<PAGE>
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
March 31, 1996 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 May 1, 1996, there were 13,291,117 shares of the Registrant's Common Stock
outstanding.
Page 1 of 9
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AMERICAN FINANCIAL ENTERPRISES, INC. 10-Q
PART I
FINANCIAL INFORMATION
AMERICAN FINANCIAL ENTERPRISES, INC.
BALANCE SHEET
(Dollars in Thousands)
March 31, December 31,
1996 1995
Assets
Cash and short-term investments $ 1,051 $ 506
Investment in affiliates:
American Financial Group, Inc. 388,004 396,427
American Annuity Group, Inc. 38,162 41,978
Citicasters Inc. 26,216 26,336
$453,433 $465,247
Liabilities and Shareholders' Equity
Accounts payable, accrued expenses and
other liabilities $ 1,025 $ 975
Payable to affiliates 76,003 80,235
77,028 81,210
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 234,808 230,240
Equity in affiliates' net unrealized gains
on marketable securities, net of
deferred income taxes 14,200 26,400
Total Shareholders' Equity 376,405 384,037
$453,433 $465,247
2
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AMERICAN FINANCIAL ENTERPRISES, INC. 10-Q
AMERICAN FINANCIAL ENTERPRISES, INC.
STATEMENT OF EARNINGS
(In Thousands, Except Per Share Data)
Three months ended
March 31,
1996 1995
Income:
Equity in net earnings (losses) of
affiliates:
American Financial Group, Inc. $7,665 $ -
American Premier Underwriters, Inc. - 3,688
American Annuity Group, Inc. 1,284 1,120
Citicasters Inc. (120) 130
Interest income 23 17
8,852 4,955
Costs and Expenses:
Interest charges on borrowed money 315 275
Administrative and general expenses 402 428
717 703
Earnings before federal income taxes 8,135 4,252
Provision for federal income taxes 2,238 792
Net Earnings $5,897 $3,460
Average number of common shares 13,291 13,291
Net earnings per common share $.44 $.26
Cash dividends per common share $.10 $.10
3
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AMERICAN FINANCIAL ENTERPRISES, INC. 10-Q
AMERICAN FINANCIAL ENTERPRISES, INC.
STATEMENT OF CASH FLOWS
(In Thousands)
Three months ended
March 31,
1996 1995
Operating Activities:
Net earnings $5,897 $3,460
Adjustments:
Equity in net earnings of affiliates (8,829) (4,938)
Cash dividends from affiliates 2,488 2,488
Decrease in other assets - 14
Increase in payable to affiliates 2,335 792
Increase in accounts payable, accrued
expenses and other liabilities 50 128
1,941 1,944
Financing Activities:
Reduction of long-term debt - (700)
Repayments of borrowings from affiliates (67) -
Cash dividends paid (1,329) (1,329)
(1,396) (2,029)
Net Increase (Decrease) in Cash and Short-
term Investments 545 (85)
Cash and short-term investments at beginning
of period 506 275
Cash and short-term investments at end of
period $1,051 $ 190
4
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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.
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.
On April 3, 1995, American Financial Corporation ("AFC") merged with a
subsidiary of American Financial Group, Inc. ("AFG"), a 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 AFG on a one-for-one basis.
At March 31, 1996, 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.
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.
Included in AFEI's balance sheet is its portion of affiliates' unrealized
gains and losses on marketable securities.
<PAGE>
Investment in American Financial Group AFEI owned 10.0 million shares (13%)
of AFG common stock at March 31, 1996 and December 31, 1995. Since AFEI and
AFC are AFG subsidiaries, AFG does not report shares owned by them as
outstanding for financial reporting purposes. AFEI (and AFC) 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. The
market value of AFEI's investment in AFG was $301 million and $305 million
at March 31, 1996 and December 31, 1995, respectively. AFG's
subsidiaries operate primarily in specialty and multi-line property and
casualty insurance and the sale of tax-deferred annuities.
5
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AMERICAN FINANCIAL ENTERPRISES, INC. 10-Q
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Summarized financial information for AFG (for the period it was accounted
for as an affiliate) follows (in millions):
Three months ended
March 31, 1996
Revenues $1,030.9
Earnings Before Extraordinary Items 81.2
Extraordinary Items (7.6)
Net Earnings 73.6
Investment in American Premier As discussed in Note A, AFEI received
shares of AFG common stock in exchange for its American Premier stock on a
one-for-one basis in April 1995. Summarized financial information
for American Premier (for the period it was accounted for as an
affiliate) follows (in millions):
Three months ended
March 31, 1995
Revenues $432.8
Net Earnings 16.3
Investment in American Annuity Group AFEI owned 4.2 million shares (10%)
of American Annuity common stock at March 31, 1996 and December 31, 1995.
The market value of AFEI's investment in American Annuity was $50 million
and $51 million at March 31, 1996 and December 31, 1995, respectively.
American Annuity is engaged in the sale of tax-deferred annuities and
certain life and health insurance.
Summarized financial information for American Annuity follows (in
millions):
Three months ended
March 31,
1996 1995
Revenues $139.0 $98.6
Earnings Before Extraordinary Item 14.7 11.4
Extraordinary Item (1.6) -
Net Income 13.1 11.4
Investment in Citicasters AFEI owned 2.6 million shares (13%) of
Citicasters common stock at March 31, 1996 and December 31, 1995. The
market value of AFEI's investment in Citicasters was $76 million and
$62 million at March 31, 1996 and December 31, 1995, respectively.
Citicasters operates 19 radio stations and two network-affiliated television
stations in major markets throughout the country.
<PAGE>
In February 1996, Citicasters entered into a merger agreement with Jacor
Communications, Inc. providing for the acquisition of Citicasters by Jacor.
Under the agreement, AFEI would receive $77 million in cash plus
warrants to buy approximately 520,000 shares of Jacor common stock at $28
per share. AFEI expects to realize a pretax gain of approximately $50
million on the sale. Consummation of the transaction is subject to
regulatory approvals, and certain adjustments to the price will be made
if the transaction closes after September 30, 1996.
6
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AMERICAN FINANCIAL ENTERPRISES, INC. 10-Q
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Summarized financial information for Citicasters follows (in millions):
Three months ended
March 31,
1996 1995
Net Revenues $31.2 $29.0
Operating Income 4.3 4.7
Net Earnings (Loss) (0.6) 1.3
Citicasters' results for 1996 include expenses associated with its pending
merger of approximately $1.5 million.
C. Payable to Affiliates In December 1995, AFEI paid the outstanding
balance of its bank line using funds borrowed under a new $20 million
credit agreement with AFC which expires in December 1997. AFC
assigned this credit agreement to American Premier in March 1996.
Borrowings bear interest at rates 1/8th of 1% below the bank line rates.
All other terms are similar to those in the bank line agreement. Maximum
borrowings under the two lines may not exceed $25 million at any one time.
AFEI had borrowed $19.6 and $19.7 million under this agreement at
March 31, 1996 and December 31, 1995, respectively. The remainder of AFEI's
payable to affiliates at these dates represents primarily tax payments due
to AFC under AFEI's tax agreement and deferred taxes on AFEI's equity in
affiliates' net unrealized gains on marketable securities.
D. Bank Line Agreement 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. There
was no outstanding balance under the bank line at March 31, 1996 or
December 31, 1995.
E. Shareholders' Equity At March 31, 1996, there were 462,500 shares of
AFEI Common Stock reserved for issuance upon exercise of stock
options.
F. Income Taxes At December 31, 1995, AFEI had net operating loss
carryforwards for tax return purposes of approximately $23 million which are
scheduled to expire in 2000 and 2003.
7
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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 AFG 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.
AFEI paid quarterly dividends of $1.3 million ($.10 per share) in
March 1995 and 1996.
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 three
months ended March 31 (in millions):
<TABLE>
<CAPTION>
American
AFG Premier American Annuity
1996(a) (a) 1995 1996 1995
<S> <C> <C> <C> <C>
Affiliate earnings (losses) $73.6 $16.3 $13.1 $11.4
AFEI's share of affiliate earnings (losses) $ 9.6 $ 3.7 $ 1.3 $ 1.1
Basis adjustments, including amortization
of goodwill (1.9) - - -
Equity in net earnings (losses) of affiliates
as shown in Statement of Earnings $ 7.7 $ 3.7 $ 1.3 $ 1.1
<PAGE>
<CAPTION>
Citicasters
1996 1995
<S> <C> <C>
Affiliate earnings (losses) ($0.6) $1.3
AFEI's share of affiliate earnings (losses) ($0.1) $0.2
Basis adjustments, including amortization
of goodwill - (0.1)
Equity in net earnings (losses) of affiliates
as shown in Statement of Earnings ($0.1) $0.1
<FN>
(a) As discussed in Note A, AFEI received shares of AFG in exchange for its investment in
American Premier on April 3, 1995.
</TABLE>
Interest Expense Interest expense increased $40,000 for the first
three months of 1996 compared to the same period of 1995 due to
increased average borrowings, partially offset by lower interest rates
on borrowings.
Income Taxes The provision for income taxes reflects the effects of
deductions relating to affiliate dividends.
8
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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
February 14, 1996 Agreement to sell Citicasters Common Stock
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.
May 14, 1996 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 the three months ended
March 31, 1996 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> $1,051
<SECURITIES> 452,382<F1>
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 453,433
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 13,291
<OTHER-SE> 363,114
<TOTAL-LIABILITY-AND-EQUITY> 453,433
<SALES> 0
<TOTAL-REVENUES> 8,852<F2>
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 402
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 315
<INCOME-PRETAX> 8,135
<INCOME-TAX> 2,238
<INCOME-CONTINUING> 5,897
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,897
<EPS-PRIMARY> $.44
<EPS-DILUTED> $.44
<FN>
<F1>"Marketable securities" represents AFEI's investments in affiliates
which are accounted for under the equity method.
<F2>Included in "Total revenue" is equity in net earnings of affiliates of
$8.8 million.
</FN>
</TABLE>
