<PAGE> 1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): APRIL 14, 1995
AMERICAN GENERAL CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
TEXAS 1-7981 74-0483432
(State or other jurisdiction (Commission File Number) (IRS Employer
of incorporation) Identification Number)
2929 ALLEN PARKWAY, HOUSTON, TEXAS 77019
(Address of principal executive offices) (Zip Code)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (713) 522-1111
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<PAGE> 2
AMERICAN GENERAL CORPORATION
TABLE OF CONTENTS TO FORM 8-K
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
Item 7. Financial Statements, Pro Forma Financial Information, and Exhibits........... 3
(a) Financial Statements of Business Acquired -- American Franklin Company.
Report of Independent Accountants........................................ 4
Consolidated Statement of Income for the years ended December 31, 1994
and 1993............................................................... 5
Consolidated Balance Sheet at December 31, 1994 and 1993................. 6
Consolidated Statement of Stockholder's Equity for the years ended
December 31, 1994 and 1993............................................. 7
Consolidated Statement of Cash Flows for the years ended December 31,
1994 and 1993.......................................................... 8
Notes to Consolidated Financial Statements............................... 9
(b) Pro Forma Financial Information.
Pro Forma Financial Information of American General Corporation.......... 23
Pro Forma Consolidated Balance Sheet at December 31, 1994 (Unaudited).... 24
Pro Forma Consolidated Statement of Income for the year ended December
31, 1994 (Unaudited)................................................... 25
Notes to Pro Forma Consolidated Financial Statements (Unaudited)......... 26
(c) Exhibits................................................................. 32
Signature..................................................................... 33
</TABLE>
2
<PAGE> 3
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION, AND EXHIBITS.
(a) Financial Statements of Business Acquired.
On January 31, 1995, American General Corporation (AGC) through its
wholly-owned subsidiary, AGC Life Insurance Company (AGC Life), acquired
American Franklin Company (AFC), the holding company of The Franklin Life
Insurance Company, pursuant to a Stock Purchase Agreement dated as of
November 29, 1994, between AGC and American Brands, Inc. (American Brands).
The purchase price was $1.17 billion, consisting of $920 million in cash
paid at closing and a $250 million cash dividend paid by AFC to American
Brands prior to closing. The dividend was paid on January 30, 1995.
On February 15, 1995, AGC filed a Current Report on Form 8-K, dated
February 14, 1995, that included 1993 audited consolidated financial
statements of AFC and pro forma consolidated financial statements of AGC as
of and for the nine months ended September 30, 1994 and for the year ended
December 31, 1993.
This Current Report on Form 8-K, updating the previously filed
financial statements, includes the 1994 audited consolidated financial
statements of AFC and pro forma consolidated financial statements of AGC as
of and for the year ended December 31, 1994.
The consolidated financial statements of AFC are on pages 4-22; the
proforma consolidated financial statements of AGC are on pages 23-32. See
the Table of Contents for a list of the financial information contained
therein.
3
<PAGE> 4
REPORT OF INDEPENDENT ACCOUNTANTS
------------------------
To the Board of Directors
and Stockholder of
American Franklin Company
We have audited the consolidated balance sheets of American Franklin
Company and Subsidiaries as of December 31, 1994 and 1993 and the related
consolidated statements of income, stockholder's equity and cash flows for the
years then ended. These consolidated financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe our audits provide a reasonable basis for our opinion.
As discussed in Note 1 to the Consolidated Financial Statements, on January
31, 1995, American Brands, Inc. completed the sale of American Franklin Company
and Subsidiaries to a subsidiary of American General Corporation. These
financial statements have been prepared on a basis consistent with prior years
and have not been adjusted to reflect the effects of this sale.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of American
Franklin Company and Subsidiaries as of December 31, 1994 and 1993, and the
consolidated results of their operations and their cash flows for the years then
ended, in conformity with generally accepted accounting principles.
As discussed in the Notes to Consolidated Financial Statements, in 1993 the
Company changed its methods of accounting for postretirement benefits other than
pensions, certain investments in debt and equity securities, and reinsurance
contracts.
COOPERS & LYBRAND, L.L.P.
203 North LaSalle Street
Chicago, Illinois 60601
February 1, 1995
4
<PAGE> 5
AMERICAN FRANKLIN COMPANY
CONSOLIDATED STATEMENT OF INCOME
(IN MILLIONS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
----------------------
1994 1993
-------- --------
<S> <C> <C>
Premiums and other revenues
Premiums............................................................. $ 502.7 $ 462.2
Net investment income................................................ 478.7 465.4
Investment (losses) gains............................................ (14.4) 92.6
Other income......................................................... 68.5 50.8
-------- --------
1,035.5 1,071.0
-------- --------
Benefits and expenses
Benefits paid or provided
Death claims and other policy benefits............................ 225.0 252.4
Other insurance benefits.......................................... 8.0 7.1
Investment-type contracts......................................... 170.5 169.1
Dividends to policyholders........................................ 87.0 92.3
Change in policy reserves............................................ 218.1 122.2
Increase in participating policyholders' interests................... 12.0 12.2
-------- --------
720.6 655.3
Amortization of deferred policy acquisition costs.................... 71.3 68.0
Other operating expenses............................................. 119.7 120.3
Amortization of present value of future profits...................... 9.0 7.9
Amortization of intangibles resulting from business acquisitions..... 3.3 3.3
-------- --------
923.9 854.8
-------- --------
Income before provision for taxes...................................... 111.6 216.2
Provision for income tax (benefit)
Current........................................................... 75.7 97.8
Deferred.......................................................... (31.9) (18.7)
-------- --------
43.8 79.1
-------- --------
Income before cumulative effect of changes in accounting principles.... 67.8 137.1
Cumulative effect of changes in accounting principles.................. - (17.9)
-------- --------
Net income................................................... $ 67.8 $ 119.2
======= =======
</TABLE>
See Notes to Consolidated Financial Statements.
5
<PAGE> 6
AMERICAN FRANKLIN COMPANY
CONSOLIDATED BALANCE SHEET
(IN MILLIONS, EXCEPT FOR SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1994 1993
------- -------
<S> <C> <C>
ASSETS
Investments
Held-to-maturity, fixed maturities at amortized cost.................. $4,896.8 $4,525.5
Trading securities, at fair value..................................... 176.5 271.7
Available-for-sale securities, at fair value.......................... 164.4 138.0
First mortgage loans on real estate, at unpaid principal balance...... 636.2 537.2
Policy loans, at unpaid principal balance............................. 334.2 311.2
Other investments..................................................... 60.6 25.3
------- -------
6,268.7 5,808.9
Cash and cash equivalents............................................... 149.8 79.1
Accrued investment income............................................... 106.8 101.0
Receivables from agents................................................. 17.9 15.0
Amounts recoverable from reinsurers..................................... 23.2 26.0
Deferred policy acquisition costs....................................... 510.6 470.5
Property and equipment, at cost, less accumulated depreciation
(1994, $36.1; 1993, $32.5)............................................ 20.2 19.3
Present value of future profits, less accumulated amortization
(1994, $140.0; 1993, $131.1).......................................... 174.7 169.9
Intangibles resulting from business acquisitions, less accumulated
amortization (1994, $53.0; 1993, $49.9)............................... 79.8 83.2
Other assets............................................................ 19.0 257.0
Assets held in separate accounts........................................ 104.3 86.8
------- -------
Total assets.................................................. $7,475.0 $7,116.7
======= =======
LIABILITIES
Policy reserves and claims
Life, annuity and accident and health reserves........................ $2,733.3 $2,512.9
Policy and contract claims............................................ 39.1 41.4
Other policyholders' funds
Investment-type contract deposits..................................... 2,897.3 2,732.3
Participating policyholders' interests................................ 190.7 180.4
Other................................................................. 55.8 57.6
Federal income taxes
Current............................................................... 6.0 (1.4)
Deferred.............................................................. (22.0) 18.6
Accrued expenses and other liabilities.................................. 110.7 144.9
Liabilities related to separate accounts................................ 104.3 86.8
------- -------
Total liabilities............................................. 6,115.2 5,773.5
------- -------
STOCKHOLDER'S EQUITY
Common stock, par value $1 per share, 1,000 shares authorized,
issued and outstanding................................................ - -
Paid-in capital......................................................... 845.1 845.1
Retained earnings....................................................... 522.8 492.8
Net unrealized (depreciation) appreciation on available-for-sale
securities............................................................ (8.1) 5.3
------- -------
Total stockholder's equity.................................... 1,359.8 1,343.2
------- -------
Total liabilities and stockholder's equity.................... $7,475.0 $7,116.7
======= =======
</TABLE>
See Notes to Consolidated Financial Statements.
6
<PAGE> 7
AMERICAN FRANKLIN COMPANY
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY
(IN MILLIONS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
---------------------
1994 1993
------- -------
<S> <C> <C>
Common stock......................................................... $ - $ -
------- -------
Paid-in capital...................................................... 845.1 845.1
------- -------
Retained earnings
January 1 balance.................................................. 492.8 418.8
Net income......................................................... 67.8 119.2
Dividends to parent................................................ (37.8) (45.2)
------- -------
December 31 balance................................................ 522.8 492.8
------- -------
Net unrealized appreciation (depreciation) on investments
January 1 balance.................................................. 5.3 10.5
------- -------
Gross change for the year
Available-for-sale.............................................. (23.8) 8.3
Trading securities.............................................. - (16.1)
Amounts applicable to deferred federal income taxes............. 8.6 2.6
Amounts applicable to participating policyholders' interest,
net of deferred federal income taxes.......................... 1.8 -
------- -------
Net change for the year............................................ (13.4) (5.2)
------- -------
December 31 balance................................................ (8.1) 5.3
------- -------
Stockholder's equity at December 31.................................. $1,359.8 $1,343.2
======= =======
</TABLE>
See Notes to Consolidated Financial Statements.
7
<PAGE> 8
AMERICAN FRANKLIN COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN MILLIONS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
--------------------
1994 1993
------- -------
<S> <C> <C>
Cash flows from operating activities
Net income.......................................................... $ 67.8 $ 119.2
Changes in accounting principles.................................... - 17.9
Loss (gain) on sale of investments, net............................. 14.4 (92.6)
Purchase of trading securities...................................... (183.3) -
Proceeds from sale of trading securities............................ 247.0 -
Amortization of present value of future profits and intangibles..... 12.3 11.2
Change in policy reserves, claims and other policyholder's funds.... 232.8 141.1
Interest credited, net of charges on investment contract deposits... 153.0 155.1
Change in other assets and liabilities.............................. (37.3) (20.0)
Change in deferred policy acquisition costs......................... (40.1) (32.6)
------- -------
Net cash provided from operating activities................. 466.6 299.3
------- -------
Cash flows from investing activities
Additions to property and equipment................................. (5.0) (6.5)
Purchase of investments:
Held-to-maturity................................................. (621.8) -
Available-for-sale............................................... (57.3) -
Other investments................................................ (224.3) (2,079.6)
Proceeds from maturity, call or sale of investments:
Held-to-maturity................................................. 470.0 -
Available-for-sale............................................... 8.1 -
Other investments................................................ 72.6 1,708.2
------- -------
Net cash used by investing activities....................... (357.7) (377.9)
------- -------
Cash flows from financing activities
Dividends to stockholder............................................ (37.8) (45.2)
Deposit on annuity and other financial products..................... 336.6 386.0
Withdrawals of annuity and other financial products................. (337.0) (268.5)
------- -------
Net cash (used) provided by financing activities............ (38.2) 72.3
------- -------
Net change in cash and cash equivalents............................... 70.7 (6.3)
Cash and cash equivalents at beginning of year........................ 79.1 85.4
------- -------
Cash and cash equivalents at end of year.............................. $ 149.8 $ 79.1
======= =======
</TABLE>
See Notes to Consolidated Financial Statements.
8
<PAGE> 9
AMERICAN FRANKLIN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements have been prepared in conformity with
generally accepted accounting principles and include the accounts of American
Franklin Company (AFC) and its subsidiary, The Franklin Life Insurance Company
(FLIC), as well as its subsidiaries, The Franklin United Life Insurance Company
(FULIC), The American Franklin Life Insurance Company (AMFLIC), and Franklin
Financial Services Corporation. Significant intercompany transactions are
eliminated in consolidation.
Prior to January 31, 1995, AFC was a wholly-owned subsidiary of American
Brands, Inc. (American Brands). On January 31, 1995, American Brands completed
the sale of AFC to AGC Life Insurance Company (AGC Life), a subsidiary of
American General Corporation (American General), for a purchase price of $920
million. This transaction received the required regulatory approval from both
the Illinois and New York Insurance Departments.
On January 30, 1995, AFC paid an extraordinary dividend of $250 million to
American Brands. This dividend was approved by the Illinois Department of
Insurance.
These financial statements have been prepared on a basis consistent with
prior years. Future financial statements will be prepared under the provisions
of Accounting Principles Board Opinion 16, "Business Combinations", and other
existing accounting literature pertaining to "purchase accounting", based on AGC
Life's purchase price and, accordingly, will not be consistent with the basis of
presentation of these financial statements.
Accounting Changes
On January 1, 1993, AFC adopted FAS Statement No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions" and FAS Statement
No. 112, "Employers' Accounting for Postemployment Benefits." On December 31,
1993, AFC adopted FAS Statement No. 115, "Accounting for Certain Investments in
Debt and Equity Securities." The initial effects of adopting these statements
were recorded as cumulative changes in accounting principles as follows:
<TABLE>
<CAPTION>
FAS STATEMENTS NO.
---------------------------
(IN MILLIONS) 106/112 115 TOTAL
------- ----- -----
<S> <C> <C> <C>
Pretax charge (credit)..................................... $31.5 $(4.1) $27.4
Income taxes............................................... 11.0 (1.5) 9.5
------- ----- -----
Net loss (income).......................................... $20.5 $(2.6) $17.9
====== ===== =====
</TABLE>
Cash and Cash Equivalents
Highly liquid investments with an original maturity of three months or less
are included in cash and cash equivalents. The carrying amount approximates fair
value.
Valuation of Investments
Beginning December 31, 1993, held-to-maturity securities, fixed maturity
securities purchased with the ability and intent to hold until maturity, are
carried at amortized cost. Trading securities, equity securities and certain
fixed maturities purchased with the intent of selling in the near term, are
carried at fair value with unrealized holding gains and losses included in net
income. The cost for these trading securities was $177.3 million and $267.6
million at December 31, 1994 and 1993, respectively. Available-for-sale
securities, representing fixed maturity securities not elsewhere classified, are
carried at fair value with unrealized holding
9
<PAGE> 10
AMERICAN FRANKLIN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
gains and losses included directly in common stockholder's equity, net of
applicable deferred federal income taxes and net of participating policyholders'
interest.
Investment income is recognized as revenue when earned. Realized gains and
losses on disposals of investments are determined on a specific identification
basis based on historical cost and were included in net income.
Recognition of Premium Revenue and Policy Benefits
For traditional life and annuity products, premiums are recognized as
revenue when received. Policy reserves have been established in a manner which
allocates policy benefits and expenses on a basis consistent with recognition of
the related premiums and generally results in recognition of profits over the
premium paying period of the policies.
For investment-type contracts, principally deferred annuity contracts,
premiums are treated as policyholder deposits and are recorded as liabilities.
Benefits paid reduce the policyholder liability.
For Universal Life products, premiums are treated as policyholder deposits
and credited to liabilities. Revenue is recognized as amounts are assessed
against the policyholder account for mortality coverage and contract expenses.
Surrender benefits reduce the account value. Death benefits are expensed when
incurred, net of the account value.
Deferred Policy Acquisition Costs
Costs directly associated with acquiring new business, principally
commissions, along with home office expenses relating to underwriting and policy
issue and certain agency expenses, all of which vary with and are primarily
related to the production of new business, have been deferred to the extent
recoverable.
Deferred policy acquisition costs for traditional products are being
amortized over the anticipated premium-paying period of the related policies,
using the same assumptions that are applied in calculating policy reserves.
For investment-type contracts, deferred costs are amortized at a constant
rate in proportion to anticipated profits.
Policy Reserves and Investment-Type Contract Deposits
Policy reserves provide amounts adequate to discharge estimated future
obligations on policies in force. Policy reserves for traditional insurance
contracts are computed by the net level premium valuation method. Life and
annuity reserves have been computed based upon future investment needs,
mortality, withdrawals and current dividend scale assumptions applicable to
these coverages, with provision for reasonable adverse deviation. Interest rates
range from 2% to 11.5%, and mortality and withdrawal assumptions reflect company
experience and industry standards. The assumptions vary by plan, age at issue,
year of issue and duration.
For investment-type products, the liability for future policyholder
benefits and the policyholder account balance are equal. The policyholder
account balance includes premium deposits and interest credits less mortality
and expense charges.
Participating Policyholders' Interests
Income before taxes and unrealized gains and losses on available-for-sale
securities, for participating policies, is determined annually. From the amounts
determined, the applicable portion is allocated to participating policies for
dividends and to satisfy regulatory requirements. These amounts, net of
applicable income taxes, are included in the liability for participating
policies.
10
<PAGE> 11
AMERICAN FRANKLIN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Present Value of Future Profits
The present value of profits to be realized from future premiums, relating
to insurance in force at the date of acquisition of AFC and from additions
related to assumed reinsurance, is being amortized over the years that such
profits are anticipated to be earned. These future profits have been discounted
to provide an appropriate rate of return using assumptions applied in
calculating policy reserves and deferred policy acquisition costs.
Intangibles Resulting from Business Acquisitions
Intangibles resulting from the acquisition of AFC are being amortized on a
straight-line basis over a 40-year period. AFC periodically evaluates the
recoverability of intangibles resulting from business acquisitions and measures
the amount of impairment, if any, by assessing current and future levels of
income and cash flows as well as other factors such as business trends and
prospects and market and economic conditions.
Real Estate and Property and Equipment
Real estate and property and equipment are being depreciated on a
straight-line basis over their useful lives. Profits or losses resulting from
dispositions are included in the statement of income. Betterments and renewals
which improve and extend the life of an asset are capitalized; maintenance and
repairs are charged to expense.
Federal Income Taxes
Deferred tax liabilities and assets are established for temporary
differences between financial and tax reporting bases. These liabilities and
assets reflect the enacted tax rates expected to be in effect when the temporary
differences reverse.
Business Segment
AFC, through its subsidiaries, operates in the life insurance industry,
marketing individual and group life, annuity, and accident and health products.
Reclassification
Certain prior year balances have been reclassified to conform with the
current year presentation.
2. INVESTMENTS
On December 31, 1993, AFC elected to adopt FAS Statement No. 115,
"Accounting for Certain Investments in Debt and Equity Securities". This
pronouncement addresses accounting and reporting for debt and equity investments
that have readily determinable fair values. The change in net unrealized holding
gain or loss on available-for-sale securities was included in stockholder's
equity at December 31, and was, in millions of dollars, as follows:
<TABLE>
<CAPTION>
1994 1993
------ -----
<S> <C> <C>
Change in unrealized holding gain or (loss) on available-for-sale
securities......................................................... $(23.8) $(7.8)
Change in deferred income taxes...................................... (8.6) (2.6)
Change in par interest............................................... (1.8) -
------ -----
Change in net unrealized holding gain or (loss) on available-for-sale
securities......................................................... $(13.4) $(5.2)
====== =====
</TABLE>
11
<PAGE> 12
AMERICAN FRANKLIN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The change in net unrealized holding gain or loss on trading securities was
included in earnings during 1994 and recorded as part of the effect of a change
in accounting principles for 1993 and was, in millions of dollars, as follows:
<TABLE>
<CAPTION>
1994 1993
----- ----
<S> <C> <C>
Unrealized holding gain or (loss) on trading securities............. $(5.3) $4.1
Deferred income (benefit) tax....................................... (1.9) 1.5
----- ----
Net unrealized holding gain or (loss) on trading securities......... $(3.4) $2.6
===== ====
</TABLE>
Information about available-for-sale and held-to-maturity securities, in
millions of dollars, follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1994
------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- -------
<S> <C> <C> <C> <C>
HELD-TO-MATURITY SECURITIES:
US Treasury securities and obligations of US
Government corporations and agencies........... $ 49.0 $ 0.7 $ (2.8) $ 46.9
Obligations of states and political
subdivisions................................... 18.0 0.2 (1.2) 17.0
Fixed maturity securities issued by foreign
governments.................................... 113.7 1.8 (6.8) 108.7
Corporate securities
Public utilities............................... 1,549.5 16.8 (128.9) 1,437.4
All other...................................... 2,700.1 42.4 (142.4) 2,600.1
Mortgage-backed securities........................ 464.0 3.8 (68.4) 399.4
Redeemable preferred stocks....................... 2.5 0.6 (0.1) 3.0
--------- ---------- ---------- -------
Held-to-maturity............................... 4,896.8 66.3 (350.6) 4,612.5
--------- ---------- ---------- -------
AVAILABLE-FOR-SALE SECURITIES:
US Treasury securities and obligations of US
Government corporations and agencies........... 176.6 1.7 (16.7) 161.6
Fixed maturity securities issued by foreign
governments.................................... 3.4 - (0.6) 2.8
--------- ---------- ---------- -------
Available-for-sale............................. 180.0 1.7 (17.3) 164.4
--------- ---------- ---------- -------
Total fixed maturities.................... $5,076.8 $ 68.0 $ (367.9) $4,776.9
======= ======== ======== =======
</TABLE>
12
<PAGE> 13
AMERICAN FRANKLIN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, 1993
------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- -------
<S> <C> <C> <C> <C>
HELD-TO-MATURITY SECURITIES:
US Treasury securities and obligations of US
Government corporations and agencies........... $ 47.2 $ 7.2 $ - $ 54.4
Obligations of states and political
subdivisions................................... 25.9 2.3 (0.2) 28.0
Fixed maturity securities issued by foreign
governments.................................... 97.1 11.2 (0.4) 107.9
Corporate securities
Public utilities............................... 1,479.6 137.9 (6.1) 1,611.4
All other...................................... 2,407.5 273.6 (7.1) 2,674.0
Mortgage-backed securities........................ 465.4 48.6 (0.4) 513.6
Redeemable preferred stocks....................... 2.8 0.5 - 3.3
--------- ---------- ---------- -------
Held-to-maturity............................... 4,525.5 481.3 (14.2) 4,992.6
--------- ---------- ---------- -------
AVAILABLE-FOR-SALE SECURITIES:
US Treasury securities and obligations of US
Government corporations and agencies........... 125.9 7.2 (0.2) 132.9
Fixed maturity securities issued by foreign
governments.................................... 3.1 1.1 - 4.2
Redeemable preferred stocks....................... 0.8 0.1 - 0.9
--------- ---------- ---------- -------
Available-for-sale............................. 129.8 8.4 (0.2) 138.0
--------- ---------- ---------- -------
Total fixed maturities.................... $4,655.3 $489.7 $(14.4) $5,130.6
======= ======== ======== =======
</TABLE>
The amortized cost and estimated fair value of certain debt securities, in
millions of dollars, by contractual maturity, are shown below. Expected
maturities may differ from contractual maturities because borrowers may have the
right to call or prepay obligations with or without call or prepayment
penalties.
<TABLE>
<CAPTION>
DECEMBER 31, 1994
---------------------
AMORTIZED FAIR
COST VALUE
--------- -------
<S> <C> <C>
Held-to-maturity
Due in one year or less...................................... $ 46.5 $ 46.4
Due after one year through five years........................ 562.5 567.1
Due after five years through ten years....................... 1,782.0 1,702.7
Due after ten years.......................................... 2,041.8 1,896.9
Mortgage-backed securities................................... 464.0 399.4
--------- -------
Totals............................................... $4,896.8 $4,612.5
======= =======
Available-for-sale
Due in one year or less...................................... $ 5.2 $ 5.0
Due after one year through five years........................ 22.6 20.5
Due after five years through ten years....................... 49.7 45.5
Due after ten years.......................................... 102.5 93.4
--------- -------
Totals............................................... $ 180.0 $ 164.4
======= =======
</TABLE>
13
<PAGE> 14
AMERICAN FRANKLIN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following is an analysis of investment gains (losses), in millions of
dollars, for fixed maturities and equity securities, net of participating
policyholders' interest and applicable tax for the years ended December 31:
<TABLE>
<CAPTION>
1994 1993
------------------------ ------------------------
REALIZED UNREALIZED REALIZED UNREALIZED
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Held-to-maturity (fixed maturities)......... $ 16.5 $ (751.4) $ 70.2 $ 155.0
Trading securities (equities)............... (26.2) (5.3) 26.6 (12.0)
Available-for-sale.......................... - (23.8) - 8.2
Participating policyholders' interests...... (0.9) (70.3) (4.0) (14.7)
Tax effect.................................. (3.4) (10.6)* (34.0) 1.1*
---------- ---------- ---------- ----------
Net gains (losses) on investments........... $ (14.0) $ (861.4) $ 58.8 $ 137.6
======== ======== ======== ========
</TABLE>
* Tax effect relates only to trading and available-for-sale categories.
Deferred taxes do not apply to held-to-maturity securities since these
securities are carried at amortized cost.
The following is an analysis, in millions of dollars, of unrealized
appreciation (depreciation) on investments in trading portfolio/equity
securities for the years ended December 31:
<TABLE>
<CAPTION>
1994 1993
------ ------
<S> <C> <C>
Gross appreciation............................................... $ 9.8 $ 14.9
Gross depreciation............................................... (11.0) (10.8)
Deferred taxes................................................... 0.4 (1.5)
------ ------
Net unrealized (depreciation) appreciation....................... $ (0.8) $ 2.6
====== ======
</TABLE>
As of December 31, 1994 and 1993, bonds and other investments carried at
$24.8 million and $24.6 million, respectively, were on deposit with regulatory
authorities to comply with state insurance laws.
Voluntary sales of investments in millions of dollars, resulted in:
<TABLE>
<CAPTION>
REALIZED
----------------
PROCEEDS GAINS LOSSES
-------- ----- ------
<S> <C> <C> <C>
1994 Available-for-sale.................................... $ - $ - $ -
1994 Trading............................................... 236.7 23.2 49.4
1993....................................................... 34.1 1.0 0.2
</TABLE>
There were no transfers of securities between investment asset
classifications during 1994 and accordingly, no gross gains and losses were
included in earnings for 1994.
FLIC and its life company subsidiaries are restricted by the insurance laws
of their domiciliary states as to the amount each can invest in any entity. At
December 31, 1994 and 1993, FLIC's largest investment in any one entity other
than U.S. Government obligations was $40.7 million and $39.3 million,
respectively.
14
<PAGE> 15
AMERICAN FRANKLIN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following is an analysis, in millions of dollars, of net investment
income:
<TABLE>
<CAPTION>
FOR THE YEARS
ENDED
DECEMBER 31,
-----------------
1994 1993
------ ------
<S> <C> <C>
Gross investment income
Bonds............................................................ $401.2 $393.8
Redeemable preferred stocks...................................... (0.4) 0.4
Common stocks.................................................... 4.7 8.1
Nonredeemable preferred stocks................................... - 0.2
First mortgage loans............................................. 54.9 47.7
Real estate...................................................... - 0.2
Policy loans..................................................... 18.3 17.8
Other............................................................ 7.5 3.6
------ ------
486.2 471.8
Less investment expenses................................. 7.5 6.4
------ ------
Net investment income.................................... $478.7 $465.4
====== ======
</TABLE>
3. DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
Information is provided about management's best estimates of fair value of
certain financial instruments for which it is practicable to estimate that
value. This disclosure excludes certain insurance policy related financial
instruments and all nonfinancial instruments. The aggregate fair value amounts
presented are not intended to represent the underlying aggregate fair value of
AFC.
The methods and assumptions used to estimate fair value are as
follows:
Fair values for held-to-maturity and available-for-sale
securities are determined from quoted market prices, where available.
For securities not actively traded, fair value is estimated by
discounting cash flows and using current interest rates considering
credit ratings and the remaining terms to maturity.
Fair value for trading securities is based on quoted market
prices.
Fair value for mortgage loans is estimated by discounting cash
flows and using current interest rates on similar real estate loans
considering credit ratings and the remaining terms to maturity.
Fair value for separate account assets and liabilities is based
on quoted market prices of the underlying assets which approximates
the carrying amount.
Fair value for investment-type insurance contracts is estimated
by reducing the policyholder liability for applicable surrender or
mortality charges, if any.
Fair value for commitments to extend credit, principally mortgage
loans, is calculated using current interest rates that approximate the
amount a willing buyer would pay to acquire a similar instrument. The
amount of commitments to extend credit at December 31, 1994 and 1993
was $82.4 million and $175.7 million, respectively, which approximates
fair value.
Fair value for accrued investment income approximates the
carrying amount.
Policy loans have no stated maturity dates and are an integral
part of the related insurance contract. Accordingly, it is not
practicable to estimate a fair value.
15
<PAGE> 16
AMERICAN FRANKLIN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, the estimated fair values of AFC's financial instruments
for which it was practicable to estimate that value, in millions of dollars, are
as follows:
<TABLE>
<CAPTION>
1994 1993
--------------------- ---------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Held-to-maturity...................... $4,896.8 $4,612.5 $4,525.5 $4,992.6
Trading securities.................... 176.5 176.5 271.7 271.7
Available-for-sale.................... 164.4 164.4 138.0 138.0
First mortgage loans.................. 636.2 624.3 537.2 559.4
Liabilities for investment-type
contracts, principally individual
and group annuities................. (1,908.0) (1,823.5) (1,800.8) (1,713.1)
Separate account assets/liabilities... 104.3 104.3 86.8 86.8
</TABLE>
4. FEDERAL INCOME TAXES
FLIC and its life company subsidiaries are subject to the life insurance
company provisions of the federal tax law. For periods prior to January 31,
1995, AFC and its subsidiaries file a consolidated federal income tax return
with their former ultimate parent company, American Brands. On January 31, 1995,
AFC was sold to American General (see Note 1). Following the acquisition by
American General, AFC and its subsidiaries will file either in the consolidated
American General return or in separate returns.
The method of allocation of tax expense is based upon separate return
calculations with current credit for net losses and tax credits. Consolidated
Alternative Minimum Tax, if any, is allocated separately. Intercompany tax
balances are to be settled no later than thirty (30) days after the date of
filing the consolidated return.
The tax laws in effect prior to 1984 provided for a portion of FLIC's
income to be accumulated in a memorandum account designated as the
"Policyholders' Surplus Account." No additions may be made to this account after
1983. The amounts accumulated in this account, which aggregated $201 million at
December 31, 1994, were not subject to federal income tax, and will become
subject to tax only if the account balance exceeds certain prescribed
limitations or is distributed by FLIC to AFC. At December 31, 1994, using the
statutory rate as of that date, $70 million would be required for possible tax
which might become payable, in whole or in part, in future years if any portion
of the Policyholders' Surplus Account becomes taxable. No provision has been
made in the financial statements for federal income taxes on the amount of the
Policyholders' Surplus Account since FLIC does not contemplate distributing such
surplus in the foreseeable future.
A reconciliation between the federal statutory income tax rate and the
effective income tax rate follows:
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Current federal statutory income tax rate............................ 35.0% 35.0%
Adjusted for tax effect of:
Invested asset items............................................... 0.7 (0.7)
Other income taxes................................................. 1.1 1.0
Other.............................................................. 2.4 1.3
---- ----
Effective income tax rate............................................ 39.2% 36.6%
==== ====
</TABLE>
16
<PAGE> 17
AMERICAN FRANKLIN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The deferred income tax liabilities (assets), in millions of dollars,
relate to the following:
<TABLE>
<CAPTION>
1994 1993
------- -------
<S> <C> <C>
Deferred policy acquisition costs................................ $ 147.3 $ 141.5
Policy reserves and liabilities.................................. (144.1) (115.3)
Participating policyholders' interests........................... (67.0) (63.4)
Invested and depreciable assets.................................. 4.3 11.8
Present value of future profits.................................. 56.9 59.7
Postretirement benefits.......................................... (12.9) (11.3)
State income taxes............................................... (0.9) 0.7
Other............................................................ (5.6) (5.1)
------- -------
$ (22.0) $ 18.6
======= =======
</TABLE>
<TABLE>
<CAPTION>
1994 1993
------- -------
<S> <C> <C>
Total of all deferred tax:
Liabilities.................................................... $ 220.2 $ 221.7
Assets......................................................... (242.2) (203.1)
------- -------
Net deferred tax liability....................................... $ (22.0) $ 18.6
======= =======
</TABLE>
5. PARTICIPATING INSURANCE
Participating insurance accounted for 49% and 51% of the total ordinary
insurance in force and premium income from ordinary life participating policies
amounted to 61% and 65% of total premiums during 1994 and 1993, respectively.
6. SEPARATE ACCOUNTS
FLIC administers four separate asset accounts. Three of these issue
variable annuity contracts and the fourth has issued a group deposit
administration contract for the employees' pension plan. AMFLIC administers two
separate accounts in connection with the issue of its Variable Universal Life
product.
7. PENSION PLAN
AFC and its consolidated subsidiaries have one pension plan covering
substantially all employees. The plan provides for the payment of retirement
benefits, normally commencing at age 65, and also for the payment of certain
disability benefits. After meeting certain qualifications, an employee acquires
a vested right to future benefits. The benefits payable under the plan are
determined on the basis of the employee's length of service and earnings. Annual
contributions made to the plan are sufficient to satisfy legal funding
requirements.
Net pension cost, in millions of dollars, included the following
components:
<TABLE>
<CAPTION>
1994 1993
----- -----
<S> <C> <C>
Service costs........................................................ $ 2.8 $ 2.7
Interest cost........................................................ 4.2 4.4
Actual return on plan assets......................................... 2.5 (5.9)
Net amortization and deferral........................................ (6.7) 2.8
----- -----
Total...................................................... $ 2.8 $ 4.0
===== =====
</TABLE>
17
<PAGE> 18
AMERICAN FRANKLIN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The funded status of the plan, in millions of dollars, as of December 31
was as follows:
<TABLE>
<CAPTION>
ASSETS EXCEED
ACCUMULATED
BENEFITS
---------------
1994 1993
----- -----
<S> <C> <C>
Accumulated benefit obligation
Vested.......................................................... $34.8 $40.0
Nonvested....................................................... 1.1 1.5
----- -----
$35.9 $41.5
===== =====
Projected benefit obligation......................................... $52.0 $59.6
Fair value of plan assets, principally equity securities and
corporate bonds.................................................... 49.6 49.9
----- -----
(Deficiency) of assets over projected benefit obligation............. (2.4) (9.7)
Unrecognized net transition loss..................................... 1.9 2.2
Unrecognized net loss from experience differences and effects of
changes in assumptions............................................. 2.8 8.8
----- -----
Prepaid pension cost................................................. $ 2.3 $ 1.3
===== =====
</TABLE>
The projected benefit obligation was determined using an assumed discount
rate of 8.75% for 1994 and 7.25% for 1993. The assumed rate of compensation used
to measure the projected benefit obligation was 5.0% for 1994 and 4.5% for 1993.
The assumed long-term rate of return on plan assets used to determine net
pension cost was 9.5% for 1994 and 1993.
8. OTHER POSTRETIREMENT BENEFITS
FLIC provides postretirement health care and life insurance benefits to
substantially all employees. Most employees covered continue these benefits when
they retire from active service. FLIC pays a portion of the costs of these
postretirement benefits which are recognized as expense on a cash basis.
Effective January 1, 1993, AFC adopted FAS Statement No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions," for its retiree
benefit plans. Under FAS No. 106, AFC is required to accrue the estimated cost
of these benefits during employees' active service periods. AFC previously
expensed the cost of these benefits as incurred.
AFC elected to recognize the one-time transition obligation charge
resulting from this change in accounting on the immediate recognition basis. The
transition obligation at January 1, 1993 was $31.5 million. The cumulative
change in accounting principle, net of $11.0 million of deferred income taxes,
was $20.5 million. The increase in ongoing pretax expense for these benefits for
1993 was $3.4 million.
The components of the postretirement benefit costs are as follows (in
millions):
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Service cost........................................................... $1.1 $0.8
Interest cost.......................................................... 2.8 2.6
---- ----
Total........................................................ $3.9 $3.4
==== ====
</TABLE>
18
<PAGE> 19
AMERICAN FRANKLIN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The status of the plans at December 31 was as follows (in millions):
<TABLE>
<CAPTION>
1994 1993
----- -----
<S> <C> <C>
Accumulated benefit obligation:
Retirees................................................... $18.1 $17.9
Fully eligible active plan participants.................... 5.7 5.7
Other active plan participants............................. 15.5 15.5
Unrecognized net loss from past experience different from
that assumed and from changes in assumptions............ - (5.3)
Prior service cost......................................... - 0.1
----- -----
$39.3 $33.9
===== =====
Assumed average discount rate................................ 7.25% 7.25%
===== =====
</TABLE>
The assumed health care cost trend rate used in measuring the principal
portion of the accumulated benefit obligation at December 31, 1994 and 1993 was
11.75% and 13.25%, respectively, gradually declining to 6% by the year 2007 and
remaining at that level thereafter. A one-percentage-point increase in the
assumed health care cost trend rate for each year would increase the accumulated
benefit obligation as of December 31, 1994 by $4.5 million and the interest cost
components of net periodic postretirement benefit costs for 1994 by
approximately $0.6 million.
9. PRESCRIBED STATUTORY ACCOUNTING PRACTICES, STOCKHOLDER'S EQUITY AND DIVIDEND
RESTRICTION
FLIC, which is domiciled in Illinois, prepares its statutory financial
statements in accordance with accounting principles and practices prescribed or
permitted by the Illinois Insurance Department. Prescribed statutory accounting
practices include state laws, regulators and general administrative rules, as
well as a variety of publications of the National Association of Insurance
Commissioners (NAIC). Permitted practices encompass all accounting practices not
so prescribed.
FLIC does not use any significant permitted practice to prepare its
statutory financial statements.
At December 31, 1994 and 1993, FLIC had statutory stockholder's equity of
$606.7 million and $619.0 million, respectively. Statutory net income was $28.7
million and $87.2 million at December 31, 1994 and 1993, respectively.
As determined on a statutory basis, the statutory stockholder's equity and
net income of FLIC's subsidiaries, in millions of dollars, were reported as
follows:
<TABLE>
<CAPTION>
STATUTORY
---------------
1994 1993
----- -----
<S> <C> <C>
Stockholder's equity................................................. $17.5 $20.1
===== =====
Net income........................................................... $(4.8) $(3.6)
===== =====
</TABLE>
Generally, FLIC is restricted by the insurance laws of its domiciliary
state as to amounts that can be transferred in the form of dividends, loans, or
advances without the approval of the Director of Insurance. Under these
restrictions, due to the $250 million extraordinary dividend paid to American
Brands on January 30, 1995 (see Note 1), any additional dividends paid through
January 30, 1996 will require approval of the Director. Loans or advances in
excess of $141.2 million in any twelve-month period will also require approval
of the Director.
19
<PAGE> 20
AMERICAN FRANKLIN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. PRESENT VALUE OF FUTURE PROFITS
An analysis of the changes in the asset for the years ended December 31, in
millions of dollars, is as follows:
<TABLE>
<CAPTION>
1994 1993
------ ------
<S> <C> <C>
January 1 balance.................................................. $169.9 $175.6
------ ------
Additions........................................................ 13.8 2.2
------ ------
Amortization..................................................... (33.9) (33.4)
Interest on the unamortized balance.............................. 24.9 25.5
------ ------
Net amortization.............................................. (9.0) (7.9)
------ ------
December 31 balance................................................ $174.7 $169.9
====== ======
</TABLE>
Accumulated amortization at December 31, 1994 and 1993 was $140.0 million
and $131.1 million, respectively.
Approximately $8.4 million of present value of future profits will be
amortized in each of the next five years.
11. STATEMENT OF CASH FLOWS
In addition to the cash activities shown in the statements of cash flows,
the following transactions, in millions of dollars, occurred:
<TABLE>
<CAPTION>
1994 1993
------ ------
<S> <C> <C>
Interest added to annuity and other financial products............. $170.5 $169.0
====== ======
Cash paid for income taxes......................................... $ 68.3 $ 89.7
====== ======
Fair value of assets acquired under certain assumed reinsurance
treaties......................................................... $ 18.3 $204.3
Unearned revenue................................................... - 9.3
------ ------
Policyholder liabilities assumed.............................. $ 18.3 $195.0
====== ======
</TABLE>
12. REINSURANCE
FLIC, in the normal course of business, is engaged in various types of
reinsurance transactions, both assumed and ceded. All individual risks in excess
of $1.0 million are ceded. Other selected risks are ceded, based on management
evaluation, and are approved by the Board of Directors. All ceded insurance
transactions are accomplished by fully executed agreements. FLIC remains
primarily liable, as the direct insurer, for all indemnity reinsurance
agreements.
FLIC also assumes risks. Ordinary and credit life insurance, annuities and
accident and health risks are assumed by FLIC from FLIC's subsidiaries, FULIC
and AMFLIC, through separate, Insurance Department approved, treaties. FLIC also
assumes certain types of life and annuity insurance on a coinsurance basis.
These assumed reinsurance transactions are accomplished by fully executed
agreements. FLIC also assumes reinsurance risks through participation in the
Servicemen's Group Life Insurance pool.
20
<PAGE> 21
AMERICAN FRANKLIN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FLIC has entered into two 50% indemnity coinsurance agreements, reinsuring
single premium deferred annuities. The following, in millions of dollars, is a
balance sheet and income statement summary for the coinsurance agreements:
<TABLE>
<CAPTION>
1994 1993
------ ------
<S> <C> <C>
ASSETS
Bonds held-to-maturity............................................. $261.3 $241.0
Deferred policy acquisition costs.................................. 9.2 9.6
------ ------
Total assets............................................. $270.5 $250.6
====== ======
LIABILITIES
Investment-type contract deposits.................................. $257.9 $242.9
Accrued expenses and other liabilities............................. 2.2 1.3
------ ------
Total liabilities........................................ 260.1 244.2
------ ------
STOCKHOLDER'S EQUITY
Total retained earnings and stockholder's equity................... 10.4 6.4
------ ------
Total liabilities and stockholder's equity............... $270.5 $250.6
====== ======
INCOME AND EXPENSES
Net investment income.............................................. $ 18.5 $ 17.5
Realized gains and losses.......................................... 0.1 1.3
Miscellaneous income............................................... 0.4 0.4
------ ------
Total income............................................. 19.0 19.2
------ ------
Interest on investment-type contract deposits...................... 12.7 12.6
Commissions........................................................ 2.0 3.1
Acquisition costs deferred......................................... (1.2) (2.3)
Acquisition costs amortized........................................ 1.7 1.3
------ ------
Total benefits and expenses.............................. 15.2 14.7
------ ------
Net income............................................... $ 3.8 $ 4.5
====== ======
</TABLE>
21
<PAGE> 22
AMERICAN FRANKLIN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following is a summary balance sheet and income statement, in millions
of dollars, for a coinsurance agreement covering single premium deferred
annuities, entered into during 1993:
<TABLE>
<CAPTION>
1994 1993
------ ------
<S> <C> <C>
ASSETS
Bonds held-to-maturity............................................ $180.4 $ -
Policy loans...................................................... 4.0 -
Deferred policy acquisition costs................................. 3.4 3.7
Other assets...................................................... 0.2 197.4
------ ------
Total assets............................................ $188.0 $201.1
====== ======
LIABILITIES
Investment-type contract deposits................................. $177.5 $188.6
Unearned revenue.................................................. 6.2 3.7
Accrued expenses and other liabilities............................ 2.3 8.8
------ ------
Total liabilities....................................... 186.0 201.1
------ ------
STOCKHOLDER'S EQUITY
Total retained earnings and stockholder's equity.................. 2.0 -
------ ------
Total liabilities and stockholder's equity.............. $188.0 $201.1
====== ======
INCOME AND EXPENSES
Net investment income............................................. $ 11.9 $ -
Realized gains and losses......................................... (0.1) -
Miscellaneous income.............................................. 2.4 -
------ ------
Total income............................................ 14.2 -
------ ------
Interest on investment-type contract deposits..................... 9.9 -
Commissions....................................................... 1.9 3.7
Acquisition costs deferred........................................ (0.8) (3.7)
Acquisition costs amortized....................................... 1.0 -
------ ------
Total benefits and expenses............................. 12.0 -
------ ------
Net income.............................................. $ 2.2 $ -
====== ======
</TABLE>
22
<PAGE> 23
(b) Pro Forma Financial Information.
The pro forma consolidated financial statements of American General
Corporation are on pages 24-32. See the Table of Contents for a list of the
financial information contained therein.
On January 31, 1995, American General Corporation (AGC) through its
wholly-owned subsidiary, AGC Life Insurance Company (AGC Life), acquired
American Franklin Company (AFC), the holding company of The Franklin Life
Insurance Company, pursuant to a Stock Purchase Agreement dated as of
November 29, 1994, between AGC and American Brands, Inc. (American Brands).
The purchase price was $1.17 billion, consisting of $920 million in cash
paid at closing and a $250 million cash dividend paid by AFC to American
Brands prior to closing. The dividend was paid on January 30, 1995.
On December 23, 1994, AGC through AGC Life acquired a 40% interest in
Western National Corporation (WNC), the holding company of Western National
Life Insurance Company, through the acquisition of 24,947,500 shares of WNC
common stock from Conseco, Inc. for $274 million in cash.
The following unaudited pro forma consolidated balance sheet as of
December 31, 1994 consolidates the historical consolidated balance sheets
of AGC and AFC as if the AFC acquisition had been effective at December 31,
1994, after giving effect to the purchase accounting and other pro forma
adjustments described in the related notes. The unaudited pro forma
consolidated statement of income presents the consolidated results of
operations of AGC and AFC and reflects AGC's 40% equity in the earnings of
WNC for the year ended December 31, 1994, as if the acquisitions had been
effective January 1, 1994, after giving effect to the purchase accounting
and other pro forma adjustments described in the related notes.
23
<PAGE> 24
AMERICAN GENERAL CORPORATION
PRO FORMA CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1994
(UNAUDITED)
(IN MILLIONS)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
-----------
HISTORICAL RELATING TO
----------------------- AMERICAN
AMERICAN AMERICAN FRANKLIN
GENERAL FRANKLIN COMPANY PRO FORMA
CORPORATION COMPANY ACQUISITION CONSOLIDATED
----------- -------- ----------- ------------
<S> <C> <C> <C> <C>
Assets
Investments
Fixed maturity securities......................... $25,700 $5,061 $ (284)(D) $ 30,477
Mortgage loans on real estate..................... 2,651 636 (12)(D) 3,275
Equity securities................................. 224 177 (177)(C) 224
Policy loans...................................... 1,197 334 - 1,531
Investment real estate............................ 564 - - 564
Other long-term investments....................... 152 61 - 213
Short-term investments............................ 209 142 (73)(C) 253
(25)(E)
----------- -------- ----------- ------------
Total investments............................ 30,697 6,411 (571) 36,537
Cash................................................. 45 8 - 53
Finance receivables, net............................. 7,694 - - 7,694
Investment in Western National Corporation........... 274 - - 274
Deferred policy acquisition costs.................... 2,560 511 (511)(F) 2,560
Cost of insurance purchased.......................... 171 175 (175)(F) 923
752(G)
Acquisition-related goodwill......................... 597 80 (80)(H) 597
Other assets......................................... 1,356 186 - 1,542
Assets held in Separate Accounts..................... 2,901 104 - 3,005
----------- -------- ----------- ------------
Total assets................................. $46,295 $7,475 $ (585) $ 53,185
========= ======= ========= =========
Liabilities
Insurance and annuity liabilities.................... $29,623 $5,916 $ (100)(I) $ 35,439
Debt (short-term)
Corporate:
Short-term...................................... 639 - 220(J) 859
Long-term....................................... 836 - 450(J) 1,286
Real Estate ($361)................................ 361 - - 361
Consumer Finance ($2,777)......................... 7,090 - - 7,090
Income tax liabilities............................... 721 (16) (45)(K) 660
Other liabilities.................................... 620 111 - 731
Liabilities related to Separate Accounts............. 2,901 104 - 3,005
----------- -------- ----------- ------------
Total liabilities............................ 42,791 6,115 525 49,431
----------- -------- ----------- ------------
Preferred stock of subsidiary.......................... - - 250(J) 250
Common stock subject to put contracts.................. 47 - - 47
Shareholders' equity
Common stock......................................... 364 845 (845)(L) 364
Net unrealized gains (losses) on securities.......... (935) (8) 8(L) (935)
Retained earnings.................................... 4,495 523 (250)(C) 4,495
(273)(L)
Cost of treasury stock............................... (467) - - (467)
----------- -------- ----------- ------------
Total shareholders' equity................... 3,457 1,360 (1,360) 3,457
----------- -------- ----------- ------------
Total liabilities and equity................. $46,295 $7,475 $ (585) $ 53,185
========= ======= ========= =========
</TABLE>
See Notes to Pro Forma Consolidated Financial Statements.
24
<PAGE> 25
AMERICAN GENERAL CORPORATION
PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1994
(UNAUDITED)
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
-------------------------
HISTORICAL RELATING TO RELATING TO
---------------------- AMERICAN WESTERN
AMERICAN AMERICAN FRANKLIN NATIONAL
GENERAL FRANKLIN COMPANY CORPORATION PRO FORMA
CORPORATION COMPANY ACQUISITION ACQUISITION CONSOLIDATED
----------- -------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Revenues
Premiums and other considerations................... $ 1,210 $ 503 $ - $ - $ 1,713
Net investment income............................... 2,493 479 9(M) (4)(T) 2,978
(7)(N)
8(N)
Finance charges..................................... 1,248 - - - 1,248
Equity in earnings of Western National
Corporation...................................... - - - 27(U) 27
Realized investment gains (losses).................. (172) (14) 14(O) - (172)
Other............................................... 62 68 - - 130
----------- -------- ----------- ----------- ------------
Total revenues.............................. 4,841 1,036 24 23 5,924
----------- -------- ----------- ----------- ------------
Benefits and expenses
Insurance and annuity benefits...................... 2,224 721 5(P) - 2,950
Operating costs and expenses........................ 1,013 108 (3)(Q) - 1,118
Commission expense.................................. 400 126 - - 526
Change in deferred policy acquisition costs......... (142) (40) (71)(Q) - (253)
Amortization of cost of insurance purchased......... 18 9 (9)(Q) - 59
41(R)
Interest expense
Corporate........................................ 110 - 48(S) 11(T) 169
Consumer Finance................................. 416 - - - 416
----------- -------- ----------- ----------- ------------
Total benefits and expenses................. 4,039 924 11 11 4,985
----------- -------- ----------- ----------- ------------
Earnings
Income before income tax expense.................... 802 112 13 12 939
Income tax expense.................................. 289 44 5(K) (5)(K) 341
8(U)
----------- -------- ----------- ----------- ------------
Income before dividends on preferred stock
of subsidiary.................................... 513 68 8 9 598
Dividends on preferred stock of subsidiary.......... - - (14)(S) - (14)
----------- -------- ----------- ----------- ------------
Net income.................................. $ 513 $ 68 $ (6) $ 9 $ 584
========= ======= ======== ========= =========
Earnings per share and average shares outstanding:
Primary:
Net income....................................... $ 2.45 $ 2.79
========= =========
Average shares outstanding (in thousands)........ 209,403 209,403
========= =========
Fully diluted:
Net income....................................... $ 2.45 $ 2.79
========= =========
Average shares outstanding (in thousands)........ 209,420 209,420
========= =========
</TABLE>
See Notes to Pro Forma Consolidated Financial Statements.
25
<PAGE> 26
AMERICAN GENERAL CORPORATION
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE A. BASIS OF PRESENTATION
On January 31, 1995, American General Corporation (AGC) through its
wholly-owned subsidiary, AGC Life Insurance Company (AGC Life), acquired
American Franklin Company (AFC), the holding company of The Franklin Life
Insurance Company, pursuant to a Stock Purchase Agreement dated as of November
29, 1994, between AGC and American Brands, Inc. (American Brands). The purchase
price was $1.17 billion, consisting of $920 million in cash paid at closing and
a $250 million cash dividend paid by AFC to American Brands prior to closing.
The dividend was paid on January 30, 1995.
On December 23, 1994, AGC through AGC Life acquired a 40% interest in
Western National Corporation (WNC), the holding company of Western National Life
Insurance Company, through the acquisition of 24,947,500 shares of WNC common
stock from Conseco, Inc. for $274 million in cash.
The unaudited pro forma consolidated balance sheet as of December 31, 1994
consolidates the historical consolidated balance sheets of AGC and AFC as if the
AFC acquisition had been effective at December 31, 1994, after giving effect to
the purchase accounting and other pro forma adjustments described in the related
notes. The unaudited pro forma consolidated statement of income presents the
consolidated results of operations of AGC and AFC and reflects AGC's 40% equity
in the earnings of WNC for the year ended December 31, 1994, as if these
acquisitions had been effective January 1, 1994, after giving effect to the
purchase accounting and other pro forma adjustments described in the related
notes.
The unaudited pro forma consolidated financial statements and the related
notes reflect the application of the purchase method of accounting for the AFC
acquisition. Under this method, the purchase price is allocated to the assets
acquired and liabilities assumed based on their respective estimated fair values
at December 31, 1994 (the assumed acquisition date for purposes of the pro forma
consolidated balance sheet), including an adjustment for income tax effects for
the difference between the assigned values and the tax basis of the assets and
liabilities. As described in the related notes, estimates of the fair values of
AFC's assets and liabilities have been consolidated with the recorded book
values of the assets and liabilities of AGC. The purchase method of accounting
has also been applied to the financial statements of WNC before recording AGC's
40% of WNC's earnings using the equity method of accounting.
The unaudited pro forma consolidated financial statements will change due
to the results of AFC's operations and varying market conditions from December
31, 1994 through January 31, 1995, the actual acquisition date. Prior to
completion of accounting for both the AFC and the WNC acquisitions, changes to
the purchase accounting adjustments included in the unaudited pro forma
consolidated financial statements are anticipated as the valuations of acquired
assets and assumed liabilities are finalized. Accordingly, the actual
consolidated financial statements of AGC reflecting the AFC and the WNC
acquisitions will differ from the pro forma financial statements included
herein. The unaudited pro forma consolidated financial statements are intended
for informational purposes only and may not necessarily be indicative of AGC's
future financial position or future results of operations.
AGC anticipates first year cost savings of $8 million, primarily associated
with centralizing AFC's investment management function at AGC immediately
following the acquisition. This expected savings has been included in the pro
forma consolidated financial statements (see Note N). AGC projects additional
future cost savings, the extent and timing of which may vary from management's
expectations. No adjustment has been included in the pro forma consolidated
financial statements for these additional projected cost savings.
26
<PAGE> 27
AMERICAN GENERAL CORPORATION
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
NOTE B. ALLOCATION OF PURCHASE PRICE -- AFC
The total acquisition cost of AFC is allocated as follows:
<TABLE>
<CAPTION>
(IN MILLIONS)
<S> <C>
Net assets of AFC at December 31, 1994........................... $ 1,360
Less dividend paid prior to acquisition.......................... (250)
-------------
Net assets purchased............................................. 1,110
-------------
Increase (decrease) in AFC's net asset value at December 31, 1994
to estimated fair value:
Held-to-maturity fixed maturity securities.................. (284)
Mortgage loans on real estate............................... (12)
Deferred policy acquisition costs........................... (511)
Cost of insurance purchased (historical).................... (175)
Cost of insurance purchased................................. 752
Acquisition-related goodwill................................ (80)
Insurance and annuity liabilities........................... 100
Income tax liabilities...................................... 45
-------------
Total estimated fair value adjustments................. (165)
Acquisition-related costs (see Note E)........................... (18)
-------------
Total acquisition cost................................. 927
AGC transaction costs (see Note E)..................... (7)
-------------
Cash purchase price.................................... $ 920
=========
</TABLE>
Each of the above allocations is described in more detail in the following
notes to the pro forma consolidated financial statements.
As explained in Note A, purchase accounting adjustments will change as
additional information becomes available, affecting the ultimate allocation of
the purchase price.
NOTE C. DIVIDEND
Prior to AGC's purchase of AFC, AFC paid a cash dividend of $250 million to
its shareholder (see Note A). For purposes of the pro forma consolidated
financial statements, the dividend was assumed to be funded by liquidating $177
million of equity securities and $73 million of short-term investments.
NOTE D. FIXED MATURITY SECURITIES AND MORTGAGE LOANS ON REAL ESTATE
AFC's fixed maturity securities and mortgage loans on real estate are
restated to fair value as of the assumed date of the acquisition to reflect
discounts of $284 million and $12 million, respectively. In addition, all fixed
maturity securities are classified as available-for-sale.
NOTE E. SHORT-TERM INVESTMENTS
Short-term investments are adjusted to reflect the liquidation of
securities to fund $7 million in projected transaction costs for legal and
investment banking expenses and $18 million in one-time acquisition-related
costs to achieve expense reductions, the full extent and timing of which have
not been determined.
27
<PAGE> 28
AMERICAN GENERAL CORPORATION
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
NOTE F. DEFERRED POLICY ACQUISITION COSTS (DPAC) AND HISTORICAL COST OF
INSURANCE PURCHASED (CIP)
DPAC and historical CIP of AFC are eliminated since these amounts are
reflected in the determination of the new CIP (see Note G).
NOTE G. NEW CIP
CIP reflects the estimated fair value of the business in force and
represents the portion of the purchase price that is allocated to the value of
the right to receive future cash flows from insurance contracts existing at the
assumed date of the acquisition. Such value is the actuarially-determined amount
that, when amortized into income, results in expected earnings that meet the
profit objective of AGC. This profit objective is an expected aftertax rate of
return of 13.5% on capital required to support the business in force. This rate
of return is believed to be appropriate based on considerations of the relative
risk associated with realizing the expected cash flows, the cost of capital to
AGC to fund the acquisition, and the operating environment of AFC, namely, the
regulatory and tax factors affecting future profitability and the profit
objectives of AGC for newly issued policies.
The value allocated to CIP is based on a preliminary valuation;
accordingly, this amount will be adjusted after final determination of the
value. On a pro forma basis, assuming that the acquisition occurred at December
31, 1994, expected gross amortization using current assumptions and accretion of
interest based on an interest rate equal to the liability or contract rate (5%
to 8%), for each of the years in the five-year period ending December 31, 1999,
is as follows:
<TABLE>
<CAPTION>
(IN MILLIONS)
YEAR ENDING BEGINNING GROSS ACCRETION NET ENDING
DECEMBER 31, BALANCE AMORTIZATION OF INTEREST AMORTIZATION BALANCE
--------------- --------- ------------ ----------- ------------ -------
<S> <C> <C> <C> <C> <C>
1995.......................... $ 752 $ 97 $56 $ 41 $ 711
1996.......................... 711 93 53 40 671
1997.......................... 671 89 50 39 632
1998.......................... 632 84 47 37 595
1999.......................... 595 79 45 34 561
</TABLE>
NOTE H. ACQUISITION-RELATED GOODWILL
Goodwill recorded on AFC's historical consolidated financial statements is
eliminated under purchase accounting. No goodwill is associated with the
acquisition because the excess of the cost of the investment in AFC over the
fair value of the tangible net assets acquired is fully reflected in CIP.
NOTE I. INSURANCE AND ANNUITY LIABILITIES
AFC's insurance and annuity liabilities are restated at the assumed
acquisition date to a value that reflects changes due to purchase accounting,
primarily related to reserves for AFC's participating life insurance contracts.
28
<PAGE> 29
AMERICAN GENERAL CORPORATION
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
NOTE J. DEBT AND PREFERRED STOCK OF SUBSIDIARY
Short-term and long-term corporate debt and preferred stock of subsidiary
are increased at December 31, 1994 to reflect the expected components of the
permanent financing of the AFC acquisition. At closing, the transaction was
financed by short-term floating-rate corporate debt at an average rate of 6%.
The pro forma consolidated financial statements reflect the expected permanent
financing of the transaction, as follows:
<TABLE>
<CAPTION>
(IN MILLIONS) AMOUNT ASSUMED
TYPE OF ISSUE OUTSTANDING RATE
--------------------------------------------------------------- ------------- -------
<S> <C> <C>
Short-term floating-rate corporate debt........................ $ 220 6.11%
Long-term fixed-rate corporate debt............................ 450 7.75%
Preferred stock of subsidiary.................................. 250 8.75%
------
Total................................................ $ 920
=========
</TABLE>
The assumed floating rate for short-term corporate debt, expected to be
issued on a staggered maturity basis, is based on AGC's current portfolio rate
with a 25 day average portfolio maturity. The assumed rate for the long-term
fixed-rate corporate debt is based on the current 10 year Treasury rate plus 65
basis points. The assumed rate for preferred stock of subsidiary is based on the
current estimate from investment bankers.
NOTE K. INCOME TAX LIABILITIES
All of the applicable pro forma consolidated financial statement
adjustments, except goodwill amortization, are tax effected at an assumed
effective income tax rate of 37% for AFC and 35% for WNC.
NOTE L. SHAREHOLDERS' EQUITY
Shareholder's equity recorded on AFC's historical consolidated financial
statements is eliminated in consolidation.
NOTE M. ACCRETION OF DISCOUNT ON FIXED MATURITY SECURITIES AND MORTGAGE LOANS ON
REAL ESTATE
AFC's historical consolidated financial statements accrete the difference
between par value and amortized cost of fixed maturity securities and mortgage
loans to income on an effective yield basis over the remaining lives of the
individual fixed maturity securities and mortgage loans. The pro forma
consolidated financial statements are adjusted to reflect additional accretion
of the difference, at the assumed acquisition date, between amortized cost and
fair value of these same fixed maturity securities and mortgage loans.
Expected incremental accretion of the discount on fixed maturity securities
and mortgage loans for the next five years is $9 million, $11 million, $14
million, $16 million, and $19 million (pretax), respectively.
NOTE N. NET INVESTMENT INCOME
The liquidation by AFC of its investments to fund the $250 million cash
dividend prior to the acquisition (see Note C) is expected to reduce net
investment income by $6 million (pretax) per year.
The liquidation of $25 million of short-term investments to fund
transaction and acquisition-related costs (see Note E) is expected to reduce
interest income by $1 million (pretax) per year.
Annual projected expense savings of $8 million, primarily associated with
centralizing AFC's investment management function at AGC immediately following
the acquisition, are included in the pro forma consolidated financial
statements.
29
<PAGE> 30
AMERICAN GENERAL CORPORATION
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
NOTE O. REALIZED INVESTMENT GAINS (LOSSES)
Realized and unrealized investment losses of $31 million (pretax) on
trading securities recorded by AFC in 1994 are reversed since equity securities
were assumed to be liquidated prior to the acquisition to fund the cash dividend
to AFC's shareholder (see Note C). For purposes of the pro forma consolidated
financial statements, the dividend is assumed to occur on January 1, 1994.
Realized investment gains of $17 million (pretax) on fixed maturity
securities recorded by AFC in 1994 are reversed for purposes of the pro forma
consolidated financial statements, since they will not be a component of total
revenues in the future. The gains realized by AFC were indicative of the low
interest rate environment that prevailed in early 1994. Assuming the acquisition
occurred at January 1, 1994, these gains would not have been realized because
AGC's purchased bases in the securities sold would have been higher.
NOTE P. INSURANCE AND ANNUITY BENEFITS
AFC's historical insurance and annuity benefits are increased primarily to
reflect the change in the pattern of reserving for future benefits for AFC's
participating life insurance contracts (see Note I).
NOTE Q. AMORTIZATION EXPENSE -- DPAC, CIP, AND ACQUISITION-RELATED GOODWILL
The expense recorded on AFC's historical consolidated financial statements
for the amortization of DPAC, historical CIP, and acquisition-related goodwill
is reversed to reflect the elimination of the related intangible assets (see
Notes F and H).
NOTE R. AMORTIZATION OF CIP
CIP is amortized in relation to estimated profits on the policies purchased
with interest equal to the liability or contract rates (5% to 8%)(see Note G).
NOTE S. INTEREST EXPENSE AND DIVIDENDS ON PREFERRED STOCK OF SUBSIDIARY
Interest expense is increased to reflect the issuance of long-term
fixed-rate corporate debt and short-term floating-rate corporate debt in
connection with the expected permanent financing of the AFC acquisition (see
Note J). The components of pretax interest expense are as follows:
<TABLE>
<CAPTION>
ANNUAL
(IN MILLIONS) ASSUMED AMOUNT INTEREST
TYPE OF ISSUE RATE OUTSTANDING EXPENSE
------------------------------------------------------ ------- ----------- -------
<S> <C> <C> <C>
Short-term floating-rate corporate debt............... 6.11% $ 220 $13
Long-term fixed-rate corporate debt................... 7.75% 450 35
----------- -------
$ 670 $48
========= ======
</TABLE>
A 1% increase/decrease in the short-term floating rate would increase/decrease
the above pro forma interest expense by approximately $2 million (pretax) per
year. A 1% increase/decrease in the long-term fixed rate would increase/decrease
the above pro forma interest expense by approximately $5 million (pretax) per
year.
Dividends on preferred stock of subsidiary are assumed to be at a pretax
rate of 8.75% on $250 million of preferred stock issued in connection with the
expected permanent financing of the AFC acquisition. The dividends are shown net
of an $8 million tax benefit per year to reflect the tax deductibility of these
dividends (see Note J).
30
<PAGE> 31
AMERICAN GENERAL CORPORATION
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
NOTE T. INTEREST EXPENSE AND NET INVESTMENT INCOME -- WNC
The purchase of WNC was funded as follows:
<TABLE>
<CAPTION>
(IN MILLIONS)
<S> <C>
Sale of equity securities........................................ $ 59
Sale or maturity of short-term investments....................... 39
Issuance of short-term floating-rate debt........................ 176
-----
Total.................................................. $ 274
=====
</TABLE>
Interest expense is increased, and net investment income is reduced, to
reflect the liquidation of investments and the issuance of short-term debt to
fund the acquisition of the 40% interest in WNC. Interest expense of $11 million
is calculated at an assumed rate of 6.11% per year on $176 million of short-term
debt. Foregone net investment income is calculated as follows:
<TABLE>
<CAPTION>
ANNUAL
FOREGONE
NET
(IN MILLIONS) ASSUMED AMOUNT INVESTMENT
TYPE OF ISSUE SOLD RATE SOLD INCOME
------------------------------------------------------- ------- ------ ----------
<S> <C> <C> <C>
Equity securities...................................... 3.37% $ 59 $2
Short-term investments................................. 6.25% 39 2
---- --
$ 98 $4
===== ====
</TABLE>
NOTE U. EQUITY IN EARNINGS OF WNC
The purchase price of WNC was allocated as follows:
<TABLE>
<CAPTION>
(IN MILLIONS)
<S> <C>
40% of net assets of WNC at December 23, 1994.......... $ 136
Increase (decrease) in WNC's net asset value at
December 23, 1994 to estimated fair value:
Mortgage loans on real estate..................... (5)
Credit-tenant loans............................... (5)
Deferred policy acquisition costs................. (144)
Cost of insurance purchased (historical).......... (42)
Cost of insurance purchased....................... 232
Acquisition-related goodwill...................... 136
Insurance and annuity liabilities................. (23)
Income tax liabilities............................ (1)
Other assets/liabilities.......................... (10)
------
Total estimated fair value adjustments....... 138
------
Cash purchase price.......................... $ 274
======
</TABLE>
The investment in WNC is reported using the equity method of accounting.
AGC records 40% of earnings of WNC, adjusted for purchase accounting and other
pro forma adjustments. The equity in earnings of WNC is tax effected by AGC at
35%, less an estimated dividends received deduction.
31
<PAGE> 32
AMERICAN GENERAL CORPORATION
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
The equity in earnings of WNC and AGC's related tax expense are calculated
as follows:
<TABLE>
<CAPTION>
YEAR ENDED
(IN MILLIONS) DECEMBER 31, 1994
-----------------
<S> <C>
40% of WNC's earnings.......................................... $ 29
Purchase accounting adjustments:
Reversal of amortization expense............................. 8
Accretion of discount on fixed maturity securities........... 7
Release of reserves.......................................... 1
Amortization of CIP.......................................... (24)
Pro forma adjustments:
Reduction in investment management fee....................... 3
Reversal of realized investment losses....................... 14
Reversal of trading gains.................................... (1)
------
Taxable adjustments............................................ 8
Tax effect on above adjustments................................ (3)
Amortization of goodwill....................................... (7)
------
Equity in earnings of WNC............................ 27
AGC tax on undistributed earnings*............................. 8
------
Net aftertax equity in earnings of WNC............... $ 19
=============
</TABLE>
*Reflects dividends received deduction.
Dividends received from WNC, at an assumed annual rate of $.16/share or $1
million per quarter, reduce AGC's investment in WNC and have no impact on the
pro forma consolidated statement of income, except for the dividends received
deduction.
- ---------------
(c) Exhibits.
The following document is filed as an exhibit to this report in accordance
with Item 601 of Regulation S-K.
Exhibit 23 Consent of Coopers & Lybrand, L.L.P.
32
<PAGE> 33
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 hereunto duly authorized.
AMERICAN GENERAL CORPORATION
By: /s/ AUSTIN P. YOUNG
--------------------------------
Austin P. Young
Senior Vice President and
Chief Financial Officer
Dated: April 14, 1995
33
<PAGE> 34
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- -------- -----------
<S> <C>
23 Consent of Coopers & Lybrand, L.L.P.
</TABLE>
<PAGE> 1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the following registration
statements of American General Corporation:
<TABLE>
<CAPTION>
REGISTRATION STATEMENT NUMBER ON FORM
- ----------------------------- -------
<S> <C>
33-39200 S-8
33-39201 S-8
33-39202 S-8
2-98021 S-8
33-51973 S-8
33-51045 S-3
33-58317 S-3
</TABLE>
and in the registration statements on Form S-3 of American General Capital,
L.L.C. (No. 33-58317-01) and American General Delaware, L.L.C. (No. 33-58317-02)
of our report, which includes an explanatory paragraph for certain changes in
accounting principles, dated February 1, 1995, on our audits of the consolidated
financial statements of American Franklin Company and Subsidiaries as of
December 31, 1994 and 1993, and for the years ended December 31, 1994 and 1993,
which report is included in the accompanying Form 8-K of American General
Corporation.
COOPERS & LYBRAND, L.L.P.
Chicago, Illinois
April 14, 1995
