AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended March 31, 1994
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________________ to _____________________
Commission file number 1-7981
American General Corporation
(Exact name of registrant as specified in its articles of incorporation)
Texas 74-0483432
(State of Incorporation) (I.R.S. Employer
Identification No.)
2929 Allen Parkway, Houston, Texas 77019-2155
(Address of principal executive offices) (Zip Code)
(713) 522-1111
(Registrant's telephone number, including area code)
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 (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X . No .
The number of shares outstanding of the registrant's common stock at April 30,
1994 was 211,563,368 (excluding shares held in treasury and by a subsidiary).
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AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended March 31, 1994
INDEX TO FORM 10-Q
Page
Part I. FINANCIAL INFORMATION.
Item 1. Financial Statements.
Consolidated Statement of Income for the three
months ended March 31, 1994 and 1993 ............. 2
Consolidated Balance Sheet at March 31, 1994 and
December 31, 1993 ................................ 3
Consolidated Condensed Statement of Cash Flows for
the three months ended March 31, 1994 and 1993 ... 4
Notes to Consolidated Financial Statements ......... 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations .............. 7
Part II. OTHER INFORMATION.
Item 1. Legal Proceedings .................................. 17
Item 5. Other Information .................................. 17
Item 6. Exhibits and Reports on Form 8-K ................... 17
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AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended March 31, 1994
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
AMERICAN GENERAL CORPORATION
Consolidated Statement of Income
(Unaudited)
(In millions, except share data)
Three Months Ended
March 31,
1994 1993
Revenues
Premiums and other considerations ................ $ 289 $ 311
Net investment income ............................ 621 598
Finance charges .................................. 281 263
Realized investment gains ........................ 3 2
Other ............................................ 20 13
Total revenues ............................... 1,214 1,187
Benefits and expenses
Insurance and annuity benefits ................... 539 554
Operating costs and expenses ..................... 301 289
Interest expense
Corporate ....................................... 28 27
Consumer Finance ................................ 93 94
Total benefits and expenses .................. 961 964
Earnings
Income before income tax expense and
cumulative effect .............................. 253 223
Income tax expense ............................... 92 79
Income before cumulative effect .................. 161 144
Cumulative effect of accounting changes .......... - (46)
Net income ................................... $ 161 $ 98
Earnings per share
Income before cumulative effect .................. $ .75 $ .66
Cumulative effect of accounting changes .......... - (.21)
Net income per share ......................... $ .75 $ .45
Dividends paid per common share ................... $ .290 $ .275
Average fully diluted shares outstanding
(in thousands) .................................. 213,331 217,005
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AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended March 31, 1994
Item 1. Financial Statements (continued).
AMERICAN GENERAL CORPORATION
Consolidated Balance Sheet
(Unaudited)
(In millions)
March 31, December 31,
1994 1993
Assets
Investments
Fixed maturity securities (amortized cost:
$25,897; $24,885) ........................... $26,157 $26,479
Mortgage loans on real estate ................. 2,939 3,032
Equity securities (cost: $185; $182) .......... 222 233
Policy loans .................................. 1,156 1,156
Investment real estate ........................ 758 772
Other long-term investments ................... 129 137
Short-term investments ........................ 47 67
Total investments ........................... 31,408 31,876
Cash ........................................... 9 6
Finance receivables, net ....................... 6,508 6,390
Deferred policy acquisition costs .............. 2,114 1,637
Acquisition-related goodwill ................... 613 618
Other assets ................................... 1,236 1,205
Net assets of life insurance companies held
for sale ...................................... 161 153
Assets held in Separate Accounts ............... 2,232 2,097
Total assets ................................ $44,281 $43,982
Liabilities
Insurance and annuity liabilities .............. $27,759 $27,239
Debt (short-term)
Corporate ($409; $312) ........................ 1,354 1,257
Real Estate ($381; $414) ...................... 412 429
Consumer Finance ($2,042; $1,824) ............. 5,947 5,843
Income tax liabilities ......................... 974 1,241
Other liabilities .............................. 1,010 739
Liabilities related to Separate Accounts ....... 2,232 2,097
Total liabilities ........................... 39,688 38,845
Shareholders' equity
Common stock ................................... 365 365
Net unrealized gains on securities ............. 151 709
Retained earnings .............................. 4,325 4,229
Cost of treasury stock ......................... (248) (166)
Total shareholders' equity .................. 4,593 5,137
Total liabilities and shareholders' equity .. $44,281 $43,982
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AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended March 31, 1994
Item 1. Financial Statements (continued).
AMERICAN GENERAL CORPORATION
Consolidated Condensed Statement of Cash Flows
(Unaudited)
(In millions)
Three Months Ended
March 31,
1994 1993
Operating activities
Net cash provided by operating activities ...... $ 400 $ 471
Investing activities
Investment purchases .............................. (2,108) (1,995)
Investment calls, maturities, and sales ........... 1,525 1,324
Finance receivable originations or acquisitions ... (1,243) (1,060)
Finance receivable principal payments received .... 1,072 921
Net (increase) decrease in short-term investments . 20 (62)
Other, net ........................................ 31 (19)
Net cash used for investing activities ......... (703) (891)
Financing activities
Retirement Annuities and Life Insurance
Policyholder account deposits ................... 631 683
Policyholder account withdrawals ................ (343) (232)
Total Retirement Annuities and Life Insurance. 288 451
Consumer Finance
Net increase (decrease) in short-term debt ...... 218 (60)
Net long-term debt issuances .................... 65 405
Long-term debt redemptions ...................... (179) (279)
Total Consumer Finance ....................... 104 66
Corporate
Net increase (decrease) in short-term debt
Corporate ..................................... 97 (124)
Real Estate ................................... (33) (15)
Long-term debt issuance (redemptions) ........... (10) 100
Dividend payments ............................... (62) (59)
Common share purchases .......................... (78) -
Other, net ...................................... - 7
Total Corporate .............................. (86) (91)
Net cash provided by financing activities ...... 306 426
Net decrease in cash ................................ 3 6
Cash at beginning of period ......................... 6 17
Cash at end of period .......................... $ 9 $ 23
Supplemental disclosure of cash flow information:
Cash paid during the period for
Income taxes .................................... $ 60 $ 9
Interest
Corporate ..................................... 9 18
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AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended March 31, 1994
Real Estate ................................... 4 1
Consumer Finance .............................. 96 108
Item 1. Financial Statements (continued).
AMERICAN GENERAL CORPORATION
Notes to Consolidated Financial Statements
March 31, 1994
1. Accounting Policies. The accompanying unaudited consolidated financial
statements of American General Corporation ("American General" or "the
company") and its subsidiaries have been prepared in accordance with
generally accepted accounting principles for interim periods. In the
opinion of management, these statements include all adjustments,
consisting only of normal recurring accruals, that are necessary for a
fair presentation of the company's consolidated financial position at
March 31, 1994 and the consolidated results of operations and cash flows
for the three months ended March 31, 1994 and 1993.
To conform with the 1994 presentation, certain items in the prior period
have been reclassified. Additionally, certain amounts previously
reported in the 1993 first quarter Form 10-Q have been restated to
reflect the retroactive adoption of Statement of Financial Accounting
Standards (SFAS) 112, "Employers' Accounting for Postemployment
Benefits," effective January 1, 1993.
2. Status of Federal Tax Return Examinations. The company and its
subsidiaries file a consolidated federal income tax return. The Internal
Revenue Service (IRS) has completed examinations of the company's tax
returns through 1985 and has commenced examination of the company's tax
returns for 1986 through 1988.
The IRS is disputing the company's tax treatment of some items for the
years 1977 through 1985. Some of these issues will require litigation to
resolve, and any amounts ultimately settled with the IRS would also
include interest. Although the final outcome is uncertain, the company
believes that the ultimate liability, including interest, resulting from
these issues will not exceed amounts currently provided in the
consolidated financial statements.
3. Legal Contingency. Two real estate subsidiaries of the company were
defendants in a lawsuit that alleged damages based on lost profits and
related claims arising from certain loans and joint venture contracts.
On July 16, 1993, a judgment was entered against the subsidiaries jointly
for $47.3 million in compensatory damages and against one of the
subsidiaries for $189.2 million in punitive damages. On September 17,
1993, a Texas state district court reduced the previously-awarded
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AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended March 31, 1994
punitive damages by $60.0 million, resulting in a reduced judgment in the
amount of $176.5 million plus post-judgment interest. An appeal on
numerous legal grounds has been filed. The company believes, based on
advice of legal counsel, that plaintiffs' claims are without merit, and
Item 1. Financial Statements (continued).
the company is continuing to contest the matter vigorously through the
appeals process. No provision has been made in the consolidated
financial statements related to this contingency.
In April 1992, the IRS issued Notices of Deficiency in the amount of
$12.4 million for the 1977-1981 tax years of certain insurance
subsidiaries. The basis of the dispute was the tax treatment of modified
coinsurance agreements. During 1992, the company elected to pay the
assessment plus associated interest. A claim for refund of tax and
interest was disallowed by the IRS in January 1993. On June 30, 1993, a
suit for refund was filed in the Court of Federal Claims. The company
believes that the IRS's claims are without merit, and is continuing to
vigorously pursue refund of the amounts paid. No provision has been made
in the consolidated financial statements related to this contingency.
American General and certain of its subsidiaries are defendants in
various other lawsuits arising in the normal course of business.
American General and its subsidiaries believe they have valid defenses in
these pending lawsuits and are defending these cases vigorously. The
company also believes that the total amounts that would ultimately be
paid, if any, arising from these lawsuits would have no material effect
on the consolidated financial statements.
4. Ratios of Earnings to Fixed Charges. The ratios of earnings to fixed
charges are as follows:
Three Months Ended
March 31,
1994 1993
Consolidated operations ....................... 3.0X 2.7X
Consolidated operations, corporate fixed
charges only ................................ 9.3X 8.4X
American General Finance, Inc. ................ 1.9X 1.8X
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AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended March 31, 1994
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
This item presents specific comments on material changes to the company's
results of operations, capital resources, and liquidity for the periods
reflected in the interim financial statements filed with this report. The
reader is presumed to have read or have access to the company's 1993 Annual
Report to Shareholders including the Management's Discussion and Analysis
found on pages 18 through 24, 26, 28, and 30 thereof.
This analysis should be read in conjunction with the consolidated financial
statements and related notes on pages 2 through 6 of this Form 10-Q.
STATEMENT OF INCOME
Comparison of Three Months Ended March 31, 1994 and March 31, 1993
Revenues. Total revenues increased $27 million, or 2%, for the three months
ended March 31, 1994 over the same period in 1993, primarily due to increases
in net investment income and finance charges, partially offset by a decrease
in premiums and other considerations. The $23 million, or 4%, increase in net
investment income was attributable to a 9% growth in invested assets,
partially offset by a decline in investment yields. The decline in yields was
primarily due to prepayment of higher yielding bonds and mortgage-backed
securities throughout 1993 and reinvestment of the proceeds at lower interest
rates. The $18 million, or 7%, increase in finance charges resulted from an
increase in average finance receivables and higher yields on those
receivables. While premiums and other considerations decreased 7%, the
decline was primarily due to reporting the activity of life insurance
companies held for sale in other revenues, and ceding of a block of business
on January 1, 1994. The revenues ceded were offset by a related decrease in
insurance benefit expense.
Realized Investment Gains. Realized investment gains for the three months
ended March 31, 1994 included $16 million of gains due to early redemption of
fixed maturity securities at the election of the issuer (calls) and $15
million of gains from sales of investments, primarily five real estate joint
ventures, offset by additions to reserves of $28 million, primarily related to
investment real estate.
For the same period in 1993, gains of $21 million on calls and $5 million on
the sale of real estate were offset by a $24 million increase in reserves,
primarily related to investment real estate.
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AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended March 31, 1994
Other Revenues. Other revenues increased $7 million, or 44%, for the three
months ended March 31, 1994 over the same period in 1993, primarily due to
reporting pretax earnings of $6 million for the life insurance companies held
for sale in other revenues. The 1993 activity of the life insurance companies
held for sale is included in the 1993 financial statement line items as
originally reported.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued).
Insurance and Annuity Benefits. Insurance and annuity benefits decreased $15
million, or 3%, for the first three months of 1994 compared to the same period
in 1993, primarily due to ceding of a block of business beginning January 1,
1994, and reporting the 1994 activity of life insurance companies held for
sale in other revenues.
Operating Costs and Expenses. Operating costs and expenses increased $12
million, or 4%, for the three months ended March 31, 1994, compared to the
same period in 1993, primarily due to a $10 million increase in provision for
credit losses and higher operating expenses in the Consumer Finance segment,
partially offset by increased deferrals of loan origination fees due to growth
in finance receivables and reporting the 1994 activity of life insurance
companies held for sale in other revenues.
Interest Expense. Interest expense on corporate debt increased $1 million, or
2%, due to an increase in commercial paper borrowings. Interest expense on
consumer finance debt decreased $1 million, or 1%, primarily due to lower
borrowing rates in the three months ended March 31, 1994, compared to the 1993
period.
Income Tax Expense. Income tax expense increased $13 million, or 17%, for the
first three months of 1994 compared to the same period in 1993, primarily due
to higher taxable income and the 1% increase in the federal corporate tax
rate.
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AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended March 31, 1994
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued).
BUSINESS SEGMENTS
To facilitate meaningful period-to-period comparisons of business segment
results, operating earnings of each segment include earnings from its business
operations and earnings on that amount of equity considered necessary to
support its business, and exclude net realized investment gains, non-recurring
items, and the effect of accounting changes. Earnings on equity not allocated
to the business segments are included in earnings on corporate assets.
Three Months Ended
March 31,
1994 1993
(In millions)
Revenues
Retirement Annuities ........................... $ 379 $ 358
Consumer Finance ............................... 335 311
Life Insurance ................................. 477 511
Total business segments ...................... 1,191 1,180
Corporate
Realized investment gains .................... 3 2
Other ........................................ 20 5
Total consolidated revenues ............... $1,214 $1,187
Deposits
Retirement Annuities ........................... $ 587 $ 538
Life Insurance ................................. 267 235
Life insurance companies held for sale ......... 7 -
Total deposits ............................ $ 861 $ 773
Earnings
Retirement Annuities ........................... $ 53 $ 44
Consumer Finance ............................... 53 48
Life Insurance ................................. 64 70
Total business segments ...................... 170 162
Corporate
Net interest on corporate debt ............... (19) (21)
Expenses not allocated to segments ........... (6) (5)
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AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended March 31, 1994
Earnings on corporate assets ................. 15 7
Realized investment gains .................... 1 1
Income before cumulative effect ................ 161 144
Cumulative effect of accounting changes ........ - (46)
Total consolidated net income.............. $ 161 $ 98
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued).
Retirement Annuities. Revenues for the first three months of 1994 compared to
1993 increased $21 million, or 6%, primarily due to a 5% increase in net
investment income, reflecting growth in invested assets, partially offset by a
decrease in the average investment yield. Invested assets increased $2
billion, or 12%, from March 31, 1993 to March 31, 1994, primarily due to
growth in fixed premium deposits and reinvestment of investment income.
Operating earnings increased $9 million, or 19%, reflecting continued growth
in the business and a slightly higher spread between the average yield earned
on investments and the average rate of interest credited to policyholders.
The slight improvement in spread was due to a smaller decline in the average
investment yield than in the average rate of interest credited to
policyholders for the comparable three month period. The ratio of operating
expenses to average assets improved from .61% in the first quarter of 1993 to
.53% in 1994. The ratio of policyholder surrenders to average deferred policy
reserves for the three months ended March 31, 1994 was 5.8% compared to 3.9%
for the first three months of 1993, due to lower crediting rates on fixed
annuity accounts and participants' growing demand for equity-based
investments. This demand resulted in a $60 million increase in variable
account deposits and a $11 million decrease in fixed account deposits in first
quarter 1994 compared to first quarter 1993.
Consumer Finance. Revenues for the first three months of 1994 compared to
1993 increased $24 million, or 8%, primarily from increased finance charges
due to growth in finance receivables through business development efforts and
higher yields resulting from a change in the product mix to emphasize direct
consumer loans. Operating earnings increased $5 million, or 10%, due to
increased spread on a higher receivables balance, partially offset by a higher
provision for credit losses and increased operating expenses. The cost of
segment borrowings was $3 million lower in first quarter 1994, due to lower
interest rates partially offset by higher average borrowings. Annualized
charge offs increased to 2.21% for the first three months of 1994 from 1.92%
for the same period of 1993, and loan delinquencies increased to 2.4% at March
31, 1994 from 2.1% at March 31, 1993 (2.5% at year-end 1993). The increase in
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AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended March 31, 1994
charge offs, delinquencies, and the provision for credit losses was primarily
due to the emphasis on smaller, non-real estate, direct consumer loans.
Life Insurance. Total revenues decreased $34 million, or 7%, in first quarter
1994 compared to 1993 primarily due to the ceding of a block of business
effective January 1, 1994, reclassification to corporate of the activity
related to the life insurance companies held for sale in 1994, and lower
investment income. The decrease in investment income was a result of lower
yields, due to prepayment of higher yielding securities and reinvestment at
lower rates throughout 1993, partially offset by growth in invested assets.
Deposits increased 13% to $267 million due to growth in both variable annuity
and interest-sensitive life products. Operating earnings decreased $6 million
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued).
in the first quarter of 1994 compared to 1993 primarily due to the decrease in
investment income, higher death claim benefits in the home service
distribution business, and $3 million first quarter 1993 earnings of the life
insurance companies held for sale excluded from segment reporting in 1994.
Corporate. Corporate operations for the three months include interest on
corporate debt, expenses not allocated to the business segments, earnings on
corporate assets, and net realized investment gains. For reporting purposes,
corporate assets include assets representing equity of the subsidiaries not
considered necessary to support their businesses. Corporate debt is that
debt incurred primarily to fund acquisitions, share repurchases, and capital
needs of subsidiaries. Earnings on corporate assets increased $8 million,
primarily due to higher income from investment real estate in first quarter
1994 compared to 1993, and net operations of life insurance companies held for
sale reported in corporate operations in first quarter 1994.
BALANCE SHEET
Effect of SFAS 115. The company adopted SFAS 115, "Accounting for Certain
Investments in Debt and Equity Securities," at December 31, 1993.
Accordingly, all fixed maturity and equity securities were classified as
available-for-sale and recorded at fair value at March 31, 1994 and December
31, 1993. SFAS 115 does not permit a company to value the related insurance
and annuity liabilities at fair value. The adjustments to record the effect
of unrealized gains on fixed maturity securities and related balance sheet
accounts adjusted under SFAS 115 were as follows:
March 31, December 31,
1994 1993
(In millions)
Fair value adjustment to fixed maturity securities $260 $1,594
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AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended March 31, 1994
Less:
Decrease in deferred policy acquisition costs (69) (550)
Decrease (increase) in insurance and annuity
liabilities 4 (4)
Increase in deferred federal income taxes (69) (364)
Net unrealized gains on securities $126 $ 676
Increases in market interest rates and resulting decreases in bond values
during first quarter 1994 reduced the net unrealized gains on fixed maturity
securities credited directly to shareholders' equity and the related
adjustments to related balance sheet accounts. Care should be exercised in
drawing conclusions based on balance sheet amounts that include the SFAS 115
effect, since related insurance and annuity liabilities are not carried at
fair value.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued).
ASSETS. At March 31, 1994, the $44 billion of consolidated assets were
distributed as follows: 71% in investments, principally supporting insurance
and annuity liabilities, 15% in net finance receivables, 6% in intangible
assets, and 8% in other assets.
Investments. As shown above, investments decreased $1.3 billion from
December 31, 1993 to March 31, 1994 due to the effect of SFAS 115. For
more information on the investment portfolio at March 31, 1994, see the
section titled "INVESTMENTS" beginning on page 13.
Finance Receivables. Net finance receivables increased $118 million, or
2%, from December 31, 1993 to March 31, 1994, primarily due to business
development efforts in the Consumer Finance segment.
Deferred Policy Acquisition Costs (DPAC). The $477 million increase in
DPAC from December 31, 1993 to March 31, 1994 was primarily due to a $481
million reduction in the effect of SFAS 115 at March 31, 1994 as compared
to December 31, 1993 (see discussion titled "Effect of SFAS 115" on page
11).
Separate Account Assets and Liabilities. The $135 million increase in
assets and liabilities related to Separate Accounts from December 31,
1993 to March 31, 1994 primarily reflects increased sales of variable
annuity products in the Retirement Annuities and Life Insurance segments.
LIABILITIES AND SHAREHOLDERS' EQUITY. At March 31, 1994, consolidated
liabilities and shareholders' equity were distributed as follows: 63% in
insurance and annuity liabilities, 13% in consumer finance debt, 10% in
shareholders' equity, 4% in corporate and real estate debt, and 10% in other
liabilities.
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AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended March 31, 1994
Insurance and Annuity Liabilities. The $520 million increase in
insurance and annuity liabilities from December 31, 1993 to March 31,
1994 primarily reflects continued growth in the Retirement Annuities
segment.
Corporate Debt. Corporate debt was $97 million higher at March 31, 1994
than at December 31, 1993, principally because cash used to repurchase
common shares and pay dividends to shareholders exceeded cash dividends
received from subsidiaries. Excluding the effect of SFAS 115, the ratio
of corporate debt to corporate capital (the sum of corporate debt plus
shareholders' equity) was 23% at March 31, 1994 and 22% at December 31,
1993.
Consumer Finance Debt. Consumer finance debt increased $104 million from
December 31, 1993 to March 31, 1994, to support the growth in finance
receivables.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued).
Income Taxes. The liability for income taxes decreased $267 million from
December 31, 1993 to March 31, 1994, primarily due to a $295 million
reduction in the effect of SFAS 115 on deferred taxes from December 31,
1993 to March 31, 1994 (see discussion titled "Effect of SFAS 115" on
page 11).
Other Liabilities. Other liabilities increased $271 million from
December 31, 1993 to March 31, 1994, primarily due to an increase in
amounts owed to securities brokers because of the timing of investment
transactions.
Shareholders' Equity. Shareholders' equity decreased from $5.1 billion
at December 31, 1993 to $4.6 billion at March 31, 1994, primarily due to
a $550 million reduction in the effect of SFAS 115 on net unrealized
gains from December 31, 1993 to March 31, 1994 (see discussion titled
"Effect of SFAS 115" on page 11). Due to the requirements of SFAS 115,
shareholders' equity will be subject to future volatility from the
effects of interest rate fluctuations on the fair value of fixed maturity
securities.
INVESTMENTS
Invested assets consist primarily of fixed maturity securities, mortgage loans
on real estate, and investment real estate, which are discussed below. The
company reviews invested assets on a regular basis and records write-downs
where declines in fair value below cost are not considered temporary.
Fixed Maturity Securities. Fixed maturity securities represented 83% of
invested assets at March 31, 1994. Fixed maturity securities are carried at
fair value in accordance with SFAS 115 (see discussion titled "Effect of SFAS
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AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended March 31, 1994
115" on page 11). Information regarding the fixed maturity securities
portfolio at March 31, 1994, which included bonds and redeemable preferred
stocks, was as follows:
% of
Average Credit Total Fixed
($ in millions) Rating Fair Value Maturities
Mortgage-backed AAA $10,533 40%
Other investment grade A 14,820 57
Below investment grade BB- 804 3
Total fixed maturities AA- $26,157 100%
Below investment grade bonds, those rated below BBB-, totaled $790 million at
March 31, 1994, or 3.0% of total fixed maturity securities, compared to 2.8%
at December 31, 1993. Net income from below investment grade bonds, including
realized investment gains and losses, was $12 million and $6 million for the
first three months of 1994 and 1993, respectively. Included in 1993 are
changes in the allowance for losses.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued).
Non-performing bonds, defined as bonds for which payment of interest is
sufficiently uncertain as to preclude accrual of interest, were $47 million
and $46 million, or 0.2% of total fixed maturity securities, at March 31, 1994
and December 31, 1993, respectively.
Mortgage Loan Portfolio. Mortgage loans on real estate totaled 9% of invested
assets at March 31, 1994. Information regarding the mortgage loan portfolio
at March 31, 1994 was as follows:
Book Non-Performing Loans
($ in millions) Value Amount %
Commercial $2,930 $158 5.4%
Residential 110 5 4.3%
Allowance for losses (101) (33)
Total mortgage loans $2,939 $130
Non-performing (impaired) commercial loans consist of delinquent loans (60+
days) and restructured loans for which the company determines all amounts due
under the contractual terms probably will not be collected. These loans
represented 5.4% of total mortgage loans at March 31, 1994, compared to 4.4%
at December 31, 1993. The increase was primarily due to loans in California
adversely affected by economic conditions.
At March 31, 1994, $437 million of performing commercial mortgage loans were
on the company's watch list due to non-monetary defaults or concerns that
future payments may not be made on a timely basis. This amount compares to
$467 million at year-end 1993. The decrease in the watch list amount is due
primarily to loans placed on delinquent status during first quarter 1994. The
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AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended March 31, 1994
company does not anticipate a significant effect on operations, liquidity, or
capital from these loans.
Investment Real Estate. Investment real estate totaled 2.4% of invested
assets at March 31, 1994 and December 31, 1993. The breakdown of investment
real estate was as follows:
(In millions) March 31, 1994 December 31, 1993
Land development projects $ 623 $ 642
Income-producing real estate 207 189
American General Center, Houston 123 125
Foreclosed real estate 68 69
Allowance for losses (263) (253)
Total investment real estate $ 758 $ 772
The increase in income-producing real estate was primarily due to the
assumption of control and consolidation of two income-producing joint ventures
in the first quarter of 1994.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued).
CASH FLOWS
Management believes that the overall sources of cash and liquidity available
to the company and its subsidiaries will continue to be sufficient to satisfy
its foreseeable financial obligations.
Cash Flows of the Company. Net operating cash flows generated by the company
were $92 million and $53 million for the three months ended March 31, 1994 and
1993, respectively. Dividends from subsidiaries are the primary source of
cash for operating requirements of the company and are used to fund interest
obligations, dividends to shareholders, and repurchase of common stock. The
company's insurance subsidiaries are restricted by state insurance laws as to
the amounts they may pay as dividends without prior notice to, or in some
cases prior approval from, their respective state insurance departments.
Certain non-insurance subsidiaries are similarly restricted by long-term debt
agreements. These restrictions have not affected, and are not expected to
affect, the ability of the company to meet its cash obligations.
During the first three months of 1994, the companies in the Life Insurance and
Retirement Annuities segments paid cash dividends to American General of $54
million, compared to $29 million during the first three months of 1993. Cash
dividends paid to the company by the Consumer Finance segment totaled $81
million and $41 million in the first three months of 1994 and 1993,
respectively. Of the $65 million increase in dividends paid, $48 million was
related to dividends declared in 1993 and paid in 1994.
On April 15, 1994, the company redeemed $140 million of 8 1/2% Notes due April
1998. These notes were classified as short-term debt at March 31, 1994 and
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<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended March 31, 1994
December 31, 1993.
Segment Cash Flows. Net cash flows generated by the Life Insurance and
Retirement Annuities segments in the first three months of 1994 included $321
million provided by operations and $288 million provided by the increase in
policyholder account deposits, net of withdrawals. This compared to $349
million and $451 million during the first three months of 1993. The decrease
in policyholder account deposits, net of withdrawals, was primarily due to an
increase in fixed account withdrawals in the Retirement Annuities segment.
The Consumer Finance segment's operating cash flows totaled $166 million
during the first three months of 1994, compared to $154 million during the
first three months of 1993.
Consolidated Operating Activities. Net cash flows from operating activities
on a consolidated basis decreased $71 million in the first three months of
1994 compared to the comparable period in 1993. This decrease was primarily
due to an increase in taxes paid.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued).
Investing Activity. The source of cash flow from investment calls,
maturities, and sales was as follows:
Three Months Ended
(In millions) March 31,
1994 1993
Fixed maturity securities
Repayments of mortgage-backed securities $ 801 $ 538
Calls 290 529
Sales 153 47
Maturities 108 58
Mortgage loans 97 105
Equity securities 11 18
Other 65 29
Total $1,525 $1,324
Credit Facilities. Committed credit facilities are maintained by American
General and certain of its subsidiaries to support the issuance of commercial
paper and provide an additional source of cash for operating requirements. At
March 31, 1994, committed credit facilities totaled $2.5 billion; outstanding
borrowings under these facilities were $45 million.
OTHER FACTORS
Environmental. American General's principal exposure to environmental
regulation arises from its ownership of investment real estate. Probable
costs related to environmental clean-up are estimated to be $5 million, and
appropriate liabilities have been recorded to reflect these costs. The
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AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended March 31, 1994
company is continuing to review these costs, as well as the cost of compliance
with Environmental Protection Agency regulations.
Guaranty Associations. The amount assessed the company's life insurance and
annuity subsidiaries by State Guaranty Associations for the first three months
of 1994 was $3.4 million, of which $2.4 million had been accrued at December
31, 1993. Assessments in the first three months of 1993 were $4.5 million, of
which $2.5 million was accrued at December 31, 1992. The assessments for
1994 and 1993 were offset by $.8 million and $1.8 million, respectively,
considered recoverable against future premium taxes. At March 31, 1994, the
accrued liability for anticipated unrecoverable assessments was $17 million,
compared to $19 million at December 31, 1993.
<PAGE>
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<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended March 31, 1994
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
On March 22, 1994, two subsidiaries of the company were named as defendants in
The People of the State of California ("California") v. Luis Ochoa, Skeeters
Automotive, Morris Plan, Creditway of America, Inc., and American General
Finance, filed in the Superior Court of California, County of San Joaquin,
Case No. 271130. California seeks injunctive relief, a civil penalty of not
less than $5,000 per day or not less than $250,000 for violation of its Health
and Safety Code in connection with the failure to register and remove
underground storage tanks on property acquired through a foreclosure
proceeding by a subsidiary of the company, and a civil penalty of $2,500 for
each act of unfair competition prohibited by its Business and Professions
Code, but not less than $250,000, plus costs. The subsidiaries have not yet
been served with process and are in the initial stages of analyzing the
claims.
Other than the lawsuit described above and those previously disclosed,
American General and certain of its subsidiaries are defendants in various
other lawsuits arising in the normal course of business. American General and
its subsidiaries believe they have valid defenses in these pending lawsuits
and are defending these cases vigorously. The company also believes that the
total amounts that would ultimately be paid, if any, arising from these
lawsuits would have no material effect on the consolidated financial
statements.
Item 5. Other Information.
Common Stock Repurchase Program. From December 31, 1993 through March 31,
1994, the registrant purchased 3,047,500 shares of its common stock pursuant
to its stock repurchase program at a cost of $83.3 million.
Item 6. Exhibits and Reports on Form 8-K.
a. Exhibits.
Exhibit 10 American General Corporation Performance-Based Plan for
Executive Officers, effective as of January 1, 1994.
Exhibit 11 Computation of Earnings per Share.
Exhibit 12.1 Computation of Ratio of Earnings to Fixed Charges for
Consolidated Operations.
Exhibit 12.2 Computation of Ratio of Earnings to Fixed Charges for
Consolidated Operations, Corporate Fixed Charges Only.
Exhibit 12.3 Computation of Ratio of Earnings to Fixed Charges for
American General Finance, Inc.
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<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended March 31, 1994
PART II. OTHER INFORMATION
(Continued)
Item 6. Exhibits and Reports on Form 8-K (continued).
b. Reports on Form 8-K.
No Current Reports on Form 8-K were filed during the first quarterly
period of 1994.
<PAGE>
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<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended March 31, 1994
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
AMERICAN GENERAL CORPORATION
(Registrant)
By: PAMELA J. PENNY
PAMELA J. PENNY
Vice President and Controller
(Duly Authorized Officer and
Chief Accounting Officer)
Date: May 12, 1994
<PAGE>
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<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended March 31, 1994
EXHIBIT INDEX
Sequentially
Numbered
Exhibit Page
10 American General Corporation Performance-Based Plan
for Executive Officers, effective as of
January 1, 1994
11 Computation of Earnings per Share.
12.1 Computation of Ratio of Earnings to Fixed Charges for
Consolidated Operations.
12.2 Computation of Ratio of Earnings to Fixed Charges for
Consolidated Operations, Corporate Fixed Charges Only.
12.3 Computation of Ratio of Earnings to Fixed Charges for
American General Finance, Inc.
<PAGE>
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<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended March 31, 1994
Exhibit 10
AMERICAN GENERAL CORPORATION
PERFORMANCE - BASED PLAN FOR EXECUTIVE OFFICERS
SECTION 1 - PURPOSE
1.1 The AMERICAN GENERAL CORPORATION PERFORMANCE - BASED PLAN FOR
EXECUTIVE OFFICERS (the "Plan") is designed to attract and retain the services
of key executives who are in a position to make a material contribution to the
successful operation of the business of American General Corporation and its
subsidiaries. The Plan shall become effective as of January 1, 1994, subject
to approval by shareholders in the manner required by Section 162(m) of the
Internal Revenue Code of 1986, as amended (the "Code").
SECTION 2 - DEFINITIONS
2.1 For purposes of the Plan, the following terms shall have the
following meanings:
(a) "Average Shareholders' Equity" means, for any Plan Year, the
sum of the consolidated shareholders' equity of the Corporation at the
beginning of the Plan Year and for each quarter-end (i.e., March 31,
June 30, September 30, and December 31) of that Plan Year, as reported
in the Corporation's quarterly financial supplements and/or the annual
report to shareholders for each applicable period, divided by five.
(b) "Average Shareholders' Equity for the Three-Year Period"
means the sum of the Average Shareholders' Equity for the current Plan
Year and the prior two Plan Years as reported in the Corporation's
annual report to shareholders for such years, divided by three.
(c) "Award" means an amount granted pursuant to Section 4 of the
Plan.
(d) "Board of Directors" means the Board of Directors of the
Corporation.
(e) "Common Stock" means the common stock ($.50 par value) of
the Corporation.
(f) "Corporation" means American General Corporation.
(g) "Incentive Pool" means a pool of funds created pursuant to
Section 3 of the Plan.
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended March 31, 1994
(h) "Operating Earnings" means, for any Plan Year, the
consolidated operating earnings of the Corporation, which exclude net
realized investment gains, non-recurring items, and the cumulative
effect of accounting changes under generally accepted accounting
principles.
(i) "Participant" means an officer of the Corporation or one of
its subsidiaries who is, during the Plan Year, among the 15 highest
salaried employees of the Corporation and its subsidiaries and who has
been designated by the Committee as eligible to receive an Award under
the Plan for the Plan Year.
(j) "Personnel Committee" or "Committee" means the Personnel
Committee of the Board of Directors.
(k) "Plan Year" means the calendar year.
SECTION 3 - DETERMINATION OF INCENTIVE POOL
3.1 Prior to the beginning of each Plan Year (or prior to April 1 with
respect to the 1994 Plan Year), the Committee shall prescribe an objective
formula pursuant to which a pool of funds (an "Incentive Pool") shall be
created for such Plan Year conditioned upon (1) Operating Earnings for such
Plan Year exceeding 7% of Average Shareholders' Equity for the Three-Year
Period ending on the last day of such Plan Year, and (2) a cash dividend
having been declared on the outstanding Common Stock during such Plan Year.
3.2 The Incentive Pool for a Plan Year shall be equal to the sum of
(1) 3% of that portion of Operating Earnings for such Plan Year that exceeds a
base percentage return to shareholders, established by the Committee, on
Average Shareholders' Equity for the Three-Year Period ending on the last day
of such Plan Year, plus (2) an amount, not to exceed $2,000,000, consisting of
the excess of the cumulative Incentive Pools for all prior Plan Years over the
actual Awards paid under the Plan for such Plan Years.
SECTION 4 - GRANT OF AWARDS
4.1 Coincident with the establishment of the formula under which the
Incentive Pool shall be determined for a Plan Year, the Committee shall award
shares of the Incentive Pool ("Awards") for that Plan Year to individuals whom
the Committee designates as Participants for the Plan Year. The maximum Award
which can be made to a Participant under the Plan for a Plan Year shall not
exceed .005 times Operating Earnings for such Plan Year. The Committee shall
grant Awards under the Plan based upon a review of the contribution and
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<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended March 31, 1994
performance of the Participants as well as the Corporation's performance in
relation to its competitors and as influenced by external factors.
4.2 Notwithstanding the provisions of Section 4.1, the Committee may,
in its sole discretion, reduce the amount otherwise payable to a Participant
at any time prior to the payment of the Award to the Participant.
SECTION 5 - ELIGIBILITY FOR PAYMENT OF AWARDS
5.1 Subject to Section 4.2, a Participant who has been awarded a share
of the Incentive Pool shall receive payment of an Award if the Participant
remains employed by the Corporation or its subsidiaries through the end of the
applicable Plan Year; provided, however, that no Participant shall be entitled
to payment of an Award hereunder until the Committee certifies (by written
minutes) that the performance goals and any other material terms of the Plan
have in fact been satisfied. If a Participant terminates employment prior to
the end of a Plan Year, no payments attributable to his Award for such Plan
Year shall be made pursuant to the Plan.
SECTION 6 - FORM AND TIMING OF PAYMENT OF AWARDS
6.1 Awards will be paid out in cash in one lump sum payment during the
first quarter of the calendar year following the Plan Year to which the Award
relates.
SECTION 7 - ADMINISTRATION
7.1 The Plan shall be administered by the Personnel Committee.
7.2 Subject to the provisions of the Plan, the Committee shall have
exclusive power to determine the amounts that shall be available for Awards
each Plan Year and to establish the guidelines under which the Awards payable
to each Participant shall be determined.
7.3 The Committee's interpretation of the Plan, grant of any Award
pursuant to the Plan, and all actions taken within the scope of its authority
under the Plan, shall be final and binding on all Participants (or former
Participants) and their executors.
7.4 The Committee shall have the authority to establish, adopt or
revise such rules or regulations relating to the Plan as it may deem necessary
or advisable for the administration of the Plan.
SECTION 8 - AMENDMENT AND TERMINATION
8.1 The Board of Directors may amend any provision of the Plan at any
time; provided that no amendment which requires shareholder approval in order
for Awards paid under the Plan to be deductible under the Code may be made
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<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended March 31, 1994
without the approval of the shareholders of the Corporation. The Board of
Directors shall also have the right to terminate the Plan at any time.
SECTION 9 - MISCELLANEOUS
9.1 The fact that an employee has been designated a Participant shall
not confer on the Participant any right to be retained in the employ of the
Corporation or its subsidiaries, or to be designated a Participant in any
subsequent Plan Year.
9.2 No award under this Plan shall be taken into account in
determining a Participant's compensation for the purpose of any employee
benefit plan of the Corporation or its subsidiaries unless so provided in such
benefit plan.
9.3 This Plan shall not be deemed the exclusive method of providing
incentive compensation for an employee of the Corporation or its subsidiaries,
nor shall it preclude the Committee or the Board of Directors from authorizing
or approving other forms of incentive compensation.
9.4 All expenses and costs in connection with the operation of the
Plan shall be borne by the Corporation and its subsidiaries.
9.5 The Corporation or its subsidiary making a payment under this Plan
shall withhold therefrom such amounts as may be required by federal, state or
local law, and the amount payable under the Plan to the person entitled
thereto shall be reduced by the amount so withheld.
9.6 The Plan and the rights of all persons under the Plan shall be
construed and administered in accordance with the laws of the State of Texas
to the extent not superseded by federal law.
9.7 In the event of the death of a Participant, any payment due under
this Plan shall be made to the Participant's estate.
9.8 No right or interest of any Participant in the Plan shall be
assigned or transferable, or subject to any lien, directly, by operation of
law, or otherwise, including execution, levy, garnishment, attachment, pledge,
and bankruptcy.
<PAGE>
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<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended March 31, 1994
Exhibit 11
COMPUTATION OF EARNINGS PER SHARE
(Unaudited)
($ in millions, except share data)
Three Months Ended
March 31,
1994 1993
Income before cumulative effect ................ $ 161 $ 144
Cumulative effect of accounting changes* ....... - (46)
Net income available to common stock ......... $ 161 $ 98
Average shares outstanding
Common shares ................................ 213,010,865 216,433,100
Assumed exercise of stock options ............ 320,394 571,435
Total ........................................ 213,331,259 217,004,535
Earnings per share
Income before cumulative effect .............. $ .75 $ .66
Cumulative effect of accounting changes* ..... - (.21)
Net income ................................. $ .75 $ .45
* 1993 restated to reflect adoption of SFAS 112.
<PAGE>
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended March 31, 1994
Exhibit 12.1
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
CONSOLIDATED OPERATIONS
(Unaudited)
($ in millions)
Three Months Ended
March 31,
1994 1993
Income before income tax expense and
cumulative effect ........................... $253 $223
Fixed charges deducted from income
Interest expense ............................ 120 123
Implicit interest in rents .................. 4 4
Total fixed charges deducted from
income .................................. 124 127
Earnings available for fixed charges .......... $377 $350
Fixed charges per above ....................... $124 $127
Capitalized interest .......................... 4 4
Total fixed charges ....................... $128 $131
Ratio of earnings to fixed charges ............ 3.0X 2.7X
<PAGE>
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended March 31, 1994
Exhibit 12.2
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
CONSOLIDATED OPERATIONS, CORPORATE FIXED CHARGES ONLY
(Unaudited)
($ in millions)
Three Months Ended
March 31,
1994 1993
Income before income tax expense and
cumulative effect ............................. $253 $223
Corporate fixed charges deducted from
income - corporate interest expense ........... 31 30
Earnings available for fixed charges ............ $284 $253
Ratio of earnings to fixed charges .............. 9.3X 8.4X
<PAGE>
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended March 31, 1994
Exhibit 12.3
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
AMERICAN GENERAL FINANCE, INC.
(Unaudited)
($ in millions)
Three Months Ended
March 31,
1994 1993
Income before income tax expense and
cumulative effect ........................... $ 86 $77
Fixed charges deducted from income
Interest expense ............................ 93 96
Implicit interest in rents .................. 3 2
Total fixed charges deducted from
income .................................. 96 98
Earnings available for fixed charges .......... $182 $175
Ratio of earnings to fixed charges ............ 1.9X 1.8X
<PAGE>
<PAGE>
