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, 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 August 1, 1996, 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)
June 30, December 31,
1996 1995
Assets
Cash and short-term investments $ 1,918 $ 506
Investment in affiliates:
American Financial Group, Inc. 384,511 396,427
American Annuity Group, Inc. 37,171 41,978
Citicasters Inc. 26,826 26,336
$450,426 $465,247
Liabilities and Shareholders' Equity
Accounts payable, accrued expenses and
other liabilities $ 1,197 $ 975
Payable to affiliates 74,880 80,235
76,077 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 237,952 230,240
Equity in affiliates' net unrealized gains
on marketable securities, net of
deferred income taxes 9,000 26,400
Total Shareholders' Equity 374,349 384,037
$450,426 $465,247
2
<PAGE>
AMERICAN FINANCIAL ENTERPRISES, INC. 10-Q
AMERICAN FINANCIAL ENTERPRISES, INC.
STATEMENT OF EARNINGS
(In Thousands, Except Per Share Data)
Three months ended Six months ended
June 30, June 30,
1996 1995 1996 1995
Income:
Equity in net earnings of affiliates:
American Financial Group, Inc. $5,929 $2,940 $14,550 $2,940
American Premier Underwriters, Inc. - - - 3,688
American Annuity Group, Inc. 1,575 1,198 3,018 2,318
Citicasters Inc. 610 610 490 740
Interest income 30 23 53 40
8,144 4,771 18,111 9,726
Costs and Expenses:
Interest charges on borrowed money 315 275 630 550
Administrative and general expenses 386 357 788 785
701 632 1,418 1,335
Earnings before federal income taxes
and extraordinary items 7,443 4,139 16,693 8,391
Provision for federal income taxes 1,996 838 4,624 1,630
Earnings before extraordinary items 5,447 3,301 12,069 6,761
Extraordinary items - share of
affiliates' losses on prepayment
of debt, net of tax benefit of
$525 and $915 (974) - (1,699) -
Net Earnings $4,473 $3,301 $10,370 $6,761
Average number of Common Shares 13,291 13,291 13,291 13,291
Earnings (loss) per Common Share:
Before extraordinary items $.41 $.25 $.91 $.51
Extraordinary items (.07) - (.13) -
Net earnings $.34 $.25 $.78 $.51
Cash dividends per Common Share $.10 $.10 $.20 $.20
3
<PAGE>
AMERICAN FINANCIAL ENTERPRISES, INC. 10-Q
AMERICAN FINANCIAL ENTERPRISES, INC.
STATEMENT OF CASH FLOWS
(In Thousands)
Six months ended
June 30,
1996 1995
Operating Activities:
Net earnings $10,370 $6,761
Adjustments:
Extraordinary items - share of affiliates'
losses on prepayment of debt 1,699 -
Equity in net earnings of affiliates (18,058) (9,686)
Cash dividends from affiliates 4,976 4,976
Decrease in other assets - 13
Increase in payable to affiliates 4,927 1,630
Increase (decrease) in accounts payable,
accrued expenses and other liabilities 223 (168)
4,137 3,526
Financing Activities:
Reduction of long-term debt - (700)
Repayments of borrowings from affiliates (67) -
Cash dividends paid (2,658) (2,658)
(2,725) (3,358)
Net Increase in Cash and Short-term Investments 1,412 168
Cash and short-term investments at beginning
of period 506 275
Cash and short-term investments at end of period $ 1,918 $ 443
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 June 30, 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.
<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. Included in AFEI's balance sheet is its portion of
affiliates' unrealized gains and losses on marketable securities.
Investment in American Financial Group AFEI owned 10.0 million
shares (13%) of AFG common stock at June 30, 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 $300 million and
$305 million at June 30, 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
<PAGE>
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):
Six months Three months
ended ended
June 30, 1996 June 30, 1995
Revenues $2,063.7 $1,006.6
Earnings Before Extraordinary Items 139.5 33.0
Extraordinary Items (17.5) 0.5
Net Earnings 122.0 33.5
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 June 30, 1996 and
December 31, 1995. The market value of AFEI's investment in
American Annuity was $55 million and $51 million at June 30, 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):
Six months ended
June 30,
1996 1995
Revenues $289.9 $199.8
Income Before Extraordinary Item 31.0 23.6
Extraordinary Item (4.3) -
Net Income 26.7 23.6
<PAGE>
Investment in Citicasters AFEI owned 2.6 million shares (13%) of
Citicasters common stock at June 30, 1996 and December 31, 1995.
The market value of AFEI's investment in Citicasters was
$82 million and $62 million at June 30, 1996 and December 31,
1995, respectively. Citicasters operates 19 radio stations and
two network-affiliated television stations in major markets
throughout the country.
In February 1996, Citicasters and Jacor Communications, Inc.
entered into a merger agreement under which 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 $55 million on the sale
which is expected to close in the third quarter. 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
<PAGE>
AMERICAN FINANCIAL ENTERPRISES, INC. 10-Q
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Summarized financial information for Citicasters follows (in
millions):
Six months ended
June 30,
1996 1995
Net Revenues $71.4 $65.9
Operating Income 17.1 16.3
Net Earnings 4.7 6.5
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 aggregate borrowings under the two lines
may not exceed $25 million at any one time. AFEI had borrowed
$19.6 million under this agreement at June 30, 1996 and
$19.7 million at December 31, 1995. 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 June 30, 1996 or
December 31, 1995.
E. Shareholders' Equity At June 30, 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
<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 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.
Since March 1995, AFEI has paid quarterly dividends of $1.3 million
($.10 per share). Additionally, AFEI paid special dividends in
December 1995 ($2.0 million or $.15 per share) and 1994 ($6.0 million
or $.45 per share) based on available cash and capital.
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 of affiliates for the six months ended
June 30 (in millions):
American
AFG Premier
1996 1995(a) (a) 1995
Affiliate earnings before
extraordinary items $139.5 $33.0 $16.3
AFEI's share of affiliate earnings $ 18.1 $ 4.6 $ 3.7
Basis adjustments, including amortization
of goodwill (3.5) (1.7) -
Equity in net earnings of affiliates
as shown in Statement of Earnings $ 14.6 $ 2.9 $ 3.7
<PAGE>
American Annuity Citicasters
1996 1995 1996 1995
Affiliate earnings before
extraordinary items $31.0 $23.6 $4.7 $6.5
AFEI's share of affiliate earnings $ 3.0 $ 2.3 $0.6 $0.8
Basis adjustments, including
amortization of goodwill - - (0.1) (0.1)
Equity in net earnings of affiliates
as shown in Statement of Earnings $ 3.0 $ 2.3 $0.5 $0.7
(a) AFEI received shares of AFG in exchange for its investment in
American Premier on April 3, 1995. For 1995, affiliate earnings
represent AFG's results since March 31. Affiliate earnings for
American Premier are American Premier's first quarter results.
Interest Expense Interest expense increased $80,000 for the first six
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
<PAGE>
AMERICAN FINANCIAL ENTERPRISES, INC. 10-Q
PART II
OTHER INFORMATION
ITEM 4
Submission of Matters to a Vote of Security Holders
The Registrant's annual shareholders' meeting was held May 16, 1996.
Proxies were solicited pursuant to Regulation 14 under the Securities
Exchange Act of 1934. The nominated directors were elected as
indicated below:
Votes
Nominated Directors For Withheld
Carl H. Lindner 13,109,798 1,040
Julius S. Anreder 13,109,798 1,040
James E. Evans 13,109,798 1,040
Robert D. Lindner 13,109,598 1,240
Fred J. Runk 13,109,798 1,040
Ronald F. Walker 13,109,598 1,240
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: none
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.
August 13, 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 six months ended June 30,
1996 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-31-1996
<PERIOD-END> JUN-30-1996
<CASH> $1,918
<SECURITIES> 448,508<F1>
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 450,426
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 13,291
<OTHER-SE> 361,058
<TOTAL-LIABILITY-AND-EQUITY> 450,426
<SALES> 0
<TOTAL-REVENUES> 18,111<F2>
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 788
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 630
<INCOME-PRETAX> 16,693
<INCOME-TAX> 4,624
<INCOME-CONTINUING> 12,069
<DISCONTINUED> 0
<EXTRAORDINARY> (1,699)
<CHANGES> 0
<NET-INCOME> $10,370
<EPS-PRIMARY> $.78
<EPS-DILUTED> $.78
<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
$18.1 million.
</FN>
</TABLE>
