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
September 30, 1995 No. 1-1345
AMERICAN FINANCIAL ENTERPRISES, INC.
Incorporated under IRS Employer I.D.
the Laws of Connecticut No. 31-0996797
One East Fourth Street, Cincinnati, Ohio 45202
(513) 579-2172
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 November 1, 1995, there were 13,291,117 shares of the Registrant's
Common Stock outstanding.
Page 1 of 9
<PAGE>
AMERICAN FINANCIAL ENTERPRISES, INC. 10-Q
PART I
FINANCIAL INFORMATION
AMERICAN FINANCIAL ENTERPRISES, INC.
BALANCE SHEET
(Dollars in Thousands)
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
------------ -----------
<S> <C> <C>
Assets
Cash and short-term investments $ 203 $ 275
Investment in affiliates:
American Financial Group, Inc. 367,948 -
American Annuity Group, Inc. 35,885 21,461
Citicasters Inc. 25,906 24,882
American Premier Underwriters, Inc. - 341,276
Other assets 2,487 2,502
-------- --------
$432,429 $390,396
======== ========
Liabilities and Shareholders' Equity
Accounts payable, accrued expenses and
other liabilities $ 1,040 $ 1,027
Payable to American Financial Corporation 48,601 35,134
Long-term debt - payable to bank 18,100 16,000
-------- --------
67,741 52,161
Shareholders' Equity:
Preferred Stock, none issued - -
Common Stock, $1 par value
- 20,000,000 shares authorized
- 13,291,117 shares outstanding 13,291 13,291
Capital surplus 114,106 114,106
Retained earnings 224,191 216,638
Equity in affiliates' net unrealized gains
(losses) on marketable securities,
net of deferred income taxes 13,100 (5,800)
-------- --------
Total Shareholders' Equity 364,688 338,235
-------- --------
$432,429 $390,396
======== ========
</TABLE>
2
<PAGE>
AMERICAN FINANCIAL ENTERPRISES, INC. 10-Q
AMERICAN FINANCIAL ENTERPRISES, INC.
STATEMENT OF EARNINGS
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
------------------ ------------------
1995 1994 1995 1994
------- ------- ------- ------
<S> <C> <C> <C> <C>
Income:
Equity in net earnings (losses) of
affiliates:
American Financial Group, Inc. $5,209 $ - $ 8,149 $ -
American Premier Underwriters, Inc. - 5,385 3,688 (2,945)
American Annuity Group, Inc. 1,641 885 3,959 2,619
Citicasters Inc. 350 300 1,090 300
Other income 114 11 154 415
------ ------ ------- ------
7,314 6,581 17,040 389
Costs and Expenses:
Interest charges on borrowed money 287 179 837 478
Administrative and general expenses 611 561 1,396 1,355
------ ------ ------- ------
898 740 2,233 1,833
------ ------ ------- ------
Earnings (loss) before federal income taxes 6,416 5,841 14,807 (1,444)
Provision (credit) for federal income taxes 1,637 1,432 3,267 (2,344)
------ ------ ------- ------
Net Earnings $4,779 $4,409 $11,540 $ 900
====== ====== ======= ======
Average number of common shares 13,291 13,291 13,291 13,291
Net earnings per common share $.36 $.33 $.87 $.07
==== ==== ==== ====
Cash dividends per common share $.10 $ - $.30 $ -
</TABLE>
3
<PAGE>
AMERICAN FINANCIAL ENTERPRISES, INC. 10-Q
AMERICAN FINANCIAL ENTERPRISES, INC.
STATEMENT OF CASH FLOWS
(In Thousands)
<TABLE>
<CAPTION>
Nine months ended
September 30,
-------------------
1995 1994
------- -------
<S> <C> <C>
Operating Activities:
Net earnings $11,540 $ 900
Adjustments:
Equity in net (earnings) losses of affiliates (16,886) 26
Cash dividends from affiliates 7,465 6,570
Decrease in other assets 15 339
Increase (decrease) in payable to
American Financial Corporation 3,267 (2,344)
Increase in accounts payable, accrued
expenses and other liabilities 13 268
Other, net 66 (339)
------- -------
5,480 5,420
------- -------
Investing Activities:
Sale of affiliate - 21,628
Purchase of affiliate (3,665) (23,852)
------- -------
(3,665) (2,224)
------- -------
Financing Activities:
Additional long-term borrowings 2,800 13,500
Reduction of long-term debt (700) (16,500)
Cash dividends paid (3,987) -
------- -------
(1,887) (3,000)
------- -------
Net Increase (Decrease) in Cash and Short-term Investments (72) 196
Cash and short-term investments at beginning of period 275 392
------- -------
Cash and short-term investments at end of period $ 203 $ 588
======= =======
</TABLE>
4
<PAGE>
AMERICAN FINANCIAL ENTERPRISES, INC. 10-Q
NOTES TO FINANCIAL STATEMENTS
A. BASIS OF PRESENTATION The accompanying financial statements for American
Financial Enterprises, Inc. ("AFEI") are unaudited, but 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.
On April 3, 1995, American Financial Corporation ("AFC") merged with a
newly formed subsidiary of American Premier Group, Inc. ("New American
Premier"), another new company formed to own 100% of the common stock of
AFC and American Premier Underwriters, Inc. ("American Premier").
Shareholders of American Premier, including AFEI, received shares of New
American Premier on a one-for-one basis. Subsequent to the merger, New
American Premier's name was changed to American Financial Group, Inc.
("AFG"). As a result of the merger, AFEI owns 10.0 million shares of AFG.
AFEI (and AFC) will receive dividends paid on AFG common stock; however,
their shares generally will not be eligible to be voted as long as AFEI
(and AFC) are owned by AFG.
At September 30, 1995, AFG (through AFC and its subsidiaries) owned
10,981,429 shares (83%) of AFEI's outstanding Common Stock.
INCOME TAXES AFEI files consolidated federal income tax returns with AFC.
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. Current and deferred tax assets and
liabilities are aggregated with other amounts receivable from or payable
to AFC.
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. 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.
<PAGE>
B. INVESTMENT IN AFFILIATES AFEI's and AFC's combined ownership of the
common stock of AFG, American Annuity Group, Inc. and Citicasters Inc.
exceeds 20%. Accordingly, these investments are accounted for under the
equity method. Since AFEI's basis in certain assets and liabilities of
affiliates differs from amounts reported by these companies, adjustments
are made to their reported earnings in calculating AFEI's share of
affiliate earnings.
INVESTMENT IN AMERICAN FINANCIAL GROUP AFEI owned 10.0 million shares of
AFG common stock at September 30, 1995 representing 13% of the shares
issued by AFG at that date. Since AFEI and AFC are AFG subsidiaries, AFG
does not report shares owned
5
<PAGE>
AMERICAN FINANCIAL ENTERPRISES, INC. 10-Q
NOTES TO FINANCIAL STATEMENTS - CONTINUED
by them as outstanding for financial reporting purposes. The market value
of AFEI's investment in AFG was $299 million at September 30, 1995. AFG's
subsidiaries operate in a variety of financial businesses, including
property and casualty insurance and annuities. Summarized financial
information for AFG follows (in millions):
<TABLE>
<CAPTION>
Six months ended
September 30, 1995
------------------
<S> <C>
Revenues $2,008.4
Earnings Before Extraordinary Items 83.9
Extraordinary Items 2.6
Net Earnings 86.5
</TABLE>
INVESTMENT IN AMERICAN ANNUITY GROUP Pursuant to a rights offering, AFEI
purchased 390,000 shares of American Annuity common stock for $3.7 million
cash in August 1995. AFEI owned approximately 4.2 million and 3.9 million
shares of American Annuity common stock at September 30, 1995 and December
31, 1994, respectively, representing 10% of its outstanding shares. The
market value of AFEI's investment in American Annuity was $47 million and
$37 million at September 30, 1995 and December 31, 1994, respectively.
American Annuity is engaged in the tax-deferred annuity business.
Summarized financial information for American Annuity follows (in
millions):
<TABLE>
<CAPTION>
Nine months ended
September 30,
------------------
1995 1994
------ ------
<S> <C> <C>
Revenues $307.9 $278.7
Income from Continuing Operations 40.2 31.3
Loss from Discontinued Operations - (2.6)
Extraordinary Item - (1.8)
Cumulative Effect of Accounting Change - (0.5)
Net Income 40.2 26.4
</TABLE>
<PAGE>
INVESTMENT IN CITICASTERS AFEI purchased 1.7 million shares of
Citicasters common stock (adjusted for a 3-for-2 stock split) for
$23.9 million cash in June 1994. These shares represented 13% of its
outstanding shares at September 30, 1995 and December 31, 1994. The
market value of AFEI's investment in Citicasters was $58 million and
$29 million at September 30, 1995 and December 31, 1994, respectively.
Citicasters operates 16 radio stations along with two network-affiliated
television stations in major markets throughout the country. Summarized
financial information for Citicasters follows (in millions):
<TABLE>
<CAPTION>
Nine months ended
September 30,
------------------
1995 1994
------ ------
<S> <C> <C>
Net Revenues $100.1 $159.8
Operating Income 25.2 38.9
Net Earnings 9.8 48.3
</TABLE>
In the third and fourth quarters of 1994, Citicasters sold four network-
affiliated television stations for $355 million in cash and a warrant to
purchase common stock of the purchaser. The proceeds were used to reduce
debt
6
<PAGE>
AMERICAN FINANCIAL ENTERPRISES, INC. 10-Q
NOTES TO FINANCIAL STATEMENTS - CONTINUED
and repurchase shares of common stock. Included in Citicasters' net
earnings for the nine months ended September 30, 1994, is a net gain of
$41.7 million from the sale of three of these stations which, under
accounting rules, was not included in determining AFEI's equity in
Citicasters' earnings.
INVESTMENT IN AMERICAN PREMIER As discussed in Note A, AFEI received
shares of American Financial Group in exchange for its American Premier
stock on a one-for-one basis in April 1995. Summarized financial
information for American Premier (for the periods it was accounted for as
an affiliate) follows (in millions):
<TABLE>
<CAPTION>
Three months ended Nine months ended
March 31, 1995 September 30, 1994
------------------ ------------------
<S> <C> <C>
Revenues $433.3 $1,304.3
Income (Loss) from Continuing Operations 16.3 (14.1)
Loss from Discontinued Operations - (0.5)
Net Earnings (Loss) 16.3 (14.6)
</TABLE>
American Premier's 1994 results included a $75.8 million loss on the sale
of securities of General Cable.
C. LONG-TERM DEBT AFEI has a revolving credit agreement under which it may
borrow a maximum of $20 million through December 1997. Loans under the
line of credit bear interest at rates approximating prime and are
collateralized by a pledge of AFG common stock having a market value of
two times the amount borrowed under the line. The lender charges an
annual fee of 1/4% of the unused portion of the line of credit.
D. SHAREHOLDERS' EQUITY At September 30, 1995, there were 462,500 shares of
AFEI Common Stock reserved for issuance upon exercise of stock options.
E. INCOME TAXES At December 31, 1994, AFEI had net operating loss
carryforwards for tax return purposes of approximately $45 million which
are scheduled to expire from 2000 to 2003.
7
<PAGE>
AMERICAN FINANCIAL ENTERPRISES, INC. 10-Q
ITEM 2
Management's Discussion and Analysis
of Financial Condition and Results of Operations
GENERAL AFEI's assets consist primarily of investments in the common stock of
American Financial Group, American Annuity and Citicasters.
LIQUIDITY AND CAPITAL RESOURCES AFEI relies on dividends from its affiliates
to meet fixed charges and other operating expenses. At the current indicated
rate, $10 million in annual dividends from American Financial Group is
expected to be more than sufficient to cover such charges. If, in the future,
affiliate dividends are insufficient to meet its fixed charges and debt
maturities, AFEI would be required to meet them through bank borrowings, sales
of investments, borrowings from affiliates, or similar transactions.
During the first quarter of 1995, AFEI announced its intent to begin paying
quarterly dividends. AFEI paid quarterly dividends of $.10 per share or
$1.3 million in March, June and September.
RESULTS OF OPERATIONS
AFFILIATES Since AFEI's basis in certain assets and liabilities of affiliates
differs from amounts reported by these companies adjustments are made to
AFEI's share of affiliate earnings. The following table presents the
significant amounts used in calculating AFEI's equity in net earnings (losses)
of affiliates for the nine months ended September 30 (in millions):
<TABLE>
<CAPTION>
AFG American Annuity Citicasters American Premier
------- ---------------- ------------- ----------------
1995(a) 1995 1994 1995 1994(b) 1995(a) 1994
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Affiliate earnings (losses) $86.5 $40.2 $26.4 $9.8 $44.9 $16.3 ($14.6)
===== ===== ===== ==== ===== ===== =====
AFEI's share of affiliate earnings (losses) $11.7 $ 4.0 $ 2.6 $1.3 $ 4.9 $ 3.7 ($ 3.2)
Basis adjustments, including amortization
of goodwill (3.6) - - (0.2) (4.6) - 0.3
----- ----- ----- ---- ----- ----- -----
Equity in net earnings (losses) of affiliates
as shown in Statement of Earnings $ 8.1 $ 4.0 $ 2.6 $1.1 $ 0.3 $ 3.7 ($ 2.9)
===== ===== ===== ==== ===== ===== =====
<FN>
(a) As discussed in Note A, AFEI received shares of AFG in exchange for its investment in American
Premier on April 3, 1995. Affiliate earnings for AFG are AFG's results since April and affiliate
earnings for American Premier in 1995 are American Premier's first quarter results.
(b) Represents Citicasters' results since June 30, 1994, the date of AFEI's acquisition of Citicasters shares.
</TABLE>
<PAGE>
Citicasters' results for the 1994 period included a $41.7 million aftertax
gain from the sale of three television stations which was not included in
determining AFEI's equity in Citicasters' earnings.
American Premier's results for the 1994 period included a loss of
$75.8 million on the sale of securities of General Cable.
OTHER INCOME Other income for the third quarter of 1995 includes a gain of
$95,000 on the disposal of 4,492 shares of Citicasters. Other income for the
nine months ended September 30, 1994, includes a $339,000 gain on the sale of
AFEI's General Cable shares.
INTEREST EXPENSE Interest expense increased $359,000 for the first nine
months of 1995 compared to the same period of 1994 due to increased average
borrowings and higher interest rates on borrowings.
INCOME TAXES The provision (credit) for income taxes reflects the effects of
deductions relating to affiliate dividends.
8
<PAGE>
AMERICAN FINANCIAL ENTERPRISES, INC. 10-Q
PART II
OTHER INFORMATION
ITEM 6
Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibit 27 - Financial Data Schedule - Included in Report filed
electronically with the Securities and Exchange Commission.
(b) Report on Form 8-K:
Date of Report Item Reported
-------------- -------------
August 29, 1995 Change in Parent's Independent Auditors
--------------------------------------------------------
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, American
Financial Enterprises, Inc. has duly caused this Report to be signed on its
behalf by the undersigned duly authorized.
American Financial Enterprises, Inc.
November 13, 1995 BY: FRED J. RUNK
----------------------------
Fred J. Runk
Vice President and Treasurer
9
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
American Financial Enterprises, Inc. 10-Q for September 30, 1995 and
is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 203
<SECURITIES> 429,739<F1>
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 432,429
<CURRENT-LIABILITIES> 0
<BONDS> 18,100
<COMMON> 13,291
0
0
<OTHER-SE> 351,397
<TOTAL-LIABILITY-AND-EQUITY> 432,429
<SALES> 0
<TOTAL-REVENUES> 17,040<F2>
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,396
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 837
<INCOME-PRETAX> 14,807
<INCOME-TAX> 3,267
<INCOME-CONTINUING> 11,540
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,540
<EPS-PRIMARY> $.87
<EPS-DILUTED> $.87
<FN>
<F1>"Marketable securities" represents AFEI's investment in affiliates
which are accounted for under the equity method.
<F2>Included in "Total revenues" is equity in net earnings of affiliates
of $16,886.
</FN>
</TABLE>
