<PAGE>
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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, 2000 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, 2000, there were 58,549,936 shares of the Registrant's
Common Stock outstanding, excluding 18,666,614 shares owned by subsidiaries.
Page 1 of 20
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<PAGE>
AMERICAN FINANCIAL GROUP, INC. 10-Q
PART I
FINANCIAL INFORMATION
AMERICAN FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Dollars In Thousands)
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
----------- -----------
<S> <C> <C>
Assets:
Cash and short-term investments $ 244,000 $ 390,630
Investments:
Fixed maturities - at market
(amortized cost - $10,306,647 and $10,101,105) 10,006,247 9,862,205
Other stocks - at market
(cost - $229,816 and $229,201) 314,116 409,701
Investment in investee corporation 174,141 159,984
Policy loans 214,629 217,171
Real estate and other investments 275,793 269,032
----------- -----------
Total investments 10,984,926 10,918,093
Recoverables from reinsurers and prepaid
reinsurance premiums 2,003,153 2,105,818
Agents' balances and premiums receivable 781,362 656,924
Deferred acquisition costs 743,216 660,672
Other receivables 264,269 223,753
Variable annuity assets (separate accounts) 529,614 354,371
Prepaid expenses, deferred charges and other assets 524,090 411,742
Cost in excess of net assets acquired 324,028 332,072
----------- -----------
$16,398,658 $16,054,075
=========== ===========
Liabilities and Capital:
Unpaid losses and loss adjustment expenses $ 4,786,360 $ 4,795,449
Unearned premiums 1,478,966 1,325,766
Annuity benefits accumulated 5,473,529 5,519,528
Life, accident and health reserves 546,836 520,644
Long-term debt:
Holding companies 580,804 492,923
Subsidiaries 241,882 239,733
Variable annuity liabilities (separate accounts) 529,614 354,371
Accounts payable, accrued expenses and other
liabilities 1,003,482 976,413
----------- -----------
Total liabilities 14,641,473 14,224,827
<PAGE>
Minority interest 479,508 489,270
Shareholders' Equity:
Common Stock, no par value
- 200,000,000 shares authorized
- 58,533,490 and 58,419,952 shares outstanding 58,533 58,420
Capital surplus 741,702 742,220
Retained earnings 588,942 557,538
Unrealized loss on marketable securities, net (111,500) (18,200)
----------- -----------
Total shareholders' equity 1,277,677 1,339,978
----------- -----------
$16,398,658 $16,054,075
=========== ===========
</TABLE>
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,
-------------------- ------------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Income:
Property and casualty insurance
premiums $623,721 $557,535 $1,195,858 $1,095,001
Life, accident and health premiums 49,704 23,971 99,623 48,611
Investment income 213,031 211,465 422,511 415,375
Realized gains (losses) on sales of:
Securities (3,907) 7,292 (5,340) 11,741
Subsidiary 25,000 - 25,000 -
Other income 43,930 29,973 92,123 56,978
-------- -------- ---------- ----------
951,479 830,236 1,829,775 1,627,706
Costs and Expenses:
Property and casualty insurance:
Losses and loss adjustment expenses 483,497 398,819 901,148 764,648
Commissions and other underwriting
expenses 182,573 166,601 361,005 334,822
Annuity benefits 65,483 63,520 131,644 128,461
Life, accident and health benefits 36,885 15,994 73,609 34,873
Interest charges on borrowed money 16,799 17,513 32,825 30,947
Other operating and general expenses 138,779 88,119 231,474 164,728
-------- -------- ---------- ----------
924,016 750,566 1,731,705 1,458,479
-------- -------- ---------- ----------
Operating earnings before income taxes 27,463 79,670 98,070 169,227
Provision for income taxes 7,201 25,784 30,362 55,867
-------- -------- ---------- ----------
Net operating earnings 20,262 53,886 67,708 113,360
Minority interest expense, net of tax (5,964) (9,540) (15,860) (20,506)
Equity in net earnings of investee,
net of tax 2,027 727 9,202 11,333
-------- -------- ---------- ----------
Earnings before extraordinary items and
accounting change 16,325 45,073 61,050 104,187
Extraordinary items - loss on prepayment
of debt - (3,738) - (3,738)
Cumulative effect of accounting change - - - (3,854)
-------- -------- ---------- ----------
Net Earnings $ 16,325 $ 41,335 $ 61,050 $ 96,595
======== ======== ========== ==========
<PAGE>
Basic earnings (loss) per Common Share:
Before extraordinary items and
accounting change $.28 $.75 $1.04 $1.72
Loss on prepayment of debt - (.06) - (.06)
Cumulative effect of accounting change - - - (.06)
---- ---- ----- -----
Net earnings available to Common Shares $.28 $.69 $1.04 $1.60
==== ==== ===== =====
Diluted earnings (loss) per Common Share:
Before extraordinary items and
accounting change $.28 $.74 $1.04 $1.70
Loss on prepayment of debt - (.06) - (.06)
Cumulative effect of accounting change - - - (.06)
---- ---- ----- -----
Net earnings available to Common Shares $.28 $.68 $1.04 $1.58
==== ==== ===== =====
Average number of Common Shares:
Basic 58,547 59,962 58,507 60,459
Diluted 58,944 60,579 58,698 61,141
Cash dividends per Common Share $.25 $.25 $.50 $.50
</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 (Loss)
Shares Surplus Earnings on Securities Total
---------- ------------ -------- ------------- ----------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 2000 58,419,952 $800,640 $557,538 ($ 18,200) $1,339,978
Net earnings - - 61,050 - 61,050
Change in unrealized - - - (93,300) (93,300)
----------
Comprehensive income (loss) (32,250)
Dividends on Common Stock - - (29,245) - (29,245)
Shares issued:
Exercise of stock options 14,682 331 - - 331
Employee stock purchase plan 38,270 940 - - 940
401-K plan company match 99,716 2,119 - - 2,119
Directors fees paid in stock 1,914 48 - - 48
Shares repurchased (41,044) (562) (579) - (1,141)
Tax effect of intercompany dividends - (3,200) - - (3,200)
Repurchase of trust preferred securities - - 178 - 178
Other - (81) - - (81)
---------- -------- -------- -------- ----------
Balance at June 30, 2000 58,533,490 $800,235 $588,942 ($111,500) $1,277,677
========== ======== ======== ======== ==========
Balance at January 1, 1999 60,928,322 $831,649 $527,028 $357,500 $1,716,177
Net earnings - - 96,595 - 96,595
Change in unrealized - - - (178,900) (178,900)
----------
Comprehensive income (loss) (82,305)
Dividends on Common Stock - - (30,226) - (30,226)
Shares issued:
Exercise of stock options 64,759 1,793 - - 1,793
Dividend reinvestment plan 6,099 222 - - 222
Employee stock purchase plan 31,588 1,165 - - 1,165
401-K plan company match 57,888 2,171 - - 2,171
Portion of bonuses paid in stock 26,900 1,039 - - 1,039
Directors fees paid in stock 1,204 45 - - 45
Shares repurchased (1,381,199) (18,867) (29,952) - (48,819)
Tax effect of intercompany dividends - (3,200) - - (3,200)
Other - 2,693 - - 2,693
---------- -------- -------- -------- ----------
Balance at June 30, 1999 59,735,561 $818,710 $563,445 $178,600 $1,560,755
========== ======== ======== ======== ==========
</TABLE>
4
<PAGE>
AMERICAN FINANCIAL GROUP, INC. 10-Q
AMERICAN FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(In Thousands)
<TABLE>
<CAPTION>
Six months ended
June 30,
------------------------
2000 1999
---- ----
<S> <C> <C>
Operating Activities:
Net earnings $ 61,050 $ 96,595
Adjustments:
Extraordinary items - 3,738
Cumulative effect of accounting change - 3,854
Equity in net earnings of investee (9,202) (11,333)
Depreciation and amortization 64,026 44,124
Annuity benefits 131,644 128,461
Realized gains on investing activities (33,330) (16,519)
Deferred annuity and life policy acquisition costs (70,617) (59,181)
Decrease (increase) in reinsurance and other
receivables (34,508) 5,133
Increase in other assets (58,323) (54,061)
Increase in insurance claims and reserves 170,303 10,181
Increase (decrease) in other liabilities (8,926) 55,884
Increase (decrease) in minority interest (1,629) 4,335
Dividends from investee - 2,400
Other, net (2,591) (3,344)
-------- ----------
207,897 210,267
-------- ----------
Investing Activities:
Purchases of and additional investments in:
Fixed maturity investments (942,929) (1,153,888)
Equity securities (20,126) (47,901)
Subsidiaries - (183,886)
Real estate, property and equipment (39,819) (38,594)
Maturities and redemptions of fixed maturity
investments 348,447 619,073
Sales of:
Fixed maturity investments 380,062 654,858
Equity securities 30,678 33,241
Real estate, property and equipment 4,810 9,201
Cash and short-term investments of acquired
subsidiaries, net 259 19,413
Decrease in other investments 2,337 22,042
-------- ----------
(236,281) (66,441)
-------- ----------
<PAGE>
Financing Activities:
Fixed annuity receipts 251,100 219,250
Annuity surrenders, benefits and withdrawals (387,667) (358,081)
Net transfers from fixed to variable annuity assets (34,150) (8,660)
Additional long-term borrowings 110,172 468,100
Reductions of long-term debt (26,981) (271,481)
Issuances of Common Stock 1,004 2,449
Repurchases of Common Stock - (48,040)
Repurchases of trust preferred securities (2,479) (5,509)
Cash dividends paid (29,245) (30,004)
-------- ----------
(118,246) (31,976)
-------- ----------
Net Increase (Decrease) in Cash and Short-term Investments (146,630) 111,850
Cash and short-term investments at beginning
of period 390,630 296,721
-------- ----------
Cash and short-term investments at end of period $244,000 $ 408,571
======== ==========
</TABLE>
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 considered "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 periods of 20 to 40 years.
INSURANCE As discussed under "Reinsurance" below, unpaid losses and loss
adjustment expenses and unearned premiums have not been reduced for
reinsurance recoverable. To the extent that unrealized gains (losses) from
securities classified as "available for sale" would result in adjustments
to deferred acquisition costs and policyholder liabilities had those gains
(losses) actually been realized, such balance sheet amounts are adjusted,
net of deferred taxes.
<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
6
<PAGE>
AMERICAN FINANCIAL GROUP, INC. 10-Q
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
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.
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, DPAC is limited based upon recoverability without any
consideration for anticipated investment income and 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 established for accident
and health claims are modified as necessary to reflect actual experience
and developing trends.
VARIABLE ANNUITY ASSETS AND LIABILITIES Separate accounts related to
variable annuities represent deposits invested in underlying investment
funds on which Great American Financial Resources, Inc. ("GAFRI", formerly
American Annuity Group, Inc.), an 83%-owned subsidiary, earns a fee. The
investment funds are selected and may be changed only by the policyholder.
<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
7
<PAGE>
AMERICAN FINANCIAL GROUP, INC. 10-Q
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
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.
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.
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 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.
<PAGE>
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.
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.
8
<PAGE>
AMERICAN FINANCIAL GROUP, INC. 10-Q
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
START-UP COSTS Prior to 1999, GAFRI deferred certain costs associated with
introducing new products and distribution channels and amortized them on a
straight-line basis over 5 years. In 1999, GAFRI 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.
DERIVATIVES The Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," during the
second quarter of 1998. SFAS No. 133 establishes accounting and reporting
standards for derivative instruments, including derivative instruments that
are embedded in other contracts, and for hedging activities and must be
implemented no later than January 1, 2001. 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. The calculation of diluted earnings per share includes the
following dilutive effect of common stock options: second quarter of 2000
and 1999 - 397,000 shares and 617,000 shares; six months of 2000 and 1999 -
191,000 shares and 682,000 shares, respectively.
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 acquired Worldwide Insurance
Company for $157 million in cash. Worldwide is a provider of direct
response private passenger automobile insurance.
UNITED TEACHER ASSOCIATES In October 1999, GAFRI acquired United Teacher
Associates Insurance Company of Austin, Texas ("UTA") for $81 million in
cash, pending post-closing adjustments under which GAFRI may receive as
much as several million dollars. UTA provides supplemental health products
and retirement annuities, and purchases blocks of insurance policies from
other insurers.
<PAGE>
GREAT AMERICAN LIFE INSURANCE COMPANY OF NEW YORK AND CONSOLIDATED
FINANCIAL In February 1999, GAFRI acquired Great American Life Insurance
Company of New York, formerly Old Republic Life Insurance Company of New
York, for $27 million in cash. In July 1999, GAFRI acquired Consolidated
Financial Corporation, an insurance agency, for $21 million in cash.
9
<PAGE>
AMERICAN FINANCIAL GROUP, INC. 10-Q
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
COMMERCIAL LINES DIVISION In connection with the 1998 sale of its
Commercial lines division to Ohio Casualty Corporation, AFG deferred a gain
of $103 million related to the insurance business ceded which is being
recognized over the estimated remaining settlement period (weighted average
of 4.25 years) of the claims ceded. AFG will receive an additional payment
expected to be at least $25 million from Ohio Casualty based on retention
and growth through May 2000 of the businesses sold. This earn-out was
recognized as additional "gain on sale of subsidiary" in the second quarter
of 2000. The actual payment is subject to final determination and should be
received in the third quarter.
C. SEGMENTS OF OPERATIONS AFG's property and casualty group is engaged
primarily in private passenger automobile and specialty insurance
businesses. The Personal group writes nonstandard and preferred/standard
private passenger auto and other personal insurance coverage. The Specialty
group includes a highly diversified group of specialty business units. Some
of the more significant areas are inland and ocean marine, California
workers' compensation, agricultural-related coverages, executive and
professional liability, U.S.-based operations of Japanese companies,
fidelity and surety bonds, collateral protection, and umbrella and excess
coverages. 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,
---------------------- ------------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues (a)
Property and casualty insurance:
Premiums earned:
Personal $316,333 $300,765 $ 613,646 $ 586,582
Specialty 307,388 258,115 582,211 508,703
Other lines - primarily
discontinued - (1,345) 1 (284)
-------- -------- ---------- ----------
623,721 557,535 1,195,858 1,095,001
Investment and other income 129,311 116,694 250,478 218,962
-------- -------- ---------- ----------
753,032 674,229 1,446,336 1,313,963
Annuities and life (b) 188,294 149,858 369,782 303,874
Other 10,153 6,149 13,657 9,869
-------- -------- ---------- ----------
$951,479 $830,236 $1,829,775 $1,627,706
======== ======== ========== ==========
<PAGE>
Operating Profit (Loss)
Property and casualty insurance:
Underwriting:
Personal ($ 26,392) ($ 2,434) ($ 37,325) $ 2,046
Specialty (14,680) 972 (25,178) 1,321
Other lines - primarily
discontinued (1,277) (6,423) (3,792) (7,836)
-------- -------- ---------- ----------
(42,349) (7,885) (66,295) (4,469)
Investment and other income 93,482 73,368 178,007 138,089
-------- -------- ---------- ----------
51,133 65,483 111,712 133,620
Annuities and life (2,209) 30,918 25,305 65,898
Other (c) (21,461) (16,731) (38,947) (30,291)
-------- -------- ---------- ----------
$ 27,463 $ 79,670 $ 98,070 $ 169,227
======== ======== ========== ==========
</TABLE>
[FN]
(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.
</FN>
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 $94 million and $114 million
at June 30, 2000 and December 31, 1999, 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,
-------------------------
2000 1999
---- ----
Net Sales $1,260 $1,370
Operating Income 112 113
Income before Extraordinary Item 46 56
Extraordinary Gain on Debt Prepayment 2 -
Net Income 48 56
E. LONG-TERM DEBT The carrying value of long-term debt consisted of the
following (in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
-------- -----------
<S> <C> <C>
Holding Companies:
AFG 7-1/8% Senior Debentures due April 2009 $300,849 $300,766
AFG 7-1/8% Senior Debentures due December 2007 79,600 79,600
AFC notes payable under bank line 174,000 68,000
APU 10-5/8% Subordinated Notes - 23,786
APU 10-7/8% Subordinated Notes due May 2011 11,636 11,661
Other 14,719 9,110
-------- --------
$580,804 $492,923
======== ========
Subsidiaries:
GAFRI 6-7/8% Senior Notes due June 2008 $100,000 $100,000
GAFRI notes payable under bank line 99,000 97,000
Notes payable secured by real estate 31,458 31,704
Other 11,424 11,029
-------- --------
$241,882 $239,733
======== ========
</TABLE>
<PAGE>
In April 2000, AFG redeemed the APU 10-5/8% Notes at maturity using funds
borrowed under the AFC bank line.
At June 30, 2000, sinking fund and other scheduled principal payments on
debt for the balance of 2000 and the subsequent five years were as follows
(in millions):
Holding
Companies Subsidiaries Total
--------- ------------ --------
2000 $ - $ .9 $ .9
2001 1.7 1.7 3.4
2002 184.1 38.6 222.7
2003 - 63.6 63.6
2004 - 14.2 14.2
2005 - 9.6 9.6
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 GAFRI each have an unsecured credit agreement with a group of banks
under which they can borrow up to $300 million and $200 million,
respectively.
11
<PAGE>
AMERICAN FINANCIAL GROUP, INC. 10-Q
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
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 GAFRI credit agreement.
F. MINORITY INTEREST Minority interest in AFG's balance sheet is comprised of
the following (in thousands):
June 30, December 31,
2000 1999
-------- -----------
Interest of noncontrolling shareholders
in subsidiaries' common stock $ 90,691 $ 97,516
Preferred securities issued by
subsidiary trusts 316,663 319,600
AFC preferred stock 72,154 72,154
-------- -----------
$479,508 $489,270
======== ========
PREFERRED SECURITIES Wholly-owned subsidiary trusts of AFCH and GAFRI have
issued $325 million of preferred securities and, in turn, purchased a like
amount of AFCH and GAFRI 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 GAFRI 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) 2000 1999 Redemption Dates
------------- ------------------------ -------- ----------- ----------------------
<S> <C> <C> <C>
October 1996 AFCH 9-1/8% TOPrS (2026) $98,750 $100,000 On or after 10/22/2001
November 1996 GAFRI 9-1/4% TOPrS (2026) 72,913 74,600 On or after 11/7/2001
March 1997 GAFRI 8-7/8% Pfd (2027) 70,000 70,000 On or after 3/1/2007
May 1997 GAFRI 7-1/4% ROPES (2041) 75,000 75,000 Prior to 9/28/2000 and
after 9/28/2001
</TABLE>
In the first six months of 2000, AFCH and GAFRI repurchased $1.3 million
and $1.7 million of their preferred securities for $1.1 million and $1.4
million in cash, respectively.
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 AFC's option at $25.75 per
share beginning December 2005 declining to $25.00 at December 2007 and
thereafter; 2,886,161 shares (stated value $72.2 million) outstanding
at June 30, 2000 and December 31, 1999.
<PAGE>
MINORITY INTEREST EXPENSE Minority interest expense is comprised of (in
thousands):
Six months ended
June 30,
------------------
2000 1999
---- ----
Interest of noncontrolling shareholders
in earnings of subsidiaries $ 4,063 $ 8,649
Accrued distributions by subsidiaries
on preferred securities:
Trust issued securities, net of tax 8,911 8,971
AFC preferred stock 2,886 2,886
------- -------
$15,860 $20,506
======= =======
12
<PAGE>
AMERICAN FINANCIAL GROUP, INC. 10-Q
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
G. SHAREHOLDERS' EQUITY At June 30, 2000, there were 58,533,490 shares of AFG
Common Stock outstanding, including 1,364,754 shares held by American
Premier for possible distribution to certain creditors and other claimants
upon proper claim presentation and settlement pursuant to the 1978 plan of
reorganization of American Premier's predecessor, The Penn Central
Corporation. Shares being held for distribution are not eligible to vote
but otherwise are accounted for as issued and outstanding. 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, 2000, there were 6.8 million shares of AFG Common Stock
reserved for issuance upon exercise of stock options. As of that date, AFG
had options for 5.5 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 unrealized gain (loss) on marketable securities for the six
months ended June 30 included the following (in millions):
<TABLE>
<CAPTION>
Minority
Pretax Taxes Interest Net
------ ----- -------- -------
<S> <C> <C> <C> <C>
2000
-----------------------------------------
Unrealized holding gains (losses) on
securities arising during the period ($157.3) $ 55.4 $ 5.6 ($ 96.3)
Reclassification adjustment for
realized losses included in net income 5.3 (1.9) (.4) 3.0
------ ------ ----- ------
Change in unrealized gain (loss) on
marketable securities, net ($152.0) $ 53.5 $ 5.2 ($ 93.3)
====== ====== ===== ======
1999
-----------------------------------------
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 unrealized gain (loss) on
marketable securities, net ($304.0) $104.9 $20.2 ($178.9)
====== ====== ===== ======
</TABLE>
<PAGE>
H. EXTRAORDINARY ITEMS Extraordinary items represents gains and losses related
to debt retirements by the following companies. Amounts shown are net of
income taxes (in thousands):
Six months ended
June 30, 1999
----------------
Holding Companies:
AFG (parent) $ 258
AFC (parent) (2,993)
APU (parent) (1,003)
------
($3,738)
======
I. 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" of AFG's Annual Report on Form 10-K for 1999.
13
<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.
IT INITIATIVE In the third quarter of 1999, AFG initiated an
enterprise-wide study of its information technology ("IT") resources, needs
and opportunities. AFG expects that the initiative will entail extensive
effort and costs and may lead to substantial changes in the area, which
should result in significant cost savings, efficiencies and effectiveness
in the future. While the costs (most of which will be expensed) will
precede any savings to be realized, management expects benefits to greatly
exceed the costs incurred, all of which will be funded through available
working capital.
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, 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 29% at June 30, 2000 and 25% at December 31, 1999.
AFG's ratio of earnings to fixed charges (on a total enterprise basis) was
2.40 for the first six months of 2000 and 3.36 for the entire year of 1999.
<PAGE>
SOURCES OF FUNDS Management believes the parent holding companies have
sufficient resources to meet their liquidity requirements through
operations. 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.
AFC has a revolving credit agreement with several banks under which it can
borrow up to $300 million. This credit line provides ample liquidity and
can be used to obtain funds for operating subsidiaries or, if necessary,
for the parent companies. At June 30, 2000, there was $174 million borrowed
under the line.
14
<PAGE>
AMERICAN FINANCIAL GROUP, INC. 10-Q
Management's Discussion and Analysis
of Financial Condition and Results of Operations - Continued
------------------------------------------------------------
In April 1999, AFG issued $350 million principal amount of 7-1/8% senior
debentures due 2009, using the proceeds to retire outstanding holding
company public debt and borrowings under AFC's credit line.
Dividend payments from subsidiaries have been very important to the
liquidity and cash flow of the individual holding companies during certain
periods in the past. However, the reliance on such dividend payments has
been lessened in recent years by the combination of (i) reductions in the
amounts and cost of debt at the holding companies from historical levels
(and the related decrease in ongoing cash needs for interest and principal
payments), (ii) AFG's ability to obtain financing in capital markets, as
well as (iii) the sales of certain 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, 2000. 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 operating earnings for the three months and six months ended
June 30, 2000 were $27.5 million and $98.1 million, respectively, compared
to $79.7 million and $169.2 million in the comparable 1999 periods. A
decline in property and casualty underwriting results, special litigation
charges and the absence of realized gains on securities were partially
offset by a $25 million gain recognized in connection with the 1998 sale of
the Commercial lines division and an increase in other income, including
sales of certain assets.
Many investors and analysts focus on "core earnings" of companies, setting
aside certain items included in net earnings. Such "core earnings" for AFG,
consisting of net earnings adjusted to exclude: (i) realized gains, (ii)
equity in investee earnings, (iii) special litigation charges in 2000 and
(iv) a 1999 accounting change, were $23.8 million ($.40 per share, diluted)
and $62.2 million ($1.06 per share) in the second quarter and six months of
2000 compared to $39.3 million ($.65 per share) and $85.6 million ($1.40
per share) in the second quarter and six months of 1999.
<PAGE>
PROPERTY AND CASUALTY INSURANCE - UNDERWRITING AFG's property and casualty
group consists of two major business groups: Personal and Specialty.
The Personal group sells nonstandard and preferred/standard private
passenger auto insurance and, to a lesser extent, homeowners' insurance.
Nonstandard automobile insurance covers risk not typically accepted for
standard automobile coverage because of the applicant's driving record,
type of vehicle, age or other criteria.
The Specialty group includes a highly diversified group of business lines.
Some of the more significant areas are inland and ocean marine, California
workers' compensation, agricultural-related coverages, executive and
professional liability, U.S.-based operations of Japanese companies,
fidelity and surety bonds, collateral protection, and umbrella and excess
coverages.
15
<PAGE>
AMERICAN FINANCIAL GROUP, INC. 10-Q
Management's Discussion and Analysis
of Financial Condition and Results of Operations - Continued
------------------------------------------------------------
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.
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):
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
----------------- ---------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Written Premiums (GAAP)
Personal $348.1 $275.4 $ 697.9 $ 551.9
Specialty 335.5 278.5 633.2 526.7
Other lines - (1.6) - (1.5)
------ ------ -------- --------
$683.6 $552.3 $1,331.1 $1,077.1
====== ====== ======== ========
Combined Ratios (GAAP) (*)
----------------------
Personal 108.4% 100.7% 106.0% 99.7%
Specialty 104.7 99.7 104.2 99.8
Aggregate (including
discontinued lines) 106.8 101.4 105.5 100.4
</TABLE>
[FN]
(*) Combined ratios for the entire year of 1999 were: Personal -
100.7%, Specialty - 102.7% and aggregate - 102.0%.
</FN>
<PAGE>
PERSONAL The Personal group's increase in net written premiums
reflects firming market prices in the nonstandard auto market, expanded
writings in certain private passenger automobile markets and premiums
generated by Worldwide (AFG's direct marketing channel) since its
acquisition in April 1999. The combined ratio for the second quarter and
six months of 2000 increased due to (i) increased auto claim frequency and
severity (particularly in medical and health related costs), (ii) the
impact of a very competitive pricing environment on policies written during
1999 and (iii) increased underwriting expenses associated with the direct
and Internet marketing initiatives. In an effort to alleviate increasing
losses, AFG has implemented rate increases in excess of 5% through the
first six months of the year and expects that rate increases will approach
10% by the end of 2000. These rate actions are expected to moderate premium
growth in the private passenger auto insurance business for the remainder
of 2000, with the full impact on earnings not likely to take effect until
early 2001.
SPECIALTY The Specialty group's increase in net written premiums
reflects the effect of (i) the January 2000 termination of reinsurance
agreements relating to the California workers' compensation business which
were in effect throughout 1999, (ii) rate increases in certain casualty
markets (particularly California
16
<PAGE>
AMERICAN FINANCIAL GROUP, INC. 10-Q
Management's Discussion and Analysis
of Financial Condition and Results of Operations - Continued
------------------------------------------------------------
workers' compensation) and (iii) the realization of growth opportunities in
certain commercial markets. Excluding the impact of the terminated
reinsurance agreements, net written premiums were up approximately 15%. In
response to continuing losses, rate increases in the California workers'
compensation business have been in excess of 20% so far this year. To
further reduce the rate inadequacy in this market, AFG expects additional
rate increases throughout the rest of 2000 and in 2001. Rate increases
implemented in the other specialty operations have been in excess of 7%
through the first half of 2000 and are expected to approximate 10% by
year-end. Even with these rate actions, this group continues to experience
solid retention. The combined ratio for the second quarter and six months
of 2000 reflects the effect of a highly competitive pricing environment on
policies written during 1999.
LIFE, ACCIDENT AND HEALTH PREMIUMS AND BENEFITS The increase in life,
accident and health premiums and benefits is due primarily to the
acquisition of UTA in October 1999.
OTHER INCOME Other income increased $14 million (47%) in the second quarter
and $35.1 million (62%) in the first six months of 2000 compared to 1999
due primarily to increased income from the sale of operating assets and
lease residuals and increased fee income generated by certain insurance
operations.
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 SUBSIDIARY In the second quarter of 2000, AFG recognized a
$25 million gain representing an earn-out related to the 1998 sale of its
Commercial lines division.
ANNUITY BENEFITS Annuity benefits reflect amounts accrued on annuity
policyholders' funds accumulated. The majority of GAFRI's fixed rate
annuity products permit GAFRI 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.
INTEREST ON BORROWED MONEY Interest expense increased $1.9 million (6%) in
the first six months of 2000 compared to 1999 as higher average
indebtedness was partially offset by lower average interest rates on AFG's
borrowings.
<PAGE>
OTHER OPERATING AND GENERAL EXPENSES Other operating and general expenses
for the second quarter and six months of 2000 include a $32.5 million
charge related to an agreement to settle a lawsuit against a GAFRI
subsidiary and an $8.8 million charge for an adverse California Supreme
Court ruling against an AFG property and casualty subsidiary. Excluding
these litigation charges, other expenses increased $9.4 million (11%) in
the second quarter and $25.4 million (15%) for the six months of 2000
compared to 1999 primarily due to the inclusion of the operations of UTA
following its acquisition in late 1999 and increased expenses from certain
start-up operations.
17
<PAGE>
AMERICAN FINANCIAL GROUP, INC. 10-Q
Management's Discussion and Analysis
of Financial Condition and Results of Operations - Continued
------------------------------------------------------------
INVESTEE CORPORATION Equity in net earnings of investee represents AFG's
proportionate share of Chiquita's earnings. Chiquita reported net income
for the second quarter and first six months of 2000 of $12.8 million and
$47.7 million, respectively, compared to $7.3 million and $56 million for
the same periods in 1999.
CUMULATIVE EFFECT OF ACCOUNTING CHANGE In the first quarter of 1999, GAFRI
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.
---------------------------------------------------------------
Item 3
Quantitative and Qualitative Disclosure of Market Risk
------------------------------------------------------
As of June 30, 2000, there were no material changes to the information
provided in AFG's Form 10-K for 1999 under the caption "Exposure to Market
Risk" in Management's Discussion and Analysis of Financial Condition and
Results of Operations.
18
<PAGE>
AMERICAN FINANCIAL GROUP, INC. 10-Q
PART II
OTHER INFORMATION
Item 1
Legal Proceedings
-----------------
In February 1994, the USX Corporation ("USX") paid nearly $600 million in
satisfaction of antitrust judgments entered against its subsidiary, The
Bessemer & Lake Erie Railroad ("B&LE"). In May 1994, USX/B&LE filed two
lawsuits, one in state and the other in federal court, against American
Premier as the reorganized successor of The Penn Central Corporation
seeking to recover this amount (plus interest) under theories of indemnity
and contribution law.
In 1998, all pending suits were dismissed on American Premier's Motions for
Summary Judgment. These decisions were appealed by USX/B&LE and each
appellate court affirmed the decision of the lower court dismissing the
lawsuits. Plaintiffs then petitioned for and were denied re-hearings by
panels of federal and state appellate court judges.
Plaintiffs did not appeal the federal courts' decisions to the U.S. Supreme
Court and the time for doing so has now expired.
Plaintiffs appealed the state decision to the Ohio Supreme Court, which, on
August 4, 2000, agreed to allow an appeal of the state appellate court's
decision. American Premier and its outside counsel continue to believe that
American Premier will not suffer any material loss from the remaining state
court appeal.
In June 2000, Great American Life Insurance Company ("GALIC") entered into
a Memorandum of Understanding to settle a purported class action lawsuit
(Woodward v. Great American Life Insurance Company, Hamilton County Court
of Common Pleas, Case No. A9900587, filed February 2, 1999). In the
settlement, GALIC agreed to (i) create a fund against which certain former
policyholders can submit claims for reimbursement of a portion of surrender
charges incurred, (ii) record lump-sum credits to certain annuities and
(iii) allow certain annuity holders to transfer their annuity value to
other products issued by GALIC or its subsidiaries. The complaint filed in
the lawsuit had sought unspecified money damages 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
disclosures concerning GALIC's interest crediting practices. The settlement
is subject to confirmatory discovery and court approval.
19
<PAGE>
AMERICAN FINANCIAL GROUP, INC. 10-Q
PART II
OTHER INFORMATION - CONTINUED
Item 4
Submission of Matters to a Vote of Security Holders
---------------------------------------------------
AFG's Annual Meeting of Shareholders was held on May 9, 2000; the only issue
voted upon was the election of a Board of Directors. Approximately 92.3% of the
shares eligible to vote were represented at the meeting. All eight nominees were
elected. The votes cast for and those withheld are set forth below:
Name For Against Withheld Abstain
---- --- ------- -------- -------
Theodore H. Emmerich 52,118,674 N/A 696,421 N/A
James E. Evans 52,126,622 N/A 688,473 N/A
Thomas M. Hunt 52,113,081 N/A 702,014 N/A
Carl H. Lindner 51,907,864 N/A 907,231 N/A
Carl H. Lindner III 51,909,457 N/A 905,638 N/A
Keith E. Lindner 51,905,707 N/A 909,388 N/A
S. Craig Lindner 51,914,223 N/A 900,872 N/A
William R. Martin 52,124,587 N/A 690,508 N/A
--------------------
N/A - Not Applicable
Item 6
Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibit 27.1 - Financial Data Schedule as of June 30, 2000.
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 11, 2000 BY: Fred J. Runk
-----------------------------------
Fred J. Runk
Senior Vice President and Treasurer
20
