstanding under the credit line at June 30, 1999,
$40 million had been borrowed at August 6.
In April 1999, AFG issued $350 million principal amount of 7-1/8%
senior debentures due 2009; the proceeds were used primarily to retire
outstanding holding company public debt and borrowings under AFC's
credit line.
16
<PAGE>
AMERICAN FINANCIAL GROUP, INC. 10-Q
Management's Discussion and Analysis
of Financial Condition and Results of Operations - Continued
Dividend payments from subsidiaries have been very important to the
liquidity and cash flow of the individual holding companies in the
past. However, the reliance on such dividend payments has been
lessened by the combination of (i) strong capital at AFG's insurance
subsidiaries (and the related decreased likelihood of a need for
investment in those companies), (ii) the reduction of debt at the
holding companies from historical levels (and the related decrease in
ongoing cash needs for interest and principal payments), (iii) AFG's
ability to obtain financing in capital markets, as well as (iv) the
sales of noncore investments.
Investments Approximately 91% of the fixed maturities held by AFG were
rated "investment grade" (credit rating of AAA to BBB) by nationally
recognized rating agencies at June 30, 1999. Investment grade
securities generally bear lower yields and lower degrees of risk than
those that are unrated and noninvestment grade. Management believes
that the high quality investment portfolio should generate a stable and
predictable investment return.
AFG's equity securities are concentrated in a relatively limited number
of major positions. This approach allows management to more closely
monitor the companies and the industries in which they operate.
RESULTS OF OPERATIONS
General Pretax earnings before extraordinary items and cumulative
effect of accounting change for the three months and six months ended
June 30, 1999 were $68.9 million and $161.3 million, respectively,
compared to $66.6 million and $175.3 million in the comparable 1998
periods. An improvement in underwriting results in the second quarter
of 1999 more than offset reductions in investment income and investee
earnings and a one-time expense of $5 million for integration and
software related costs associated with the April acquisition of
Worldwide Insurance Company. For the six months, reductions in
investment income, investee earnings and income from the sale of real
estate properties more than offset an improvement in underwriting
results. The improvement in 1999's underwriting results reflects
primarily the impact of severe storm losses in the second quarter of
1998.
Property and Casualty Insurance - Underwriting AFG's property and
casualty group consists of two major business groups: Personal and
Specialty.
The Personal group consists of the nonstandard auto group along with
the preferred/standard private passenger auto and other personal
insurance business. The nonstandard automobile insurance companies
insure risks not typically accepted for standard automobile coverage
because of the applicant's driving record, type of vehicle, age or
other criteria.
<PAGE>
The Specialty group includes a highly diversified group of business
lines. Some of the more significant areas are executive liability,
inland and ocean marine, U.S.-based operations of Japanese companies,
agricultural-related coverages, California workers' compensation,
nonprofit liability, general aviation coverages, fidelity and surety
bonds, and umbrella and excess coverages. Commercial lines businesses
sold included certain coverages in workers' compensation, commercial
multi-peril, commercial automobile, and umbrella.
Underwriting profitability is measured by the combined ratio which is a
sum of the ratios of underwriting losses, loss adjustment expenses,
underwriting expenses and policyholder dividends to premiums. When the
combined ratio is under 100%, underwriting results are generally
considered profitable; when the ratio is over 100%, underwriting
results are generally considered unprofitable. The combined ratio does
not reflect investment income, other income or federal income taxes.
17
<PAGE>
AMERICAN FINANCIAL GROUP, INC. 10-Q
Management's Discussion and Analysis
of Financial Condition and Results of Operations - Continued
For certain lines of business and products where the credibility of the
range of loss projections is less certain (primarily the various
specialty businesses listed above), management believes that it is
prudent and appropriate to use conservative assumptions until such time
as the data, experience and projections have more credibility, as
evidenced by data volume, consistency and maturity of the data. While
this practice mitigates the risk of adverse development on this
business, it does not eliminate it.
Net written premiums and combined ratios for AFG's property and
casualty insurance subsidiaries were as follows (dollars in millions):
Three months ended Six months ended
June 30, June 30,
1999 1998 1999 1998
Net Written Premiums (GAAP)
Personal $275.4 $325.5 $ 551.9 $ 683.6
Specialty 278.5 352.7 526.7 681.8
Other lines (1.6) 7.9 (1.5) 15.6
$552.3 $686.1 $1,077.1 $1,381.0
Combined Ratios (GAAP)
Personal 100.7% 97.2% 99.7% 96.7%
Specialty 99.7 113.6 99.8 108.5
Aggregate (including
discontinued lines) 101.4 106.8 100.4 104.7
Personal The Personal group's net written premiums for the second
quarter and first six months of 1999 includes $20.9 million in net
premiums written by Worldwide since its acquisition in April. The
decrease in written premiums reflects continuing strong price
competition in the private passenger automobile market. The combined
ratios for 1999 increased as loss and underwriting expenses did not
decline at the same rate as premiums.
<PAGE>
Specialty The Specialty Group's net written premiums for the second
quarter and first six months of 1999 increased slightly compared to the
1998 periods, excluding premiums of the commercial lines division sold
in December 1998 and the effect of ceding approximately 30% of
California workers' compensation premiums under a reinsurance agreement
implemented during the third quarter of 1998.
A deferred gain of $103 million on the Commercial lines business ceded
to Ohio Casualty in December 1998 is being recognized over the
estimated settlement period (weighted average 4.25 years) of the claims
ceded. The Specialty group's underwriting results for the second
quarter and first half of 1999 include $6.7 million and $13.4 million,
respectively, in earnings recognized on the ceded business. In
addition, the improvement in the combined ratios for the 1999 periods
reflects (i) the absence of losses included in the 1998 periods
attributable to midwestern storms which increased the second quarter
and six-month ratios by 8.7 and 5.5 percentage points, respectively,
(ii) improved underwriting margins in California workers' compensation
business largely due to favorable reinsurance agreements and (iii) the
absence of losses included in the 1998 periods attributable to the
commercial lines sold.
18
<PAGE>
AMERICAN FINANCIAL GROUP, INC. 10-Q
Management's Discussion and Analysis
of Financial Condition and Results of Operations - Continued
Life, Accident and Health Premiums and Benefits The decrease in life,
accident and health premiums and benefits reflects primarily the sale
of AAG's Funeral Services division in September 1998.
Investment Income Investment income decreased approximately
$17.5 million (8%) in the second quarter of 1999 and $33.9 million (8%)
in the first six months of 1999 compared to 1998 due primarily to the
transfer of investment assets in connection with the sales of the
Commercial lines division and Funeral Services division in 1998.
Investee Corporation Equity in net earnings of investee corporation
represents AFG's proportionate share of Chiquita's earnings. Chiquita
reported net income for the second quarter and first six months of 1999
of $7.3 million and $56 million, respectively, compared to
$52.8 million and $93.9 million for the same periods in 1998.
Realized Gains Realized capital gains have been an important part of
the return on investments in marketable securities. Individual
securities are sold creating gains and losses as market opportunities
exist.
Gain on Sale of Investee Chiquita's public issuance of shares of its
common stock in the first and second quarters of 1998 resulted in
pretax gains to AFG of $7.7 million and $1.7 million in those periods.
Other Income Other income decreased $9.2 million (14%) in the first
six months of 1999 compared to 1998 due primarily to a reduction in
income from the sale of operating real estate assets.
Annuity Benefits Annuity benefits reflect amounts accrued on annuity
policyholders' funds accumulated. The majority of AAG's fixed rate
annuity products permit AAG to change the crediting rate at any time
(subject to minimum interest rate guarantees of 3% or 4% per annum).
As a result, management has been able to react to changes in market
interest rates and maintain a desired interest rate spread.
Annuity benefits decreased $5.6 million (8%) during the second quarter
and $11.8 million (8%) in the first six months of 1999 compared to the
same periods in 1998 due primarily to (i) decreases in crediting rates,
(ii) changes in actuarial assumptions, (iii) the sale of the Funeral
Services division and (iv) decreased sales and persistency of fixed
annuities.
Cumulative Effect of Accounting Change In the first quarter of 1999,
AAG implemented Statement of Position 98-5, "Reporting on the Costs of
Start-Up Activities." The SOP requires that costs of start-up
activities be expensed as incurred and that unamortized balances of
previously deferred costs be expensed and reported as the cumulative
effect of a change in accounting principle. Accordingly, AFG expensed
previously capitalized start-up costs of $3.8 million (net of minority
interest and taxes) in the first quarter of 1999.
19
<PAGE>
AMERICAN FINANCIAL GROUP, INC. 10-Q
Item 3
Quantitative and Qualitative Disclosure of Market Risk
The tables below shows scheduled principal payments (in millions) on
fixed-rate and variable-rate long-term debt of AFG and its subsidiaries
and related average interest rates as of June 30, 1999 and December 31,
1998.
June 30, 1999
Fixed-Rate Debt Variable-Rate Debt
Weighted Weighted
Scheduled Average Scheduled Average
Principal Interest Principal Interest
Payments Rate Payments Rate
1999 (remainder) $ 89.9 9.72% $ .1 7.81%
2000 32.2 9.44 .2 7.78
2001 1.2 7.11 .1 7.75
2002 1.1 6.80 6.1 9.95
2003 1.1 6.68 75.2 5.48
2004 14.1 8.43 .2 7.75
Thereafter 576.5 7.16 .1 7.75
Total $716.1 7.61% $ 82.0 5.84%
Market Value $689.6 $ 82.0
December 31, 1998
Fixed-Rate Debt Variable-Rate Debt
Weighted Weighted
Scheduled Average Scheduled Average
Principal Interest Principal Interest
Payments Rate Payments Rate
1999 $ 90.7 9.69% $ .3 5.86%
2000 49.1 9.85 .2 5.80
2001 1.2 7.13 .1 5.58
2002 1.1 6.81 85.7 5.95
2003 1.1 6.68 27.2 6.09
Thereafter 333.3 7.92 .2 5.58
Total $476.5 8.45% $113.7 5.98%
Market Value $490.6 $113.7
As of June 30, 1999, there were no material changes to the other
information provided in AFG's Form 10-K for 1998 under the caption
"Exposure to Market Risk" in Management's Discussion and Analysis of
Financial Condition and Results of Operations.
20
<PAGE>
AMERICAN FINANCIAL GROUP, INC. 10-Q
PART II
OTHER INFORMATION
Item 1
Legal Proceedings
Great American Life Insurance Company ("GALIC") was named a defendant in
purported class action lawsuits (Woodward v. Great American Life Insurance
Company, Hamilton County Court of Common Pleas, Case No. A9900587, filed
February 2, 1999 and Marshak v. Great American Life Insurance Company,
Harris County, Texas filed June 18, 1999). The complaints seek unspecified
money damages (the Texas complaint also seeks declaratory relief) based on
alleged (i) failure of GALIC to allow the tax-free transfer of the annuity
value of certain annuities to other product providers, and (ii) misleading
and fraudulent disclosures concerning GALIC's interest crediting practices.
The Texas complaint also alleges that the sale of annuities to
tax-qualified plans was inappropriate. GALIC has not completed its review
of the complaints but believes it has meritorious defenses. However, it is
too early to predict the ultimate outcome of these actions and their impact
on the Company.
Item 4
Submission of Matters to a Vote of Security Holders
AFG's Annual Meeting of Shareholders was held on May 19, 1999; there were
two matters voted upon: (Item 1) election of eight directors, and (Item 2)
approval of an amendment to the Stock Option Plan.
The votes cast for, against, withheld and the number of abstentions as to
each matter voted on at the 1999 Annual Meeting is set forth below:
Name For Against Withheld Abstain
Item 1
Theodore H. Emmerich 54,346,187 N/A 535,048 N/A
James E. Evans 54,352,061 N/A 529,174 N/A
Thomas M. Hunt 54,343,201 N/A 538,034 N/A
Carl H. Lindner 54,336,970 N/A 544,265 N/A
Carl H. Lindner III 54,343,890 N/A 537,345 N/A
Keith E. Lindner 54,344,035 N/A 537,200 N/A
S. Craig Lindner 54,344,049 N/A 537,186 N/A
William R. Martin 54,348,321 N/A 532,914 N/A
Item 2 47,989,374 6,817,491 N/A 74,370
____________________
N/A - Not Applicable
21
<PAGE>
AMERICAN FINANCIAL GROUP, INC. 10-Q
PART II
OTHER INFORMATION
Item 6
Exhibits and Reports on Form 8-K
(a) Exhibit 27.1 - Financial Data Schedule as of June 30, 1999. For
submission in electronic filing only.
(b) Reports on Form 8-K: none
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934,
American Financial Group, Inc. has duly caused this Report to be signed on
its behalf by the undersigned duly authorized.
American Financial Group, Inc.
August 9, 1999 BY: Fred J. Runk
Fred J. Runk
Senior Vice President and Treasurer
22
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from American
Financial Group, Inc. 10-Q for the six months ended June 30, 1999 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> $408,571
<SECURITIES> 10,883,981<F1>
<RECEIVABLES> 595,402
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 16,097,105
<CURRENT-LIABILITIES> 0
<BONDS> 796,668
0
0
<COMMON> 59,736
<OTHER-SE> 1,501,019
<TOTAL-LIABILITY-AND-EQUITY> 16,097,105
<SALES> 0
<TOTAL-REVENUES> 1,645,142
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 164,728
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 30,947
<INCOME-PRETAX> 161,326
<INCOME-TAX> 57,139
<INCOME-CONTINUING> 104,187
<DISCONTINUED> 0
<EXTRAORDINARY> (3,738)
<CHANGES> (3,854)
<NET-INCOME> $96,595
<EPS-BASIC> 1.60
<EPS-DILUTED> 1.58
<FN>
<F1>Includes an investment in investee corporation of $207 million.
</FN>
</TABLE>
