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, 1996 No. 1-8013
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, 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)
September 30, December 31,
1996 1995
Assets
Cash and short-term investments $ 58,103 $ 506
Investment in affiliates:
American Financial Group, Inc. 395,412 396,427
American Annuity Group, Inc. 40,427 41,978
Citicasters Inc. - 26,336
Other equities - at market (cost - $7,368) 7,068 -
Other assets 212 -
$501,222 $465,247
Liabilities and Shareholders' Equity
Accounts payable, accrued expenses and
other liabilities $ 1,308 $ 975
Payable to affiliates 78,656 80,235
79,964 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 280,961 230,240
Equity in affiliates' net unrealized
gains on marketable securities,
net of deferred income taxes 12,900 26,400
Total Shareholders' Equity 421,258 384,037
$501,222 $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 Nine months ended
September 30, September 30,
1996 1995 1996 1995
Income:
Equity in net earnings of affiliates:
American Financial Group, Inc. $ 9,840 $5,209 $24,390 $ 8,149
American Premier Underwriters, Inc. - - - 3,688
American Annuity Group, Inc. 1,678 1,641 4,696 3,959
Citicasters Inc. - 350 490 1,090
Gains on sales of affiliate 57,648 95 57,648 95
Interest income 137 19 190 59
69,303 7,314 87,414 17,040
Costs and Expenses:
Interest charges on borrowed money 277 287 907 837
Administrative and general expenses 578 611 1,366 1,396
855 898 2,273 2,233
Earnings before federal income taxes and
extraordinary items 68,448 6,416 85,141 14,807
Provision for federal income taxes 23,348 1,637 27,972 3,267
Earnings before extraordinary items 45,100 4,779 57,169 11,540
Extraordinary items - share of affiliates'
losses on prepayment of debt, net of
tax benefit of $411 and $1,326 (762) - (2,461) -
Net Earnings $44,338 $4,779 $54,708 $11,540
Average number of Common Shares 13,291 13,291 13,291 13,291
Earnings (loss) per Common Share:
Before extraordinary items $3.39 $.36 $4.30 $.87
Extraordinary items (.05) - (.18) -
Net earnings $3.34 $.36 $4.12 $.87
Cash dividends per Common Share $.10 $.10 $.30 $.30
3
<PAGE>
AMERICAN FINANCIAL ENTERPRISES, INC. 10-Q
AMERICAN FINANCIAL ENTERPRISES, INC.
STATEMENT OF CASH FLOWS
(In Thousands)
Nine months ended
September 30,
1996 1995
Operating Activities:
Net earnings $54,708 $11,540
Adjustments:
Extraordinary items - share of affiliates'
losses on prepayment of debt 2,461 -
Gains on sales of affiliate (57,648) (95)
Equity in net earnings of affiliates (29,576) (16,886)
Cash dividends from affiliates 7,465 7,465
Decrease (increase) in other assets (202) 15
Increase in payable to affiliates 27,961 3,267
Increase in accounts payable,
accrued expenses and other liabilities 333 13
Other, net 150 161
5,652 5,480
Investing Activities:
Sale of affiliate 75,599 -
Purchase of affiliate - (3,665)
75,599 (3,665)
Financing Activities:
Additional long-term borrowings - 2,800
Reduction of long-term debt - (700)
Repayments of borrowings from affiliates (19,667) -
Cash dividends paid (3,987) (3,987)
(23,654) (1,887)
Net Increase (Decrease) in Cash and
Short-term Investments 57,597 (72)
Cash and short-term investments at
beginning of period 506 275
Cash and short-term investments at end of period $58,103 $ 203
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.
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 September 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 acquiring and disposing of debt or
equity instruments. "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 and American Annuity Group, 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 September 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 $314 million and
$305 million at September 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):
<TABLE>
<CAPTION>
Nine months Six months
ended ended
September 30, 1996 September 30, 1995
<S> <C> <C>
Revenues $3,227.2 $2,009.3
Earnings Before Extraordinary Items 261.1 83.9
Extraordinary Items - Gain (Loss)
on Debt Prepayments (25.9) 2.6
Net Earnings 235.2 86.5
</TABLE>
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 September 30, 1996
and December 31, 1995. The market value of AFEI's investment
in American Annuity was $57 million and $51 million at
September 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):
Nine months ended
September 30,
1996 1995
Revenues $435.8 $309.2
Income Before Extraordinary Item 48.1 40.2
Extraordinary Item - Loss on
Debt Prepayments (6.0) -
Net Income 42.1 40.2
Investment in Citicasters In September 1996, AFEI sold its
investment in Citicasters to Jacor Communications for
approximately $76 million in cash plus warrants to purchase Jacor
common stock. AFEI realized a pretax gain of approximately
$57 million on the sale. Citicasters owns and operates radio and
television stations in major markets throughout the country.
<PAGE>
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 no
borrowings under this agreement at September 30, 1996 and
$19.7 million borrowed 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.
6
<PAGE>
AMERICAN FINANCIAL ENTERPRISES, INC. 10-Q
NOTES TO FINANCIAL STATEMENTS - CONTINUED
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 September 30, 1996 or
December 31, 1995.
E. Shareholders' Equity At September 30, 1996, there were 462,500
shares of AFEI Common Stock reserved for issuance upon exercise of
stock options.
Included in equity in affiliates' net unrealized gains on
marketable securities is $200,000 representing AFEI's net
unrealized loss on its investment in equity securities.
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 2002 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 and American Annuity.
LIQUIDITY AND CAPITAL RESOURCES In the third quarter of 1996, AFEI
repaid $19.9 million (including $.3 million in accrued interest) borrowed
under its credit agreement with American Premier.
At the current indicated rate, $10 million in annual dividends from
AFG is expected to be more than sufficient to cover AFEI's fixed
charges and other operating expenses. If, in the future, affiliate
dividends are insufficient to meet its fixed charges, 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.
<PAGE>
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 nine months ended
September 30 (in millions):
American
AFG Premier
1996 1995(a) (a) 1995
Affiliate earnings before
extraordinary items $261.1 $83.9 $16.3
AFEI's share of affiliate earnings $ 33.9 $11.7 $ 3.7
Basis adjustments, including amortization
of goodwill (9.5) (3.6) -
Equity in net earnings of affiliates
as shown in Statement of Earnings $ 24.4 $ 8.1 $ 3.7
American Annuity Citicasters
1996 1995 1996(b) 1995
Affiliate earnings before
extraordinary items $48.1 $40.2 $4.7 $9.8
AFEI's share of affiliate earnings $ 4.7 $ 4.0 $0.6 $1.3
Basis adjustments, including amortization
of goodwill - - (0.1) (0.2)
Equity in net earnings of affiliates
as shown in Statement of Earnings $ 4.7 $ 4.0 $0.5 $1.1
(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.
(b) AFEI sold its Citicasters shares in September 1996. For 1996,
affiliate earnings represent Citicasters'
results through June 30.
Gains on Sales of Affiliate Gains on sales of affiliate in 1996 and
1995 represent gains on the disposal of Citicasters shares.
Interest Expense Interest expense increased $70,000 for the first
nine 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 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
September 20, 1996 Sale of 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.
November 11, 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 nine months ended
September 30, 1996 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-31-1996
<PERIOD-END> SEP-30-1996
<CASH> $58,103
<SECURITIES> 442,907<F1>
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 501,222
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 13,291
<OTHER-SE> 407,967
<TOTAL-LIABILITY-AND-EQUITY> 501,222
<SALES> 0
<TOTAL-REVENUES> 87,414<F2>
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,366
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 907
<INCOME-PRETAX> 85,141
<INCOME-TAX> 27,972
<INCOME-CONTINUING> 57,169
<DISCONTINUED> 0
<EXTRAORDINARY> (2,461)
<CHANGES> 0
<NET-INCOME> $54,708
<EPS-PRIMARY> $4.12
<EPS-DILUTED> $4.12
<FN>
<F1>Included in "Marketable Securities" is AFEI's investments in affiliates
of $436 million.
<F2>Included in "Total revenue" is equity in net earnings of affiliates of
$29.6 million.
</FN>
</TABLE>
