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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 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)
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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)
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Registrant's telephone number, including area code: (713) 522-1111
Securities registered pursuant to Section 12(b) of the Act:
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NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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New York Stock Exchange
Common Stock, Par Value $.50 Pacific Stock Exchange
Preferred Share Purchase Rights New York Stock Exchange
(One Right is attached to Pacific Stock Exchange
each share of Common Stock)
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Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days. Yes /X/ No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /
The aggregate market value based on published prices as of March 1, 1995 of
American General's voting stock held by non-affiliates was approximately $6.44
billion. The aggregate market value has been calculated on a basis which
excludes shares of Common Stock that may be acquired through the exercise of
options. As of March 1, 1995, there were 204,766,121 shares of American
General's Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
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PART OF THE FORM 10-K
DOCUMENT INTO WHICH INCORPORATED
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Portions of American General's 1994 Annual Report to Shareholders Parts I and II
Portions of American General's definitive Proxy Statement dated March 21, 1995, for
the Annual Meeting of Shareholders to be held April 27, 1995 Parts I and III
</TABLE>
1994 FORM 10-K
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PART I
ITEM 1. BUSINESS
GENERAL
American General Corporation ("American General" or "the company") is the
parent company of one of the nation's largest consumer financial services
organizations. American General's operating subsidiaries are leading providers
of retirement annuities, consumer loans, and life insurance. American General
was incorporated as a general business corporation in Texas in 1980 and is the
successor to American General Insurance Company, an insurance company
incorporated in Texas in 1926.
Much of the information provided in response to this Item 1 is incorporated
from selected portions of American General's 1994 Annual Report to Shareholders
(ARS). Appropriate references to such incorporated information are specified
throughout the text of this Item 1. Portions of American General's 1994 ARS are
provided as Exhibit 13 to this Form 10-K.
NEW ACCOUNTING STANDARDS. During 1994, American General adopted two new
Statements of Financial Accounting Standards (SFAS). These accounting standards,
as described in Note 1.2 incorporated herein by reference from Notes to
Financial Statements in American General's 1994 ARS, require additional
disclosures but do not impact consolidated results of operations or financial
position.
ACQUISITIONS AND DIVESTITURES. During 1994, American General continued its
corporate development efforts through acquisition and divestiture activities.
These activities included the acquisition of The Franklin Life Insurance Company
(Franklin Life) and a 40% interest in Western National Corporation. In addition,
American General announced a $2.6 billion all-cash merger offer to acquire
Unitrin, Inc. Although the offer expired on February 7, 1995, American General
continues to believe that a combination of Unitrin's operations with those of
American General is in the best interest of the customers and shareholders of
both companies, and continues to seek regulatory approval to purchase additional
shares of Unitrin, Inc.
Additional information regarding acquisition and divestiture activities is
incorporated herein by reference from page 16 of Management's Discussion and
Analysis (MD&A) and from Note 2 of Notes to Financial Statements in American
General's 1994 ARS.
BUSINESS SEGMENTS. American General's operations are classified into the
following three business segments: Retirement Annuities, Consumer Finance, and
Life Insurance. American General provides financial services in all 50 states,
the District of Columbia, Canada, Puerto Rico, and the U.S. Virgin Islands. A
description of the operations of each business segment is presented in this Item
1. Additional business segment financial information is incorporated herein by
reference from pages 18-22 and 24-25 of MD&A and Note 15 of Notes to Financial
Statements in American General's 1994 ARS, and from Schedule III of Item 14 of
this Form 10-K.
EMPLOYEES. As of December 31, 1994, American General and its subsidiaries
employed approximately 12,900 full-time salaried employees, compared to 11,500
at year-end 1993. This increase is principally due to growth in the Consumer
Finance segment, partially offset by the sale of American - Amicable Life
Insurance Company of Texas, Inc., which had approximately 100 employees.
On January 31, 1995, the number of full-time salaried employees increased by
approximately 1,300 due to the acquisition of Franklin Life.
PRINCIPAL PRODUCTS, METHODS OF DISTRIBUTION, AND
PRINCIPAL MARKETS
RETIREMENT ANNUITIES. The Variable Annuity Life Insurance Company (VALIC),
American General's retirement annuity subsidiary with assets of $22 billion, is
a leading provider of tax-deferred retirement plans and annuities to employees
of educational, health care, and other not-for-profit organizations. Based on
assets, VALIC ranks as the 18th largest life insurance company in the United
States. It markets products in 50 states and the District of Columbia. VALIC
currently has 825,000 customers and offers service through a national network of
790 sales representatives.
CONSUMER FINANCE. American General Finance, Inc. and subsidiaries (AGF), with
finance receivables of $7.9 billion, is a leading provider of consumer and home
equity loans, credit cards, and credit-related insurance to individuals. With
more than three million customers and over 1,300 branch offices, the company
ranks among the nation's largest consumer finance organizations. AGF operates
financing programs through 20,000 retail merchants and offers service through
8,000 branch office employees in 41 states, Puerto Rico, and the U.S. Virgin
Islands.
AMERICAN GENERAL CORPORATION
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LIFE INSURANCE. American General's life insurance companies, with assets of
$14 billion, provide traditional and interest-sensitive life insurance and both
fixed and variable annuity products to nearly five million households throughout
all 50 states, the District of Columbia, and Canada. This large customer base is
served principally by American General Life and Accident Insurance Company
(AGLA), American General Life Insurance Company, and since January 1995,
Franklin Life. The life insurance companies meet the financial security needs of
individual consumers, business owners, and customers of financial institutions,
and offer service through 14,000 sales representatives and general agents.
INSURANCE SALES AND IN FORCE. The following table summarizes the face amounts
of individual and credit life insurance sales, and individual and credit life
insurance in force for the company's insurance subsidiaries for the past three
years:
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In millions 1994 1993 1992
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Individual life insurance sales:
Permanent (non-participating)
Interest-sensitive $ 8,046 $ 9,941 $ 7,541
Guaranteed-cost 2,739 3,681 4,501
Term 6,200 6,728 5,704
Permanent (participating) 7 9 12
Credit life insurance sales 3,483 2,941 2,371
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Total 20,475 23,300 20,129
Reinsurance assumed (394) (2,043) (135)
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Total, excluding
reinsurance
assumed(a) $ 20,081(b) $ 21,257 $ 19,994
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Individual life insurance in
force (at December 31):
Permanent (non-participating)
Interest-sensitive $ 48,415 $ 44,660 $ 40,916
Guaranteed-cost 24,207 24,897 27,222
Term 23,405 22,366 23,256
Permanent (participating) 842 851 926
Credit life insurance in force 2,899 2,548 2,222
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Total(c) $ 99,768 $ 95,322(d) $ 94,542
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</TABLE>
(a) Before deductions for reinsurance ceded; excludes group life insurance.
(b) Excludes life insurance company sold in 1994.
(c) Includes reinsurance assumed before deductions for reinsurance ceded, and
excludes group life insurance.
(d) Restated to include $7.8 billion related to life insurance company no longer
held for sale.
INSURANCE DEPOSITS AND PREMIUMS. The following table lists deposits and
premiums and other considerations of the company's insurance and annuity
subsidiaries for the past three years:
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In millions 1994 1993 1992
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<S> <C> <C> <C>
Deposits* $ 3,375 $ 3,125 $ 2,739
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Direct premiums and other
considerations
Individual life premiums $ 606 $ 652 $ 643
Insurance charges 357 319 274
Individual health premiums 148 148 144
Other 143 143 166
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Total direct premiums
and other considerations 1,254 1,262 1,227
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Reinsurance premiums assumed 52 38 32
Reinsurance premiums ceded (96) (48) (46)
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Premiums and other
considerations $ 1,210 $ 1,252 $ 1,213
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</TABLE>
* Represents premiums received for interest-sensitive life insurance and annuity
products; more than 66% of the deposits relate to products of the Retirement
Annuities segment.
INVESTMENTS
Information regarding investments is incorporated here-
in by reference from pages 21-24 of MD&A and Notes 1.3 and 3 of Notes to
Financial Statements in American General's 1994 ARS, and from Schedule I of Item
14 of this Form 10-K.
INSURANCE AND ANNUITY RESERVING METHODS
Individual life insurance reserves are based on assumptions similar to those
used to establish premium rates. Further information regarding reserving methods
is incorporated herein by reference from Note 1.9 of Notes to Financial
Statements in American General's 1994 ARS.
REINSURANCE
Information regarding reinsurance is incorporated herein by reference from
Note 1.11 of Notes to Financial Statements in American General's 1994 ARS, and
from Schedule IV of Item 14 of this Form 10-K.
1994 FORM 10-K
3
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PART I (Continued)
FACTORS AFFECTING PRICING OF PRODUCTS
INSURANCE AND ANNUITY PRODUCTS. Premium rates are based on assumptions, which
the company's insurance subsidiaries believe to be realistic, as to future
mortality, investment yields, expenses, and lapses. In addition, the pricing is
influenced by competition and the company's objectives for return on capital.
Although a profit margin is included in the price of the products, the actual
profitability of the products can be significantly affected by the variation
between actual and assumed experience.
CONSUMER FINANCE PRODUCTS. Pricing of consumer finance products is influenced
by such factors as cost of borrowed funds, competition, and the expense of
operations. In addition, pricing is affected by state regulation of interest
rates based on contractual terms and amount, charges for individual loans, and
insurance premium rates.
COMPETITION
The business of the company's subsidiaries is highly competitive with other
financial institutions with respect to pricing, selection of products, and
quality of service. No single competitor nor any small group of competitors
dominates any of the markets in which the company's subsidiaries operate.
Additional information is incorporated herein by reference from the section
"Competition" on page 20 of MD&A in American General's 1994 ARS.
REGULATION
INSURANCE. American General's insurance subsidiaries are subject to state
regulation in the jurisdictions in which they do business. Information
concerning regulatory compliance is incorporated herein by reference from the
section "Regulation" on page 20 of MD&A in American General's 1994 ARS.
Most states also regulate affiliated groups such as American General and its
subsidiaries under insurance holding company laws. Additional information
regarding these restrictions is incorporated herein by reference from Note 14.2
of Notes to Financial Statements in American General's 1994 ARS.
Discussion of state guaranty associations is incorporated herein by reference
from the section "Guaranty Associations" on page 20 of MD&A in American
General's 1994 ARS.
CONSUMER FINANCE. The company's consumer finance subsidiaries are subject to
various types of federal regulation, including the Federal Consumer Credit
Protection Act, the Equal Credit Opportunity Act, the Fair Credit Reporting Act,
certain Federal Trade Commission rules, and state laws that regulate the
consumer loan and retail sales finance businesses. In addition, the company's
thrift subsidiary, which engages in the consumer finance business and accepts
insured deposits, is subject to regulation by and reporting requirements of the
Federal Deposit Insurance Corporation and is subject to regulatory codes in the
states in which it operates.
OTHER. Discussion of certain other regulatory factors is incorporated herein
by reference from the sections "Taxation" and "Environmental" on page 20 of MD&A
and Note 11 of Notes to Financial Statements in American General's 1994 ARS.
ITEM 1A. EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding three executive officers of American General who are
standing for election as directors of American General is incorporated herein by
reference from the caption "Election of Directors" set forth in American
General's definitive Proxy Statement dated March 21, 1995.
Information as of March 15, 1995 regarding the 13 other executive officers of
American General is as follows:
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Present Principal Position with American General and
Name and Age Other Material Positions Held during Last Five Years
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MICHAEL G. ATNIP (46) Senior Vice President (since 1994) and Senior Vice President - Operations Support (since
February 1995), American General Corporation; with American General during the remainder of
last five years in various other capacities including Senior Vice President - Insurance and
Administration (1991-93) and Senior Vice President (1989-91), American General Finance,
Inc., Evansville, Indiana, a subsidiary of American General Corporation.
</TABLE>
AMERICAN GENERAL CORPORATION
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Present Principal Position with American General and
Name and Age Other Material Positions Held during Last Five Years
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STEPHEN D. BICKEL (55) Chairman (since 1994) and Chief Executive Officer (since 1988), The Variable Annuity Life
Insurance Company, Houston, Texas, a subsidiary of American General Corporation; President
(1988-94), The Variable Annuity Life Insurance Company.
ROBERT S. CAUTHEN JR. (50) President and Chief Executive Officer (since 1993), American General Life Insurance
Company, Houston, Texas, a subsidiary of American General Corporation; Senior Vice
President and Chief Marketing Officer (1991-93), American General Life Insurance Company.
Chairman and Chief Operating Officer (1990-91), First Financial Resources, Valley Forge,
Pennsylvania. Assistant Vice President (1989-90), Fidelity and Guaranty Life Insurance
Company, Baltimore, Maryland.
JAMES S. D'AGOSTINO JR. (48) President and Chief Executive Officer (since 1993), American General Life and Accident
Insurance Company, Nashville, Tennessee, a subsidiary of American General Corporation; with
American General Corporation during the remainder of last five years in various other
capacities including Executive Vice President - Administration (1993), Senior Vice
President - Administration (1991-93), Senior Vice President - Investor Relations (1990-91),
and Vice President and Treasurer (1986-90).
ROBERT J. GIBBONS (52)* President (since February 1995), The Franklin Life Insurance Company, Springfield,
Illinois, a subsidiary of American General Corporation; President (1994-February 1995),
American General Life Insurance Company of New York, Syracuse, New York, a subsidiary of
American General Corporation. Vice President (1993-94), Chemical Insurance Agency, New
York, New York. Senior Vice President (1989-93), The Equitable Life Assurance Society of
the United States.
HOWARD C. HUMPHREY (61)* Chairman and Chief Executive Officer (since 1987), The Franklin Life Insurance Company,
Springfield, Illinois, a subsidiary of American General Corporation.
DANIEL LEITCH III (61) Chairman (since 1994) and Chief Executive Officer (since 1991), American General Finance,
Inc., Evansville, Indiana, a subsidiary of American General Corporation; President
(1991-94), American General Finance, Inc.; with American General during the remainder of
last five years in various other capacities including Senior Vice President (1990-91),
American General Life and Accident Insurance Company, Nashville, Tennessee, a subsidiary of
American General Corporation, and Vice Chairman (1986-90), American General Life Insurance
Company, Houston, Texas, a subsidiary of American General Corporation.
JON P. NEWTON (53) Senior Vice President and General Counsel (since 1993), American General Corporation.
Partner (1985-93), Clark, Thomas, Winters & Newton (attorneys), Austin, Texas.
NICHOLAS R. RASMUSSEN (48) Senior Vice President (since 1983) and Senior Vice President - Corporate Development (since
1993), American General Corporation; with American General Corporation during the remainder
of last five years in various other capacities including Senior Vice President - Group
Executive (1990-93) and Senior Vice President - Financial Policy (1988-90).
PETER V. TUTERS (42) Senior Vice President (since 1992) and Chief Investment Officer (since 1993), American
General Corporation. Vice President (1986-92), Crown Life Insurance Company, Toronto,
Ontario, Canada.
THOMAS L. WEST JR. (57) President (since 1994), The Variable Annuity Life Insurance Company, Houston, Texas, a
subsidiary of American General Corporation. Senior Vice President (1987-94), Aetna Life
Insurance and Annuity Company, Hartford, Connecticut.
ROBERT D. WOMACK (52) President (since 1994), American General Finance, Inc., Evansville, Indiana, a subsidiary
of American General Corporation; Senior Vice President - Systems and Consulting (1993-94),
American General Corporation; Senior Vice President - Administration (1992-93), American
General Life and Accident Insurance Company, Nashville, Tennessee, a subsidiary of American
General Corporation; Senior Vice President - Administration (1991-92) and Vice President
and Tax Director (1990-91), American General Corporation. Tax Partner (1987-90), KPMG Peat
Marwick, San Francisco, California.
AUSTIN P. YOUNG (54) Senior Vice President (since 1987), Chief Financial Officer (since 1988), and Treasurer
(1990-91), American General Corporation.
</TABLE>
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* Appointed to present position on February 13, 1995, at The Franklin Life
Insurance Company, a subsidiary of American General Corporation,
acquired January 31, 1995.
1994 FORM 10-K
5
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PART I (Continued)
ITEM 2. PROPERTIES
American General's corporate headquarters is located in the American General
Center, a complex of office buildings on a 45-acre tract near downtown Houston.
American General or its subsidiaries either own or lease pursuant to a
sale-leaseback arrangement all of the buildings in the complex. In addition,
American General or its subsidiaries own all of the underlying land, except for
a five-acre parcel that is leased pursuant to a long-term agreement. American
General and its subsidiaries occupy approximately 43% of the total office space
available in the American General Center.
American General's subsidiaries also own various other properties, including
properties held for investment, branch office buildings, and the home office
buildings of AGF in Evansville, Indiana and Franklin Life in Springfield,
Illinois. Portions of certain of these buildings are rented to unaffiliated
third parties. The home office building of AGLA in Nashville, Tennessee was sold
to the State of Tennessee for $37.4 million, effective January 3, 1994. In June
1994, AGLA purchased a 56-acre parcel in Nashville for construction of a new
home office building; construction commenced in February 1995.
ITEM 3. LEGAL PROCEEDINGS
The company and certain of its subsidiaries are defendants in various
lawsuits and proceedings arising in the normal course of business that are not
discussed below. Some of these lawsuits and proceedings arise in jurisdictions
such as Alabama that permit punitive damages disproportionate to the actual
damages alleged. Although no assurances can be given and no determination can be
made at this time as to the outcome of any particular lawsuit or proceeding, the
company and its subsidiaries believe that there are meritorious defenses for all
of these claims and are defending them vigorously. The company also believes
that the total amounts that would ultimately be paid, if any, arising from these
claims would have no material effect on the company's consolidated results of
operations and financial position.
GENERAL
Two real estate subsidiaries of the company were defendants in a lawsuit,
Avia Development Group et al. v. American General Realty Investment Corp., et
al. (filed in the 61st District Court of Harris County, Texas, September 23,
1991), 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, the Texas state district court reduced the
previously-awarded 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 (Case No. 01-93-1027-CV in the First
Court of Appeals, Houston, Texas), and a supersedeas bond required for the
appeal was posted with the company acting as surety. The company is continuing
to contest the matter vigorously through the appeals process; and the company
believes, based on advice of legal counsel, that plaintiffs' claims are without
merit. Accordingly, no provision has been made in the consolidated financial
statements related to this contingency.
In April 1992, the Internal Revenue Service (IRS) issued Notices of
Deficiency for the 1977-1981 tax years of certain insurance subsidiaries. The
basis of the dispute was the tax treatment of modified coinsurance agreements.
The company elected to pay all related assessments plus associated interest,
totaling $59 million. 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
United States Court of Federal Claims (Gulf Life Insurance Co. v. United States,
C.A. No. 93-404T). Trial is expected to occur in mid-1995. The company believes
that the IRS's claims are without merit and is continuing to vigorously pursue
refund of the amounts paid. Accordingly, no provision has been made in the
consolidated financial statements related to this contingency.
ENVIRONMENTAL
In March 1994, two subsidiaries of the company were named as defendants in a
lawsuit, 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 is seeking 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
AMERICAN GENERAL CORPORATION
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[AMERICAN GENERAL LOGO]
$2,500 for each act of unfair competition prohibited by its Business and
Professions Code, but not less than $250,000, plus costs.
Various violations of operating permits held by Pebble Creek Service
Corporation (Pebble Creek), an indirect wholly-owned subsidiary of the company,
in connection with its wastewater treatment plant are currently being addressed
by Pebble Creek with the United States Environmental Protection Agency (EPA),
the Florida Department of Environmental Protection, and the Environmental
Protection Commission of Hillsborough County, Florida (EPC). In May 1994, Pebble
Creek attended a meeting to show cause why the EPA should not initiate
enforcement proceedings against Pebble Creek. Pebble Creek has not yet been made
aware of the EPA's decision. On July 18, 1994, the EPC issued a Warning Notice
to Pebble Creek in connection with the inaccurate reporting of test results by a
former plant operator and violations of effluent parameters. Pebble Creek and
the EPC met on August 2, 1994 to discuss enforcement proceedings; however,
Pebble Creek has not yet been made aware of the EPC's decision. The company
believes that penalties in excess of $100,000 could be assessed against Pebble
Creek.
The company believes that the total amounts that would ultimately be paid, if
any, arising from these environmental claims would have no material effect on
the company's consolidated results of operations and financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during fourth quarter
1994.
1994 FORM 10-K
7
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON
EQUITY AND RELATED STOCKHOLDER MATTERS
The quarterly high and low market prices of American General's common stock
as quoted by the New York Stock Exchange, the number of shareholders of record
of common stock, and restrictions on retained earnings for the payment of
dividends are incorporated herein by reference from Notes 16, 8.1, and 14.2,
respectively, of Notes to Financial Statements in American General's 1994 ARS.
The quarterly cash dividends paid on common stock are incorporated herein by
reference from Note 16 of Notes to Financial Statements in American General's
1994 ARS.
The common stock of American General is traded in the United States on the
New York Stock Exchange and the Pacific Stock Exchange. The common stock is also
traded on the London Stock Exchange and the Swiss Stock Exchanges of Basel,
Geneva, and Zurich.
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data is derived from the consolidated
financial statements of the company. The data should be read in conjunction with
the consolidated financial statements, related notes, and other financial
information included or incorporated by reference herein.
<TABLE>
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Years Ended December 31,
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In millions, except per share data 1994 1993 1992 1991 1990
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<S> <C> <C> <C> <C> <C> <C>
Revenues $ 4,841 $ 4,829 $ 4,602 $ 4,395 $ 4,434
Income before cumulative effect of accounting
changes 513(a) 250(b) 533 480 562(a)
Income per common share before cumulative effect of
accounting changes 2.45(a) 1.15(b) 2.45 2.13 2.35(a)
Assets 46,295(c) 43,982(c) 39,742 36,105 33,808
Debt
Corporate 1,475 1,257 1,371 1,391 1,555
Real Estate 361 429 616 590 498
Consumer Finance 7,090 5,843 5,484 5,243 5,096
Redeemable equity 47 - - - 296
Shareholders' equity 3,457(c) 5,137(c) 4,616 4,329 4,138
Regular cash dividends declared per common share 1.16 1.10 1.04 1.00 .79(d)
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</TABLE>
(a) 1994 includes realized investment losses of $114 million ($.55 per share);
1990 includes realized investment gains of $137 million ($.57 per share).
Realized investment gains for 1993, 1992, and 1991 were immaterial.
(b) Includes $300 million ($1.39 per share) write-down of goodwill and $30
million ($.14 per share) tax rate related adjustment. Additional information
is incorporated herein by reference from the section "1993 Significant
Events" in MD&A and Note 7.3, respectively, of Notes to Financial Statements
in American General's 1994 ARS.
(c) Includes $986 million and $950 million decrease in assets and shareholders'
equity, respectively, at December 31, 1994, and $1.0 billion and $676
million increase in assets and shareholders' equity, respectively, at
December 31, 1993, due to the effect of SFAS 115, "Accounting for Certain
Investments in Debt and Equity Securities."
(d) Excludes special dividends of $.61 per share.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of
Operations is incorporated herein by reference from "Management's Discussion and
Analysis" on pages 16-25 in American General's 1994 ARS.
ITEM 8. FINANCIAL STATEMENTS
AND SUPPLEMENTARY DATA
Financial statements and supplementary data are incorporated herein by
reference from pages 26-44 in American General's 1994 ARS.
The ratios of earnings to fixed charges are incorporated herein by reference
from Exhibit 12 of Item 14 of this Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
AMERICAN GENERAL CORPORATION
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[AMERICAN GENERAL LOGO]
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information appearing under the captions "Election of Directors" and
"Securities Reporting" in American General's definitive Proxy Statement dated
March 21, 1995, is incorporated herein by reference. Information regarding the
13 executive officers of American General who are not standing for election to
the board of directors of American General is included in Part I, Item 1A of
this Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
The information appearing under the captions "Governance of the Company" and
"Compensation of Executive Officers" in American General's definitive Proxy
Statement dated March 21, 1995, is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information appearing under the captions "Security Ownership of Certain
Beneficial Owners" and "Security Ownership of Management" in American General's
definitive Proxy Statement dated March 21, 1995, is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information appearing under the caption "Certain Relationships and
Transactions" in American General's definitive Proxy Statement dated March 21,
1995, is incorporated herein by reference.
1994 FORM 10-K
9
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- --------------------------------------------------------------------------------
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Documents filed as part of this report.
<TABLE>
<CAPTION>
Page Reference
--------------------------------
1994
Form 10-K Annual Report
<S> <C> <C>
1. Financial Statements
Report of Ernst & Young LLP, Independent Auditors - 45
Consolidated Financial Statements
Statement of Income - 26
Balance Sheet - 27
Statements of Shareholders' Equity and Stock Activity - 28
Statement of Cash Flows - 29
Notes to Financial Statements - 30-44
2. Financial Statement Schedules
Schedule I - Summary of Investments - Other than Investments in
Affiliates 13 -
Schedule II - Condensed Financial Information of Registrant 14-16 -
Schedule III - Supplementary Insurance Information 17 -
Schedule IV - Reinsurance 18 -
Schedule V - Valuation and Qualifying Accounts 19 -
</TABLE>
All other financial statement schedules have been
omitted because they are inapplicable.
3. Exhibits
<TABLE>
<CAPTION>
Filed Herewith(*),
Nonapplicable (NA), or
Incorporated by
Reference from
-----------------------------
American
General
Registration
Exhibit No. or
Number Exhibit Report
- -------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
3.1 Restated Articles of Incorporation of American General 4.1 33-33115
Corporation (including Statement of Resolution
Establishing Series of Shares of Series A Junior
Participating Preferred Stock)
3.2 Amended and Restated Bylaws of American General 3.2 Form 10-K
Corporation for 1993
4 There have not been filed as exhibits to this Form 10-K NA NA
certain long-term debt instruments, none of which
relates to authorized indebtedness that exceeds 10% of
the consolidated assets of the company and its
subsidiaries. American General hereby agrees to furnish
a copy of any such instrument to the Commission upon
request.
10.1 1984 Stock and Incentive Plan for key employees of the 10.5 Form 10-K
company and its subsidiaries for 1984
10.2 1984 Stock and Incentive Plan (Amended and Restated 10.2 Form 10-K
Effective as of February 8, 1994) for key employees of for 1993
the company and its subsidiaries
10.3 Restoration of Retirement Income Plan for Certain 10.3 Form 10-K
Employees Participating in the Restated American for 1993
General Retirement Plan (Restoration of Retirement
Income Plan)
10.4 First Amendment to Restoration of Retirement Income 10.4 Form 10-K
Plan for 1993
10.5 Second Amendment to Restoration of Retirement Income 10.5 Form 10-K
Plan for 1993
</TABLE>
(continued on next page)
AMERICAN GENERAL CORPORATION
10
<PAGE> 11
- --------------------------------------------------------------------------------
[AMERICAN GENERAL LOGO]
<TABLE>
<CAPTION>
Filed Herewith(*),
Nonapplicable (NA), or
Incorporated by Reference
from
-----------------------------
American
General
Registration
Exhibit No. or
Number Exhibit Report
<C> <S> <C> <C>
- -------------------------------------------------------------------------------------------------------------
10.6 American General Supplemental Thrift Plan 10.6 Form 10-K
for 1993
10.7 First Amendment to American General Supplemental Thrift 10.7 Form 10-K
Plan for 1993
10.8 Second Amendment to American General Supplemental 10.8 Form 10-K
Thrift Plan for 1993
10.9 Third Amendment to American General Supplemental Thrift 10.9 Form 10-K
Plan for 1993
10.10 Form of Severance Agreements between the company and 10.10 Form 10-K
each of the following: Harold S. Hook, James R. Tuerff, for 1993
Robert M. Devlin, Michael G. Atnip, Jon P. Newton,
Nicholas R. Rasmussen, Peter V. Tuters, Austin P.
Young, Stephen D. Bickel, Robert S. Cauthen Jr., James
S. D'Agostino Jr., Robert J. Gibbons, Daniel Leitch
III, Thomas L. West Jr., Robert D. Womack, and Gary D.
Reddick
10.11 Severance Agreements between Howard C. Humphrey and 10.11* NA
Franklin Life
10.12 Supplemental Retirement Agreement between the company 10.11 Form 10-K
and Harold S. Hook for 1993
10.13 American General Supplemental Retirement Plan Trust 10.12 Form 10-K
(relating to Exhibit 10.11 hereto) for 1993
10.14 Amendment to Supplemental Retirement Agreement between 10.13 Form 10-K
the company and Harold S. Hook for 1993
10.15 Second Amendment to Supplemental Retirement Agreement 10.14 Form 10-K
between the company and Harold S. Hook for 1993
10.16 Deferred Compensation Agreement between the company and 10.16 Form 10-K
Harold S. Hook for 1993
10.17 1995 Deferred Compensation Plan 10.17* NA
10.18 American General Corporation Retirement Plan for 10.17 Form 10-K
Directors (as amended and restated) for 1993
10.19 American General Corporation Performance-Based Plan for 10.19* NA
Executive Officers, Amended and Restated Effective
January 1, 1995
10.20 Employment Memorandum of Understanding dated April 12, 10.2 Form 10-Q
1994 between The Variable Annuity Life Insurance for Second
Company and Thomas L. West Jr. Quarter 1994
10.21 Employment Agreement dated April 28, 1994 between the 10.3 Form 10-Q
company and Harold S. Hook for Second
Quarter 1994
10.22 Consulting Agreement dated April 28, 1994 between the 10.4 Form 10-Q
company and Harold S. Hook for Second
Quarter 1994
</TABLE>
(continued on next page)
1994 FORM 10-K
11
<PAGE> 12
- --------------------------------------------------------------------------------
PART IV (Continued)
<TABLE>
<CAPTION>
Filed Herewith(*),
Nonapplicable (NA), or
Incorporated by Reference
from
-----------------------------
American
General
Registration
Exhibit No. or
Number Exhibit Report
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
10.23 License Agreement dated April 28, 1994 among the 10.5 Form 10-Q
company, Harold S. Hook, and Main Event Management for Second
Corporation Quarter 1994
10.24 Stock Purchase Agreement between American General 2 Form 8-K
Corporation and American Brands, Inc., dated as of dated 2/14/95
November 29, 1994
11 Computation of Earnings Per Share 11* NA
12 Computation of Ratio of Earnings to Fixed Charges 12* NA
13 Portions of American General's 1994 Annual Report to 13* NA
Shareholders that are expressly incorporated herein by
reference in this Form 10-K. Other sections of the
Annual Report furnished for the information of the
Commission are not deemed "filed" as part of this Form
10-K.
21 Subsidiaries of American General Corporation 21* NA
23 Consent of Ernst & Young LLP, Independent Auditors 23* NA
24 Powers of attorney for the directors signing this Form 24* NA
10-K
27 Financial Data Schedule 27* NA
</TABLE>
Any Exhibit not included with this Form 10-K will be furnished to any
shareholder of record on written request and payment of up to $.25 per
page plus postage. Such requests should be directed to American General
Corporation, Investor Relations, P.O. Box 3247, Houston, Texas
77253-3247.
(b) Reports on Form 8-K.
The following reports on Form 8-K were filed after September 30, 1994:
1. Current Report on Form 8-K dated October 13, 1994, with respect to the
company's authorization to issue $100 million aggregate principal
amount of 7.70% Notes Due 1999 in an underwritten public offering.
2. Current Report on Form 8-K dated November 30, 1994, with respect to (i)
the issuance of a news release announcing the signing of a definitive
agreement under which the company will acquire The Franklin Life
Insurance Company, a wholly-owned life insurance subsidiary of American
Franklin Company, a holding-company subsidiary of American Brands,
Inc., and (ii) the announcement by Standard & Poors, Inc. and Duff &
Phelps Credit Rating Co. of a downgrade in the rating of certain of the
company's debt securities.
3. Current Report on Form 8-K dated December 2, 1994, with respect to the
issuance of a news release announcing that the company agreed to
acquire 40% of the outstanding shares of common stock of Western
National Corporation from Conseco, Inc.
4. Current Report on Form 8-K dated February 14, 1995, with respect to the
acquisition of American Franklin Company and the related Financial
Statements, Pro Forma Financial Information, and Exhibits.
AMERICAN GENERAL CORPORATION
12
<PAGE> 13
- --------------------------------------------------------------------------------
[AMERICAN GENERAL LOGO]
AMERICAN GENERAL CORPORATION
SCHEDULE I - SUMMARY OF INVESTMENTS - OTHER THAN INVESTMENTS IN AFFILIATES
In millions
<TABLE>
<CAPTION>
At December 31, 1994
-------------------------------------------------
Amount
Cost Shown in
or Consolidated
Amortized Fair Balance
Type of Investment Cost Value Sheet
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fixed maturity securities:
Bonds and notes
U.S. government obligations $ 306 $ 312 $ 312
States and political subdivisions 336 342 342
Foreign governments 604 567 567
Mortgage-backed securities
Pass-through securities guaranteed by U.S.
government and government agencies 677 694 694
CMOs collateralized by pass-through securities
guaranteed by U.S. government and government
agencies 9,881 9,117 9,117
Other 216 221 221
- --------------------------------------------------------------------------------------------------------------
Total mortgage-backed securities 10,774 10,032 10,032
- --------------------------------------------------------------------------------------------------------------
Public utilities 3,184 3,030 3,030
All other corporate 11,716 11,261 11,261
Redeemable preferred stocks 167 156 156
- --------------------------------------------------------------------------------------------------------------
Total fixed maturity securities 27,087 $ 25,700 25,700
- --------------------------------------------------------------------------------------------------------------
Equity securities
Common stocks - industrial, miscellaneous, and all other 108 $ 115 115
Perpetual preferred stocks 94 109 109
- --------------------------------------------------------------------------------------------------------------
Total equity securities 202 $ 224 224
- --------------------------------------------------------------------------------------------------------------
Mortgage loans on real estate* 2,651 2,651
Investment real estate*
Investment properties 517 517
Acquired in satisfaction of debt 47 47
Policy loans 1,197 1,197
Other long-term investments* 152 152
Short-term investments 209 209
- --------------------------------------------------------------------------------------------------------------
Total investments $ 32,062 $ 30,697
- --------------------------------------------------------------------------------------------------------------
</TABLE>
* Net of applicable allowance for losses. See Schedule V of this Form 10-K.
1994 FORM 10-K
13
<PAGE> 14
- --------------------------------------------------------------------------------
PART IV (Continued)
AMERICAN GENERAL CORPORATION
SCHEDULE II - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENT OF INCOME OF AMERICAN GENERAL CORPORATION (PARENT ONLY)
<TABLE>
<CAPTION>
For the Years Ended December 31,
In millions 1994 1993 1992
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues
Dividends - affiliated $ 466 $ 679 $ 541
Interest income - affiliated 33 21 21
Net realized investment gains (losses) (3) 19 17
Other income
Affiliated 36 24 24
Other 3 5 8
- -------------------------------------------------------------------------------------------------------------
Total revenues 535 748 611
- -------------------------------------------------------------------------------------------------------------
Expenses
Operating costs and expenses
Affiliated 8 8 9
Other 66 51 53
Interest expense
Affiliated 11 12 12
Other 110 109 114
- -------------------------------------------------------------------------------------------------------------
Total expenses 195 180 188
- -------------------------------------------------------------------------------------------------------------
Income before income tax benefit, equity in undistributed net
income (loss) of subsidiaries, and cumulative effect of
accounting changes 340 568 423
Income tax benefit 43 37 40
Equity in undistributed net income (loss) of subsidiaries
(net of dividends paid to parent) 130 (355) 70
- -------------------------------------------------------------------------------------------------------------
Income before cumulative effect of accounting changes 513 250 533
Cumulative effect of accounting changes*
Parent company - (12) -
Subsidiaries - (34) -
- -------------------------------------------------------------------------------------------------------------
Net income $ 513 $ 204 $ 533
- -------------------------------------------------------------------------------------------------------------
</TABLE>
* Reflects adoption of SFAS 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions," SFAS 109, "Accounting for Income Taxes," and
SFAS 112, "Employers' Accounting for Postemployment Benefits," at January 1,
1993. Additional information is incorporated herein by reference from Note 1.2
of Notes to Financial Statements in American General's 1994 ARS.
AMERICAN GENERAL CORPORATION
14
<PAGE> 15
- --------------------------------------------------------------------------------
[AMERICAN GENERAL LOGO]
AMERICAN GENERAL CORPORATION
SCHEDULE II - CONDENSED FINANCIAL INFORMATION OF REGISTRANT (CONTINUED)
BALANCE SHEET OF AMERICAN GENERAL CORPORATION (PARENT ONLY)
<TABLE>
<CAPTION>
At December 31,
In millions 1994 1993 1992
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets
Investments
Subsidiaries, at equity $ 4,238 $ 5,661 $ 5,350
Other 64 37 65
Indebtedness from subsidiaries 779 780 650
Cash - - -
Other 52 83 71
- --------------------------------------------------------------------------------------------------------------
Total assets $ 5,133 $ 6,561 $ 6,136
- --------------------------------------------------------------------------------------------------------------
Liabilities
Short-term debt $ 642 $ 315 $ 383
Long-term debt(a) 900 1,012 1,061
Indebtedness to subsidiaries 35 27 29
Federal income taxes (3) (7) (23)
Other 55 77 70
- --------------------------------------------------------------------------------------------------------------
Total liabilities 1,629 1,424 1,520
- --------------------------------------------------------------------------------------------------------------
Redeemable equity
Common stock subject to put contracts 47 - -
- --------------------------------------------------------------------------------------------------------------
Shareholders' equity
Common stock 364 365 368
Net unrealized gains (losses) on securities(b) (935) 709 88
Retained earnings(c) 4,495 4,229 4,263
Cost of treasury stock(d) (467) (166) (103)
- --------------------------------------------------------------------------------------------------------------
Total shareholders' equity 3,457 5,137 4,616
- --------------------------------------------------------------------------------------------------------------
Total liabilities and equity $ 5,133 $ 6,561 $ 6,136
- --------------------------------------------------------------------------------------------------------------
</TABLE>
(a) The principal amount of American General debentures and notes held by
subsidiaries was $63 million at December 31, 1994, $66 million at December
31, 1993, and $69 million at December 31, 1992. The five-year schedule of
maturities of debt is as follows: 1995, $100 million; 1996, $3 million;
1997, $136 million; 1998, $71 million; and 1999, $103 million.
(b) Reflects the effect of SFAS 115, "Accounting for Certain Investments in Debt
and Equity Securities," at December 31, 1994 and 1993. Additional
information is incorporated herein by reference from pages 16 and 17 of MD&A
and Note 1.2 in American General's 1994 ARS.
(c) Amounts include undistributed earnings of subsidiaries of $2.6 billion in
1994, $2.4 billion in 1993, and $2.8 billion in 1992.
(d) Amounts for 1994, 1993, and 1992 include 699,614 shares at a cost of $8
million held by a subsidiary.
1994 FORM 10-K
15
<PAGE> 16
- --------------------------------------------------------------------------------
PART IV (Continued)
AMERICAN GENERAL CORPORATION
SCHEDULE II - CONDENSED FINANCIAL INFORMATION OF REGISTRANT (CONTINUED)
STATEMENT OF CASH FLOWS OF AMERICAN GENERAL CORPORATION (PARENT ONLY)
<TABLE>
<CAPTION>
For the Years Ended December 31,
In millions 1994 1993 1992
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------
Operating activities
Income before cumulative effect of accounting changes $ 513 $ 250 $ 533
Reconciling adjustments to net cash provided by operating
activities
Equity in undistributed net (income) loss of subsidiaries
(net of dividends paid to parent) (130) 355 (70)
Other, net 27 (19) 10
- ------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 410 586 473
- ------------------------------------------------------------------------------------------------------------
Investing activities
Capital contributions to subsidiaries (91) (69)* (37)*
Net (increase) decrease in other investments (34) 34 72
Net (increase) decrease in indebtedness from subsidiaries 1 (130) (223)
Net increase (decrease) in indebtedness to subsidiaries 8 (2) (3)
Other, net (2) (4)* 1*
- ------------------------------------------------------------------------------------------------------------
Net cash used for investing activities (118) (171) (190)
- ------------------------------------------------------------------------------------------------------------
Financing activities
Net increase (decrease) in short-term debt 324 (216) (18)
Long-term debt issuances 100 100 -
Long-term debt redemptions (209) - -
Dividend payments (243) (238) (226)
Common share purchases (264) (72)* (47)
Other, net - 11* 8
- ------------------------------------------------------------------------------------------------------------
Net cash used for financing activities (292) (415) (283)
- ------------------------------------------------------------------------------------------------------------
Net change in cash - - -
Cash at beginning of year - - -
- ------------------------------------------------------------------------------------------------------------
Cash at end of year $ - $ - $ -
- ------------------------------------------------------------------------------------------------------------
</TABLE>
* Amounts reclassified to conform with 1994 presentation.
AMERICAN GENERAL CORPORATION
16
<PAGE> 17
- --------------------------------------------------------------------------------
[AMERICAN GENERAL LOGO]
AMERICAN GENERAL CORPORATION
SCHEDULE III - SUPPLEMENTARY INSURANCE INFORMATION
In millions
<TABLE>
<CAPTION>
At December 31, For the Years Ended December 31,
----------------------- -------------------------------------------------------------
Amorti-
zation
Premiums of
Deferred Insurance and Insurance Deferred
Policy and Other Net and Policy Other
Acquisition Annuity Consider- Investment Annuity Acquisition Operating
Segment Costs Liabilities(a) ations Income(b) Benefits Costs Expenses
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1994
Retirement Annuities $ 910 $ 18,656 $ 37 $ 1,492 $ 1,134 $ 13 $ 108
Consumer Finance 10 480 175 57 98 6 11
Life Insurance 1,809 10,548 999 902 990 193 350
Other(c) 2 (61) (1) 42 2 1 607
- ---------------------------------------------------------------------------------------------------------------------
Consolidated $ 2,731(d) $ 29,623(d) $ 1,210 $ 2,493 $ 2,224 $ 213 $ 1,076
- ---------------------------------------------------------------------------------------------------------------------
1993
Retirement Annuities $ 113 $ 17,029 $ 30 $ 1,434 $ 1,125 $ 10 $ 95
Consumer Finance 8 415(e) 138 56 80 6 10(e)
Life Insurance 1,515 9,857 1,085 942 1,101 187 314
Other(c) 1 (62)(e) (1) 5 5 - 511(e)
- ---------------------------------------------------------------------------------------------------------------------
Consolidated $ 1,637(d) $ 27,239(d) $ 1,252 $ 2,437 $ 2,311 $ 203 $ 930
- ---------------------------------------------------------------------------------------------------------------------
1992
Retirement Annuities $ 474 $ 15,012 $ 23 $ 1,328 $ 1,069 $ 5 $ 96
Consumer Finance 6 364 119 55 76 3 10(e)
Life Insurance 1,603 9,360 1,071 948 1,053 163 366
Other(c) - - - (4) - - 478(e)
- ---------------------------------------------------------------------------------------------------------------------
Consolidated $ 2,083 $ 24,736 $ 1,213 $ 2,327 $ 2,198 $ 171 $ 950
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Includes unearned premiums, other policy claims and benefits payable, and
other policyholder funds, which are not significant relative to insurance
and annuity reserves.
(b) Represents earnings and related expenses on those investments considered
necessary to support the segment's business operations.
(c) Represents Consumer Finance non-insurance operations, Corporate operations,
and intersegment eliminations.
(d) Reflects effect of SFAS 115, "Accounting for Certain Investments in Debt and
Equity Securities," at December 31, 1994 and 1993. Additional information is
incorporated herein by reference from pages 16 and 17 of MD&A and Note 1.2
in American General's 1994 ARS.
(e) Amounts reclassified to conform with 1994 presentation.
1994 FORM 10-K
17
<PAGE> 18
- --------------------------------------------------------------------------------
PART IV (Continued)
AMERICAN GENERAL CORPORATION
SCHEDULE IV - REINSURANCE
In millions
<TABLE>
<CAPTION>
Percentage
of
Assumed Amount
Ceded to from Assumed
Gross Other Other Net to
Description Amount Companies Companies Amount Net
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------
1994
Life insurance in force at year
end $ 103,646 $ 12,075 $ 1,105 $ 92,676 1.2%
Premiums for the year
Life insurance and annuities $ 652 $ 37 $ 17 $ 632 2.7%
Accident and health insurance 193 58 15 150 9.7
Property-liability insurance 52 1 20 71 28.5
- ---------------------------------------------------------------------------------------------------------------
Total premiums $ 897 $ 96 $ 52 $ 853 6.1%
- ---------------------------------------------------------------------------------------------------------------
1993
Life insurance in force at year
end* $ 91,673 $ 6,133 $ 961 $ 86,501 1.1%
Premiums for the year
Life insurance and annuities $ 702 $ 47 $ 13 $ 668 1.9%
Accident and health insurance 194 - 13 207 6.4
Property-liability insurance 47 1 12 58 20.4
- ---------------------------------------------------------------------------------------------------------------
Total premiums $ 943 $ 48 $ 38 $ 933 4.1%
- ---------------------------------------------------------------------------------------------------------------
1992
Life insurance in force at year
end $ 99,719 $ 10,807 $ 1,460 $ 90,372 1.6%
Premiums for the year
Life insurance and annuities $ 732 $ 45 $ 16 $ 703 2.3%
Accident and health insurance 176 1 14 189 7.4
Property-liability insurance 45 - 2 47 4.3
- ---------------------------------------------------------------------------------------------------------------
Total premiums $ 953 $ 46 $ 32 $ 939 3.4%
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
* Amounts exclude $14.9 billion, $6.8 billion, $1 million, and $8.1 billion for
Gross Amount, Ceded to Other Companies, Assumed from Other Companies, and Net
Amount, respectively, related to life insurance companies held for sale at
December 31, 1993.
AMERICAN GENERAL CORPORATION
18
<PAGE> 19
- --------------------------------------------------------------------------------
[AMERICAN GENERAL LOGO]
AMERICAN GENERAL CORPORATION
SCHEDULE V - VALUATION AND QUALIFYING ACCOUNTS
In millions
<TABLE>
<CAPTION>
Additions
------------------------------------------
Charged to Charged to Charged to
Balance at Operating Realized Net Unrealized Balance at
Beginning Costs and Investment Gains (Losses) Deduc- End of
Description of Year Expenses Gains (Losses) on Securities tions(a) Year
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1994
Allowance for losses on:
Finance receivables $ 184 $ 214 $ - $ - $ 172 $ 226
Mortgage loans on real
estate 98 - 11 - 20 89
Investment real estate 253 - 110 - 42 321
Other long-term investments 43 - 4 - 41 6
Valuation allowance on deferred
tax asset - - - 315 - 315
- ---------------------------------------------------------------------------------------------------------------
Total $ 578 $ 214 $ 125 $ 315 $ 275 $ 957
- ---------------------------------------------------------------------------------------------------------------
1993
Allowance for losses on:
Finance receivables $ 162 $ 163 $ - $ - $ 141 $ 184
Below investment grade bonds 26 - 10 - 36 -
Mortgage loans on real
estate 53 - 84 - 39 98
Investment real estate 129 - 199 - 75 253
Other long-term investments 22 - 33 - 12 43
- ---------------------------------------------------------------------------------------------------------------
Total $ 392 $ 163 $ 326 $ - $ 303 $ 578
- ---------------------------------------------------------------------------------------------------------------
1992
Allowance for losses on:
Finance receivables $ 151 $ 135 $ - $ - $ 124 $ 162
Below investment grade bonds 40 - 8 - 22 26
Mortgage loans on real
estate 50 - 34 - 31 53
Investment real estate 62 - 82 - 15 129
Other long-term investments 3 - 19 - - 22
- ---------------------------------------------------------------------------------------------------------------
Total $ 306 $ 135 $ 143 $ - $ 192 $ 392
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Deductions generally result from write-offs of uncollectible receivables and
bonds, sales of bonds and real estate, mortgage loan payoffs, and
foreclosures of real estate.
1994 FORM 10-K
19
<PAGE> 20
- --------------------------------------------------------------------------------
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, on March 17, 1995.
AMERICAN GENERAL CORPORATION
/s/ Pamela J. Penny
- -----------------------------------------------------------------
Pamela J. Penny
(Vice President and Controller)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on March 17, 1995.
/s/ Harold S. Hook
- -----------------------------------------------------------------
Harold S. Hook
(Chairman of the Board, Chief Executive Officer, and Director -
Principal Executive Officer)
/s/ Austin P. Young
- -----------------------------------------------------------------
Austin P. Young
(Senior Vice President and Chief Financial Officer -
Principal Financial Officer)
/s/ Pamela J. Penny
- -----------------------------------------------------------------
Pamela J. Penny
(Vice President and Controller - Principal Accounting Officer)
J. Evans Attwell*
- -----------------------------------------------------------------
J. Evans Attwell
(Director)
Brady F. Carruth*
- -----------------------------------------------------------------
Brady F. Carruth
(Director)
W. Lipscomb Davis Jr.*
- -----------------------------------------------------------------
W. Lipscomb Davis Jr.
(Director)
Robert M. Devlin*
- -----------------------------------------------------------------
Robert M. Devlin
(Director)
Larry D. Horner*
- -----------------------------------------------------------------
Larry D. Horner
(Director)
Richard J.V. Johnson*
- -----------------------------------------------------------------
Richard J.V. Johnson
(Director)
Robert E. Smittcamp*
- -----------------------------------------------------------------
Robert E. Smittcamp
(Director)
James R. Tuerff*
- -----------------------------------------------------------------
James R. Tuerff
(Director)
* By: /s/ Jon P. Newton
- -----------------------------------------------------------------
Jon P. Newton
(Attorney-in-fact)
AMERICAN GENERAL CORPORATION
20
<PAGE> 21
EXHIBIT INDEX
<TABLE>
<CAPTION>
Filed Herewith(*),
Nonapplicable (NA), or
Incorporated by Reference
from
-----------------------------
American
General
Registration
Exhibit No. or
Number Exhibit Report
<C> <S> <C> <C>
- -------------------------------------------------------------------------------------------------------------
3.1 Restated Articles of Incorporation of American General 4.1 33-33115
Corporation (including Statement of Resolution
Establishing Series of Shares of Series A Junior
Participating Preferred Stock)
3.2 Amended and Restated Bylaws of American General 3.2 Form 10-K
Corporation for 1993
4 There have not been filed as exhibits to this Form 10-K NA NA
certain long-term debt instruments, none of which
relates to authorized indebtedness that exceeds 10% of
the consolidated assets of the company and its
subsidiaries. American General hereby agrees to furnish
a copy of any such instrument to the Commission upon
request.
10.1 1984 Stock and Incentive Plan for key employees of the 10.5 Form 10-K
company and its subsidiaries for 1984
10.2 1984 Stock and Incentive Plan (Amended and Restated 10.2 Form 10-K
Effective as of February 8, 1994) for key employees of for 1993
the company and its subsidiaries
10.3 Restoration of Retirement Income Plan for Certain 10.3 Form 10-K
Employees Participating in the Restated American for 1993
General Retirement Plan (Restoration of Retirement
Income Plan)
10.4 First Amendment to Restoration of Retirement Income 10.4 Form 10-K
Plan for 1993
10.5 Second Amendment to Restoration of Retirement Income 10.5 Form 10-K
Plan for 1993
10.6 American General Supplemental Thrift Plan 10.6 Form 10-K
for 1993
10.7 First Amendment to American General Supplemental Thrift 10.7 Form 10-K
Plan for 1993
10.8 Second Amendment to American General Supplemental 10.8 Form 10-K
Thrift Plan for 1993
10.9 Third Amendment to American General Supplemental Thrift 10.9 Form 10-K
Plan for 1993
10.10 Form of Severance Agreements between the company and 10.10 Form 10-K
each of the following: Harold S. Hook, James R. Tuerff, for 1993
Robert M. Devlin, Michael G. Atnip, Jon P. Newton,
Nicholas R. Rasmussen, Peter V. Tuters, Austin P.
Young, Stephen D. Bickel, Robert S. Cauthen Jr., James
S. D'Agostino Jr., Robert J. Gibbons, Daniel Leitch
III, Thomas L. West Jr., Robert D. Womack, and Gary D.
Reddick
10.11 Severance Agreements between Howard C. Humphrey and 10.11* NA
Franklin Life
10.12 Supplemental Retirement Agreement between the company 10.11 Form 10-K
and Harold S. Hook for 1993
10.13 American General Supplemental Retirement Plan Trust 10.12 Form 10-K
(relating to Exhibit 10.11 hereto) for 1993
</TABLE>
(continued on next page)
<PAGE> 22
<TABLE>
<CAPTION>
Filed Herewith(*),
Nonapplicable (NA), or
Incorporated by Reference
from
-----------------------------
American
General
Registration
Exhibit No. or
Number Exhibit Report
<C> <S> <C> <C>
- -------------------------------------------------------------------------------------------------------------
10.14 Amendment to Supplemental Retirement Agreement between 10.13 Form 10-K
the company and Harold S. Hook for 1993
10.15 Second Amendment to Supplemental Retirement Agreement 10.14 Form 10-K
between the company and Harold S. Hook for 1993
10.16 Deferred Compensation Agreement between the company and 10.16 Form 10-K
Harold S. Hook for 1993
10.17 1995 Deferred Compensation Plan 10.17* NA
10.18 American General Corporation Retirement Plan for 10.17 Form 10-K
Directors (as amended and restated) for 1993
10.19 American General Corporation Performance-Based Plan for 10.19* NA
Executive Officers, Amended and Restated Effective
January 1, 1995
10.20 Employment Memorandum of Understanding dated April 12, 10.2 Form 10-Q
1994 between The Variable Annuity Life Insurance for Second
Company and Thomas L. West Jr. Quarter 1994
10.21 Employment Agreement dated April 28, 1994 between the 10.3 Form 10-Q
company and Harold S. Hook for Second
Quarter 1994
10.22 Consulting Agreement dated April 28, 1994 between the 10.4 Form 10-Q
company and Harold S. Hook for Second
Quarter 1994
10.23 License Agreement dated April 28, 1994 among the 10.5 Form 10-Q
company, Harold S. Hook, and Main Event Management for Second
Corporation Quarter 1994
10.24 Stock Purchase Agreement between American General 2 Form 8-K
Corporation and American Brands, Inc., dated as of dated 2/14/95
November 29, 1994
11 Computation of Earnings Per Share 11* NA
12 Computation of Ratio of Earnings to Fixed Charges 12* NA
13 Portions of American General's 1994 Annual Report to 13* NA
Shareholders that are expressly incorporated herein by
reference in this Form 10-K. Other sections of the
Annual Report furnished for the information of the
Commission are not deemed "filed" as part of this Form
10-K.
21 Subsidiaries of American General Corporation 21* NA
23 Consent of Ernst & Young LLP, Independent Auditors 23* NA
24 Powers of attorney for the directors signing this Form 24* NA
10-K
27 Financial Data Schedule 27* NA
</TABLE>
Any Exhibit not included with this Form 10-K will be furnished to any
shareholder of record on written request and payment of up to $.25 per
page plus postage. Such requests should be directed to American General
Corporation, Investor Relations, P.O. Box 3247, Houston, Texas
77253-3247.
<PAGE> 1
EXHIBIT 10.11
November 29, 1994
CONFIDENTIAL
Mr. Howard C. Humphrey
Spring Creek Farms R.R. #6
Springfield, Illinois 62707
Dear Howard:
As you know, American Brands, Inc., is exploring the possibility of the
sale of American Franklin Company or The Franklin Life Insurance Company (the
"Company"). The Company would like to alleviate concerns you may have because of
the possible sale and transition period. In order to induce you to remain in the
employ of the Company and use your best efforts for the benefit of the Company
during the transition period, the Company proposes to provide you with the
following enhanced benefits in the event that American Franklin Company or the
Company is sold.
Stay Bonus
If you remain in the employ of the Company through the closing date of the
sale (the "Closing Date") and for three months thereafter, you will receive a
stay bonus of twelve (12) months pay ("Stay Bonus"). The Stay Bonus will be paid
no later than three months after the Closing Date. If, however, the Company (a)
terminates your employment, or (b) you terminate your employment for Good Reason
as specified below and, in the case of either (a) or (b), such termination
occurs after the Closing Date but within three months immediately following the
Closing Date, the Stay Bonus will be paid upon your termination of employment.
You will not be eligible for the Stay Bonus if you terminate employment
with the Company voluntarily for other than Good Reason, as specified below, or
are discharged for cause prior to three months following the Closing Date.
<PAGE> 2
November 29, 1994
Severance Benefits
If you remain with the Company through the Closing Date and (a) are
terminated by the Company or (b) terminate your employment with the Company for
Good Reason and, in the case of either (a) or (b), such termination occurs
within the two year period immediately following the Closing Date, you will be
entitled to the following benefits:
(1) salary continuation for a period of twenty-four (24) months, at
the greater of your salary rate in effect on the Closing Date or the date
your employment terminates, commencing with the date your active employment
with the Company is terminated and payable at the standard pay period; and
(2) continued coverage under the Company's retirement, 401(k), life
insurance and medical programs, but not under the Company's short or long
term disability program or any other employee benefit program, for the
period specified in (1) above on the same terms and conditions upon which
you are covered as of the Closing Date or upon the terms and conditions in
effect under such programs on the date of termination of your employment,
if such terms and conditions are more favorable to you.
Good Reason shall exist with respect to an employee if, and only if,
without the employee's express written consent: (i) there is a significant
change in the nature or the scope of the employee's authority or overall working
environment; (ii) the employee is assigned duties materially inconsistent with
his present duties, responsibilities and status; (iii) there is a reduction in
the employee's rate of base salary; or (iv) the Company changes by 50 miles or
more the principal location in which the employee is required to perform
services.
To the extent that the Company in its sole discretion determines that it is
not permissible to provide the continued retirement coverage under (2) above
under the Company's tax qualified retirement plan, the retirement benefit
attributable to this continued coverage shall be paid outside the tax qualified
retirement plan and supplemental retirement plan and shall commence at the same
time as benefits commence under the tax qualified retirement plan. The
additional retirement benefit payable hereunder shall be actuarially adjusted to
and paid in the same form as the benefit payable under the tax qualified
retirement plan, with survivorship benefits hereunder then payable after your
death to the same contingent annuitant that you have designated under the tax
qualified retirement plan, if any, that survives you.
<PAGE> 3
November 29, 1994
To the extent that the Company in its sole discretion determines that it is
not permissible to provide the continued 401(k) plan coverage under (2) above
under the Company's tax qualified 401(k) plan, you shall be entitled to receive
an amount equal to the matching contribution that the Company would have made to
the Company's tax qualified 401(k) plan for the period specified in (1) above
assuming that you had elected the maximum salary deferral contribution to the
tax qualified 401(k) plan and this amount shall be paid to you promptly at the
end of such period.
You will also have the right to elect COBRA continued medical coverage
commencing at the end of the period specified in (1) above or at such earlier
date prescribed by law.
BONUS PLAN
If you are terminated, or terminate you employment for Good Reason, in the
year during which the Closing Date occurs, you shall also be entitled to your
target level cash bonus for the year in which you are terminated under the
Senior Executive and Key Manager Incentive Plan prorated for that year through
the date of your termination of employment and payable as soon as practicable
after termination of employment in a lump sum.
If the American Franklin Company or the Company is not sold by December 31,
1997, this arrangement for the stay bonus, severance benefits and prorated bonus
will terminate and no stay bonus, severance benefits or prorated bonus will be
payable hereunder.
You will not be eligible for the enhanced severance benefits specified in
(1) and (2) above or the prorated target incentive bonus if you terminate
employment with the Company voluntarily for other than Good Reason or are
discharged for cause. The Company will withhold from any benefits payable under
this proposal all federal, state, city and other taxes as shall be required
pursuant to any law or governmental regulation or ruling.
Since this arrangement is to be extended to only a few very key employees,
it is not to be discussed with anyone.
The severance benefits provided for herein (but not the stay bonus or
prorated target incentive bonus) shall reduce any other severance benefits that
would be payable to you by the Company.
<PAGE> 4
November 29, 1994
If this letter sets forth correctly our agreement on the subject matter
hereof, please sign and return to the undersigned by the close of business on
December 6, 1994 the enclosed copy of this letter, which will then constitute
our agreement on this subject.
Very truly yours,
/s/ JAMES M. QUIGLEY
By James M. Quigley
Vice President -- Human Resources
JMQ.rml
Accepted and Agreed to
this 30 day of November,
1994.
/s/ HOWARD C. HUMPHREY
Howard C. Humphrey
<PAGE> 5
April 14, 1992
Mr. Howard C. Humphrey
Spring Creek Farms, Rural Route 6
Springfield, Illinois 62704
Re: Compensation Agreement
Dear Mr. Humphrey:
This letter will evidence the agreement of The Franklin Life Insurance
Company (the "Company") to make the payments and provide the benefits hereafter
described in the event of a termination of your employment following a change in
control of the Company. The Company considers the establishment and maintenance
of a sound and vital management to be essential to protecting and enhancing its
best interests and those of its stockholders. In this connection, the Company
recognizes that, as is the case with many publicly held corporations, the
possibility of a change in control may exist and that, in the event action is
taken to bring about a change in control, uncertainty and questions may arise
among management that could result in the distraction or departure of management
personnel to the detriment of the Company and its stockholders. Accordingly, the
Company's Board of Directors has determined that appropriate steps should be
taken to reinforce and encourage the continued attention and dedication of
certain senior members of the Company's management, including yourself, to their
assigned duties without distraction in the face of the potentially disruptive
circumstances arising from the possibility of a change in control.
The Company must, of course, remain free to effect changes in management
and terminate employment. However, in order to induce you to remain in the
employ of the Company, this letter agreement sets forth the severance benefits
which the Company agrees will be provided to you in the event your employment
with the Company is terminated subsequent to a Change in Control (as defined
below) under the circumstances described below. You shall also be entitled to
any Gross-Up payment provided by the last section hereof with respect to the
exercise of stock options, stock appreciation rights, limited rights and
<PAGE> 6
other awards under the American Brands, Inc. Stock Option Plans and 1990
Long-Term Incentive Plan and any successor plans whether or not your employment
is terminated. For purposes of this Agreement, a "Change in Control" shall be
deemed to have occurred upon the (i) acquisition by any person or group of that
number of shares of the Company or American Franklin Company which, when added
to any other shares held by the acquirer, shall result in the acquirer having
more than 50% of the voting power of the Company or American Franklin Company,
as the case may be, or (ii) sale of all or substantially all of the assets of
the Company or American Franklin Company.
1. Termination Following Change in Control. If an only if a Change in
Control of the Company shall have occurred and if at the time of the Change in
Control you shall be an officer of the Company, you shall be entitled to the
benefits provided in Section 2 hereof upon the subsequent termination of your
employment after such Change in Control, unless such termination is as a result
of your death or by the Company for Disability or Cause or by you other than for
Good Reason, as set forth below.
(a) Disability. Termination of employment by the Company for Disability
hereunder shall be deemed to have occurred only if, as a result of your
incapacity due to physical or mental illness, you shall have been absent from
your duties with the Company on a full-time basis for 180 consecutive days and,
within 30 days after Notice of Termination (as hereinafter defined) is given to
you by the Company, you shall not have returned to the full-time performance of
your duties.
(b) Cause. Termination of employment by the Company for Cause shall be
deemed to have occurred only if (i) termination shall have been the result of
(A) an act or acts of dishonesty on your part constituting a felony and intended
to result directly or indirectly in substantial gain or personal enrichment to
you at the expense of the Company, and (B) your willful and continued failure
substantially to perform your duties as an officer of the Company as such duties
exist at the time of a Change in Control (other than any such failure resulting
from your incapacity due to physical or mental illness), after a demand for
substantial performance is delivered to you by the Board of Directors which
specifically identifies the manner in which the Board believes that you have not
substantially performed your duties and you are given a reasonable time after
such demand substantially to perform your duties, and (ii) there shall have been
delivered to you a copy of a resolution duly adopted by the affirmative vote of
not less than three-quarters of the entire membership of the Board of Directors
at a meeting of the Board called and held for the purpose (after reasonable
notice to you and an opportunity for
<PAGE> 7
you, together with your counsel, to be heard before the Board), finding that in
the good faith opinion of the Board you were guilty of conduct set forth above
in Clause (i)(A) or (i)(B) of this sentence and specifying the particulars
thereof in detail. Your employment shall in no event be considered to have been
terminated by the Company for Cause if the act or failure to act upon which such
termination is based (i) was done or omitted to be done (A) as a result of bad
judgment or negligence on your part, or (B) without intent of gaining therefrom
directly or indirectly a profit to which you were not legally entitled or (c) as
a result of your good faith belief that such act or failure to act was not
opposed to the interests of the Company, or (ii) is an act or failure to act in
respect of which you meet the applicable standard of conduct prescribed for
indemnification or reimbursement or payment of expenses under by By-laws of the
Company or the laws of the state of its incorporation or the directors' and
officers' liability insurance of the Company, in each case as in effect the time
of such act or failure to act.
(c) Good Reason. Termination of employment by you for Good Reason shall be
deemed to have occurred only if you terminate your employment for any of the
following reasons:
(i) without your express written consent, the assignment to you of any
duties inconsistent with your positions, duties, responsibilities and
status with the Company at the time of a Change in Control, or a change in
your reporting responsibilities, titles or offices as in effect at the time
of a Change in Control, or any removal of you from, or any failure to
re-elect you to, any of such positions, except in connection with the
termination of your employment as a result of your death or by the Company
for Disability or Cause or by you other than for Good Reason;
(ii) a reduction by the Company in your base salary as in effect at
the time of a Change in Control plus all increases therein subsequent
thereto;
(iii) the failure of the Company substantially to maintain and to
continue your participation in the Company's benefit plans as in effect at
the time of a Change in Control and with all improvements therein
subsequent thereto (other than those plans or improvements that have
expired thereafter in accordance with their original terms), or the taking
of any action which would materially reduce your benefits under any of such
plans or deprive you of any material fringe benefit enjoyed by you at the
time of a Change in Control. For the purposes hereof such benefit plans
shall include, but not be limited to, the provisions for incentive
compensation under the incentive compensation
<PAGE> 8
plan covering executives of the Company and any other plans or arrangements
of the Company and its affiliates (the "Incentive Plans"), The Franklin
Life Insurance Company Employees' 401(k) Retirement Plan (the "401(k)
Plan") and The Franklin Life Employees' Retirement Plan and Supplemental
Retirement Plan;
(iv) the sum of your base salary and amount paid to you as incentive
compensation under the Incentive Plans for the calendar year in which the
Change in Control occurs or any subsequent year is less than the sum of
your base salary and the amount awarded (whether or not fully paid) to you
as incentive compensation under the Incentive Plans for the calendar year
prior to the Change in Control or any subsequent calendar year in which the
sum of such amounts was greater;
(v) the relocation of the offices at which your are employed to a
location more than 35 miles from their location at the time of a Change in
Control or the Company's requiring you to be based anywhere other than at
such offices, except for required travel on the Company's business to an
extent substantially consistent with your business travel obligations at
the time of a Change in Control;
(vi) the failure of the Company to provide you with a number of paid
vacation days at least equal to the number of paid vacation days to which
you were entitled at the time of a Change in Control plus any increases
therein subsequent thereto;
(vii) any purported termination of your employment which is not
effected pursuant to a Notice of Termination satisfying the requirements of
subsection (d) of this Section 1 (and, if applicable, subsection (b) of
this Section 1); and for the purposes of this Agreement, no such purported
termination shall be effective; or
(viii) your good faith determination that due to a Change in Control
you are not able effectively to discharge your duties.
(d) Notice of Termination. Any termination by the Company pursuant to
subsections (a) or (b) of this Section 2 or by you pursuant to subsection (c) of
this Section 1 shall be communicated by Notice of Termination to the other party
hereto. For purposes of this Agreement, a "Notice of Termination" shall mean a
notice in writing which shall indicate the specific termination provision in
this Agreement relied upon and shall set forth in reasonable detail the facts
and
<PAGE> 9
circumstances claimed to provide a basis for termination of your employment
under the provision so indicated.
(e) Termination Date. "Termination Date" shall mean (i) if employment is
terminated because of your death, the date of your death, (ii) if employment is
terminated for Disability, 30 days after Notice of Termination is given
(provided that you shall not have returned to the performance of your duties on
a full-time basis during such 30-day period), (iii) if employment is terminated
for Good Reason, the date specified in the Notice of Termination, and (iv) if
employment is terminated for Cause or any other reason, the date on which a
Notice of Termination is given; provided, however, that if within 30 days after
any Notice of Termination is given the party receiving such Notice of
Termination notifies the other party that a dispute exists concerning the
termination, the Termination Date shall be the date on which the dispute is
finally determined, either by written agreement of the parties or by a final
judgment, order or decree of court of competent jurisdiction (the time for
appeal therefrom having expired and no appeal having been perfected); provided
further, however, that if the dispute is resolved in favor of the Company, the
Termination Date shall not be so extended but shall be the date determined under
clauses (i) through (iv) of this subsection 1(e); and provided further that in
no event shall the Termination Date be after the third anniversary of the date
of this Agreement.
2. Compensation Upon Termination.
(a) If your employment is terminated as a result of your death or for
Disability or Cause subsequent to a Change in Control, the Company shall have no
obligation to pay any compensation to you under this Agreement, but this
Agreement shall have no effect on any other obligation the Company may have to
pay you compensation to which you may otherwise be entitled.
(b) If the Company shall terminate your employment other than for
Disability or Cause or if you shall terminate your employment for Good Reason
subsequent to a Change in Control, then the Company shall pay to you as
severance pay in a lump sum on the fifth day following the Termination Date the
following amounts:
(i) your full base salary and your accrued but unpaid vacation pay
through the Termination Date at the rate in effect at the time of a Change
in Control plus any increases therein subsequent thereto;
(ii) an amount equal to the product of (A) the sum of (1) your annual
base salary at the rate in effect at the
<PAGE> 10
time of a Change in Control plus any increases therein subsequent thereto,
plus (2) the greater of the amount that was awarded to you under the
Incentive Plans as in effect at the time of a Change in Control for the
year immediately preceding the year in which the Change in Control occurs
and the amount payable to you under such Incentive Plans for the year
immediately preceding the year in which a Notice of Termination is given
(whether or not fully paid), plus (3) the Company matching contribution to
the 401(k) Plan at the greater of the rate in effect at the date of the
Change in Control or your Termination Date and assuming that you elected
the maximum salary reduction contribution thereunder, multiplied by (B) the
Formula Amount. The Formula Amount is the number one multiplied by a
fraction the numerator of which is the number of days from the Termination
Date to your 60th birthday, inclusive, and the denominator of which is 365;
(iii) any unpaid award under the Incentive Plans for the year prior to
the Termination Date plus the maximum amount payable to you under the
Incentive Plans for the year in which the Termination Date occurs (or, if
no maximum amount is so payable, the amount paid for the year prior to the
Termination Date); and
(iv) all legal fees and expenses incurred by you as a result of such
termination (including, but not limited to, all such fees and expenses, if
any, incurred in contesting or disputing any such termination or in seeking
to obtain or enforce any right or benefit provided by this Agreement).
(c) If the Company shall terminate your employment other than for
Disability or Cause or if you shall terminate your employment for Good Reason
subsequent to a Change in Control, the Company shall pay to you in a lump sum on
the fifth day following the Termination Date the premium necessary for you to
maintain after the Termination Date and until your 60th birthday all employee
life insurance, health, accident, disability, medical and other employee welfare
benefit plans, programs or arrangements in which you were participating
immediately prior to the date of the Change in Control plus all improvements
therein subsequent thereto.
(d) If the Company shall terminate your employment other than for
Disability or Cause or if you shall terminate your employment for Good Reason
subsequent to a Change in Control, then in addition to the retirement benefits
to which you are entitled under The Franklin Life Employees' Retirement Plan
(the "Qualified Plan"), the Company's Supplemental Retirement Plan (the
"Supplemental Plan"), and any other defined benefit pension plan maintained by
the Company or any affiliate,
<PAGE> 11
and any other program, practice or arrangement of the Company or any affiliate
to provide you with a defined pension benefit after termination of employment,
and any successor plans thereto (all such plans being collectively referred to
herein as the "Pension Plans"), the Company shall pay you in a lump sum on the
fifth day following the Termination Date an amount equal to the excess of (i)
over (ii) below where
(i) equals the sum of the aggregate monthly amounts of pension
payments (determined as a straight life annuity) to which you would have
been entitled under the terms of each of the Pension Plans in which you
were an active participant at the date of a Change in Control (without
regard to any amendment made subsequent to a Change in Control which
adversely affects in any manner the computation of your benefits)
determined as if you were fully vested thereunder and had accumulated an
additional period of Service therein (subsequent to your Termination Date)
equal to the Formula Amount at your rate of Salary in effect on the date of
a Change in Control plus any increases subsequent thereto,
and where
(ii) equals the sum of the aggregate monthly amounts of pension
payments (determined as a straight life annuity) to which you are entitled
under the terms of each of the Pension Plans in which you were an active
participant at the date of a Change in Control.
For purposes of clause (i), the term "Salary" as used with reference to any of
such Pension Plans shall include amounts paid to you pursuant to subsections
(b)(ii)(A) (1) and (2) and (b)(ii)(B) of this Section 2 and such amounts shall
be deemed to represent an additional period of Salary for purposes of
determining your highest consecutive five year average rate of Salary. The
supplemental pension benefits determined under this Section 2(d) shall not be
reduced by a present value discount. All defined terms used in this subsection
2(d) shall have the same meaning as in the Qualified Plan, unless otherwise
defined herein or otherwise required by the context.
(e) In Addition to the other benefits set forth in this Section 2, if the
Company shall terminate your employment other than for Disability or Cause or if
you shall terminate your employment for Good Reason subsequent to a Change in
Control and a dispute exists concerning the termination as set forth in
subsection (3) of Section 1, the Company shall continue to pay your full base
salary through the date the dispute is finally resolved as provided in
subsection (e) of Section 1 but not beyond the third anniversary of the date of
this Agreement.
<PAGE> 12
(f) You shall not be required to mitigate the amount of any payment
provided for in this Section 2 by seeking other employment or otherwise, nor
shall the amount of any payment provided for in this Section 2 be reduced by any
compensation earned by you as the result of employment by another employer after
the Termination Date or by any other compensation.
(g) Any benefits to which you are entitled under the severance pay policy
of the Company or American Franklin Company shall be reduced by benefits paid
under Section 2(b)(ii)(A)(i). Your benefits under Section 2(b)(ii)(A)(i) shall
also be reduced by any severance payments (but not the stay bonus) paid under
the Company's stay bonus and severance policy. Any benefits to which you are
entitled under the Severance Agreement dated as of February 1, 1990 between you
and American Franklin Company shall be reduced by the benefits to which you are
entitled under this Agreement.
3. Successors; Binding Agreement.
(a) The Company shall require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of the
business or assets of the Company, by agreement in form and substance
satisfactory to you, expressly to assume and agree to perform this Agreement in
the same manner and to the same extent as the Company would be required to
perform it if no such succession had taken place. Failure of the Company to
obtain such agreement prior to the effectiveness of any such succession shall be
a breach of this Agreement and shall entitle you to compensation from the
Company in the same amount and on the same terms as you would be entitled to
hereunder if you has given Notice of Termination for Good Reason as of the day
immediately before such succession became effective and had specified that day
in the Notice of Termination. As used in this Agreement, "Company" shall mean
the Company as defined in the first sentence of this Agreement and any successor
to all or substantially all its business or assets or which otherwise becomes
bound by all the terms and provisions of this Agreement, whether by the terms
hereof, by operation of law or otherwise.
(b) This Agreement shall inure to the benefit of and be enforceable by you
and your personal or legal representatives and successors in interest under this
Agreement.
4. Termination. This Agreement may be terminated by the Company as of a
date set forth in a notice to you given at any time at least six months prior to
a Change in Control, provided that if a Change in Control occurs within such six
month period subsequent to the delivery of the notice of termination of this
Agreement by the Company, then this
<PAGE> 13
Agreement shall continue in effect in accordance with its terms notwithstanding
such notice. This Agreement shall terminate if a Notice of Termination is not
given by the third anniversary of the date of this Agreement.
5. Notice. Any notice, demand or other communication required or permitted
under this Agreement shall be effective only if it is in writing and delivered
personally or sent by registered or certified mail, return receipt requested,
postage prepaid, addressed to the respective addresses set forth on the first
page of this Agreement, provided that all notices to the Company shall be
directed to the Secretary of the Company, or to such other address as either
party may designate by notice to the other and shall be deemed to have been
given as of the date so personally delivered or mailed.
6. Miscellaneous. This Agreement constitutes the entire understanding of
the parties relating to the subject matter hereof and supersedes all prior
agreements, understandings and representations, whether oral or written,
relating to the subject matter hereof. This Agreement cannot be modified or any
term or condition waived in whole or in part except by a writing signed by the
party against whom enforcement of the modification or waiver is sought. No
waiver by either party hereto at any time of any breach by the other party
hereto of, or compliance with, any condition or provision of this Agreement to
be performed by such other party shall be deemed a waiver of similar or
dissimilar provisions or conditions at the same or at any prior or subsequent
time.
7. Separability. The invalidity of unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
8. Counterparts. This Agreement may be executed in any number of
counterparts, each of which so executed shall be deemed to be an original, and
such counterparts will together constitute but one Agreement.
9. Withholding of Taxes. The Company may withhold from any benefits payable
under this Agreement all federal, state, city or other taxes as shall be
required pursuant to any law or governmental regulation or ruling.
10. Non-assignability. This Agreement is personal in nature and neither of
the parties hereto shall, without the consent of the other, assign or transfer
this Agreement or any rights or obligations hereunder, except as provided in
Section 3 hereof. Without limiting the foregoing, your right to receive payments
hereunder shall not be assignable or transferable, whether by pledge, creation
of a security interest or otherwise,
<PAGE> 14
other than a transfer by your will or by the laws of descent or distribution,
and in the event of any attempted assignment or transfer contrary to this
Section 10 the Company shall have no liability to pay any amount so attempted to
be assigned or transferred.
11. Excise Taxes. In the event that you become entitled to payments under
Section 2 of this Agreement, or as a result of the exercise, or acceleration of
the exercisability, of stock options or stock appreciation rights, or the
exercise of limited rights or other awards under the American Brands, Inc. Stock
Option Plans and 1990 Long-Term Incentive Plan or any successor plan, or any
other payments or benefits received or treated as having been received by you in
connection with a change in the ownership or effective control of the Company or
in the ownership of a substantial portion of its assets within the meaning of
Section 280G(b)(2)(A) of the Internal Revenue Code of 1986, as amended (the
"Code") (whether pursuant to the terms of this Agreement or any other plan,
arrangement or agreement with the Company, any person whose actions result in
such a change or any person affiliated with the Company or such person) ("the
Agreement Payments"), if any of the Agreement Payments will be subject to the
tax (the "Excise Tax") imposed by Section 4999 of the Code, the Company shall
pay to you on the fifth day following the Termination Date (or if your
employment has not terminated, on the fifth day following the receipt of the
Agreement Payment) an additional amount (the "Gross-Up Payment") such that the
net amount retained by you after deduction of any Excise Tax on the Agreement
Payments and any federal, state and local income tax and Excise Tax upon the
payment provided for by this Section 11, shall be equal to the Agreement
Payments. For purposes of determining whether payments or benefits of the types
referred to in the preceding sentence are Agreement Payments and whether any of
the Agreement Payments will be subject to the Excise Tax and the amount of such
Excise Tax (i) any such payments or benefits received or to be received by you
shall be treated as "parachute payments" within the meaning of Section
280G(b)(2) of the Code, and all "excess parachute payments" within the meaning
of Section 280G(b)(1) shall be treated as subject to the Excise Tax, unless in
the opinion of tax counsel selected by Coopers & Lybrand and acceptable to you
such other payments or benefits (in whole or in part) do not constitute
parachute payments, or such excess parachute payments (in whole or in part)
represent reasonable compensation for services actually rendered within the
meaning of Section 280G(b)(4) of the Code in excess of the base amount within
the meaning of Section 280G(b)(3) of the Code, or are otherwise not subject to
the Excise Tax, (ii) the amount of the Agreement Payments which shall be treated
as subject to the Excise Tax shall be equal to the lesser of (A) the total
amount of the Agreement Payments or (B) the amount of excess parachute
<PAGE> 15
payments within the meaning of Section 280G(b)(1) (after applying clause (i),
above), and (iii) the value of any non-cash benefits or any deferred payment or
benefit shall be determined by Coopers & Lybrand in accordance with the
principles of Sections 280G(d)(3) and (4) of the Code. For purposes of
determining the amount of the Gross-Up Payment, you shall be deemed to pay
federal income taxes at the highest marginal rate of federal income taxation in
the calendar year in which the Gross-Up Payment is to be made and state and
local income taxes at the highest marginal rate of taxation in the state and
locality of your residence on the Termination Date, net of the maximum reduction
in federal income taxes which could be obtained from deduction of such state and
local taxes. The Gross-Up Payment required in respect of Agreement Payments
other than under Section 2 of this Agreement shall be payable whether or not
your employment terminates. In the event that the Excise Tax is subsequently
determined to be less than the amount taken into account hereunder at the time
of your termination of employment, you shall repay to the Company at the time
that the amount of such reduction in Excise Tax is finally determined the
portion of the Gross-Up Payment attributable to such reduction (plus the portion
of the Gross-Up Payment attributable to the Excise Tax and federal and state and
local income tax imposed on the Gross-Up Payment being repaid by you if such
repayment results in a reduction in Excise Tax and/or a federal and state and
local income tax deduction) plus interest on the amount of such repayment at the
rate provided in Section 1274(b)(2)(B) of the Code. In the event that the Excise
Tax and any interest or penalties in respect thereof is determined to exceed the
amount taken into account hereunder (including by reason of any payment the
existence or amount of which cannot be determined at the time of the Gross-Up
Payment), the Company shall make an additional gross-up payment in respect of
such excess (plus any interest or penalties payable with respect to such excess)
at the time that the amount of such excess is finally determined.
If this letter correctly sets forth our agreement on the subject matter
hereof, please sign and return to the Company the enclosed copy of this letter
which will then constitute our agreement on this subject.
Sincerely,
THE FRANKLIN LIFE INSURANCE COMPANY
By /s/ STEPHEN P. HORVAT
Stephen P. Horvat
Agreed to this 14 day of
April, 1992.
/s/ HOWARD C. HUMPHREY
Howard C. Humphrey
<PAGE> 16
SEVERANCE AGREEMENT
AGREEMENT dated as of February 1, 1990 between AMERICAN FRANKLIN COMPANY, a
Delaware corporation ("American Franklin"), and HOWARD C. HUMPHREY (the
"Executive"),
W I T N E S S E T H:
WHEREAS, the Executive is currently an officer of American Franklin and
employed by American Franklin's wholly-owned subsidiary, The Franklin Life
Insurance Company (the "Company"), and has throughout the period during which he
has been an officer of American Franklin and an employee of the Company rendered
valuable service to American Franklin and the Company; and
WHEREAS, the Executive desires to continue as an officer of American
Franklin and in full-time employment with the Company, but to be provided with
the assurance of receiving certain severance benefits in the event the Company
were to take certain actions resulting in the termination of his employment; and
WHEREAS, American Franklin desires to continue to have the benefits of the
Executive's knowledge and experience as an officer of American Franklin and a
full-time employee of the Company and considers encouraging the continued
retention of the Executive by providing him with the
<PAGE> 17
assurance of receiving certain severance benefits to be a vital element in
protecting and enhancing the best interests of American Franklin; and
WHEREAS, American Franklin and the Executive desire to enter into this
Agreement to set forth the terms and conditions of such severance benefits;
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements hereinafter contained, the parties hereto do hereby agree as follows:
1. Termination of Employment.
(a) Entitlement to Benefits. If and only if during the term of this
Agreement the Executive's employment with the Company is terminated by the
Company other than for Disability or Cause (each as defined in this Section 1),
the Executive shall be entitled to benefits as provided in Section 2. The
Executive shall not be entitled to any benefits hereunder in the event his
employment with the Company is terminated as a result of his death, by the
Company for Disability or Cause or by the Executive for any reason.
(b) Disability. Termination of employment by the Company for Disability
hereunder shall be deemed to have occurred only if, as a result of the
Executive's incapacity due to physical or mental illness, the Executive shall
have been absent from his duties with the Company on a full-time
2
<PAGE> 18
basis for 180 consecutive days and, within 30 days after Notice of Termination
(as defined in Section 1(d)) is given to the Executive by the Company, the
Executive shall not have returned to the full-time performance of his duties.
(c) Cause. Termination of employment by the Company for Cause shall be
deemed to have occurred only if (i) termination shall have been the result of
(A) an act or acts of dishonesty on the Executive's part constituting a felony
and intended to result directly or indirectly in substantial gain or personal
enrichment to him at the expense of American Franklin or the Company, or (B) the
Executive's willful and continued failure substantially to perform his duties
and responsibilities as an officer of the Company (other than any such failure
resulting from his incapacity due to physical or mental illness) after a demand
for substantial performance is delivered to the Executive by the Board of
Directors of the Company which specifically identifies the manner in which such
Board believes that the Executive has not substantially performed his duties and
the Executive is given a reasonable time after such demand substantially to
perform his duties, and (ii) there shall have been delivered to the Executive a
copy of a resolution duly adopted by the affirmative vote of not less than
three-quarters of the members of the Board of Directors of the Company at a
meeting thereof called and held for the
3
<PAGE> 19
purpose (after reasonable notice to the Executive and an opportunity for him,
together with his counsel, to be heard before such Board), finding that in the
good faith opinion of the Board of Directors of the Company the Executive was
guilty of conduct set forth above in clause (i)(A) or (i)(B) of this Section
1(c) and specifying the particulars thereof in detail. The Executive's
employment shall in no event be considered to have been terminated by the
Company for Cause if the act or failure to act upon which such termination is
based (x) was done or omitted to be done (1) as a result of bad judgment or
negligence on his part, or (2) without intent of gaining therefrom directly or
indirectly a profit to which the Executive was not legally entitled or (3) as a
result of his good faith belief that such act or failure to act was in or was
not opposed to the interests of American Franklin and the Company, or (y) is an
act or failure to act in respect of which the Executive meets the applicable
standard of conduct prescribed for indemnification or reimbursement or payment
of expenses under the By-laws of the Company or the laws of the state of its
incorporation or the liability insurance covering directors and officers of the
Company, in each case as in effect at the time of such act or failure to act.
(d) Notice of Termination. Any termination by the Company for Disability or
Cause shall be communicated by Notice of Termination to the Executive. For
purposes of this
4
<PAGE> 20
Agreement, a "Notice of Termination" shall mean a notice in writing which shall
indicate the specific termination provision in this Agreement relied upon and
shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of the Executive's employment under the
provision so indicated.
(e) Termination Date. As used herein, "Termination Date" shall mean (i) if
employment is terminated by the Company for Disability, 30 days after Notice of
Termination is given (provided that the Executive shall not have returned to the
performance of his duties on a full-time basis during such 30-day period), (ii)
if employment is terminated by the Company for Cause, the date on which a Notice
of Termination is given and (iii) if employment is terminated for any other
reason, the date on which the Executive ceases to perform his duties as an
officer of the Company; provided, however, that, in the case of any termination
by the Company, if within 30 days after any required Notice of Termination is
given the Executive, the Executive notifies the Company that a dispute exists
concerning the termination, the Termination Date shall be the date on which the
dispute is finally determined, either by written agreement of the parties or by
a final judgment, order or decree of court of competent jurisdiction (the time
for appeal therefrom having expired and no appeal having been perfected);
provided further, however, that if
5
<PAGE> 21
the dispute is resolved in favor of the Company, the Termination Date shall not
be so extended but shall be the date determined under clauses (i) and (ii) of
this Section 1(e).
2. Compensation Upon Termination.
(a) If the Executive's employment is terminated by the Company for
Disability or Cause or by the Executive for any reason, American Franklin shall
have no obligation to pay any compensation to the Executive under this Agreement
in respect of periods beginning on and after the Termination Date, but this
Agreement shall have no effect on any other obligation American Franklin or the
Company may have to pay the Executive compensation to which he may otherwise be
entitled.
(b) If the Company shall terminate the Executive's employment other than
for Disability or Cause, then American Franklin shall cause the Company to pay
to the Executive on the fifth day following the Termination Date the amount set
forth in (i) below and American Franklin shall pay to the Executive as severance
pay in a lump sum on the fifth day following the Termination Date the amounts
set forth in (ii) and (iii) below:
(i) his full base salary from the Company through the Termination Date
at the rate in effect on the date hereof plus any increases therein
subsequent thereto;
6
<PAGE> 22
(ii) in lieu of any further salary payments or incentive compensation
awards to the Executive for periods subsequent to the Termination Date, an
amount equal to the product of (A) the sum of (1) his annual base salary at
the rate in effect on the date hereof plus any increases therein subsequent
thereto, plus (2) the greater of the amount that was awarded to him as
incentive compensation under the Executive Incentive Plan covering
executives of the Company and any other plans or any arrangements of the
Company and its affiliates (the "Incentive Compensation Plans") for 1989
(whether or not fully paid) and the amount awarded to him under the
Incentive Compensation Plans for the calendar year immediately preceding
the year in which the Termination Date occurs (whether or not fully paid),
but not less than the amount the Executive would have received if the
Executive had received the same percentage of the total amount available
for allotment as he received for 1989, multiplied by (B) the lesser of the
number two and the number of years (and fraction thereof) from the
Termination Date to the Executive's Normal Retirement Date (as defined in
The Franklin Life
7
<PAGE> 23
Employees' Retirement Plan (the "Retirement Plan")); and
(iii) all legal fees and expenses incurred by the Executive as a
result of such termination (including, but not limited to, all such fees
and expenses, if any, incurred in contesting or disputing any such
termination or in seeking to obtain or enforce any right or benefit
provided by this Agreement).
(c) If the Company shall terminate the Executive's employment other than
for Disability or Cause, American Franklin shall cause the Company to maintain
in full force and effect, for the Executive's continued benefit for a two-year
period (or, if shorter, the period until his Normal Retirement Date) after the
Termination Date, all employee life, health, accident, disability, medical and
other employee welfare benefit plans, programs or arrangements in which he was
participating immediately prior to the date hereof plus all improvements therein
subsequent thereto, provided that his continued participation is possible under
the terms and provisions of such plans, programs and arrangements. In the event
that the Executive's participation in any such plan, program or arrangement is
barred, American Franklin shall arrange to provide him with benefits
substantially similar to those which he would have
8
<PAGE> 24
been entitled to receive under such plan, program or arrangement if he had
remained a participant for such additional two-year period (or, if shorter, such
additional period until his Normal Retirement Date) after the Termination Date.
(d) If the Company shall terminate the Executive's employment other than
for Disability or Cause, then in addition to the retirement benefits to which
the Executive is entitled under the Retirement Plan, the Supplemental Retirement
Plan covering employees of the Company (the "Supplemental Plan") and any other
defined benefit pension plan maintained by the Company or any affiliate, and any
other program, practice or arrangement of the Company or any affiliate to
provide the Executive with a defined pension benefit after termination of
employment, and any successor plans thereto (all such plans being collectively
referred to herein as the "Pension Plans"), American Franklin shall pay the
Executive monthly beginning at the date payments commence under the Retirement
Plan an amount equal to the excess of (i) over (ii) below where
(i) equals the sum of the aggregate monthly amounts of pension
payments (determined as a straight life annuity) to which the Executive
would have been entitled under the terms of each of the Pension Plans in
which he was an
9
<PAGE> 25
active participant (without regard to any amendment made subsequent to the
date hereof which adversely affects in any manner the computation of the
Executive's benefits) determined as if he were fully vested thereunder and
had accumulated two additional years (or, if less, the number of years (and
fraction thereof) from the Termination Date to the Executive's Normal
Retirement Date) of Service thereunder (subsequent to his Termination Date)
at his rate of Salary in effect on the date hereof plus any increases
subsequent thereto,
and where
(ii) equals the sum of the aggregate monthly amounts of pension
payments (determined as a straight life annuity) to which the Executive is
entitled under the terms of each of the Pension Plans in which he was an
active participant at the date hereof or subsequently.
For purposes of clause (i), the amounts payable pursuant to Sections
2(b)(ii)(A)(1) and (2) and 2(b)(ii)(B) shall be considered as part of the
Executive's Salary and such amounts shall be deemed to represent two years (or,
if less, the number of years (and fraction thereof) from the Termination Date to
the Executive's Normal Retirement Date) of Salary for
10
<PAGE> 26
purposes of determining his highest consecutive five year average rate of
Salary. The supplemental pension benefits determined under this Section 2(d)
shall be payable by American Franklin to the Executive and his contingent
annuitant, if any, or to the Executive's surviving spouse as a spouse's benefit
if the Executive dies prior to commencement of benefits under this Agreement, in
the same manner and for the same period as his pension benefits under the
Supplemental Plan and shall be adjusted actuarially to reflect payment in a form
other than a straight life annuity. Benefits hereunder which commence prior to
the age at which benefits may be paid without actuarial reduction for early
payment shall be actuarially reduced to reflect early commencement to the
extent, if any, provided in the Retirement Plan as if the Executive's
Termination Date were an Early Retirement Date. All capitalized terms used in
this Section 2(d) shall have the same meaning as in the Retirement Plan, unless
otherwise defined herein or otherwise required by the context.
(e) If the Company shall terminate the Executive's employment other than
for Disability or Cause, the Executive shall be entitled to the following as
incentive compensation through the Termination Date:
(i) the unpaid portion of the amount awarded to him as incentive
compensation under the Incentive Com-
11
<PAGE> 27
pensation Plans for the calendar year immediately preceding the year in
which the Termination Date occurs, payable at the time awards thereunder
are normally paid; and
(ii) incentive compensation under the Incentive Compensation Plans for
the calendar year in which the Termination Date occurs, payable at the time
awards thereunder are normally paid, in an amount equal to the amount the
Executive would have received thereunder for such period if he had been
allocated a percentage of the total amount available for allotment equal to
the same percentage of the total amount available for allotment as he had
been allocated for 1989 or, if higher, the percentage for the calendar year
immediately preceding the year in which the Termination Date occurs, with
such incentive compensation amount prorated for the portion of the year
through the Termination Date.
(f) If the Company shall terminate the Executive's employment other than
for Disability or Cause and a dispute exists concerning the termination as set
forth in Section 1(e), American Franklin shall cause the Company to continue to
pay the Executive's full base salary through the date the dispute is finally
resolved as provided in Section 1(e).
12
<PAGE> 28
(g) The Executive shall not be required to mitigate the amount of any
payment provided for in this Section 2 by seeking other employment or
otherwise, nor shall the amount of any payment provided for in this Section 2
be reduced by any compensation earned by the Executive as the result of
employment by another employer after the Termination Date or by any other
compensation.
(h) Subject to Section 2(i), this Agreement and the obligations of
American Franklin hereunder shall not be in derogation of any other obligations
of American Franklin or the Company not set forth herein to pay any
compensation or to pay or provide any benefit to the Executive.
(i) Notwithstanding any other provision of this Agreement, (a) any
amount otherwise payable to the Executive pursuant to the agreement dated
January 26, 1988 between American Brands, Inc. and the Executive, as
amended, shall be reduced by the amount of any payments made by American
Franklin to the Executive under this Section 2, and (b) any benefits to
which the Executive is entitled under the Company's severance pay program
covering salaried employees generally shall be reduced by benefits paid
under Section 2(b)(ii).
3. Successors; Binding Agreement.
(a) American Franklin shall require any successor (whether direct or
indirect, by purchase, merger, consolida-
13
<PAGE> 29
tion or otherwise) to all or substantially all of the business or assets of
American Franklin, and any parent company thereof, by agreement or agreements in
form and substance satisfactory to the Executive, expressly to assume and agree
to perform this Agreement, and in the case of any such parent company expressly
to guarantee and agree to cause the performance of this Agreement, in the same
manner and to the same extent as American Franklin would be required to perform
it if no such succession had taken place. As used in this Agreement, "American
Franklin" shall mean American Franklin as defined at the beginning of this
Agreement and any successor to all or substantially all its business or assets
or which otherwise becomes bound by all the terms and provisions of this
Agreement, whether by the terms hereof, by operation of law or otherwise, and
"Company" as used herein shall mean the Company as defined at the beginning of
this Agreement and any successor to all or substantially all its business or
assets.
(b) This Agreement is personal to the Executive and without the prior
written consent of American Franklin shall not be assignable by the Executive
otherwise than by will or the laws of descent and distribution. This Agreement
shall inure to the benefit of and be enforceable by the Executive and his
personal or legal representatives and successors in interest under this
Agreement.
14
<PAGE> 30
4. Term. This Agreement shall continue in full force and effect until the
third anniversary of the date that notice of termination of this Agreement is
given by American Franklin to the Executive or by the Executive to American
Franklin.
5. Notice. Any notice, demand or other communication required or permitted
under this Agreement shall be effective only if it is in writing and delivered
personally or sent by registered or certified mail, return receipt requested,
postage prepaid, addressed as follows:
If to American Franklin:
American Franklin Company
1700 East Putnam Avenue
Old Greenwich, Connecticut 06870-0811
Attention: Secretary
If to the Executive:
Mr. Howard C. Humphrey
Spring Creek Farms, Rural Route 6
Springfield, Illinois 62704
or to such other address as either party may designate by notice to the other
and shall be deemed to have been given as of the date so personally delivered or
mailed.
6. Miscellaneous. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware. This Agreement cannot be
modified or any term or condition waived in whole or in part except by a
15
<PAGE> 31
writing signed by the party against whom enforcement of the modification or
waiver is sought. No waiver by either party hereto at any time of any breach by
the other party hereto of, or compliance with, any condition or provision of
this Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time. The headings in this Agreement are included for convenience of
reference only and shall not in any way affect the meaning or interpretation of
this Agreement.
7. Separability. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
8. Counterparts. This Agreement may be executed in any number of
counterparts, each of which so executed shall be deemed to be an original, and
such counterparts will together constitute but one Agreement.
9. Withholding of Taxes. American Franklin may withhold from any benefits
payable under this Agreement all federal, state, city or other taxes as shall be
required pursuant to any law or governmental regulation or ruling.
IN WITNESS WHEREOF, American Franklin Company has
16
<PAGE> 32
caused this Agreement to be executed by its officer thereunto duly authorized
and its seal to be hereunto affixed and attested and the Executive has hereunto
set his hand as of the date first above written.
[Seal] AMERICAN FRANKLIN COMPANY
Attest: By
- ------------------------------- ------------------------------------
------------------------------------
Howard C. Humphrey
17
<PAGE> 33
AMERICAN FRANKLIN COMPANY
SENIOR EXECUTIVE AND KEY MANAGER INCENTIVE PLAN
1. Purpose. The purpose of this American Franklin Company Senior Executive
and Key Manager Incentive Plan (the "Plan") is to provide added immediate
incentive to senior executive and key management employees of American Franklin
Company and its subsidiaries (collectively, the "Company") to enhance the
performance of the Company for the benefit of its stockholders by awarding
incentive compensation upon the attainment of performance goals.
2. Participation. The employees of the Company eligible to participate in
the Plan shall be those of its Senior Executives who are selected by the
Committee and those of its Key Managers who are selected by the Chief Executive
Officer. Only those employees whose positions significantly affect the growth
and income of the Company may be considered for participation. A person who
meets the requirements for eligibility but is employed after January 1 may be
selected by the Committee as a Participant, but the amount of award that the
Participant would have earned for such full year shall be prorated based on the
Participant's period of employment during the calendar year.
3. Incentive Awards.
3.1. Performance Goals. For 1990 and at the beginning of each year
thereafter, there shall be established performance goals in category (i)
below and there may be established performance goals in categories (ii) and
(iii) below:
(i) Company Performance -- based on Company Operating Income
performance range for such year;
(ii) Individual/Functional Performance -- based on achievement of
individual goals for each Participant and for the function that is
supervised by the Participant;
(iii) Other Performance Goals -- based on objectives determined by
the Committee in its sole discretion.
These performance goals shall be established by the Chief Executive Officer in
the case of Participants who are Key Managers and by the Committee, after
consideration of the recommendation of the Chief Executive Officer, in the case
of Participants who are Senior Executives.
<PAGE> 34
3.2. Target Award. For 1990 and at the beginning of each year
thereafter, there shall be established a target award for each Participant
which shall be the product of the Participant's base salary rate in effect
at the beginning of the year and a target award percentage. The target
award shall be established by the Committee in the case of Participants who
are Senior Executives and by the Chief Executive Officer in the case of
Participants who are Key Managers; provided, however, that the aggregate
amount of target awards for all Participants for each year shall be subject
to the review and approval of the Committee.
3.3. Determination of Amount of Incentive Award Payment. A Participant
may be paid a minimum of 0% and a maximum of 150% of the target award
depending on the extent to which the performance goals for the year have
been achieved. The determination of the weight to be given to the Company
Performance, Individual/Functional Performance and Other Performance Goals
for each Participant for the year, and the extent to which the goals have
been achieved, shall be determined in the sole discretion of the Committee
in the case of Participants who are Senior Executives and in the sole
discretion of the Chief Executive Officer in the case of Participants who
are Key Managers, subject, however, to receipt of the auditor's letter
referred to in Section 4 hereof.
4. Auditors' Letter. As soon as practicable after the end of each year and
before payment of the incentive awards, the Committee and the Chief Executive
Officer shall obtain a letter from the Director, Internal Audit, or the external
auditors who will have audited the consolidated financial statements of American
Brands, Inc. and its subsidiaries for such year. The letter must confirm that,
in connection with such audit, the auditors have reviewed the computation of
Operating Income, or such other Plan financial performance measures as requested
by the Committee, and that in their opinion such computations have been
performed in accordance with American Brands, Inc. accounting standards and
requirements.
5. Payments.
5.1. Source of Payment. Incentive awards shall be paid from the
general assets of the Company as soon as practicable in the year following
the year for which the incentive award is made.
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<PAGE> 35
5.2. Retention in Employment. In the event a Participant has
terminated employment prior to the date of payment of an award for a reason
other than death, disability or retirement on or after early retirement
date under a retirement plan of the Company or an affiliate, no incentive
award shall be paid to the Participant unless otherwise directed by the
Committee in the case of a Participant who is a Senior Executive or by the
Chief Executive Officer in the case of a Participant who is a Key Manager.
Transfer from the Company to an affiliate shall not be deemed to be a
termination of employment for this purpose.
5.3. Final Determination by Committee. Notwithstanding any other
provisions of the Plan, the Committee may in its sole discretion determine
not to make award payments, or to make reduced payments, to any or all
Participants.
6. Administration.
6.1. Responsibility for Administration. The administration of the Plan
and the responsibility for carrying it out shall be the responsibility of
the Committee except for those specific duties delegated by the Plan to the
Chief Executive Officer and The Franklin Life Insurance Company Salary
Committee. The Committee in its discretion may allocate responsibility
among one or more of its members and may delegate responsibility to one or
more other persons or committees as may be designated by it. The
interpretation of the Plan by the Committee and the determination of awards
under the Plan by the Committee and the Chief Executive Officer will be
final and binding on all Participants and any persons making a claim on
their behalf. Subject to the provisions of the Plan, the Committee shall
have authority to establish, adopt or revise such rules and guidelines as
it deems necessary or appropriate for the administration of the Plan.
6.2. Communication of Plan. The Chief Executive Officer shall cause
each Participant to be notified of his selection as a Participant, his
Company Performance, Individual/Functional and Other Performance Goals and
his target award. After the end of each year when the amount of each
Participant's award has been determined, the Chief Executive Officer will
cause each Participant to be provided with written notice of the amount of
payment, if any, and its relationship to the attainment of his performance
goals.
3
<PAGE> 36
7. Duration and Amendment. This Plan is an amendment and restatement of the
American Franklin Company Executive Incentive Plan and shall be applicable for
the year 1990 and subsequent years; provided that the Plan may be amended or
terminated by the Board of Directors of American Franklin Company at any time
except as to any completed year.
8. Definitions. The following words used in this Plan shall have the
following meanings:
(i) The position "Chief Executive Officer" represents the position
with The Franklin Life Insurance Company.
(ii) "Committee" means the American Brands, Inc. Incentive
Compensation Committee for Subsidiaries and Corporate Office.
(iii) "Key Manager" means an employee holding the office of Vice
President or Division Vice President of the Company or a subsidiary and who
is not a Senior Executive.
(iv) "Operating Income" means the consolidated operating income of the
Company as used in consolidation with the results of American Brands, Inc.
and its other consolidated subsidiaries, but adjusted to exclude any
deduction for the Plan, amortization of goodwill and step-up depreciation
and extraordinary items such as casualty losses, extraordinary legal fees
and other extraordinary items recommended by The Franklin Life Insurance
Company Salary Committee and approved by the Committee.
(v) "Participant" means an employee of the Company who meets the
requirements of Section 2 and has been designated to participate in the
Plan by the Committee.
(vi) "Senior Executive" means an employee holding the office of Senior
Vice President or Division Vice President of the Company or a subsidiary or
an office senior thereto.
4
<PAGE> 1
EXHIBIT 10.17
1995 DEFERRED COMPENSATION PLAN
I. INTRODUCTION
American General Corporation (hereinafter referred to as "AGC") hereby
establishes the 1995 Deferred Compensation Plan (hereinafter referred
to as the "Plan") for Harold S. Hook (hereinafter referred to as
"Participant").
II. DEFINITIONS
2.01 "Annual Base Salary" means the amount of annual salary, set by
the Personnel Committee of the AGC Board of Directors,
payable to Participant in biweekly installments.
2.02 "Cash Bonus Award" means the annual cash bonus awarded by a
Committee consisting of members of the Personnel Committee of
the AGC Board of Directors in their complete discretion to
chosen members of the highest-paid group of salaried
employees.
2.03 "Deferred Compensation" means the amount of Cash Bonus Award
defined in Section 2.02 and the Annual Base Salary defined in
Section 2.01 which Participant and AGC mutually agree to
defer.
2.04 "Election" means Participant's election to defer all or part
of his Annual Base Salary and Cash Bonus Award for a
particular calendar year as evidenced by a Notice of Election
to Defer Income whose form will be substantially similar to
Exhibit I attached to this Plan. Such election shall fix the
amount of Deferred Compensation, establish the time when the
payment of benefits shall commence, specify the option under
which benefits will be paid, and incorporate the terms,
conditions, and provisions of this Plan by reference. An
executed Election form will continue in force until all
Benefits relating to such election have been paid.
2.05 "Separation from Service" means severance of Participant's
relationship with AGC as an employee. Participant shall be
deemed to have severed his employment or contractual
relationship with AGC for purposes of this Plan when, in
accordance with the established practices of AGC, the
employment or contractual relationship is considered to have
terminated.
III. ADMINISTRATION
This Plan will be administered by a Committee of one or more persons
appointed by AGC. The Committee will act as the agent of AGC in all
matters concerning the administration of this Plan.
IV. DEFERRAL ELECTION
4.01 Participant may elect to defer all or any part of his Cash
Bonus Award, as defined in Section 2.02 of this Plan, and
Annual Base Salary, as defined in Section 2.01 of this Plan,
by completing an Election as provided below. If no Election
is made, all compensation will be paid on a regular basis.
4.02 The Election to defer Annual Base Salary must be made within
30 days prior to the beginning of the calendar year in which
the compensation is to be deferred and must defer compensation
not yet earned.
4.03 Participant may not amend or modify the Plan to change the
amount of Deferred Compensation, the payment option selected,
or the time when the payment of benefits should
-1-
<PAGE> 2
commence, except in the case of Participant's becoming
disabled as discussed in Section 5.04. However, Participant
shall make a separate Election to defer his Cash Bonus Award
and Annual Base Salary each calendar year.
4.04 If Participant makes a withdrawal pursuant to Section 5.05,
Participant may again defer his Cash Bonus Award and Annual
Base Salary by executing a new Election prior to the beginning
of the calendar year in which it is effective. The effective
date of the new Election will be subject to the provisions of
Section 5.05.
V. BENEFITS
PAYMENT OPTION
5.01 The benefit payable under this Plan shall be payable to
Participant in one lump sum payment in an amount equal to the
total of the deferred compensation plus interest at the rate
in effect from time to time under the Cash Fund of the
American General Employees' Thrift and Incentive Plan.
Interest on the benefit shall be credited at the end of each
calendar quarter on the basis of the time during such quarter
the various portions of such amounts were credited as payable
under this Plan, and such interest shall be compounded
quarterly at the end of each calendar quarter.
SEPARATION FROM SERVICE
5.02 Participant will be entitled to his lump sum payment on the
first business day of the calendar year following the date of
Participant's Separation from Service.
DEATH BENEFITS
5.03 Should Participant die before he has begun to receive the
benefits provided in Section 5.01, AGC shall cause to be paid
to Participant's spouse within thirty (30) days of receipt of
satisfactory proof of death, a lump sum benefit in an amount
equal to the then value of Participant's account. If
Participant's spouse does not survive Participant for a period
of fifteen (15) days, then AGC shall cause such death benefit
to be paid to Participant's estate.
DISABILITY BENEFITS
5.04 Should Participant become disabled before the commencement
date of the benefits, Participant may elect to receive his
lump sum payment on the first day of the month following the
determination of disability. The Plan shall consider
Participant disabled on the date the committee appointed by
AGC to administer this Plan determines Participant is unable
to engage in any substantial gainful activity by reason of any
medically determinable physical or mental impairment which can
be expected to result in death or mental impairment or be of
long-continued and indefinite duration. The disability of
Participant shall be determined by the committee in accordance
with uniform principles consistently applied, upon the basis
of such evidence as the committee deems necessary and
desirable. An election to receive disability benefits must be
made within a reasonable time after the determination of
disability.
-2-
<PAGE> 3
UNFORESEEABLE EMERGENCY WITHDRAWALS
5.05 In the event of an unforeseeable emergency prior to the
commencement of the benefits provided in Section 5.01,
Participant may apply to the committee to receive that part of
his account which is reasonably needed to satisfy the
emergency needs. If such application for emergency withdrawal
is approved by AGC, AGC shall pay Participant such value as
AGC deems necessary to meet the emergency needs. An
unforeseeable emergency involves only circumstances of sudden
and unexpected emergencies which would cause great hardship to
Participant if early withdrawal were not permitted. The
emergency must be beyond Participant's control and payment may
not be made to the extent that such hardship may be relieved
by other financial resources available to Participant,
including insurance reimbursement, cessation of deferrals
under the Plan, or liquidation of other assets.
If Participant is granted an unforeseeable emergency hardship
withdrawal, he shall be required to cease deferring
compensation under this Plan. The period of cessation shall
commence as of the date of the request and shall expire as of
the last day of the calendar year next following the calendar
year containing the date of the request. Participant can
execute a new Election and resume making deferrals of his Cash
Bonus Award and Annual Base Salary effective as of the first
day of the first calendar year following the end of the period
of cessation.
VI. RELATIONSHIP TO OTHER PLANS
This Plan serves in addition to any other retirement, pension, or
benefit plan or system presently in existence of hereinafter
established.
VII. ANTI-ALIENATION
Participant's rights, interests, and benefits hereunder cannot be
assigned, transferred, pledged, sold, conveyed or encumbered in any
way by Participant or his estate, and are not subject to execution,
attachment, or similar process. Any attempted sale, conveyance,
transfer, assignment, pledge or encumbrance of the rights, interests,
or benefits provided pursuant to the terms of this Plan contrary to
the terms of the foregoing sentence, or the levy of any attachment or
similar process thereupon, shall be null and void and without effect.
VIII. AMENDMENT OR TERMINATION OF PLAN
AGC may at any time amend or terminate this Plan, provided that such
amendment or termination shall not affect the rights of Participant
with respect to any compensation deferred before the date of the
termination of this Plan. Participant will thereafter receive his
Cash Bonus Award and Annual Base Salary and benefits shall be paid as
provided in Article V.
IX. APPLICABLE LAW
This Agreement shall be construed under the laws of the State of Texas.
-3-
<PAGE> 4
IN WITNESS WHEREOF, the parties have signed this 1995 Deferred
Compensation Agreement, this 28th day of December, 1994.
WITNESS: AMERICAN GENERAL CORPORATION
/s/ CARMEL L. OSBORNE By: /s/ GARY D. REDDICK
- --------------------------------- ----------------------------------
Gary D. Reddick - Senior
Vice President - Administration
WITNESS:
/s/ CARMEL L. OSBORNE By: /s/ HAROLD S. HOOK
- --------------------------------- ----------------------------------
Harold S. Hook
-4-
<PAGE> 5
EXHIBIT I
NOTICE OF ELECTION TO DEFER INCOME
December __, 199_
American General Corporation
2929 Allen Parkway
Houston, Texas 77019
Gentlemen:
1. Deferral of Income. Pursuant to Article 4 of my 1995 Deferred
Compensation Plan with American General Corporation, I hereby
elect to have __% of the amount payable to me as Annual Base
Salary during the 19__ calendar year and __% of any amount
payable to me as a Cash Bonus Award during the 19__ calendar
year deferred and paid to me on my "Deferral Date."
2. Deferral Date. For purposes of the 1995 Deferred Compensation
Plan, the Deferral Date, which is the date the payments
commence, shall be the first business day of the calendar year
following the date of my Separation from Service.
3. Manner of Deferred Payment. Deferred payments are to be made
in a lump sum payment payable on the first business day of the
calendar year following the date of my Separation from
Service.
4. Terms of Election. I understand that this election is subject
to the terms and conditions of the 1995 Deferred Compensation
Plan. I further understand that upon my disability, I may
elect to receive the lump sum payment on the first day of the
month following the determination of my disability.
Dated: December __, 1994
__________________________________
Harold S. Hook
Received this ____ day of December, 19__
______________________________________
<PAGE> 1
EXHIBIT 10.19
AMERICAN GENERAL CORPORATION
PERFORMANCE - BASED PLAN FOR EXECUTIVE OFFICERS
Amended and Restated Effective January 1, 1995
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> 2
(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 On or prior to the ninetieth day following January 1 of each
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
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.
-2-
<PAGE> 3
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 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.
-3-
<PAGE> 4
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.
IN WITNESS WHEREOF, AMERICAN GENERAL CORPORATION has executed this
Amended and Restated Plan this ______ day of ______________, 1995.
ATTEST: AMERICAN GENERAL CORPORATION
By:___________________________ By:_________________________________
Title:__________________________ Title:_______________________________
-4-
<PAGE> 1
EXHIBIT 11 - COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
For the Years Ended December 31,
In millions, except share data 1994 1993 1992
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Primary:
Net income available to common stock
Income before cumulative effect of accounting changes $ 513 $ 250* $ 533
Cumulative effect of accounting changes - (46) -
- ----------------------------------------------------------------------------------------------------------
Net income available to common stock $ 513 $ 204 $ 533
- ----------------------------------------------------------------------------------------------------------
Average shares outstanding
Common shares 209,125,350 216,117,181 217,042,022
Assumed exercise of stock options 274,313 461,655 358,448
Assumed exercise of put contracts 3,394 - -
Assumed conversion of debentures - - 54,264
- ----------------------------------------------------------------------------------------------------------
Total 209,403,057 216,578,836 217,454,734
- ----------------------------------------------------------------------------------------------------------
Earnings per share
Income before cumulative effect of accounting changes $ 2.45 $ 1.15* $ 2.45
Cumulative effect of accounting changes - (.21) -
- ----------------------------------------------------------------------------------------------------------
Net income per share $ 2.45 $ .94 $ 2.45
- ----------------------------------------------------------------------------------------------------------
Fully diluted:
Net income available to common stock
Income before cumulative effect of accounting changes $ 513 $ 250* $ 533
Cumulative effect of accounting changes - (46) -
- ----------------------------------------------------------------------------------------------------------
Net income available to common stock $ 513 $ 204 $ 533
- ----------------------------------------------------------------------------------------------------------
Average shares outstanding
Common shares 209,125,350 216,117,181 217,042,022
Assumed exercise of stock options 291,742 461,655 608,334
Assumed exercise of put contracts 3,394 - -
Assumed conversion of debentures - - 54,264
- ----------------------------------------------------------------------------------------------------------
Total 209,420,486 216,578,836 217,704,620
- ----------------------------------------------------------------------------------------------------------
Earnings per share
Income before cumulative effect of accounting changes $ 2.45 $ 1.15* $ 2.45
Cumulative effect of accounting changes - (.21) -
- ----------------------------------------------------------------------------------------------------------
Net income per share $ 2.45 $ .94 $ 2.45
- ----------------------------------------------------------------------------------------------------------
</TABLE>
* Includes $300 million ($1.39 per share) write-down of goodwill and $30 million
($.14 per share) tax rate related adjustment. Additional information is
incorporated herein by reference from the section "1993 Significant Events" in
MD&A and Note 7.3, respectively, of Notes to Financial Statements in American
General's 1994 ARS.
<PAGE> 1
- --------------------------------------------------------------------------------
EXHIBIT 12 - COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
For the Years Ended December 31,
In millions, except ratios 1994 1993 1992
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------
Consolidated operations:
Income before income tax expense and cumulative effect of
accounting changes $ 802 $ 602* $ 775
Fixed charges deducted from income
Interest expense
Consolidated 526 483 508
Relating to real estate operations - 5 8
Implicit interest in rents 16 15 13
- -----------------------------------------------------------------------------------------------------------
Total fixed charges deducted from income 542 503 529
- -----------------------------------------------------------------------------------------------------------
Earnings available for fixed charges $ 1,344 $ 1,105* $ 1,304
- -----------------------------------------------------------------------------------------------------------
Fixed charges per above $ 542 $ 503 $ 529
Capitalized interest relating to real estate operations 18 15 21
- -----------------------------------------------------------------------------------------------------------
Total fixed charges $ 560 $ 518 $ 550
- -----------------------------------------------------------------------------------------------------------
Ratio of earnings to fixed charges 2.4 2.1 2.4
- -----------------------------------------------------------------------------------------------------------
Consolidated operations, corporate fixed charges only:
Income before income tax expense and cumulative effect of
accounting changes $ 802 $ 602* $ 775
Corporate fixed charges deducted from income - corporate
interest expense 121 121 126
- -----------------------------------------------------------------------------------------------------------
Earnings available for fixed charges $ 923 $ 723* $ 901
- -----------------------------------------------------------------------------------------------------------
Ratio of earnings to corporate fixed charges 7.6 6.0 7.2
- -----------------------------------------------------------------------------------------------------------
American General Finance, Inc.:
Income before income tax expense and cumulative effect of
accounting changes $ 392 $ 337 $ 250
Fixed charges deducted from income
Interest expense 416 380 398
Implicit interest in rents 11 10 9
- -----------------------------------------------------------------------------------------------------------
Total fixed charges deducted from income 427 390 407
- -----------------------------------------------------------------------------------------------------------
Earnings available for fixed charges $ 819 $ 727 $ 657
- -----------------------------------------------------------------------------------------------------------
Ratio of earnings to fixed charges 1.9 1.9 1.6
- -----------------------------------------------------------------------------------------------------------
</TABLE>
* Includes $300 million write-down of goodwill. Additional information is
incorporated herein by reference from the section "1993 Significant Events" of
MD&A in American General's 1994 ARS.
<PAGE> 1
EXHIBIT 13
MANAGEMENT'S DISCUSSION AND ANALYSIS
American General Corporation
For the Three Years Ended December 31, 1994
MANAGEMENT'S DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION
WITH THE CONSOLIDATED FINANCIAL STATEMENTS AND RELATED NOTES BEGINNING ON PAGE
26.
American General is one of the nation's largest consumer financial
services organizations, with assets of $46 billion and shareholders' equity of
$3.5 billion at December 31, 1994. The company provides retirement annuities,
consumer loans, and life insurance products to more than seven million
households throughout the United States, Canada, Puerto Rico, and the U.S.
Virgin Islands.
American General reported net income of $513 million ($2.45 per share)
in 1994, compared to $204 million ($.94 per share) in 1993 and $533 million
($2.45 per share) in 1992. Reducing 1994 net income were $114 million of net
realized investment losses arising from the company's capital gains offset
program and increases in real estate reserves. The 1993 net income was
decreased by $376 million of adjustments for the write-down of goodwill,
accounting changes, and a tax charge. The 1992 net income reflected normal
operations and did not include the unusual reductions that occurred in 1994 and
1993.
SIGNIFICANT EVENTS
The following events of 1994 and 1993 significantly affected or will
affect American General's financial condition and results of operations.
ACQUISITIONS AND DIVESTITURES
As of November 29, 1994, the company signed a definitive agreement to
acquire The Franklin Life Insurance Company (Franklin Life) for $1.17 billion.
The transaction closed on January 31, 1995. The purchase price consisted of
$920 million in cash paid at closing and a $250 million dividend paid by
Franklin Life to its former parent prior to closing. This acquisition will be
accounted for using the purchase method. Beginning first quarter 1995, Franklin
Life will be reported as part of the Life Insurance segment, increasing that
segment's assets and life insurance in force by approximately 53% and 35%,
respectively. The permanent financing of this acquisition will be finalized in
1995 and is expected to consist of a mix of short-term floating-rate debt,
long-term fixed-rate debt, and preferred stock. Franklin Life was acquired to
complement American General's existing life insurance distribution systems and
further strengthen the company's position in middle-income households,
particularly in the Midwest.
On December 23, 1994, the company acquired a 40% interest in Western
National Corporation (WNC) through the acquisition of 24,947,500 shares of
WNC's common stock for $274 million in cash. The acquisition is reflected in
the 1994 financial statements using the equity method of accounting. The
company's equity in the operating results of WNC for the period subsequent to
the acquisition did not have a material impact on 1994 results of operations.
The shares of WNC were acquired for investment purposes.
These two acquisitions and related financings are expected to increase
earnings per share in 1995.
On August 31, 1994, the company completed the sale of
American-Amicable Life Insurance Company of Texas (American-Amicable), a
special niche subsidiary in the Life Insurance segment. The sales price, which
included a $10 million dividend paid prior to closing, was $105 million.
On August 31, 1994, the company also announced that it had ended
discussions to sell Financial Life Assurance Company of Canada due to adverse
developments in the Canadian life insurance market.
On August 2, 1994, the company publicly announced a $2.6 billion
all-cash merger offer to acquire Unitrin, Inc. Unitrin provides basic
financial services, including insurance and consumer loans, to individuals and
small businesses throughout the United States. This offer expired on February
7, 1995.
EFFECT OF SFAS 115
American General adopted SFAS 115, "Accounting for Certain Investments
in Debt and Equity Securities," at December 31, 1993, and all fixed maturity
and equity securities were classified as available-for-sale and recorded at
fair value. SFAS 115 requires that the carrying value of most fixed maturity
securities be adjusted for changes in market value, primarily caused by
interest rates. However, the insurance liabilities supported by these
securities are not adjusted under SFAS 115, thereby creating volatility in
shareholders' equity as interest rates change. Therefore, care should be
exercised in drawing conclusions based on balance sheet amounts that include
the SFAS 115 effect. SFAS 115 does not affect results of operations.
Rising interest rates in 1994 caused decreases in bond values. As a
result, the effect of the SFAS 115 adjustment for fixed maturity securities was
to reduce shareholders' equity by $1.6 billion during 1994.
AMERICAN GENERAL CORPORATION
16
<PAGE> 2
The components of the fair value adjustment to report securities in
accordance with SFAS 115 at December 31, and the 1994 change, were as follows:
<TABLE>
<CAPTION>
In millions 1994 1993 Change
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fair value adjustment to fixed maturity
securities $(1,387) $1,594 $(2,981)
Increase (decrease) in deferred
policy acquisition costs 401 (554) 955
Decrease (increase) in deferred
income taxes 351 (364) 715
Valuation allowance on deferred
tax asset (315) - (315)
- -------------------------------------------------------------------------------------------------------------
Net unrealized gains (losses)
on fixed maturity securities (950) 676 (1,626)
Net unrealized gains (losses)
on equity securities 15 33 (18)
- -------------------------------------------------------------------------------------------------------------
Net unrealized gains (losses)
on securities $(935) $709 $(1,644)
- -------------------------------------------------------------------------------------------------------------
</TABLE>
The fair value adjustment to fixed maturity securities recorded at
December 31, 1994 generated a deferred tax asset of $485 million. The company
believes that a portion of the deferred tax asset is realizable, since the
company has the ability to carryback $418 million of future capital losses
against prior years' capital gains (see discussion of Capital Gains Offset
Program below). In addition, the company may hold certain securities until
maturity and, therefore, would not realize future losses on such investments.
Since the remainder of the deferred tax asset may not be realized, a valuation
allowance of $315 million was provided at December 31, 1994.
CAPITAL GAINS OFFSET PROGRAM
During fourth quarter 1994, American General initiated a program to
realize capital losses for tax purposes to offset prior period capital gains.
The purpose of the program is to realize tax refunds of approximately $200
million. In conjunction with this program, the company has realized net
capital losses for tax purposes of $126 million, primarily through the sale of
$1.2 billion of fixed maturity securities. The company expects to receive a tax
refund of $43 million in 1995 from the tax losses carried back to offset 1991
capital gains. This program reduced 1994 net income by approximately $60
million.
Reinvestment of the sales proceeds in higher yielding fixed maturity
securities and investment of the tax refunds are expected to increase future
pretax investment income by approximately $100 million over the next 10 years.
Additionally, the company realized net capital gains of $162 and $256
million in 1992 and 1993, respectively, that can be used for tax loss carryback
purposes in 1995 and 1996. While the company plans to generate capital losses
in 1995 at least sufficient to offset the 1992 capital gains, the ability to
realize such losses is dependent on future market conditions and alternative
tax planning strategies.
SHARE BUYBACK PROGRAM
In 1994, the company purchased 9.5 million shares of American
General's common stock at a cost of $262 million, compared to 2.7 million
shares and 2.0 million shares in 1993 and 1992, respectively. Share purchases
under this program in 1994 increased 1994 earnings per share by $.02. Purchases
in 1993 had no significant impact on 1993 earnings per share, while 1992
purchases increased 1992 earnings per share by $.01.
Since inception of the share buyback program in 1987, 97.1 million
American General common shares, or 32% of the total shares then outstanding,
have been purchased for an aggregate cost of $1.9 billion. The company has
suspended its share buyback program as a result of the previously discussed
acquisition activity.
DERIVATIVES
In 1994, derivative financial instruments received significant
scrutiny by investors and regulators due to well-publicized losses by major
companies. American General makes very limited use of derivative financial
instruments to manage the cost of debt and investment transactions and does not
use derivatives for speculative purposes. See Note 12 for new required
disclosures about the company's use of derivatives.
1993 SIGNIFICANT EVENTS
In 1993, the company recorded a $300 million non-cash write-down of
acquisition-related goodwill in the Life Insurance segment. This write-down was
one of the decisions resulting from a strategic review of the company's four
ordinary life insurance subsidiaries, primarily American General Life (AGL),
begun in 1993. The strategic review was initiated to assess alternatives for
optimizing the use of capital allocated to these subsidiaries in light of
increasing public market multiples for life insurance companies in early 1993
and new risk-based capital requirements facing the life insurance industry.
While AGL had been profitable in recent years, it operated in increasingly
competitive markets and its performance was not meeting management's
expectations, particularly in comparison to the company's other businesses.
In connection with the strategic review, the company retained an
outside advisor to assess AGL's market value, assuming the company chose to
sell AGL. The outside advisor's report, received on November 22, 1993,
indicated that AGL's fair value was below its book value. This report, together
with the marketing and profitability review performed by management, suggested
an impairment of AGL's goodwill. The primary source of AGL's goodwill was the
$1.2 billion acquisition of the Gulf United insurance operations in 1984. Since
that time, there had been a series of consolidations within the company's
ordinary life insurance operations. In addition, AGL's marketing focus
gradually changed, causing a decline in the acquired agency force and its in
force business. In the past several years, AGL's business mix also continued to
shift from life insurance to
1994 ANNUAL REPORT
17
<PAGE> 3
annuities, which have different distribution systems and lower interest
margins. Management concluded, based on the cumulative effect of these trends
and the outside advisor's report, that a portion of goodwill was permanently
impaired.
Following a special board of directors meeting on November 29, 1993,
the company announced the board's decision to retain AGL and a related New York
subsidiary, seek future growth through acquisitions, sell the two special niche
life insurance subsidiaries, and write down $300 million of goodwill associated
with the four subsidiaries. While the write-down resulted in a $164 million net
loss in fourth quarter 1993, it did not affect the company's debt or claims-
paying ability ratings and is not expected to have a material impact on future
operating results. See Note 1.7 for the company's accounting policy related to
goodwill.
In addition, the company adopted new accounting standards as of
January 1, 1993 that reduced 1993 net income by $46 million (see Note 1.2). The
company also recorded a $30 million charge to reflect the federal corporate
income tax rate increase caused by the Revenue Reconciliation Act of 1993 (see
Note 7.3).
BUSINESS SEGMENTS
American General reports the results of its business operations in
three segments: Retirement Annuities, Consumer Finance, and Life Insurance. To
facilitate meaningful period-to-period comparisons, 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 (losses), non-recurring items, and the effect of accounting
changes. Segment earnings, presented below on an aftertax basis, differ from
those disclosed in Note 15 by the amount of income tax expense for each
segment.
SEGMENT EARNINGS
<TABLE>
<CAPTION>
In millions 1994 1993 1992
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Retirement Annuities $187 $162 $130
Consumer Finance 245 206 161
Life Insurance 257 291 323
- -------------------------------------------------------------------------------------------------------------
Segment earnings 689 659 614
Non-recurring items - (329) -
- -------------------------------------------------------------------------------------------------------------
Total $689 $330 $614
- -------------------------------------------------------------------------------------------------------------
</TABLE>
Non-recurring items in 1993 include a $300 million write-down of
goodwill in the Life Insurance segment and a $29 million charge due to the 1993
tax rate change.
RETIREMENT ANNUITIES
The Variable Annuity Life Insurance Company (VALIC), American
General's retirement annuity company, specializes in providing tax-deferred
retirement plans and annuities to employees of not-for-profit organizations.
RETIREMENT ANNUITIES
<TABLE>
<CAPTION>
In millions 1994 1993 1992
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets $22,007 $20,896 $17,673
Fixed deposits 1,657 1,700 1,630
Variable deposits 573 432 271
Revenues 1,537 1,470 1,358
Segment earnings 187 162 130
- -------------------------------------------------------------------------------------------------------------
</TABLE>
RESULTS. Profitability of the retirement annuity business is a
function of three elements: asset growth, net interest margin, and operating
expenses.
Asset growth (excluding the effect of SFAS 115) was 11% in 1994 and
15% in 1993. A key component of asset growth is new deposits from customers,
who may elect fixed or variable account options. The strong growth in variable
deposits and decline in fixed deposits are a result of the attractiveness of
equity investments due to relatively low interest rates in 1993 and early 1994.
In response to this trend, VALIC significantly expanded the variable investment
options offered to its customers during 1994. The assets and liabilities
related to these variable account options are reflected in Separate Account
assets and liabilities because the customer bears the investment risk.
Revenues, over 97% of which are net investment income, increased as a
result of growth in total assets, despite declines of 57 and 59 basis points in
average investment yields on fixed accounts in 1994 and 1993, respectively. As
a result of management's ability to make corresponding reductions in the rates
credited to policyholders, the net interest margin increased 14 basis points in
1994 and 7 basis points in 1993.
The ratio of operating expenses to average assets was .57%, .59%, and
.67% in 1994, 1993, and 1992, respectively. Operating expenses for 1994, 1993,
and 1992 were increased by pretax charges of $6 million, $7 million, and $12
million, respectively, for actual and anticipated assessments by state
insurance guaranty associations.
Substantially all of this segment's business is tax-qualified
retirement annuities, which generally experience lower withdrawal rates than
non-qualified annuities. The rate of policyholder surrenders of fixed accounts
increased to 4.9% of average reserves in 1994, compared to 3.9% in 1993 and
3.8% in 1992. The 1994 increase was due in part to the surrender of one large
group account, as well as customers seeking higher returns in other
equity-based investments.
OUTLOOK. Despite increased competition, especially from equity mutual
funds, this segment should continue to experience asset growth, due to its
leading market position, exclusive distribution system, and strong
claims-paying ability ratings. By managing interest-crediting rates to reflect
changing investment yields, the company expects to maintain net interest
margins within its pricing assumptions. As a result, earnings in this segment
should continue to increase.
AMERICAN GENERAL CORPORATION
18
<PAGE> 4
CONSUMER FINANCE
American General Finance and its subsidiaries offer consumer loans,
home equity loans, retail sales financing, credit cards, and credit-related
insurance products through a national network of 1,300 branch offices.
CONSUMER FINANCE
<TABLE>
<CAPTION>
In millions 1994 1993 1992
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Finance receivables $7,920 $6,574 $6,200
Finance receivable volume 6,978 5,408 4,362
Revenues 1,491 1,282 1,178
Segment earnings 245 206 161
- -------------------------------------------------------------------------------------------------------------
</TABLE>
RESULTS. Principal influences on this segment's results include the
aggregate amount and mix of finance receivables, credit loss experience, cost
of borrowed funds, and operating expenses.
Finance receivables grew 20% in 1994 and 6% in 1993. The increase in
finance receivables and finance receivable volume is primarily due to branch
expansion and business development efforts in retail sales financing. A leading
contributor to this growth has been private label products, which offer
revolving financing services through large retail merchants. Growth in
higher-yielding non-real estate consumer loans and retail receivables increased
the yield on finance receivables by 63 and 21 basis points during 1994 and
1993, respectively.
As expected, growth in higher-yielding finance receivables influenced
credit quality in 1994 and 1993. Delinquencies increased to 2.9% at December
31, 1994, compared to 2.5% and 2.2% for 1993 and 1992, respectively. Charge
offs increased to 2.5% in 1994 from 2.2% in both 1993 and 1992, while the
allowance for finance receivable losses increased to 2.9% of finance
receivables at December 31, 1994, compared to 2.8% for 1993 and 2.6% for 1992.
Cost of borrowing for this segment declined 7 basis points in 1994 and
82 basis points in 1993, due to refinancing long-term debt at lower rates and
the decline in market rates during 1993 and 1992.
Operating expenses increased 12% in 1994 and 3% in 1993, compared to
growth in average finance receivables of 11% and 8% in 1994 and 1993,
respectively. The increase in operating expenses reflected increased staffing
and costs related to growth in branch offices, including 100 new branches
opened in 1994, and a major branch office automation program, partially offset
by increased deferrals of finance receivable origination costs.
OUTLOOK. Management expects to continue to increase the size of the
finance receivable portfolio and to emphasize retail and higher-yielding
non-real estate consumer loans. Revenues associated with this growth are
expected to be partially offset by higher cost of borrowed funds and an
increase in the provision for finance receivable losses. Overall, earnings in
this segment should continue to increase.
LIFE INSURANCE
The Life Insurance segment includes American General Life and Accident
(AGLA), which emphasizes the sale and service of basic needs life insurance
products, and American General Life (AGL), which provides life insurance and
annuity products for estate planning and capital accumulation needs. In January
1995, the company acquired Franklin Life, which provides individual insurance
and annuity products through an agency distribution system.
LIFE INSURANCE
<TABLE>
<CAPTION>
In millions 1994 1993 1992
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets $14,156 $14,192 $13,328
Deposits
Annuities 598 472 403
Life insurance 547 521 435
Revenues
Premiums and other considerations 999 1,085 1,070
Net investment income 902 942 948
Life and annuity sales 859 697 595
Segment earnings 257 291 323
- -------------------------------------------------------------------------------------------------------------
</TABLE>
RESULTS. Earnings for this segment have decreased due to declining
investment yields and higher income taxes beginning in 1993. In addition, 1994
segment results excluded American-Amicable, which had earnings of $8 million
and $9 million in 1993 and 1992, respectively, and was sold in August 1994.
The decline in net investment income is primarily a result of
declining yields, partially offset by growth in assets (excluding the effect of
SFAS 115). The average investment yield for the Life Insurance segment
decreased to 8.6% in 1994, compared to 9.3% and 9.9% in 1993 and 1992,
respectively. The lower yields reflect significant prepayments of
mortgage-backed securities and bond calls in 1992 and 1993, with reinvestment
of proceeds at lower interest rates.
Premiums and other considerations include premiums on traditional life
insurance and mortality, expense, and surrender charges on interest-sensitive
products. The decrease in 1994 was primarily due to the sale of American-
Amicable and the ceding of medicare supplement business to another insurance
company. The revenues ceded were largely offset by a related decrease in
benefit expense.
Annuity sales increased 37% to $601 million in 1994, compared to an
increase of 18% in 1993. The strong growth in annuity sales is primarily due to
the successful introduction of a new variable product marketed through a
network of financial institutions. Life sales, as measured by new annualized
premiums, decreased 1% to $258 million in 1994, compared to a 16% increase in
1993. The 1994 decrease was due to lower sales of traditional life insurance
and the sale of American-Amicable.
Segment earnings were adversely affected by higher income taxes in
1994 and 1993, due to the loss of certain tax benefits which totaled $29
million in 1992.
1994 ANNUAL REPORT
19
<PAGE> 5
OUTLOOK. Excluding the acquisition of Franklin Life, management
expects continued pressure on segment earnings in 1995. Despite continued
increases in sales of annuity and other interest-sensitive products, net
investment income is expected to decline as a result of lower investment
yields. Including Franklin Life, segment earnings are expected to substantially
increase in 1995.
ECONOMIC FACTORS
INTEREST RATES. The pricing and profit margins of the products and
services offered by American General's operating subsidiaries are sensitive to
interest rates. Fluctuations in interest rates also affect the economic value
and duration of the assets and liabilities supporting these products and
services. American General may respond to fluctuations in interest rates by
adjusting interest-crediting rates, repricing products, and/or changing
investment strategy. See the discussion of the company's asset/liability
management program beginning on page 21.
COMPETITION. On January 18, 1995, the U.S. Supreme Court ruled that
all national banks may compete with insurance companies in the sale of
annuities. VALIC was the named plaintiff on behalf of the life insurance
industry in the litigation (VALIC vs. NationsBank).
VALIC currently sells variable annuities to specialized markets for
qualified retirement plans through NASD-licensed representatives. American
General's life insurance companies sell annuities through their own agency
distribution systems and through a network of financial institutions. As a
result, the impact of the decision on American General's insurance operations
is expected to be minimal.
TAXATION. Tax laws affect not only the way American General is taxed
but also the design of many of its products. Changes in tax laws or regulations
could adversely affect operating results. The Revenue Reconciliation Act of 1993
increased the federal corporate tax rate by 1% and caused an increase in
current taxes and a one-time increase in deferred income taxes, which together
decreased net income by $30 million in 1993.
GUARANTY ASSOCIATIONS. All 50 states have laws requiring solvent life
insurance companies to pay assessments to state guaranty associations to
protect the interests of policyholders of insolvent life insurance and annuity
companies. A portion of these assessments can be recovered against the payment
of future premium taxes; however, changes in state laws could decrease the
amount available for recovery.
The amounts assessed American General's life insurance and annuity
subsidiaries under such laws were $16 million for 1994 and $14 million each for
1993 and 1992. The assessments were reduced by $6 million for 1994 and $5
million each for 1993 and 1992, considered recoverable against future premium
taxes. At year-end 1994, the accrued liability for anticipated unrecoverable
assessments was $21 million, compared to $19 million for 1993 and $17 million
for 1992.
REGULATION. Concerns about asset quality and capital adequacy of the
insurance industry have resulted in increased scrutiny by insurance regulators.
American General is not aware of any regulations or pending regulatory actions
that would have a material effect on the company's liquidity, capital
resources, or operations.
On January 1, 1994, the National Association of Insurance
Commissioners (NAIC) adopted a risk-based capital (RBC) formula that can be
used to evaluate the adequacy of life insurance companies' statutory capital
and surplus. The RBC formula specifies various weighting factors that are
applied to financial balances or levels of activity of each company, based on
the perceived degree of risk, to calculate RBC. The formula focuses on: (1)
asset impairment risks, (2) insurance risks, (3) interest rate risks, and (4)
general business risks. The "Company Action Level" RBC ratio (RBC ratio) is
determined by dividing a life insurance company's total adjusted capital by its
calculated RBC.
Calculations at December 31, 1994, using the RBC formula, indicate
that each of the company's Life Insurance and Retirement Annuities
subsidiaries' total adjusted capital is equal to or greater than 250% of
amounts required at the "Company Action Level."
The RBC requirements provide for four different levels of regulatory
attention depending on an insurance company's RBC ratio. The "Company Action
Level" is triggered if a company's RBC ratio is less than 100% but greater than
or equal to 75%, or if a negative trend (as defined by the regulations) has
occurred and the company's RBC ratio is less than 125%. At the "Company Action
Level," the company must submit a comprehensive financial plan to the state
insurance commissioner that discusses proposed corrective actions to improve
its capital position. The "Regulatory Action Level" is triggered if a company's
RBC ratio is less than 75% but greater than or equal to 50%. At the "Regulatory
Action Level," the state insurance commissioner will perform a special
examination of the company and issue an order specifying corrective actions
that must be followed. The "Authorized Control Level" is triggered if a
company's RBC ratio is less than 50% but greater than or equal to 35%. At this
level, the state insurance commissioner may take any action it deems necessary,
including placing the company under regulatory control. The "Mandatory Control
Level" is triggered if a company's RBC ratio is less than 35%. At this level,
the state insurance commissioner is required to place the company under its
control.
ENVIRONMENTAL. American General's principal exposure to environmental
regulation arises from its ownership of investment real estate. Probable costs
related to environmental cleanup are estimated to be $3 million at December 31,
1994, and appropriate liabilities have been recorded to reflect these costs.
AMERICAN GENERAL CORPORATION
20
<PAGE> 6
ASSET/LIABILITY MANAGEMENT
OBJECTIVES
Asset/liability management is performed on an ongoing basis for each
of the company's operating companies as well as on an aggregate basis. The
primary objective of the company's asset/liability management program is to
maintain a reasonable balance in the durations of assets and liabilities to
minimize the risk of inadequate liquidity, while achieving profitability
objectives. An additional objective of the Consumer Finance segment's
asset/liability management program is to manage the spread between the yield on
finance receivables and borrowing costs.
TECHNIQUES
RETIREMENT ANNUITIES AND LIFE INSURANCE. The primary asset management
technique used to maintain duration match in the Retirement Annuities and Life
Insurance segments is to target new cash flows to meet specific duration
objectives. To a lesser extent, portfolio restructuring actions are used to
adjust asset durations. Cash flow testing of assets and liabilities is
performed annually under multiple interest rate scenarios to evaluate the
appropriateness of the company's investment portfolios relative to the
company's insurance reserves. The company's insurance reserves are supported by
high-quality, low-risk investments, including primarily investment grade fixed
maturity securities, mortgage-backed securities, mortgage loans, and policy
loans. Derivatives and off-balance-sheet transactions were not used for
asset/liability management purposes during 1994, 1993, or 1992.
The primary liability management techniques used to target duration
are product design features and product management, through periodic repricing
of new products and adjustment of interest crediting rates on existing products
where possible. The company's insurance and annuity liabilities at December 31
were as follows:
<TABLE>
<CAPTION>
In millions 1994 1993 1992
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Retirement annuities $18,656 $17,029 $15,012
Traditional life 4,334 4,199 4,430
Interest-sensitive life 2,933 2,664 2,258
Other annuities 3,029 2,765 2,383
Other 671 582 653
- -------------------------------------------------------------------------------------------------------------
Total insurance and
annuity liabilities $29,623 $27,239 $24,736
- -------------------------------------------------------------------------------------------------------------
</TABLE>
Approximately 80% of the insurance and annuity liabilities were
subject to interest crediting adjustments in the three years ended December 31,
1994.
CONSUMER FINANCE. The company funds its finance receivables with
equity and a combination of fixed-rate debt, principally long-term, and
floating-rate or short-term debt, principally commercial paper. The company's
mix of fixed-rate and floating-rate debt is a management decision based in
part on the nature of the receivables being supported. The company limits its
exposure to market interest rate increases by fixing interest rates it pays for
term periods. The primary means by which the company accomplishes this is
through the issuance of fixed-rate debt. On infrequent occasions, the company
has also used interest rate swap agreements and options on interest rate swap
agreements to synthetically create fixed-rate debt by altering the nature of
floating-rate debt, thereby limiting its exposure to interest rate movements.
RESULTS
RETIREMENT ANNUITIES AND LIFE INSURANCE. The company's
asset/liability management program is designed to minimize the exposure of the
company's surplus to fluctuations in interest rates while ensuring adequate
liquidity to meet liability cash flow requirements. Cash flow testing performed
as of December 31, 1994 indicated that the company's insurance subsidiaries
would have future surplus after meeting their insurance obligations.
In addition, investment margins have been maintained in the Retirement
Annuities segment. While investment margins on interest-sensitive products in
the Life Insurance segment have been maintained, overall investment margins
have declined because some large blocks of in force business have crediting
rates that cannot be adjusted when the investment yields fluctuate. These
overall investment margins are still within product pricing assumptions.
The average investment yield, interest crediting rate, and investment
margin for the primary operating companies in the Retirement Annuities and Life
Insurance segments for the years ended December 31 were as follows:
<TABLE>
<CAPTION>
1994* 1993* 1992
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
VALIC
Investment yield 8.37% 8.94% 9.53%
Crediting rate 6.57 7.28 7.94
- -------------------------------------------------------------------------------------------------------------
Investment margin 1.80% 1.66% 1.59%
- -------------------------------------------------------------------------------------------------------------
AGLA
Investment yield 8.97% 9.69% 10.15%
Crediting rate 6.78 6.93 7.15
- -------------------------------------------------------------------------------------------------------------
Investment margin 2.19% 2.76% 3.00%
- -------------------------------------------------------------------------------------------------------------
AGL
Investment yield 8.05% 8.72% 9.61%
Crediting rate 5.91 6.20 6.75
- -------------------------------------------------------------------------------------------------------------
Investment margin 2.14% 2.52% 2.86%
- -------------------------------------------------------------------------------------------------------------
</TABLE>
* Excludes the effect of SFAS 115.
CONSUMER FINANCE. Growth in higher-yielding finance receivables and
lower cost of borrowings have resulted in steady increases in the spread
between yield and borrowing costs. The yield on finance receivables, cost of
borrowings,
1994 ANNUAL REPORT
21
<PAGE> 7
and spread between yield and cost of borrowings for the years ended December 31
were as follows:
<TABLE>
<CAPTION>
1994 1993 1992
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Yield on finance receivables 17.58% 16.95% 16.74%
Cost of borrowings 6.60 6.67 7.49
- -------------------------------------------------------------------------------------------------------------
Spread 10.98% 10.28% 9.25%
- -------------------------------------------------------------------------------------------------------------
</TABLE>
INVESTMENTS
At year-end 1994, American General's $46 billion of assets included
$31 billion of investments, principally supporting insurance and annuity
liabilities.
FIXED MATURITY SECURITIES
At year-end 1994, fixed maturity securities included $14.3 billion of
corporate bonds, $10.0 billion of mortgage-backed securities (MBSs), $1.2
billion of bonds issued by governmental agencies, and $156 million of preferred
stocks with mandatory redemption provisions.
The average credit rating of the fixed maturity securities was AA- at
year-end 1994, 1993, and 1992. Average ratings by category at December 31, 1994
were as follows:
<TABLE>
<CAPTION>
Average
In millions Fair Value % Rating
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Investment grade $14,782 58% A
Mortgage-backed 10,032 39 AAA
Below investment grade 886 3 BB-
- -------------------------------------------------------------------------------------------------------------
Total fixed maturity securities $25,700 100% AA-
- -------------------------------------------------------------------------------------------------------------
</TABLE>
INVESTMENT GRADE. Investment grade securities include bonds and
preferred stock with mandatory redemption features and have credit ratings of
BBB- or better.
MORTGAGE-BACKED SECURITIES. MBSs at December 31 were invested as
follows:
<TABLE>
<CAPTION>
In millions 1994* 1993* 1992
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CMOs $9,180 $10,167 $8,025
Pass-through securities 784 511 687
Commercial MBSs 68 - -
- -------------------------------------------------------------------------------------------------------------
Total MBSs $10,032 $10,678 $8,712
- -------------------------------------------------------------------------------------------------------------
</TABLE>
* Includes the effect of SFAS 115.
Collateralized mortgage obligations (CMOs) are purchased to diversify
the portfolio risk characteristics from primarily corporate credit risk to a
mix of credit and cash flow risk. The majority of the CMOs in the company's
investment portfolio have relatively low cash flow variability. In addition,
virtually all CMOs in the portfolio have minimal credit risk because the
underlying collateral is guaranteed by the Federal National Mortgage
Association, the Federal Home Loan Mortgage Corporation, or the Government
National Mortgage Association. These CMOs offer stronger liquidity and higher
yields than corporate debt securities of similar credit quality and expected
average lives.
The principal risks inherent in holding CMOs (as well as
mortgage-backed, pass-through securities and other MBSs) are prepayment and
extension risks arising from changes in market interest rates. In declining
interest rate environments, the mortgages underlying the CMOs are prepaid more
rapidly than anticipated, causing early repayment of the CMOs. In rising
interest rate environments, the underlying mortgages are prepaid at a slower
rate than anticipated, causing CMO principal repayments to be extended.
Although early CMO repayments may result in acceleration of income from
recognition of any unamortized discount, the proceeds typically are reinvested
at lower current yields, resulting in a net reduction of future investment
income. Proceeds from repayments of MBSs decreased from $2.7 billion in 1993 to
$1.8 billion in 1994. Repayment of a lower amount is expected in 1995.
The company manages this prepayment and extension risk by investing in
CMO tranches that provide for greater stability of cash flows. The mix of CMO
tranches at December 31 was as follows:
<TABLE>
<CAPTION>
In millions 1994* 1993* 1992
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Planned Amortization Class $7,006 $ 6,516 $2,484
Z (Accrual) 821 933 1,231
Sequential 686 1,743 3,159
Target Amortization Class 656 952 961
Other 11 23 190
- -------------------------------------------------------------------------------------------------------------
Total CMOs $9,180 $10,167 $8,025
- -------------------------------------------------------------------------------------------------------------
</TABLE>
* Includes the effect of SFAS 115.
The Planned Amortization Class (PAC) tranche is structured to provide
more certain cash flows to the investor and therefore is subject to less
prepayment and extension risk than other CMO tranches. In general, the
company's PACs are structured to provide average life stability for increases
and decreases in interest rates of 100 to 200 basis points. PACs derive their
stability from two factors: (1) early repayments are applied first to other
tranches to preserve the PACs' originally scheduled cash flows as much as
possible, and (2) cash flows applicable to other tranches are applied first to
the PAC if the PACs' actual cash flows are received later than originally
anticipated. To take advantage of PACs' lower prepayment and extension risks,
the company began purchasing more PACs and fewer other CMO tranches in early
1992. As interest rates continued to decline during 1992 and 1993, the majority
of the proceeds received from early repayments were reinvested in additional
PACs, causing PACs to account for 70% of total MBSs at December 31, 1994.
The Z tranche (also known as the Accrual class) defers all interest to
another class until that class is paid down, at which time accumulated interest
and principal are paid to the Z tranche. The prepayment and extension risk
associated with a Sequential tranche can vary as interest rates fluctuate,
since this tranche is not supported by other tranches. The Target Amortization
Class tranche has protection similar to PACs in decreasing interest rate
environments, but has minimal protection in increasing rate environments.
AMERICAN GENERAL CORPORATION
22
<PAGE> 8
The majority of the company's CMO portfolio is traded in the open
market. As such, the company obtains market prices from outside vendors. Any
security price not received from the vendor is obtained from the originating
broker or, in rare circumstances, is internally calculated.
BELOW INVESTMENT GRADE. Below investment grade securities include
bonds and preferred stock with mandatory redemption provisions that have a
credit rating below BBB-. Below investment grade bonds accounted for 2.8% of
invested assets at year-end 1994, compared to 2.3% for 1993 and 2.5% for 1992.
These percentages compare to the life insurance industry average of 3.8% at
December 31, 1993, the latest date for which information is available. Net
income from below investment grade bonds, including realized investment gains
(losses), was $50 million in 1994, compared to $49 million in 1993 and $40
million in 1992.
Bonds are deemed to be non-performing when the payment of interest is
sufficiently uncertain as to preclude the accrual of interest. Non-performing
bonds were 0.2% of total fixed maturity securities at year-end 1994 and 1993
and 0.5% at year-end 1992.
MORTGAGE LOANS
Mortgage loans on real estate represented 8% of invested assets at
December 31, 1994, down from 10% for 1993 and 13% for 1992. These declines
reflect repayment of loans as a result of declining interest rates in 1992 and
1993 and the company's reduced emphasis on mortgage lending.
Mortgage loan information at December 31 was as follows:
<TABLE>
<CAPTION>
In millions 1994 1993 1992
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Commercial $2,656 $2,997 $3,453
Residential 84 133 303
Allowance for losses (89) (98) (53)
- -------------------------------------------------------------------------------------------------------------
Total mortgage loans $2,651 $3,032 $3,703
- -------------------------------------------------------------------------------------------------------------
Foreclosures during the year $ 17 $ 45 $ 69
- -------------------------------------------------------------------------------------------------------------
Allowance for losses 3.2% 3.1% 1.4%
- -------------------------------------------------------------------------------------------------------------
Non-performing
Delinquent (60+ days) 3.0% 2.2% 3.1%
Restructured commercial loans 2.7 2.2 1.6
- -------------------------------------------------------------------------------------------------------------
Total non-performing 5.7% 4.4% 4.7%
- -------------------------------------------------------------------------------------------------------------
</TABLE>
The increase in the percentage allowance for losses, as well as the
percentage of non-performing loans in 1994, is due to the overall decrease in
the portfolio.
Otherwise performing commercial mortgage loans are placed on the
company's watch list if they are delinquent 30-59 days, the borrower is in
bankruptcy, or the loan is determined to be undercollateralized. At year-end
1994, $239 million of commercial mortgage loans were on the company's watch
list, compared to $467 million at year-end 1993 and $188 million at year-end
1992. The decrease in the watch list since 1993 is primarily due to improving
collateral values during 1994. The increase in the watch list amount from 1992
to 1993 is primarily due to a more active portfolio review and a tightening of
standards for the identification of loans to be placed on the watch list. The
mortgage loan review process consists of a formal annual review and an ongoing
monitoring process. The loan reviews include analysis of collateral operating
information, debt coverage ratios, and tenant data. While the watch list loans
may be predictive of higher non-performing loans in the future, American
General does not anticipate a significant effect on operations, liquidity, or
capital from these loans.
Non-performing mortgage loans include loans delinquent 60 days or more
and commercial loans that have been restructured. Non-performing mortgage loans
totaled $157 million at year-end 1994, compared to $137 million and $179
million at year-end 1993 and 1992, respectively. At year-end 1994, the average
yield on restructured commercial mortgage loans was 7.9%.
At year-end 1994, 5.8% of the commercial mortgage loan portfolio was
non-performing, up from 4.4% and 5.0% at year-end 1993 and 1992, respectively.
This portfolio continues to outperform the life insurance industry averages for
non-performing commercial mortgage loans, which were 13.4% at September 30,
1994, and 13.9% and 14.1% at year-end 1993 and 1992, respectively.
POLICY LOANS
Policy loans are policyholder borrowings against the cash surrender
value of life insurance products that provide for cash accumulation benefits.
Policy loans represented 4% of invested assets at year-end 1994, 1993, and
1992. Policy loan interest rates, which are contractually established,
averaged 6.3% during 1994.
INVESTMENT REAL ESTATE
Investment real estate at December 31 was as follows:
<TABLE>
<CAPTION>
In millions 1994 1993 1992
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Land development projects $ 613 $ 642 $ 653
American General Center, Houston 120 125 130
Income-producing real estate 96 189 282
Foreclosed real estate 56 69 130
Allowance for losses (321) (253) (129)
- -------------------------------------------------------------------------------------------------------------
Total investment real estate $ 564 $ 772 $1,066
- -------------------------------------------------------------------------------------------------------------
</TABLE>
The 1994 and 1993 decreases in income-producing and foreclosed real
estate were due to sales. The increase in the allowance for losses over the
past two years reflects declines in the net realizable value of certain real
estate investments. While the value of any property may fluctuate with local
market conditions, the net realizable value of the investment real estate
portfolio, calculated in accordance with current generally accepted accounting
principles, is at least equal to the value reflected in the financial
statements. The adoption of a proposed accounting standard could change the
carrying value of certain land development projects from net realizable value
to fair value. The standard could require recognition of additional losses in
the period of adoption; however, American General does not anticipate a
significant effect on operations, liquidity, or capital.
1994 ANNUAL REPORT
23
<PAGE> 9
Pretax net realized losses on real estate investments, including sales
and reserve increases, totaled $88 million, $170 million, and $74 million in
1994, 1993, and 1992, respectively.
No new real estate investments are planned, except for commitments on
existing land development projects and possible foreclosures. All foreclosed
real estate is held for sale.
REALIZED INVESTMENT GAINS (LOSSES)
Realized investment gains (losses) may vary significantly from year to
year since the decision to sell investments is determined principally by
considerations of investment timing and tax consequences. Realized investment
gains (losses) can also result from early redemption of securities at the
election of the issuer (calls) and changes in write-downs and reserves.
Realized gains (losses) were as follows:
<TABLE>
<CAPTION>
In millions 1994 1993 1992
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales of fixed maturity securities $(150)(a) $(6) $(2)
Write-downs/reserve changes(b) (123) (298) (155)
Calls of fixed maturity securities 29 129 102
Sales/calls of equity securities 9 123 61
Other 63 60 12
- -------------------------------------------------------------------------------------------------------------
Total realized investment gains (losses) $(172) $8 $18
- -------------------------------------------------------------------------------------------------------------
</TABLE>
(a) See discussion of capital gains offset program on page 17.
(b) Primarily related to investment real estate.
CAPITAL REQUIREMENTS
The overall financial strength of American General and its
subsidiaries is based on consolidated shareholders' equity of $3.5 billion and
is confirmed by strong ratings for both debt-paying and claims-paying ability.
For analysis of capital requirements, the parent company and the
business segments are discussed separately.
PARENT COMPANY
Total capital of the parent company is referred to as "corporate
capital." Since the parent company is a holding company, the level of corporate
capital is determined primarily by the required equity of its business
segments, while the mix of corporate capital between debt and equity is
influenced by overall corporate strategy and structure.
At year-end 1994, corporate capital includes $3.5 billion of
shareholders' equity and $1.5 billion of corporate debt.
The ratio of corporate debt to corporate capital, excluding the effect of
SFAS 115, was 25% and 22% at year-end 1994 and 1993, respectively. This ratio
increased to 35% at January 31, 1995 from the issuance of short-term debt to
initially finance the Franklin Life acquisition. Management expects this ratio
to decrease to approximately 27% by year-end 1995 as the company finalizes the
permanent financing for the acquisition. Currently, the company expects to
refinance 45% of the acquisition cost using various types of preferred stock.
The company's current corporate debt ratings are as follows:
<TABLE>
<CAPTION>
Commercial Paper Long-term Debt
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Standard & Poor's A-1+ (Highest) AA- (Strong)
Duff & Phelps Duff 1+ (Highest) AA- (Strong)
Moody's P-1 (Highest) A1 (Strong)
- -------------------------------------------------------------------------------------------------------------
</TABLE>
As a result of American General's announcement of the Franklin Life
acquisition and its then outstanding merger offer to acquire Unitrin, Inc.
(Unitrin) for an aggregate cost of $3.8 billion, two rating agencies downgraded
the company's corporate long-term debt ratings from AA to AA- on November 30,
1994.
CONSUMER FINANCE SEGMENT
The capital of American General's Consumer Finance segment varies
directly with the amount of finance receivables outstanding. The capital mix of
consumer finance debt and equity is based primarily upon maintaining leverage
at a level that supports cost-effective funding.
At year-end 1994, consumer finance capital was $8.3 billion, compared
to $6.9 billion a year earlier, due to an increase in debt to support a $1.3
billion increase in finance receivables. The 1994 capital included $7.1 billion
of consumer finance debt, which is not guaranteed by the parent company, and
$1.2 billion of equity.
The ratio of debt to tangible net worth (equity less goodwill and the
effect of SFAS 115), a key measure of financial risk in the consumer finance
industry, was 7.5 to 1 for the Consumer Finance segment at year-end 1994, 1993,
and 1992. Management expects to maintain the current level of debt to tangible
net worth.
The current consumer finance debt ratings are as follows:
<TABLE>
<CAPTION>
Commercial Paper Long-term Debt
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Standard & Poor's A-1+ (Highest) A+ (Strong)
Duff & Phelps Duff 1+ (Highest) --
Moody's P-1 (Highest) A1 (Strong)
- -------------------------------------------------------------------------------------------------------------
</TABLE>
During 1994, the consumer finance debt ratings were placed on rating
watch lists with negative implications by one rating agency as a result of the
company's $2.6 billion merger offer to acquire Unitrin. Subsequent to the
expiration of the offer to acquire Unitrin on February 7, 1995, the rating
agency confirmed the consumer finance debt ratings with no change.
RETIREMENT ANNUITIES AND LIFE INSURANCE SEGMENTS
The amount of statutory equity required to support the business of
American General's Retirement Annuities and Life Insurance segments is a
function of three factors: (1) the quality of the assets invested to support
insurance and annuity reserve liabilities; (2) the mortality risk of the life
insurance in force; and (3) the interest-rate risk resulting from potential
mismatching of asset and liability durations. Each of these items is a key
factor in the NAIC's risk-based capital formula, used to evaluate the adequacy
of a life insurance company's statutory equity (see Regulation, page 20).
AMERICAN GENERAL CORPORATION
24
<PAGE> 10
Rating agencies use the NAIC approach as one of the factors in
determining an insurance company's claims-paying ability ratings. The company's
target statutory equity for each of its life insurance and annuity subsidiaries
is 250% of the Company Action Level RBC. At December 31, 1994, all of the
company's life insurance and annuity subsidiaries had statutory equity equal to
or in excess of this target. Franklin Life also has statutory equity in excess
of this target.
The current claims-paying ability ratings of the company's principal
insurance and annuity subsidiaries are as follows:
<TABLE>
<CAPTION>
American
American General Life Franklin
VALIC General Life and Accident Life
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
A.M. Best A++ A++ A++ A+
Standard & Poor's AAA AAA AAA AA
Duff & Phelps AAA AAA -- AA+
Moody's Aa2 Aa3 -- Aa3
- -------------------------------------------------------------------------------------------------------------
</TABLE>
During 1994, the claims-paying ability ratings of the above companies
were placed on rating watch lists with negative implications by one or more
rating agencies. The ratings watch was the result of the company's $2.6 billion
merger offer to acquire Unitrin and the announcement of the Franklin Life
acquisition. Subsequent to the expiration of the offer to acquire Unitrin on
February 7, 1995, Standard & Poor's and Duff & Phelps confirmed the AAA ratings
of the company's insurance and annuity subsidiaries. After completion of the
acquisition of Franklin Life on January 31, 1995, each of the four rating
agencies lowered Franklin Life's ratings by one level to the ratings indicated
above. These actions are a result of American General's plan to reduce Franklin
Life's statutory equity to 250% of the Company Action Level RBC to finance a
portion of the acquisition.
LIQUIDITY
American General's overall liquidity is based on strong cash flows
from each of its business segments and its ability to borrow in both the
long-term and short-term markets at competitive rates. American General
believes that its overall sources of liquidity will continue to be sufficient
to satisfy its foreseeable financial obligations.
PARENT COMPANY
Operating cash flow for the parent company includes dividends from the
business segments, partially offset by interest and other expenses not
allocated to the segments.
While the subsidiaries are restricted in the amount of dividends they
may pay to the parent company as discussed in Note 14.2, these restrictions are
not expected to affect the ability of the parent company to meet its cash
obligations in 1995.
During 1994, operating cash flow of the parent company of $410 million
was used to pay dividends to shareholders, to buy back common stock, and to pay
interest on corporate debt.
RETIREMENT ANNUITIES AND LIFE INSURANCE SEGMENTS
In 1994, the Retirement Annuities and Life Insurance segments
generated $2.5 billion of cash, composed of $1.3 billion from operations and
$1.2 billion from the net increase in policyholder fixed account deposits. This
compares to total cash generated of $3.1 billion in 1993 and $3.0 billion in
1992. The decrease was primarily a result of higher withdrawals and lower
deposits related to fixed accounts and transfers to Separate Accounts by
policyholders of the Retirement Annuities segment seeking higher returns in
equity-based investments.
The major uses of cash were the net purchase of investments necessary
to support increases in insurance and annuity liabilities, and dividends paid
to the parent company. These segments paid dividends to the parent company of
$367 million in 1994, compared to $506 million in 1993 and $408 million in
1992.
The Retirement Annuities segment and the Life Insurance segment,
including Franklin Life, are expected to pay dividends to the parent company in
1995.
CONSUMER FINANCE SEGMENT
Operating cash flow for the Consumer Finance segment includes net
income adjusted for non-cash expenses such as the amortization of intangible
assets and the provision for finance receivable losses. In 1994, operating cash
flow totaled $511 million, an increase from $479 million and $365 million in
1993 and 1992, respectively.
The 1994 operating cash flow, coupled with net proceeds from increased
debt, generated total cash flow of $1.8 billion, compared to $833 million in
1993 and $602 million in 1992. This cash was used to fund the net increase in
receivables and to pay dividends to the parent company. Dividends paid to the
parent company totaled $140 million in 1994, compared to $163 million in 1993
and $137 million in 1992. Dividend levels are adjusted to maintain consumer
finance leverage (ratio of debt to tangible net worth) at 7.5 to 1.
Operating cash flow and access to money and capital markets, resulting
from strong debt and commercial paper ratings, are expected to satisfy 1995
cash requirements, including long-term debt maturities.
CREDIT FACILITIES
During 1994, the company entered into two new unsecured committed
credit facilities with 47 banks totaling $2.5 billion. These facilities
replaced existing bank credit facilities of equal amount. At December 31, 1994,
committed credit facilities totaled $3.0 billion. On January 31, 1995, one of
these facilities was increased by $1.3 billion to facilitate the Franklin Life
acquisition and to support increases in Consumer Finance receivables. As a
result, American General and its subsidiaries currently maintain committed
credit facilities totaling $4.3 billion with 54 domestic and foreign banks.
While the principal purpose of these facilities is to support the issuance of
commercial paper, they also provide an additional source of cash to American
General and its subsidiaries.
1994 ANNUAL REPORT
25
<PAGE> 11
CONSOLIDATED STATEMENT OF INCOME
American General Corporation
For the Years Ended December 31,
In millions, except per share data
<TABLE>
<CAPTION>
1994 1993 1992
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUES Premiums and other considerations $ 1,210 $ 1,252 $ 1,213
Net investment income 2,493 2,437 2,327
Finance charges 1,248 1,083 994
Realized investment gains (losses) (172) 8 18
Other 62 49 50
-----------------------------------------------------------------------------------------------------
Total revenues 4,841 4,829 4,602
- -----------------------------------------------------------------------------------------------------------------------------
BENEFITS AND Insurance and annuity benefits 2,224 2,311 2,198
EXPENSES Operating costs and expenses 1,075 970 986
Provision for finance receivable losses 214 163 135
Write-down of acquisition-related goodwill - 300 -
Interest expense
Corporate 110 108 116
Consumer Finance 416 375 392
-----------------------------------------------------------------------------------------------------
Total benefits and expenses 4,039 4,227 3,827
- -----------------------------------------------------------------------------------------------------------------------------
EARNINGS Income before income tax expense and
cumulative effect of accounting changes 802 602 775
-----------------------------------------------------------------------------------------------------
Income tax expense
Excluding tax rate related adjustment 289 322 242
Tax rate related adjustment - 30 -
-----------------------------------------------------------------------------------------------------
Total income tax expense 289 352 242
-----------------------------------------------------------------------------------------------------
Income before cumulative effect of accounting changes 513 250 533
Cumulative effect of accounting changes - (46) -
-----------------------------------------------------------------------------------------------------
Net income $ 513 $ 204 $ 533
- -----------------------------------------------------------------------------------------------------------------------------
SHARE DATA Income before cumulative effect of accounting changes $ 2.45 $ 1.15 $ 2.45
Cumulative effect of accounting changes - (.21) -
-----------------------------------------------------------------------------------------------------
Net income per share $ 2.45 $ .94 $ 2.45
-----------------------------------------------------------------------------------------------------
See Notes to Financial Statements.
</TABLE>
AMERICAN GENERAL CORPORATION
26
<PAGE> 12
CONSOLIDATED BALANCE SHEET
American General Corporation
At December 31,
In millions, except share amounts
<TABLE>
<CAPTION>
1994 1993 1992
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS Investments
Fixed maturity securities
Fair value (amortized cost: $27,087; $24,885) $25,700 $ 26,479 $ -
Amortized cost (fair value: $22,509) - - 21,308
Mortgage loans on real estate 2,651 3,032 3,703
Equity securities (cost: $202; $182; $273) 224 233 390
Policy loans 1,197 1,156 1,081
Investment real estate 564 772 1,066
Other long-term investments 152 137 231
Short-term investments 209 67 35
-----------------------------------------------------------------------------------------------------
Total investments 30,697 31,876 27,814
-----------------------------------------------------------------------------------------------------
Cash 45 6 17
Finance receivables, net 7,694 6,390 6,038
Investment in Western National Corporation 274 - -
Deferred policy acquisition costs 2,731 1,637 2,083
Acquisition-related goodwill 597 618 937
Other assets 1,356 1,358 1,446
Assets held in Separate Accounts 2,901 2,097 1,407
-----------------------------------------------------------------------------------------------------
Total assets $46,295 $ 43,982 $ 39,742
- -----------------------------------------------------------------------------------------------------------------------------
LIABILITIES Insurance and annuity liabilities $29,623 $ 27,239 $ 24,736
Debt (short-term)
Corporate ($639; $312; $379) 1,475 1,257 1,371
Real Estate ($361; $414; $569) 361 429 616
Consumer Finance ($2,777; $1,824; $1,930) 7,090 5,843 5,484
Income tax liabilities 721 1,241 756
Other liabilities 620 739 756
Liabilities related to Separate Accounts 2,901 2,097 1,407
-----------------------------------------------------------------------------------------------------
Total liabilities 42,791 38,845 35,126
- -----------------------------------------------------------------------------------------------------------------------------
REDEEMABLE
EQUITY Common stock subject to put contracts 47 - -
- -----------------------------------------------------------------------------------------------------------------------------
SHAREHOLDERS' Common stock (shares issued: 220,122,120;
EQUITY outstanding: 203,051,907; 214,157,548; 216,257,062) 364 365 368
Net unrealized gains (losses) on securities (935) 709 88
Retained earnings 4,495 4,229 4,263
Cost of treasury stock (467) (166) (103)
-----------------------------------------------------------------------------------------------------
Total shareholders' equity 3,457 5,137 4,616
-----------------------------------------------------------------------------------------------------
Total liabilities and equity $46,295 $ 43,982 $ 39,742
-----------------------------------------------------------------------------------------------------
See Notes to Financial Statements.
</TABLE>
1994 ANNUAL REPORT
27
<PAGE> 13
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
American General Corporation
For the Years Ended December 31,
In millions, except per share data
<TABLE>
<CAPTION>
1994 1993 1992
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMON Balance at beginning of year $ 365 $ 368 $ 1,894
STOCK Treasury shares issued and other (1) (3) 7
Treasury shares issued for two-for-one stock split - - (1,533)
-----------------------------------------------------------------------------------------------------
Balance at end of year 364 365 368
- -----------------------------------------------------------------------------------------------------------------------------
NET UNREALIZED Balance at beginning of year 709 88 70
GAINS (LOSSES) Change during year (1,644) (55) 18
ON SECURITIES Effect of accounting change - 676 -
-----------------------------------------------------------------------------------------------------
Balance at end of year (935) 709 88
- -----------------------------------------------------------------------------------------------------------------------------
RETAINED Balance at beginning of year 4,229 4,263 3,959
EARNINGS Net income 513 204 533
Dividends paid (per share: $1.16; $1.10; $1.04) (243) (238) (226)
Other (4) - (3)
-----------------------------------------------------------------------------------------------------
Balance at end of year 4,495 4,229 4,263
- -----------------------------------------------------------------------------------------------------------------------------
COST OF Balance at beginning of year (166) (103) (1,594)
TREASURY Purchases on the open market (262) (78) (47)
STOCK Shares subject to put contracts, net of premiums received (43) - -
Other, net 4 15 5
Treasury shares issued for two-for-one stock split - - 1,533
-----------------------------------------------------------------------------------------------------
Balance at end of year (467) (166) (103)
- -----------------------------------------------------------------------------------------------------------------------------
SHAREHOLDERS'
EQUITY Total shareholders' equity at end of year $ 3,457 $ 5,137 $ 4,616
-----------------------------------------------------------------------------------------------------
See Notes to Financial Statements.
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
CONSOLIDATED STATEMENT OF STOCK ACTIVITY
American General Corporation
For the Years Ended December 31,
In thousands of shares
<TABLE>
<CAPTION>
1994 1993 1992
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMON Balance at beginning of year 220,122 220,122 169,753
SHARES Conversion of convertible securities - - 59
ISSUED Two-for-one stock split - - 50,310
-----------------------------------------------------------------------------------------------------
Balance at end of year 220,122 220,122 220,122
- -----------------------------------------------------------------------------------------------------------------------------
TREASURY Balance at beginning of year (5,964) (3,865) (60,922)
SHARES Purchases on the open market (9,536) (2,655) (996)
Shares subject to put contracts (1,700) - -
Issuance under employee benefit plans 130 556 235
Two-for-one stock split - - 57,818
-----------------------------------------------------------------------------------------------------
Balance at end of year (17,070) (5,964) (3,865)
- -----------------------------------------------------------------------------------------------------------------------------
OUTSTANDING
SHARES Outstanding at end of year 203,052 214,158 216,257
-----------------------------------------------------------------------------------------------------
See Notes to Financial Statements.
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
AMERICAN GENERAL CORPORATION
28
<PAGE> 14
CONSOLIDATED STATEMENT OF CASH FLOWS
American General Corporation
For the Years Ended December 31,
In millions
<TABLE>
<CAPTION>
1994 1993 1992
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATING Income before cumulative effect of
ACTIVITIES accounting changes $ 513 $ 250 $ 533
Reconciling adjustments to net cash provided
by operating activities
Insurance and annuity liabilities 1,007 1,012 932
Deferred policy acquisition costs (124) (192) (164)
Provision for finance receivable losses 214 163 135
Realized investment (gains) losses 49 (306) (173)
Investment write-downs and reserves 123 298 155
Write-down of acquisition-related goodwill - 300 -
Other, net (282) 176 (129)
-----------------------------------------------------------------------------------------------------
Net cash provided by operating activities 1,500 1,701 1,289
- -----------------------------------------------------------------------------------------------------------------------------
INVESTING Investment purchases (7,239) (9,499) (7,696)
ACTIVITIES Investment calls, maturities, and sales 5,566 6,984 5,172
Finance receivable originations or acquisitions (5,827) (4,320) (3,687)
Finance receivable principal payments received 4,323 3,797 3,302
Investment in Western National Corporation (274) - -
Proceeds from sale of subsidiary 95 - -
Other, net (205) (151) (69)
-----------------------------------------------------------------------------------------------------
Net cash used for investing activities (3,561) (3,189) (2,978)
- -----------------------------------------------------------------------------------------------------------------------------
FINANCING Retirement Annuities and Life Insurance
ACTIVITIES Policyholder account deposits 2,583 2,656 2,468
Policyholder account withdrawals (1,345) (934) (737)
-----------------------------------------------------------------------------------------------------
Total Retirement Annuities and Life Insurance 1,238 1,722 1,731
-----------------------------------------------------------------------------------------------------
Consumer Finance
Net increase (decrease) in short-term debt 953 (106) (529)
Long-term debt issuances 1,136 1,005 1,034
Long-term debt redemptions (846) (545) (268)
-----------------------------------------------------------------------------------------------------
Total Consumer Finance 1,243 354 237
-----------------------------------------------------------------------------------------------------
Corporate
Net increase (decrease) in short-term debt
Corporate 327 (214) (18)
Real Estate (55) (156) (17)
Long-term debt issuances 100 100 1
Long-term debt redemptions (247) (31) (2)
Dividend payments (243) (238) (226)
Common share purchases (264) (72) (47)
Other, net 1 12 8
-----------------------------------------------------------------------------------------------------
Total Corporate (381) (599) (301)
-----------------------------------------------------------------------------------------------------
Net cash provided by financing activities 2,100 1,477 1,667
- -----------------------------------------------------------------------------------------------------------------------------
NET CHANGE Net increase (decrease) in cash 39 (11) (22)
IN CASH Cash at beginning of year 6 17 39
-----------------------------------------------------------------------------------------------------
Cash at end of year $ 45 $ 6 $ 17
-----------------------------------------------------------------------------------------------------
See Notes to Financial Statements.
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
1994 ANNUAL REPORT
29
<PAGE> 15
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
1.1 PREPARATION OF FINANCIAL STATEMENTS
The consolidated financial statements have been prepared in accordance
with generally accepted accounting principles (GAAP). The consolidated
financial statements include the accounts of American General Corporation
("American General" or "the company") and its subsidiaries. All material
intercompany transactions have been eliminated in consolidation. To conform
with the 1994 presentation, certain items in the prior years' financial
statements and notes have been reclassified.
1.2 ACCOUNTING CHANGES
CURRENT YEAR. During 1994, the company adopted Statement of Financial
Accounting Standards (SFAS) 118, "Accounting by Creditors for Impairment of a
Loan - Income Recognition and Disclosures," and SFAS 119, "Disclosure about
Derivative Financial Instruments and Fair Value of Financial Instruments." SFAS
118 requires disclosures about the recorded investment in certain impaired
loans and the recognition of related interest income (see Note 3.5). SFAS 119
requires additional disclosures about derivative financial instruments and
amends existing fair value disclosure requirements (see Notes 12 and 13). These
standards do not impact the consolidated financial statements.
PRIOR YEAR. Effective January 1, 1993, the company adopted the
following accounting standards:
SFAS 106, "Employers' Accounting for Postretirement Benefits Other
than Pensions," resulted in a one-time reduction of net income of $45 million
($68 million pretax) or $.21 per share. This standard requires accrual of a
liability for postretirement benefits other than pensions.
SFAS 109, "Accounting for Income Taxes," resulted in a one-time
increase of net income of $8 million or $.04 per share. This standard changes
the way income tax expense is determined for financial reporting purposes.
SFAS 112, "Employers' Accounting for Postemployment Benefits,"
resulted in a one-time reduction of net income of $9 million ($14 million
pretax) or $.04 per share. This standard requires accrual of a liability for
benefits provided to employees after employment but before retirement.
SFAS 113, "Accounting and Reporting for Reinsurance of Short-Duration
and Long-Duration Contracts," requires that reinsurance receivables and prepaid
reinsurance premiums be reported as assets, rather than netted against the
related insurance liabilities. This standard does not have a material impact on
the consolidated financial statements.
SFAS 114, "Accounting by Creditors for Impairment of a Loan," requires
that certain impaired loans be reported at the present value of expected future
cash flows, the loan's observable market price, or the fair value of underlying
collateral. This standard does not have a material impact on the consolidated
financial statements.
At December 31, 1993, the company adopted SFAS 115, "Accounting for
Certain Investments in Debt and Equity Securities." This standard requires that
debt and equity securities be carried at fair value unless the company has the
positive intent and ability to hold these investments to maturity. Debt and
equity securities must be classified into one of three categories: (1)
held-to-maturity, (2) available-for-sale, or (3) trading securities. At
December 31, 1993, the company classified all debt and equity securities as
available-for-sale and recorded net unrealized gains on securities of $676
million to shareholders' equity. Rising interest rates during 1994 caused a
decrease in the fair value of the company's available-for-sale fixed maturity
securities. As a result, shareholders' equity included net unrealized losses on
these securities of $950 million at December 31, 1994.
1.3 INVESTMENTS
FIXED MATURITY AND EQUITY SECURITIES. Effective with the adoption of
SFAS 115, management determines the appropriate classification of fixed
maturity and equity securities at the time of purchase and re-evaluates such
designation at each balance sheet date. All fixed maturity and equity
securities currently are classified as available-for-sale and recorded at fair
value. After adjusting related balance sheet accounts as if the unrealized
gains (losses) had been realized, the net adjustment is recorded in net
unrealized gains (losses) on securities within shareholders' equity. If the
fair value of a security classified as available-for-sale declines below its
cost and this decline is considered to be other than temporary, the security is
reduced to its net realizable value, and the reduction is recorded as a
realized loss.
Before adoption of SFAS 115, the company reported fixed maturity
securities in accordance with then-existing accounting standards. Fixed
maturity securities were considered held for investment purposes and were
carried at amortized cost, adjusted for declines considered other than
temporary and for possible uncollectible amounts.
AMERICAN GENERAL CORPORATION
30
<PAGE> 16
MORTGAGE LOANS. Mortgage loans are reported at amortized cost, net of
an allowance for losses. The allowance for losses covers all non-performing
loans, consisting of loans delinquent 60 days or more and restructured
commercial loans. The allowance also covers loans about which there is a
concern based on management's assessment of risk factors, such as potential
non-payment or non-monetary default. The allowance is based on a loan-specific
review and a formula that reflects past results and current trends.
Impaired loans, those for which the company determines that it
probably will not collect all amounts due under the contractual terms, are
reported at the lower of amortized cost or fair value of the underlying
collateral, less estimated costs to sell.
POLICY AND OTHER LOANS. Policy and other loans are reported at unpaid
principal balance and adjusted periodically for any differences between face
value and unpaid principal balance, and for possible uncollectible amounts.
INVESTMENT REAL ESTATE. Real estate held for development and sale is
reported at the lower of cost or estimated net realizable value. Cost includes
land acquisition and development costs, indirect costs related to development,
and interest and property taxes incurred during the development period. The
estimated net realizable value is based on future projections of sales and
costs to complete, hold, and dispose of the property, discounted at the cost of
capital, calculated by dividing debt interest cost by the average of the
aggregate of equity capital and debt.
Real estate held for investment is reported at cost, less accumulated
depreciation. All foreclosures and other income properties that are considered
held for sale are reported at the lower of cost (less accumulated depreciation)
or fair value, less estimated costs to sell. Such fair value is determined
through third-party appraisals, the observable market price, or by discounting
expected cash flows at market rates.
When the net realizable value of real estate held for development and
sale or the fair value of real estate held for sale is less than the carrying
value, the deficiency is recognized as a realized loss through a valuation
allowance specifically identified with the associated real estate asset.
INVESTMENT INCOME. Interest on fixed maturity securities and
performing mortgage loans is recorded as income when earned and is adjusted for
any amortization of premium or discount. Interest on restructured mortgage
loans is recorded as income based on the rate to be paid; interest on
delinquent mortgage loans is recorded as income on a cash basis. Dividends are
recorded as income on ex-dividend dates.
REALIZED INVESTMENT GAINS (LOSSES). Realized investment gains (losses)
are recognized using the specific identification method and include declines in
fair value of investments below cost that are considered other than temporary.
1.4 FINANCE RECEIVABLES
FINANCE CHARGES. Finance charges on discounted receivables and
interest on interest-bearing receivables are recognized as revenue using the
interest method. The accrual of revenue is suspended when contractual payments
are not received for four consecutive months for loans and retail sales
contracts, and for six months for private label and credit cards. Extension
fees and late charges are recognized as revenue when received. Non-refundable
points and fees on loans are recognized using the interest method over the
lesser of the contractual term or the expected life based upon prepayment
experience. If a loan is prepaid before all fees are recognized, any remaining
fees are recognized as revenue at the date of prepayment.
LOSSES ON FINANCE RECEIVABLES. The company's policy is to charge off
consumer loan accounts (except where secured by real estate), private label,
and credit card accounts for which minimal or no collections were made in the
prior six-month period. Retail sales contracts are charged off when four
monthly installments are past due. For loans secured by real estate,
foreclosure proceedings are instituted when four monthly installments are past
due.
The allowance for losses on finance receivables is based on experience
with charge offs, delinquency, and liquidation and is maintained at an amount
considered adequate to absorb losses in the portfolio based on current
conditions and economic trends.
1.5 LOAN ORIGINATION FEES AND COSTS
Fees charged to a borrower and direct costs incurred in originating a
finance receivable or mortgage loan are deferred and amortized over the lesser
of the contractual term or the estimated life of the loan. The deferred amounts
are included in the carrying value of the related loans.
1.6 DEFERRED POLICY ACQUISITION COSTS (DPAC)
The costs of writing an insurance policy, including agents'
commissions and underwriting and marketing expenses, are deferred, capitalized,
and included in the DPAC asset. The cost assigned to certain acquired
subsidiaries' insurance contracts in force at the acquisition date, referred to
as the cost of insurance purchased (CIP), also is included in DPAC.
DPAC associated with interest-sensitive life and insurance investment
contracts is charged to expense in relation to the estimated gross profits of
those contracts, including realized investment gains or losses. DPAC associated
with all other insurance contracts is charged to expense over the
premium-paying period or as the premiums are earned over the life of the
contract. CIP is charged to expense using the same assumptions used to amortize
DPAC. Interest is accreted on the unamortized balance of CIP at rates of 7.2%
to 8.5%.
Under SFAS 115, DPAC is adjusted for the impact on estimated future
gross profits as if net unrealized gains (losses) on securities had been
realized at the balance sheet date.
1994 ANNUAL REPORT
31
<PAGE> 17
Net unrealized gains (losses) on securities within shareholders' equity is also
reduced to reflect this adjustment.
The company reviews the carrying value of DPAC on at least an annual
basis. For interest-sensitive life and insurance investment contracts, the
company considers estimated future gross profit margins in determining whether
the carrying value of DPAC is appropriate; for other insurance contracts,
the company considers estimated future premiums. In all cases, the company
considers expected mortality, interest earned and credited rates, persistency,
and expenses. The reported value and remaining life of DPAC are considered
appropriate.
1.7 ACQUISITION-RELATED GOODWILL
Acquisition-related goodwill is charged to expense in equal amounts,
generally over 20 or 40 years. The carrying value of goodwill is regularly
reviewed for indicators of impairment in value, which in the view of management
are other than temporary, including unexpected or adverse changes in the
following: (1) the economic or competitive environments in which the company
operates, (2) profitability analyses, (3) cash flow analyses, and (4) the fair
value of the relevant subsidiary. If facts and circumstances suggest that a
subsidiary's goodwill is impaired, the company assesses the fair value of the
underlying business and reduces goodwill to an amount that results in the book
value of the subsidiary approximating fair value. The company determines the
subsidiary's fair value based on an independent appraisal.
In 1993, the company recorded a non-cash charge of $300 million to
reduce acquisition-related goodwill. The principal source of this goodwill was
the $1.2 billion acquisition of the Gulf United insurance operations in 1984.
The write-down was the result of a strategic review completed in fourth quarter
1993 of certain life insurance operations by management and outside advisors,
which indicated the book value of these subsidiaries exceeded fair value.
At December 31, 1994, the reported value and the remaining life of
acquisition-related goodwill are considered appropriate.
1.8 SEPARATE ACCOUNTS
Separate Accounts are assets and liabilities associated with certain
contracts, principally annuities. The investment risk lies solely with the
holder of the contract rather than the company. Consequently, the insurer's
liability for these accounts equals the value of the account assets. Investment
income and realized investment gains (losses) of the Separate Accounts are
excluded from the consolidated statement of income. Assets held in Separate
Accounts are primarily shares in mutual funds, which are carried at fair value,
based on the quoted net asset value per share.
1.9 INSURANCE AND ANNUITY LIABILITIES
Substantially all of the company's insurance and annuity liabilities
relate to long-duration contracts, which generally require performance over a
period of more than one year, and include traditional whole life, endowment,
guaranteed renewable term life, guaranteed renewable health, interest-sensitive
life, limited payment, and insurance investment contracts. The contract
provisions generally cannot be changed or cancelled by the company during the
contract period. For interest-sensitive life and insurance investment
contracts, reserves equal the sum of the policy account balance and deferred
revenue charges. In establishing reserves for other types of long-duration
contracts, an estimate is made of the cost of future policy benefits to be paid
as a result of present and future claims due to death, disability, surrender of
a policy, or payment of an endowment. Reserves are determined using the net
level premium method. Interest assumptions used to compute reserves ranged from
1.9% to 13.5% at December 31, 1994.
1.10 PREMIUM RECOGNITION
Most receipts for annuities and interest-sensitive life insurance
policies are classified as deposits instead of revenues. Revenues for these
contracts consist of the mortality, expense, and surrender charges assessed
against the account balance. Policy charges that are designed to compensate the
company for future services are deferred and recognized in income over the
period benefitted, using the same assumptions used to amortize DPAC (see Note
1.6).
For limited-payment contracts, net premiums are recorded as revenue,
and the difference between the gross premium received and the net premium is
deferred and recognized in income in a constant relationship to insurance in
force. For all other long-duration contracts, premiums are recognized when due.
1.11 REINSURANCE
The company's insurance subsidiaries are routinely involved in
reinsurance transactions. Ceded reinsurance becomes a liability of the
reinsurer that assumes the risk. The company's insurance subsidiaries diversify
their risk of exposure to reinsurance loss by using several reinsurers and
entering into reinsurance transactions with life reinsurers that have strong
claims-paying ability ratings. The maximum retention on one life (in the case
of individual life insurance) is $1.5 million. If the reinsurer could not meet
its obligations, American General's insurance subsidiaries would reassume the
liability. The likelihood of a material reinsurance liability being reassumed
by the company's insurance subsidiaries is considered to be remote.
Amounts paid or deemed to have been paid in connection with ceded
reinsurance contracts are recorded as reinsurance receivables. The cost of
reinsurance related to long-duration contracts is recognized over the life of
the underlying
AMERICAN GENERAL CORPORATION
32
<PAGE> 18
reinsured policies using assumptions consistent with those used to account for
the underlying policies.
Reinsurance premiums included in premiums and other considerations were
as follows:
<TABLE>
<CAPTION>
In millions 1994 1993 1992
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Direct premiums and other
considerations $1,254 $1,262 $1,227
Reinsurance assumed 52 38 32
Reinsurance ceded (96) (48) (46)
- -------------------------------------------------------------------------------------------------------------
Premiums and other
considerations $1,210 $1,252 $1,213
- -------------------------------------------------------------------------------------------------------------
</TABLE>
Reinsurance recoveries on ceded reinsurance contracts were $74 million
and $52 million during 1994 and 1993, respectively. The amount of reinsurance
recoverable on paid and unpaid losses was not material at December 31, 1994 or
1993.
1.12 INTEREST CAPITALIZED OR PAID
Essentially all interest incurred on real estate investment properties
under development is capitalized until the property is substantially complete
and ready for its intended use. Interest capitalized was $18 million, $15
million, and $21 million, in 1994, 1993, and 1992, respectively.
Interest paid, excluding interest capitalized, was as follows:
<TABLE>
<CAPTION>
In millions 1994 1993 1992
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Corporate and Real Estate $115 $142 $121
Consumer Finance 407 379 386
- -------------------------------------------------------------------------------------------------------------
</TABLE>
1.13 INCOME TAXES
Beginning in 1993, income taxes are provided in accordance with SFAS
109. Under this standard, deferred tax assets and liabilities are established
for temporary differences between the financial reporting basis and the tax
basis of assets and liabilities, at the enacted tax rates expected to be in
effect when the temporary differences reverse. The effect of a tax rate change
is recognized in income in the period of enactment. Under SFAS 109, state
income taxes, previously reported in operating costs and expenses, are included
in income tax expense.
A valuation allowance for deferred tax assets is provided if all or
some portion of the deferred tax asset may not be realized. An increase or
decrease in a valuation allowance that results from a change in circumstances
that causes a change in judgment about the realizability of the related
deferred tax asset is included in income. A change related to fluctuations in
fair value of available-for-sale fixed maturity securities is included in
unrealized gains (losses) in shareholders' equity.
Before 1993, the company recognized deferred taxes on timing
differences between financial reporting income and taxable income. Deferred tax
liabilities were not adjusted for tax rate changes.
1.14 EARNINGS PER SHARE
Earnings per share are computed by dividing earnings by average
outstanding common shares. Common shares include common share equivalents from
the assumed exercise of stock options and put contracts. The average common
shares used to compute earnings per share were 209,420,486 in 1994; 216,578,836
in 1993; and 217,704,620 in 1992.
2. ACQUISITIONS AND DIVESTITURES
2.1 WESTERN NATIONAL CORPORATION
On December 23, 1994, the company 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 for $274 million in cash. WNC sells annuity products in 46 states and the
District of Columbia. For accounting purposes, the acquisition was recorded on
an equity basis, using the purchase method. The purchase price was
approximately $106 million greater than the underlying net assets of WNC. This
amount has been allocated to WNC's individual assets and liabilities based on
their fair values as of the acquisition date, and will be amortized into income
over the lives of the specific assets or liabilities. Approximately $94
million of the difference is attributed to goodwill, which will be amortized on
a straight-line basis over 20 years. The company's equity in the operating
results of WNC for the period subsequent to the acquisition date did not have a
material impact on the 1994 consolidated statement of income. At December 31,
1994, the fair value of the WNC shares held was $321 million.
2.2 THE FRANKLIN LIFE INSURANCE COMPANY
On January 31, 1995, the company 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 the company
and American Brands, Inc. 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, Inc. prior to closing. At closing, the transaction was
financed by short-term floating-rate debt. It is expected that permanent
financing will consist of a mix of short-term floating-rate debt, long-term
fixed-rate debt, and preferred stock. This acquisition will be accounted for
using the purchase method.
2.3 LIFE INSURANCE COMPANIES HELD FOR SALE
On August 31, 1994, the company completed the sale of
American-Amicable Life Insurance Company of Texas to PennCorp Financial Group,
Inc., and announced that the sale of Financial Life Assurance Company of Canada
was no longer under discussion due to adverse developments in the Canadian life
insurance market. At December 31, 1993, the net assets of these companies were
reported in other assets. At December 31, 1994, the assets and liabilities of
Financial Life Assurance Company of Canada were reported in the appropriate
balance sheet categories.
1994 ANNUAL REPORT
33
<PAGE> 19
3. INVESTMENTS
3.1 INVESTMENT INCOME
Income by type of investment was as follows:
<TABLE>
<CAPTION>
In millions 1994 1993 1992
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fixed maturity securities $2,099 $2,005 $1,836
Mortgage loans on real estate 296 357 412
Other investments 185 195 209
- -------------------------------------------------------------------------------------------------------------
Gross investment income 2,580 2,557 2,457
- -------------------------------------------------------------------------------------------------------------
Investment expense - real estate 65 102 113
Investment expense - other 22 18 17
- -------------------------------------------------------------------------------------------------------------
Total investment expense 87 120 130
- -------------------------------------------------------------------------------------------------------------
Net investment income $2,493 $2,437 $2,327
- -------------------------------------------------------------------------------------------------------------
</TABLE>
The carrying value of investments that produced no investment income
during 1994 totaled $258 million, or less than 1% of total invested assets. The
ultimate disposition of these assets is not expected to have a material effect
on American General's consolidated financial position.
3.2 REALIZED INVESTMENT GAINS (LOSSES)
Net realized investment gains (losses) were as follows:
<TABLE>
<CAPTION>
In millions 1994 1993 1992
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fixed maturity securities
Gross gains $46 $201 $128
Gross losses (175) (59) (37)
- -------------------------------------------------------------------------------------------------------------
Total fixed maturity
securities (129) 142 91
- -------------------------------------------------------------------------------------------------------------
Equity securities
Gross gains 14 127 61
Gross losses (6) (6) (6)
- -------------------------------------------------------------------------------------------------------------
Total equity securities 8 121 55
- -------------------------------------------------------------------------------------------------------------
Mortgage loans on real estate (5) (69) (34)
Investment real estate (88) (170) (74)
Other 42 (16) (20)
- -------------------------------------------------------------------------------------------------------------
Realized investment gains (losses) (172) 8 18
Income tax expense (benefit) (58) 2 9
- -------------------------------------------------------------------------------------------------------------
Net realized investment gains (losses) $(114) $ 6 $ 9
- -------------------------------------------------------------------------------------------------------------
</TABLE>
3.3 FIXED MATURITY AND EQUITY SECURITIES
VALUATION. At December 31, 1994 and 1993, all fixed maturity and
equity securities were classified as available-for-sale and reported at fair
value. At December 31, 1992, fixed maturity securities were classified as
held-to-maturity and reported at amortized cost. Fair value and amortized cost
at December 31 were as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Cost Unrealized Gains Unrealized Losses Fair Value
------------------------ ------------------- -------------------- ------------------------
In millions 1994 1993 1992 1994 1993 1992 1994 1993 1992 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed maturity securities:
Corporate bonds
Investment grade $13,996 $12,207 $10,767 $154 $1,021 $ 680 $ (718) $ (25) $(41) $13,432 $13,203 $11,406
Below investment grade 904 707 704 15 42 21 (60) (6) (12) 859 743 713
Mortgage-backed 10,774 10,217 8,712 64 536 481 (806) (75) (18) 10,032 10,678 9,175
U.S. government 306 882 292 10 49 28 (4) (12) - 312 919 320
Foreign governments 604 565 557 3 37 36 (40) (1) (1) 567 601 592
States/political
subdivisions 336 180 156 14 22 24 (8) - - 342 202 180
Redeemable preferred
stocks 167 127 120 2 6 5 (13) - (2) 156 133 123
- ------------------------------------------------------------------------------------------------------------------------------
Total fixed maturity
secutities $27,087 $24,885 $21,308 $262 $1,713 $1,275 $(1,649) $(119) $(74) $25,700 $26,479 $22,509
- ------------------------------------------------------------------------------------------------------------------------------
Equity securities $ 202 $ 182 $ 273 $ 29 $ 53 $ 119 $ (7) $ (2) $ (2) $ 224 $ 233 $ 390
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
MATURITIES. The contractual maturities of fixed maturity securities at
December 31, 1994 were as follows:
<TABLE>
<CAPTION>
Amortized Fair
In millions Cost Value
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Fixed maturity securities, excluding
mortgage-backed securities
Due in one year or less $ 138 $ 140
Due after one year through five years 2,413 2,408
Due after five years through ten years 8,880 8,462
Due after ten years 4,882 4,658
Mortgage-backed securities 10,774 10,032
- ------------------------------------------------------------------------------------------------------------
Total fixed maturity securities $27,087 $25,700
- ------------------------------------------------------------------------------------------------------------
</TABLE>
Actual maturities may differ from contractual maturities since
borrowers may have the right to call or prepay obligations. Corporate
requirements and investment strategies may result in the sale of investments
before maturity.
AMERICAN GENERAL CORPORATION
34
<PAGE> 20
3.4 UNREALIZED GAINS (LOSSES) ON SECURITIES
Net unrealized gains (losses) on fixed maturity and equity securities
included in shareholders' equity at December 31 were as follows:
<TABLE>
<CAPTION>
In millions 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Gross unrealized gains $ 291 $1,766 $119
Gross unrealized losses (1,656) (121) (2)
DPAC and other fair value adjustments 401 (554) -
Deferred federal income taxes 29 (382) (29)
- ------------------------------------------------------------------------------------------------------------
Net unrealized gains (losses) on securities $ (935) $ 709 $ 88
- ------------------------------------------------------------------------------------------------------------
</TABLE>
3.5 MORTGAGE LOANS ON REAL ESTATE
Diversification. Diversification of the geographic location and type
of property collateralizing mortgage loans reduces the concentration of credit
risk. For new loans, the company requires loan-to-value ratios of 75% or less,
based on management's credit assessment of the borrower. At December 31, the
mortgage loan portfolio was distributed as follows:
<TABLE>
<CAPTION>
In millions 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Geographic distribution
Atlantic $1,086 $1,181 $1,348
Pacific and Mountain 844 940 1,066
Central 810 1,009 1,342
Allowance for losses (89) (98) (53)
- ------------------------------------------------------------------------------------------------------------
Total $2,651 $3,032 $3,703
- ------------------------------------------------------------------------------------------------------------
Property type
Office $ 925 $ 994 $1,056
Retail 890 1,038 1,229
Industrial 444 531 606
Apartments 298 334 437
Residential and other 183 233 428
Allowance for losses (89) (98) (53)
- ------------------------------------------------------------------------------------------------------------
Total $2,651 $3,032 $3,703
- ------------------------------------------------------------------------------------------------------------
</TABLE>
IMPAIRED LOANS. Impaired mortgage loans on real estate and related
interest income were as follows:
<TABLE>
<CAPTION>
In millions 1994 1993
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Impaired loans
With allowance* $137 $103
Without allowance 4 5
- ------------------------------------------------------------------------------------------------------------
Total impaired loans $141 $108
- ------------------------------------------------------------------------------------------------------------
Average investment $119 $128
Interest income earned 7 6
Interest income - cash basis 3 3
- ------------------------------------------------------------------------------------------------------------
</TABLE>
* Represents gross amounts before allowance for mortgage loan losses of
$36 million and $22 million, respectively.
ALLOWANCE. The allowance for mortgage loan losses was as follows:
<TABLE>
<CAPTION>
In millions 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at January 1, $ 98 $ 53 $ 50
Net additions (a) 11 84 34
Deductions (b) (20) (39) (31)
- ------------------------------------------------------------------------------------------------------------
Balance at December 31, $ 89 $ 98 $ 53
- ------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Charged to realized investment gains (losses).
(b) Resulting from foreclosures and payoffs.
3.6 INVESTMENT REAL ESTATE
The allowance for investment real estate losses was as follows:
<TABLE>
<CAPTION>
In millions 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at January 1, $253 $129 $62
Net additions (a) 110 199 82
Deductions (b) (42) (75) (15)
- ------------------------------------------------------------------------------------------------------------
Balance at December 31, $321 $253 $129
- ------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Charged to realized investment gains (losses).
(b) Resulting from sales.
3.7 CASH FLOWS FROM INVESTING ACTIVITIES
The uses of cash for investment purchases were as follows:
<TABLE>
<CAPTION>
In millions 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fixed maturity securities $7,009 $9,378 $7,511
Equity securities 111 33 23
Other 119 88 162
- ------------------------------------------------------------------------------------------------------------
Total purchases $7,239 $9,499 $7,696
- ------------------------------------------------------------------------------------------------------------
</TABLE>
The sources of cash from investment calls, maturities, and sales were
as follows:
<TABLE>
<CAPTION>
In millions 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fixed maturity securities
Sales $1,886 $ 859 $ 223
Repayments of mortgage-backed securities 1,833 2,650 952
Calls 794 2,098 2,790
Maturities 303 191 257
Mortgage loans 421 610 574
Equity securities 98 283 239
Other 231 293 137
- ------------------------------------------------------------------------------------------------------------
Total $5,566 $6,984 $5,172
- ------------------------------------------------------------------------------------------------------------
</TABLE>
AMERICAN GENERAL CORPORATION
35
<PAGE> 21
4. FINANCE RECEIVABLES
4.1 DETAIL OF FINANCE RECEIVABLES
Finance receivables, which are reported net of unearned finance
charges, at December 31 were as follows:
<TABLE>
<CAPTION>
In millions 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Consumer loans
Real estate $2,705 $2,642 $2,782
Other 2,661 2,318 2,054
- ------------------------------------------------------------------------------------------------------------
Total consumer loans 5,366 4,960 4,836
Retail sales finance 2,075 1,218 987
Credit cards 479 396 377
- ------------------------------------------------------------------------------------------------------------
Total finance receivables 7,920 6,574 6,200
Allowance for losses (226) (184) (162)
- ------------------------------------------------------------------------------------------------------------
Finance receivables, net $7,694 $6,390 $6,038
- ------------------------------------------------------------------------------------------------------------
</TABLE>
At December 31, 1994, 92% of non-credit card receivables were secured
by real estate or other property.
4.2 GEOGRAPHIC CONCENTRATIONS
The largest geographic concentrations of finance receivables at
December 31 were as follows:
<TABLE>
<CAPTION>
In millions 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
California $ 811 $ 751 $ 838
North Carolina 639 582 512
Florida 574 503 504
Illinois 458 409 387
Indiana 410 365 361
Ohio 401 341 284
Virginia 355 353 325
Georgia 347 264 244
Other 3,925 3,006 2,745
- ------------------------------------------------------------------------------------------------------------
Total $7,920 $6,574 $6,200
- ------------------------------------------------------------------------------------------------------------
</TABLE>
4.3 CONTRACTUAL MATURITIES AND COLLECTIONS
Contractual maturities of finance receivables at December 31, 1994
were as follows:
<TABLE>
<CAPTION> After
In millions 1995 1996 1997 1998 1999 1999
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------
Maturities $3,153 $1,468 $900 $455 $276 $1,668
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
Contractual maturities should not be considered a forecast of future
cash collections. A substantial portion of finance receivables may be renewed,
converted, or paid in full prior to maturity.
Cash collections of principal and collections as a percentage of
average finance receivable balances were as follows:
<TABLE>
<CAPTION>
In millions 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Consumer loans
Cash collections $2,437 $2,101 $1,881
Percent of average balances 48% 43% 40%
Retail sales finance
Cash collections $1,454 $1,192 $ 934
Percent of average balances 92% 111% 110%
Credit cards
Cash collections $ 432 $ 504 $ 487
Percent of average balances 103% 137% 138%
- ------------------------------------------------------------------------------------------------------------
</TABLE>
4.4 ALLOWANCE FOR FINANCE RECEIVABLE LOSSES
The allowance for finance receivable losses was as follows:
<TABLE>
<CAPTION>
In millions 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at January 1, $184 $162 $151
Provision for finance receivable
losses 214 163 135
Charge offs, net of recoveries (172) (141) (124)
- ------------------------------------------------------------------------------------------------------------
Balance at December 31, $226 $184 $162
- ------------------------------------------------------------------------------------------------------------
</TABLE>
5. DEFERRED POLICY ACQUISITION COSTS
The balance of deferred policy acquisition costs (DPAC) at December
31, and the components of the change for the years then ended, were as follows:
<TABLE>
<CAPTION>
In millions 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at January 1, $1,637 $2,083 $1,919
Capitalization 337 395 335
Amortization
Policy origination costs (195) (182) (149)
CIP, net (18) (21) (22)
Change in the effect of SFAS 115 954
Accounting changes
Fair value (SFAS 115) (550)
Income taxes (SFAS 109) 42
Other 16 (130) -
- ------------------------------------------------------------------------------------------------------------
Balance at December 31, $2,731 $1,637 $2,083
- ------------------------------------------------------------------------------------------------------------
</TABLE>
The unamortized balance of cost of insurance purchased (CIP) included
in DPAC at December 31, 1994, 1993, and 1992 was $171 million, $189 million,
and $210 million, respectively. CIP amortization, net of accretion, expected to
be recorded in each of the next five years is $17 million, $15 million, $14
million, $12 million, and $11 million.
AMERICAN GENERAL CORPORATION
36
<PAGE> 22
6. DEBT
6.1 LONG-TERM DEBT
Long-term debt at December 31 was as follows:
<TABLE>
<CAPTION>
In millions 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Corporate
Senior, 6.3 - 10%, through 2018 $ 836 $ 945 $ 992
- ------------------------------------------------------------------------------------------------------------
Real Estate $ - $ 15 $ 47
- ------------------------------------------------------------------------------------------------------------
Consumer Finance
Senior, 4.4 - 13%, through 2009 $4,163 $3,547 $3,155
Senior subordinated, 6.3 - 6.7%, through 1995 150 472 399
- ------------------------------------------------------------------------------------------------------------
Total Consumer Finance $4,313 $4,019 $3,554
- ------------------------------------------------------------------------------------------------------------
</TABLE>
6.2 LONG-TERM DEBT MATURITIES
Maturities of long-term debt and sinking fund requirements for each of
the next five years are as follows:
<TABLE>
<CAPTION>
In millions 1995 1996 1997 1998 1999
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Corporate $100 $ - $ 133 $ 68 $100
Consumer Finance 903 591 1,132 242 534
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
Current maturities of long-term debt expected to be refinanced with
short-term debt are included in short-term debt.
Certain other debt issues of the Consumer Finance segment that are
scheduled to mature after 1999 are redeemable prior to maturity at par, at the
option of the holders. If these issues were so redeemed, the amounts above
would increase by $150 million in 1996 and 1999.
6.3 SHORT-TERM DEBT
The weighted-average interest rates on short-term borrowings at
December 31 were as follows:
<TABLE>
<CAPTION>
1994 1993 1992
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Corporate 6.0% 3.4% 3.7%
Real Estate 6.1 3.3 3.6
Consumer Finance 5.9 3.3 3.5
- ------------------------------------------------------------------------------------------------------------
</TABLE>
6.4 CREDIT AGREEMENTS
During 1994, American General and certain subsidiaries used commercial
paper to meet short-term funding requirements. Unsecured bank credit
facilities are used to support commercial paper borrowings.
At December 31, 1994, American General and its consumer finance
subsidiaries maintained unsecured committed credit facilities of $3.0 billion
with a total of 54 domestic and foreign banks. On January 31, 1995, one of
these facilities was increased by $1.3 billion. Interest rates are based on a
money market index, and annual commitment fees range from 7 to 12.5 basis
points. There were no borrowings under these facilities at December 31, 1994.
7. INCOME TAXES
7.1 ACCOUNTING CHANGE
As a result of the adoption of SFAS 109, income tax disclosures for
1994 and 1993 are not comparable to prior years.
7.2 TAX LIABILITIES
Income tax liabilities at December 31 were as follows:
<TABLE>
<CAPTION>
In millions 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current tax liabilities (assets) $(67) $76 $39
- ------------------------------------------------------------------------------------------------------------
Deferred, applicable to:
Income 817 783 688
Net unrealized gains (losses) on securities (29) 382 29
- ------------------------------------------------------------------------------------------------------------
Net deferred tax liabilities 788 1,165 717
- ------------------------------------------------------------------------------------------------------------
Income tax liabilities $721 $1,241 $756
- ------------------------------------------------------------------------------------------------------------
</TABLE>
Components of deferred tax liabilities and assets at December 31 were
as follows:
<TABLE>
<CAPTION>
In millions 1994 1993
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax liabilities, applicable to:
Deferred policy acquisition costs $ 850 $ 480
Basis differential of investments - 589
Other 425 380
- ------------------------------------------------------------------------------------------------------------
Total deferred tax liabilities 1,275 1,449
- ------------------------------------------------------------------------------------------------------------
Deferred tax assets, applicable to:
Basis differential of investments (464) -
Policy reserves (132) (28)
Other (206) (256)
- ------------------------------------------------------------------------------------------------------------
Total deferred tax assets before valuation allowance (802) (284)
Valuation allowance 315 -
- ------------------------------------------------------------------------------------------------------------
Total deferred tax assets, net of valuation allowance (487) (284)
- ------------------------------------------------------------------------------------------------------------
Net deferred tax liabilities $ 788 $1,165
- ------------------------------------------------------------------------------------------------------------
</TABLE>
The deferred tax asset applicable to basis differential of investments
at December 31, 1994 is principally due to unrealized losses on securities
recorded in accordance with SFAS 115. This asset is partially offset by an SFAS
109 valuation allowance that was recorded in net unrealized gains (losses) on
securities in shareholders' equity. This valuation allowance had no income
statement impact.
A portion of life insurance income earned prior to 1984 is not taxable
unless it exceeds certain statutory limitations or is distributed as dividends.
Such income, accumulated in policyholders' surplus accounts, totaled $361
million at December 31, 1994. At current corporate rates, the maximum amount of
tax on such income is approximately $126 million. Deferred income taxes on
these accumulations are not required because no distributions are expected.
1994 ANNUAL REPORT
37
<PAGE> 23
7.3 TAX EXPENSE
Components of income tax expense were as follows:
<TABLE>
<CAPTION>
In millions 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current
Federal $261 $354 $205
State 19 18 -
- ------------------------------------------------------------------------------------------------------------
Total current 280 372 205
- ------------------------------------------------------------------------------------------------------------
Deferred, applicable to:
Basis differential of investments (27)
Deferred policy acquisition costs 30
Insurance and annuity liabilities (6)
Interest on tax assessments 34
Operating loss carryovers 20
Other, net (14)
- ------------------------------------------------------------------------------------------------------------
Total deferred 9 (20) 37
- ------------------------------------------------------------------------------------------------------------
Income tax expense $289 $352 $242
- ------------------------------------------------------------------------------------------------------------
</TABLE>
During third quarter 1993, the federal corporate income tax rate
increased from 34% to 35%, retroactive to January 1, 1993. As a result, a tax
rate related adjustment of $30 million was included in income tax expense in
1993, of which $26 million reflects an increase in deferred tax liabilities.
A reconciliation between the federal income tax rate and the effective
tax rate follows:
<TABLE>
<CAPTION>
In millions 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal income tax rate 35% 35% 34%
Tax-exempt investment income (2) (2) (1)
State taxes, net 2 2 -
Acquisition-related goodwill 1 1 1
Tax rate change - 4 -
Write-down of goodwill - 18 -
Other, net - - (3)
- ------------------------------------------------------------------------------------------------------------
Effective tax rate 36% 58%* 31%
- ------------------------------------------------------------------------------------------------------------
</TABLE>
* Excludes tax effect of accounting changes.
7.4 TAXES PAID
Federal income taxes paid in 1994, 1993, and 1992 were $409 million,
$260 million, and $265 million, respectively. State income taxes paid in 1994
and 1993 were $22 million and $15 million, respectively.
7.5 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 returns through 1985. All issues, except the one being litigated
as described in Note 14.1, have been settled within the amounts previously
provided in the consolidated financial statements. The IRS is currently
examining the company's tax returns for 1986 through 1988.
8. CAPITAL STOCK
8.1 CLASSES OF CAPITAL STOCK
American General has two classes of capital stock. Preferred stock
($1.50 par value, 60 million shares authorized) may be issued in series with
such dividend, liquidation, redemption, conversion, voting, and other rights as
the board of directors may determine. Common stock ($.50 par value, 300 million
shares authorized) was owned by 28,809 shareholders of record at February 9,
1995. At December 31, 1994, approximately 2.3 million shares of common stock
were reserved for issuance, primarily for the exercise of stock options.
8.2 COMMON STOCK SUBJECT TO PUT CONTRACTS
In conjunction with its share buyback program, the company has entered
into put option contracts that give the holder the right, but not the
obligation, to sell to American General its common stock at a fixed price,
approximately one year from date of issuance. At December 31, 1994, 1,700,000
shares of common stock of the company were subject to put option contracts at
strike prices ranging from $25.88 to $29.25 per share (average strike price of
$27.55 per share), and $47 million of related shareholders' equity was reported
as redeemable equity.
8.3 PREFERRED SHARE PURCHASE RIGHTS
One preferred share purchase right is attached to each share of common
stock. These rights are not currently exercisable and will become exercisable
only upon the occurrence of certain events related to a change in control of
the company. When exercisable, each right will entitle the holder to purchase
1/100 of a share of American General's Series A Junior Participating Preferred
Stock. All rights expire August 7, 1999, unless extended or redeemed.
9. STOCK AND INCENTIVE PLANS
The company's stock and incentive plans provide for the award of stock
options, restricted stock awards, performance awards, and incentive awards to
key employees.
Options for the purchase of shares of American General common
stock are exercisable at prices not less than the market value of the stock on
the date of grant. Such options may not be exercised within six months of, nor
after 10 years from, the date of grant.
Shares available and stock option activity are shown on the next page.
AMERICAN GENERAL CORPORATION
38
<PAGE> 24
<TABLE>
<CAPTION>
Shares Shares Issuable under
Available Outstanding Options
for Issue ---------------------------------------------
during 1994 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at January 1, 5,885,497 1,563,980 1,654,854 1,870,514
Stock options
Granted (851,500) 851,500 516,305 451,018
Exercised - (64,634) (531,637) (501,198)
Forfeited(a) 16,000 (58,500) (75,542) (165,480)
Performance shares
Granted prior to 1994(b) (277,912)
Granted during 1994 (48,000)
Restricted stock issued (31,500)
- ------------------------------------------------------------------------------------------------------------
Balance at December 31, 4,692,585 2,292,346 1,563,980 1,654,854
- ------------------------------------------------------------------------------------------------------------
</TABLE>
(a) 1994 includes 42,500 options forfeited from the 1984 plan, which are
no longer available for issue.
(b) Beginning in 1994, performance share awards are deducted from shares
available for issue at grant date rather than issue date.
The average price of options exercised was $19.65 in 1994, $17.70 in
1993, and $15.82 in 1992. At December 31, 1994, there were 1,690,898 options
exercisable, and the exercise price of all options outstanding ranged from
$14.00 to $34.88, for an average price of $24.47 per share. The options expire
on various dates between 1995 and 2004.
10. BENEFIT PLANS
10.1 PENSION PLANS
American General and its subsidiaries have non-contributory defined
benefit pension plans covering most employees. Pension benefits are based on
the participant's average monthly compensation and length of credited service.
The company's funding policy is to contribute annually no more than the maximum
amount deductible for federal income tax purposes. The company uses the
projected unit credit method to compute pension expense.
More than 96% of the plans' assets were invested in fixed maturity and
equity securities at the plans' most recent balance sheet date.
Prior to 1994, the pension plans purchased annuity contracts from
American General subsidiaries that provide benefits for certain retirees.
During 1994, 1993, and 1992, these annuity contracts provided approximately $37
million annually for retiree benefits.
The components of pension expense were as follows:
<TABLE>
<CAPTION>
In millions 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost (benefits earned) $13 $12 $10
Interest cost on projected benefit obligation 21 19 18
Actual return on plan assets (2) (65) (43)
Net amortization and deferral (53) 15 (7)
- ------------------------------------------------------------------------------------------------------------
Total pension expense (income) $(21) $(19) $(22)
- ------------------------------------------------------------------------------------------------------------
Assumptions:
Weighted-average discount rate on benefit obligation 8.50% 7.25% 8.00%
Rate of increase in compensation levels 4.00 4.00 5.00
Expected long-term rate of return on plan assets 10.00 10.00 10.00
- ------------------------------------------------------------------------------------------------------------
</TABLE>
The funded status of the plans and the prepaid pension expense
included in other assets at December 31 were as follows:
<TABLE>
<CAPTION>
In millions 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Actuarial present value of benefit obligation
Vested $242 $248 $203
Non-vested 3 5 4
- ------------------------------------------------------------------------------------------------------------
Accumulated benefit obligation 245 253 207
Effect of increase in compensation levels 30 36 26
- ------------------------------------------------------------------------------------------------------------
Projected benefit obligation 275 289 233
Plan assets at fair value 532 531 482
- ------------------------------------------------------------------------------------------------------------
Plan assets at fair value in excess
of projected benefit obligation 257 242 249
Unrecognized net gain (83) (80) (98)
Unrecognized prior service cost 8 11 13
Unrecognized net asset at
January 1, net of amortization (16) (27) (39)
- ------------------------------------------------------------------------------------------------------------
Prepaid pension expense $166 $146 $125
- ------------------------------------------------------------------------------------------------------------
</TABLE>
10.2 POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
American General and its subsidiaries have life, medical, supplemental
major medical, and dental plans for certain retired employees and agents. Most
plans are contributory, with retiree contributions adjusted annually to limit
employer contributions to predetermined amounts. For individuals retiring after
December 31, 1992, the cost of the supplemental major medical plan is borne
entirely by retirees. American General and its subsidiaries have reserved the
right to change or eliminate these benefits at any time.
The life plans are fully insured. A portion of the retiree medical and
dental plans are funded through a voluntary employees' beneficiary association
(VEBA) established in 1994; the remainder is unfunded and self-insured. All of
the retiree medical and dental plans' assets held in the VEBA were invested in
readily marketable securities at the plans' most recent balance sheet date.
1994 ANNUAL REPORT
39
<PAGE> 25
The plans' combined funded status and the accrued postretirement
benefit cost included in other liabilities at December 31 were as follows:
<TABLE>
<CAPTION>
In millions 1994 1993
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of benefit obligation
Retirees $34 $39
Fully eligible active plan participants 10 11
Other active plan participants 12 12
- ------------------------------------------------------------------------------------------------------------
Accumulated postretirement benefit obligation 56 62
Plan assets at fair value 3 -
- ------------------------------------------------------------------------------------------------------------
Accumulated postretirement benefit obligation in excess of plan
assets at fair value 53 62
Unrecognized net loss (gain) 1 (3)
- ------------------------------------------------------------------------------------------------------------
Accrued postretirement benefit cost $54 $59
- ------------------------------------------------------------------------------------------------------------
Weighted-average discount rate on postretirement benefit obligation 8.50% 7.25%
- ------------------------------------------------------------------------------------------------------------
</TABLE>
Postretirement benefit expense was as follows:
<TABLE>
<CAPTION>
In millions 1994 1993
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Service cost (benefits earned) $1 $1
Interest cost on accumulated
postretirement benefit obligation 4 4
- ------------------------------------------------------------------------------------------------------------
Postretirement benefit expense $5 $5
- ------------------------------------------------------------------------------------------------------------
</TABLE>
For measurement purposes, a 12% annual rate of increase in the per
capita cost of covered health care benefits was assumed in 1995; the rate was
assumed to decrease gradually to 6% in 2007 and remain at that level. A 1%
increase in the assumed annual rate of increase in per capita cost of health
care benefits results in a $.9 million increase in the accumulated
postretirement benefit obligation and a $.1 million increase in postretirement
benefit expense.
11. STATUTORY ACCOUNTING
Statutory accounting is the basis for determining the adequacy of
capital and dividend-paying capacity of insurance companies. State insurance
laws prescribe accounting practices for calculating statutory net income and
equity. In addition, state regulators may allow permitted statutory accounting
practices that differ from prescribed practices. The use of such permitted
practices by the company's insurance and annuity subsidiaries did not have a
material effect on their statutory equity at December 31, 1994.
Statutory accounting practices differ from GAAP. Significant
differences for the company's life insurance and annuity subsidiaries were as
follows:
<TABLE>
<CAPTION>
In millions 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory net income $ 507 $ 416 $ 364
Change in DPAC 124 191 161
Increase in interest maintenance reserve (86) (2) (15)
Deferred income tax expense (40) 23 -
Policy reserve adjustments (36) (96) 52
Non-recurring adjustments(a) - (346) -
Other, net (46) 37 (58)
- ------------------------------------------------------------------------------------------------------------
GAAP net income $ 423 $ 223 $ 504
- ------------------------------------------------------------------------------------------------------------
Statutory equity $ 1,677 $ 1,718 $ 1,717
Investment valuation differences(b) (1,060) 1,862 242
DPAC 2,719 1,758 2,077
Deferred income taxes (776) (1,131) (657)
Policy reserve adjustments 556 697 602
Acquisition-related goodwill 308 319 626
Other, net (48) (153) (14)
- ------------------------------------------------------------------------------------------------------------
Total GAAP equity $ 3,376 $ 5,070 $ 4,593
- ------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Includes $300 million write-down of goodwill, $26 million tax rate
related adjustment, and $20 million of accounting changes.
(b) 1994 and 1993 include the GAAP effect of SFAS 115.
12. DERIVATIVE FINANCIAL INSTRUMENTS
12.1 USE OF DERIVATIVE FINANCIAL INSTRUMENTS
The company is neither a dealer nor a trader in derivative financial
instruments. On occasion, the company utilizes various derivative financial
instruments, including interest rate swap agreements, currency swap agreements,
and options, to manage its exposure to interest rate risk and currency rate
fluctuations associated with specific liabilities and assets, principally debt
and investment securities. Substantially all of the company's derivative
financial instruments are interest rate swap agreements. Interest rate swap
agreements involve the receipt of floating-rate amounts in exchange for
fixed-rate interest payments, or vice versa, over the life of the agreement
without an exchange of the underlying principal (or notional) amount.
The company's objectives for using swap agreements on its debt are to
effectively convert a portion of its floating-rate commercial paper borrowings
to a fixed rate and to hedge against the risk of rising interest rates on
anticipated debt issuances. The company's objectives for using swap agreements
on its investment securities are to effectively convert specific investment
securities from a floating to a fixed-rate basis, or vice versa, and to hedge
against the risk of rising prices on anticipated investment security purchases.
The company's use of written options on interest rate swap agreements
has been limited to the synthetic modification of floating-rate commercial
paper borrowings. At December 31, 1994, there were no outstanding written
options on interest rate swap agreements.
AMERICAN GENERAL CORPORATION
40
<PAGE> 26
The company's use of swap agreements to effectively convert debt to a
fixed rate did not have a material effect on the weighted-average borrowing
rate or reported interest expense in any of the three years ended December 31,
1994. Derivative financial instruments related to investment securities, which
were not used prior to 1994, did not have a material effect on net investment
income in 1994.
12.2 CREDIT AND MARKET RISK
The company is exposed to credit risk in the event of non-performance
by counterparties to swap agreements. The company limits its exposure to credit
risk by entering into swap agreements with counterparties having high credit
ratings and by basing the amount and term of an agreement on these credit
ratings. Furthermore, the company regularly monitors counterparty credit
ratings throughout the term of the agreements.
The company's current credit exposure on swaps is limited to the fair
value of swap agreements that are favorable to the company. At December 31,
1994, the fair value of swap agreements in a favorable position was $8 million.
At December 31, 1993 and 1992, the company was in a payable position on all
outstanding swaps. The company does not expect any counterparty to fail to meet
its obligation; however, non-performance would not have a material impact on
the consolidated financial statements.
The company's exposure to market risk is mitigated by the offsetting
effects of changes in the value of swap agreements and of the underlying assets
and liabilities to which they relate.
12.3 ACCOUNTING POLICIES
The difference between amounts paid and received on swap agreements is
recorded on an accrual basis as an adjustment to interest expense or investment
income, as appropriate, over the periods covered by the agreements. The related
amount payable to or receivable from counterparties is included in other
liabilities or assets.
For swap agreements hedging anticipated debt issuances or investment
security purchases, the net swap interest differential is deferred and included
in the measurement of the anticipated transaction when it occurs. At December
31, 1994, unrealized gains of approximately $6 million were deferred on swap
agreements related to anticipated debt issuances. The company expects to issue
the debt in early 1995; any related deferred gain or loss will be included in
the measurement of the transaction and will be recognized as an adjustment to
interest expense over the life of the debt.
The fair values of the swap agreements are recognized in the
consolidated balance sheet if they hedge investment securities classified as
available-for-sale or anticipated investment purchases. In this event, changes
in the fair value of a swap agreement are reported in net unrealized gains
(losses) on securities included in shareholders' equity, consistent with the
treatment of the related investment security.
12.4 TERMS OF DERIVATIVE FINANCIAL INSTRUMENTS
The following table summarizes the types of derivative financial
instruments used, their notional or contract amounts, and their
weighted-average interest rates. Average floating rates may change
significantly, thereby affecting future cash flows. Swap agreements generally
have terms of five to ten years.
Derivative financial instruments related to debt at December 31 were as
follows:
<TABLE>
<CAPTION>
In millions 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Swap agreements to pay fixed rate:
Corporate
Notional amount $ 150 - -
Average receive rate 6.10% - -
Average pay rate 7.54 - -
Consumer Finance
Notional amount $ 390 $ 290 $ 415
Average receive rate 4.64% 3.35% 3.91%
Average pay rate 8.77 8.69 8.71
- ------------------------------------------------------------------------------------------------------------
Written options on interest rate swap agreements:
Consumer Finance
Contract amount $ - $ 200 $ 250
- ------------------------------------------------------------------------------------------------------------
</TABLE>
Derivative financial instruments related to investment securities at
December 31 were as follows:
<TABLE>
<CAPTION>
In millions 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Swap agreements to receive fixed rate:
Notional amount $ 9 - -
Average receive rate 6.92% - -
Average pay rate 6.96 - -
Purchased option
Contract amount $ 7 - -
- ------------------------------------------------------------------------------------------------------------
</TABLE>
In addition, at December 31, 1994, the company had purchased an option
on a currency swap agreement and had entered into a forward interest rate swap
agreement with effective dates in 1995 and 1996, respectively. These swaps,
with a total notional amount of $35 million, hedge anticipated investment
purchases expected to occur in 1995 and 1996.
13. FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS 107, "Disclosures about Fair Value of Financial Instruments,"
requires disclosure of the fair value of financial instruments. This standard
excludes certain financial instruments and all nonfinancial instruments,
including policyholder liabilities, from its disclosure requirements. Care
should be exercised in drawing conclusions based on fair value, since the fair
values presented on the next page do not include the value associated with all
the company's assets and liabilities.
1994 ANNUAL REPORT
41
<PAGE> 27
Carrying amount and fair values for those financial instruments covered
by SFAS 107 at December 31 were as follows:
<TABLE>
<CAPTION>
1994 1993 1992
-------------------- ------------------- ------------------------
Fair Carrying Fair Carrying Fair Carrying
In millions Value Amount Value Amount Value Amount
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Assets
Fixed maturity and equity securities $25,924* $25,924* $26,712 $26,712 $ 22,899 $21,698
Mortgage loans on real estate 2,668 2,651 3,145 3,032 3,821 3,703
Policy loans 1,078 1,197 1,209 1,156 1,060 1,081
Finance receivables, net 7,694 7,694 6,390 6,390 6,038 6,038
Liabilities
Insurance investment contracts 18,622 21,140 18,880 19,216 15,922 16,906
Short-term debt 3,777 3,777 2,550 2,550 2,878 2,878
Long-term debt
Corporate and Real Estate 851 836 1,098 960 1,135 1,039
Consumer Finance 4,208 4,313 4,264 4,019 3,722 3,554
- --------------------------------------------------------------------------------------------------------------------------
Off-balance-sheet derivative financial
instruments related to debt:
Corporate
Interest rate swap agreements $ 6 $ - $ -
Consumer Finance
Interest rate swap agreements (13) (29) (20)
Written options on interest rate swap agreements - (33) (21)
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Includes derivative financial instruments with positive fair value
of $2 million and negative fair value of $1 million.
The carrying amounts for assets and liabilities in the above table
are reported in the corresponding line item in the consolidated balance
sheet. The following methods and assumptions were used to estimate the
fair values of financial instruments.
FIXED MATURITY AND EQUITY SECURITIES. Fair values of fixed maturity
and equity securities were based on quoted market prices, where available.
For investments not actively traded, fair values were estimated using values
obtained from independent pricing services or, in the case of private
placements, by discounting expected future cash flows using a current market
rate applicable to yield, credit quality, and average life of the
investments. The reporting of fixed maturity securities at fair value
without a corresponding revaluation of related policyholder liabilities
can be misinterpreted, and care should be exercised in drawing conclusions from
such data.
MORTGAGE LOANS ON REAL ESTATE. Fair value of mortgage loans was
estimated primarily using discounted cash flows, based on contractual
maturities and discount rates that were based on U.S. Treasury rates for
similar maturity ranges, adjusted for risk, based on property type. The
reporting of mortgage loans on a fair value basis without a corresponding
revaluation of related policyholder liabilities can be misinterpreted, and
care should be exercised in drawing conclusions from such data.
POLICY LOANS. Fair value of policy loans was estimated using
discounted cash flows and actuarially-determined assumptions, incorporating
market rates.
FINANCE RECEIVABLES, NET. Fair value of finance receivables, which
approximates carrying amount, was estimated using discounted cash flows
computed by category of receivable. Cash flows were based on contractual
payment terms adjusted for delinquencies and losses, discounted at the
weighted-average rates currently being offered for similar finance
receivables. The fair value estimate does not reflect the value of the
underlying customer relationships or the related distribution system.
INSURANCE INVESTMENT CONTRACTS. Insurance investment contracts do not
subject the company to significant risks arising from policyholder mortality
or morbidity. The majority of the company's annuity products are
considered insurance investment contracts. Fair value of insurance investment
contracts was estimated using cash flows discounted at market interest rates.
Care should be exercised in drawing conclusions based on the estimated fair
value of insurance investment contracts, since assumptions regarding future
economic activity have been made in estimating fair value.
DEBT. Fair value of short-term debt approximated the carrying amount
at December 31, 1994, 1993, and 1992. Fair value of long-term debt was
estimated using discounted cash flows based on current borrowing rates.
OFF-BALANCE-SHEET DERIVATIVE FINANCIAL INSTRUMENTS. Fair values
of off-balance-sheet derivative financial instruments reflect the estimated
amounts that the company would receive or pay to terminate the contract at the
balance sheet date, incorporating the current unrealized gains (losses) on the
AMERICAN GENERAL CORPORATION
42
<PAGE> 28
instruments. Fair values of the agreements were based on estimates obtained
from the individual counterparties.
14. RESTRICTIONS AND CONTINGENCIES
14.1 LEGAL PROCEEDINGS
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 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 is
continuing to contest the matter vigorously through the appeals process; and
the company believes, based on advice of legal counsel, that plaintiffs'
claims are without merit. Accordingly, no provision has been made in the
consolidated financial statements related to this contingency.
In April 1992, the IRS issued Notices of Deficiency for the
1977-1981 tax years of certain insurance subsidiaries (see Note 7.5). The
basis of the dispute was the tax treatment of modified coinsurance
agreements. The company elected to pay all related assessments plus associated
interest, totaling $59 million. 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. Trial is expected to occur in
mid-1995. The company believes that the IRS's claims are without merit and is
continuing to vigorously pursue refund of the amounts paid. Accordingly,
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 and proceedings arising in the normal course of
business. Some of these lawsuits and proceedings arise in jurisdictions such
as Alabama that permit punitive damages disproportionate to the actual damages
alleged. Although no assurances can be given and no determination can be made
at this time as to the outcome of any particular lawsuit or proceeding,
American General and its subsidiaries believe that there are meritorious
defenses for all of these claims and are defending them vigorously. The
company also believes that the total amounts that would ultimately be paid,
if any, arising from these claims would have no material effect on the
company's consolidated results of operations and financial position.
14.2 REGULATION
American General's insurance subsidiaries are restricted by state
insurance laws as to the amounts they may pay as dividends without prior
approval from their respective state insurance departments. Certain
non-insurance subsidiaries are similarly restricted in the payment of dividends
by long-term debt and credit agreements. The amount of dividends available to
the parent company from subsidiaries during 1995 not limited by such
restrictions is $1.1 billion.
See page 20 of Management's Discussion and Analysis for a
discussion of state guaranty associations, regulation, and environmental
costs, and Note 7.5 concerning tax return examinations.
15. BUSINESS SEGMENT INFORMATION
American General reports the results of its business operations
in three segments: Retirement Annuities, Consumer Finance, and Life
Insurance. Results of each segment include earnings from its business
operations and earnings on that amount of equity considered necessary to
support its business.
Business segment information was as follows:
<TABLE>
<CAPTION>
Revenues Income before Taxes Assets
----------------------------- ---------------------------- --------------------------------
In millions 1994 1993 1992 1994 1993 1992 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Retirement Annuities $1,537 $1,470 $1,358 $ 282 $ 240 $ 188 $22,007 $20,896 $17,673
Consumer Finance 1,491 1,282 1,178 392 330 248 8,949 7,641 7,192
Life Insurance 1,932 2,054 2,045 399 152(a) 463 14,156 14,192 13,328
- ------------------------------------------------------------------------------------------------------------------------------------
Total business segments 4,960 4,806 4,581 1,073 722 899 45,112 42,729 38,193
- ------------------------------------------------------------------------------------------------------------------------------------
Corporate 105 65 57 (99)(b) (129)(b) (144)(b) 1,391 1,506 1,859
Realized investment
gains (losses) (172)(c) 8 18 (172)(c) 8 18 - - -
Intersegment eliminations (52) (50) (54) - 1 2 (208) (253) (310)
- ------------------------------------------------------------------------------------------------------------------------------------
Consolidated $4,841 $4,829 $4,602 $ 802 $ 602 $ 775 $46,295 $43,982 $39,742
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Includes $300 million write-down of goodwill.
(b) Primarily interest on corporate debt.
(c) Net of related DPAC adjustment of $20 million and $5 million for
Retirement Annuities and Life Insurance segments, respectively.
1994 ANNUAL REPORT
43
<PAGE> 29
16. QUARTERLY DATA (UNAUDITED)
<TABLE>
<CAPTION>
1994 1993 1992
In millions ----------------------------- ------------------------------------ -----------------------------
except per share data 4th 3rd 2nd 1st 4th 3rd 2nd 1st 4th 3rd 2nd 1st
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Premiums and other
considerations $ 319 $ 304 $ 298 $ 289 $ 322 $ 311 $ 308 $ 311 $ 316 $ 303 $ 298 $ 296
Net investment income 633 622 617 621 612 619 608 598 596 589 574 568
Total revenues 1,130 1,265 1,232 1,214 1,215 1,222 1,205 1,187 1,192 1,159 1,123 1,128
Insurance and annuity benefits 577 555 553 539 605 588 564 554 564 555 540 539
Operating costs and expenses 352 330 306 301 279 280 285 289 307 271 277 266
Total benefits and expenses 1,073 1,020 985 961 1,303 (a) 989 971 964 995 953 943 936
Net realized investment
gains (losses) (115) (1) 1 1 1 1 3 1 4 2 (1) 4
Net income (loss) 35 159 158 161 (164)(a) 119(b) 151 98(c) 134 138 127 134
Net income (loss) per share .18 .77 .75 .75 (.76)(a) .55(b) .70 .45(c) .62 .63 .59 .61
- ------------------------------------------------------------------------------------------------------------------------------------
Per common share
Dividends paid $ .29 $ .29 $ .29 $ .29 $ .275 $ .275 $ .275 $ .275 $ .26 $ .26 $.26 $ .26
Market price
High 28.88 30.50 29.38 29.63 34.75 36.50 33.25 32.88 29.38 25.19 24.63 22.38
Low 25.63 26.88 24.88 25.50 26.25 30.13 27.75 27.31 23.63 23.69 20.50 20.13
Close 28.25 27.13 27.63 27.88 28.63 32.75 31.63 31.25 28.50 24.63 24.50 21.06
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Includes write-down of goodwill of $300 million or $1.39 per share.
(b) Includes tax rate related adjustment of $30 million or $.14 per share.
(c) Includes net cumulative effect of accounting changes of $46 million
or $.21 per share due to adoption of SFAS 106, SFAS 109, and SFAS
112.
AMERICAN GENERAL CORPORATION
44
<PAGE> 30
REPORT OF MANAGEMENT
MANAGEMENT RESPONSIBILITY
Management is responsible for the information in this report. The
consolidated financial statements were prepared in conformity with generally
accepted accounting principles. Informed estimates and judgments were used for
transactions not yet completed or for which ultimate effects cannot be
precisely determined.
INTERNAL CONTROLS
American General's system of internal controls is designed to provide
reasonable assurance that assets are safeguarded, that transactions are
properly recorded and executed, and that established policies and procedures
are followed. The system includes: a documented organizational structure and
division of responsibility; established policies and procedures that are
communicated throughout the company, including a policy on business conduct to
foster a strong ethical climate; and the careful selection, training, and
development of employees.
Internal auditors monitor the operation of the internal control system
and report findings and recommendations to management and the audit committee
of the board. Corrective actions are taken to address control deficiencies and
other opportunities for improving the system.
INDEPENDENT AUDITORS
American General engaged Ernst & Young LLP as principal independent
auditors to perform an audit of the consolidated financial statements of the
company. Ernst & Young LLP was given unrestricted access to all financial
records and related data, including minutes of all meetings of shareholders,
the board of directors, and committees of the board. Management believes that
all representations made to Ernst & Young LLP during their audit were valid and
appropriate.
AUDIT COMMITTEE OF THE BOARD
The audit committee is composed of four members of the board of
directors who are not employees of the company. It meets regularly with members
of management, internal auditors, and the independent auditors to discuss the
adequacy of American General's internal controls, quality of financial
reporting, results of the auditing activities, and accounting policies. The
independent auditors and internal auditors have full and free access to the
audit committee.
/s/ AUSTIN P. YOUNG
Senior Vice President and Chief Financial Officer
/s/ HAROLD S. HOOK
Chairman and Chief Executive Officer
- ----------------------------------------------------------------------------
REPORT OF INDEPENDENT AUDITORS
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS
AMERICAN GENERAL CORPORATION
We have audited the accompanying consolidated balance sheets of
American General Corporation and subsidiaries as of December 31, 1994, 1993,
and 1992, and the related consolidated statements of income, shareholders'
equity, stock activity, and cash flows for each of the three years in the
period ended December 31, 1994. These 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 that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
American General Corporation and subsidiaries as of December 31, 1994, 1993,
and 1992, and the consolidated results of their operations and their cash flows
for each of the three years in the period ended December 31, 1994, in
conformity with generally accepted accounting principles.
As discussed in Note 1.2 to the financial statements, in 1993 the
company changed its method of accounting for postretirement benefits other than
pensions, income taxes, postemployment benefits, reinsurance, loan impairments,
and certain investments in debt and equity securities, as a result of adopting
recently promulgated accounting standards governing the accounting for these
items.
/s/ ERNST & YOUNG LLP
Houston, Texas
February 15, 1995
1994 ANNUAL REPORT
45
<PAGE> 1
EXHIBIT 21 - SUBSIDIARIES OF AMERICAN GENERAL CORPORATION
The following list includes certain of American General Corporation's
subsidiaries at March 1, 1995. Subsidiaries of subsidiaries are indicated by
indentations. Under Securities and Exchange Commission rules, certain
subsidiaries have been omitted.
<TABLE>
<CAPTION>
Jurisdiction
of
Name Incorporation
- -------------------------------------------------------------------------------------------------------------
<S> <C>
AGC Life Insurance Company............................................................ Missouri
American Franklin Company........................................................... Delaware
The Franklin Life Insurance Company.............................................. Illinois
Franklin Financial Services Corporation........................................ Delaware
The American Franklin Life Insurance Company................................... Illinois
The Franklin United Life Insurance Company..................................... New York
American General Life and Accident Insurance Company................................ Tennessee
American General Exchange, Inc. ................................................. Tennessee
Gulf Life Insurance Company...................................................... Tennessee
American General Life Insurance Company............................................. Texas
American General Annuity Service Corporation..................................... Texas
American General Life Insurance Company of New York.............................. New York
American General Securities Incorporated......................................... Texas
The Variable Annuity Life Insurance Company...................................... Texas
The Variable Annuity Marketing Company......................................... Texas
American General Capital Services, Inc. .............................................. Delaware
American General Finance, Inc.*....................................................... Indiana
AGF Investment Corp. ............................................................... Indiana
American General Finance Corporation................................................ Indiana
American General Finance Group, Inc. ............................................ Delaware
American General Financial Services, Inc....................................... Delaware
The National Life and Accident Insurance Company............................ Texas
CommoLoCo, Inc. ......................................................... Puerto Rico
Merit Life Insurance Co. ........................................................ Indiana
Yosemite Insurance Company....................................................... California
American General Financial Center................................................... Utah
Service Bureau of Indiana, Inc...................................................... Indiana
American General Investment Corporation............................................... Delaware
American General Mortgage Company................................................... Texas
American General Realty Investment Corporation...................................... Texas
American General Land Holding Company............................................ Delaware
American General Land Development, Inc. .............................................. Delaware
American General Property Insurance Company........................................... Tennessee
Financial Life Assurance Company of Canada............................................ Canada
GPC Property Company.................................................................. Delaware
Cinco Ranch East Development, Inc. ................................................. Delaware
Cinco Ranch West Development, Inc. ................................................. Delaware
The Colonies Development, Inc. ..................................................... Delaware
Fieldstone Farms Development, Inc. ................................................. Delaware
Hickory Downs Development, Inc. .................................................... Delaware
Lake Houston Development, Inc. ..................................................... Delaware
South Padre Development, Inc. ...................................................... Delaware
Knickerbocker Corporation............................................................. Texas
Lincoln American Corporation.......................................................... Delaware
</TABLE>
- ------------------
* American General Finance, Inc. is the direct or indirect parent of 55
additional wholly-owned consolidated subsidiaries incorporated in 28 states
and Puerto Rico for the purpose of conducting its consumer finance operations.
<PAGE> 1
EXHIBIT 23
Consent of Ernst & Young LLP,
Independent Auditors
We consent to the incorporation by reference in this Annual Report
(Form 10-K) of American General Corporation of our report dated February 15,
1995, included in the 1994 Annual Report to Shareholders of American General
Corporation.
Our audits also included the financial statement schedules of American
General Corporation listed in Item 14(a). These schedules are the responsibility
of the Company's management. Our responsibility is to express an opinion based
on our audits. In our opinion, the financial statement schedules referred to
above, when considered in relation to the basic financial statements taken as a
whole, present fairly in all material respects the information set forth
therein.
We also consent to the incorporation by reference in
Registration
Statement
Number on Form
- ----------------------------------------------------------------------------
33-39200 . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-8
33-39201 . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-8
33-39202 . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-8
2-98021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-8
33-51973 . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-8
33-19075 . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3
33-30693 . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3
33-51045 . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3
- ----------------------------------------------------------------------------
of our report dated February 15, 1995, with respect to the consolidated
financial statements incorporated herein by reference, and our report included
in the preceding paragraph with respect to the financial statement schedules
included in this Annual Report (Form 10-K) of American General Corporation.
Houston, Texas ERNST & YOUNG LLP
March 17, 1995
<PAGE> 1
EXHIBIT 24
American General Corporation: Board of Directors
Date: February 2, 1995
Subject: Form 10-K; Limited Power of Attorney for
Purpose. The purpose of this limited power of attorney is to authorize
certain officers of the company to execute, on behalf of the
undersigned person, the company's 1994 annual report on
Form 10-K, with such amendments thereto as may be necessary or appropriate,
together with any and all exhibits and other related documents, and to file the
Form 10-K with the SEC.
LIMITED POWER OF ATTORNEY
WHEREAS, AMERICAN GENERAL CORPORATION, a Texas corporation
(company), will file with the Securities and Exchange Commission (Commission)
under Section 13 of the Securities Exchange Act of 1934, as amended (Act), its
annual report on Form 10-K for the fiscal year ended December 31, 1994 (Form
10-K), with such amendments thereto as may be necessary or appropriate,
together with any and all exhibits and other documents related thereto;
NOW, THEREFORE, the undersigned in his capacity as a director
or officer or both, as the case may be, of the company does hereby appoint
AUSTIN P. YOUNG, JON P. NEWTON, and JOHN A. ADKINS, and each of them,
severally, his true and lawful attorney or attorneys-in-fact with or without
the others and with full power of substitution and resubstitution, to execute
in his name, place, and stead, in his capacity as a director or officer or
both, as the case may be, of the company, the Form 10-K and any and all
amendments thereto as said attorneys-in-fact or any of them shall deem
necessary or appropriate, together with all instruments necessary or incidental
in connection therewith, and to file the same or cause the same to be filed
with the Commission. Each of said attorneys-in-fact shall have full power and
authority to do and perform in the name and on behalf of the undersigned, in
any and all capacities, every act whatsoever necessary or desirable in
connection with the Form 10-K, as fully and for all intents and purposes as the
undersigned might or could do in person, the undersigned hereby ratifying and
approving the acts of said attorneys-in-fact and each of them.
IN WITNESS WHEREOF, the undersigned has executed this
instrument this second day of February, 1995.
/s/ J. EVANS ATTWELL
------------------------
<PAGE> 2
American General Corporation: Board of Directors
Date: February 2, 1995
Subject: Form 10-K; Limited Power of Attorney for
Purpose. The purpose of this limited power of attorney is to authorize
certain officers of the company to execute, on behalf of the
undersigned person, the company's 1994 annual report on
Form 10-K, with such amendments thereto as may be necessary or appropriate,
together with any and all exhibits and other related documents, and to file the
Form 10-K with the SEC.
LIMITED POWER OF ATTORNEY
WHEREAS, AMERICAN GENERAL CORPORATION, a Texas corporation
(company), will file with the Securities and Exchange Commission (Commission)
under Section 13 of the Securities Exchange Act of 1934, as amended (Act), its
annual report on Form 10-K for the fiscal year ended December 31, 1994 (Form
10-K), with such amendments thereto as may be necessary or appropriate,
together with any and all exhibits and other documents related thereto;
NOW, THEREFORE, the undersigned in his capacity as a director
or officer or both, as the case may be, of the company does hereby appoint
AUSTIN P. YOUNG, JON P. NEWTON, and JOHN A. ADKINS, and each of them,
severally, his true and lawful attorney or attorneys-in-fact with or without
the others and with full power of substitution and resubstitution, to execute
in his name, place, and stead, in his capacity as a director or officer or
both, as the case may be, of the company, the Form 10-K and any and all
amendments thereto as said attorneys-in-fact or any of them shall deem
necessary or appropriate, together with all instruments necessary or incidental
in connection therewith, and to file the same or cause the same to be filed
with the Commission. Each of said attorneys-in-fact shall have full power and
authority to do and perform in the name and on behalf of the undersigned, in
any and all capacities, every act whatsoever necessary or desirable in
connection with the Form 10-K, as fully and for all intents and purposes as the
undersigned might or could do in person, the undersigned hereby ratifying and
approving the acts of said attorneys-in-fact and each of them.
IN WITNESS WHEREOF, the undersigned has executed this
instrument this second day of February, 1995.
/s/ BRADY F. CARRUTH
------------------------
<PAGE> 3
American General Corporation: Board of Directors
Date: February 2, 1995
Subject: Form 10-K; Limited Power of Attorney for
Purpose. The purpose of this limited power of attorney is to authorize
certain officers of the company to execute, on behalf of the
undersigned person, the company's 1994 annual report on
Form 10-K, with such amendments thereto as may be necessary or appropriate,
together with any and all exhibits and other related documents, and to file the
Form 10-K with the SEC.
LIMITED POWER OF ATTORNEY
WHEREAS, AMERICAN GENERAL CORPORATION, a Texas corporation
(company), will file with the Securities and Exchange Commission (Commission)
under Section 13 of the Securities Exchange Act of 1934, as amended (Act), its
annual report on Form 10-K for the fiscal year ended December 31, 1994 (Form
10-K), with such amendments thereto as may be necessary or appropriate,
together with any and all exhibits and other documents related thereto;
NOW, THEREFORE, the undersigned in his capacity as a director
or officer or both, as the case may be, of the company does hereby appoint
AUSTIN P. YOUNG, JON P. NEWTON, and JOHN A. ADKINS, and each of them,
severally, his true and lawful attorney or attorneys-in-fact with or without
the others and with full power of substitution and resubstitution, to execute
in his name, place, and stead, in his capacity as a director or officer or
both, as the case may be, of the company, the Form 10-K and any and all
amendments thereto as said attorneys-in-fact or any of them shall deem
necessary or appropriate, together with all instruments necessary or incidental
in connection therewith, and to file the same or cause the same to be filed
with the Commission. Each of said attorneys-in-fact shall have full power and
authority to do and perform in the name and on behalf of the undersigned, in
any and all capacities, every act whatsoever necessary or desirable in
connection with the Form 10-K, as fully and for all intents and purposes as the
undersigned might or could do in person, the undersigned hereby ratifying and
approving the acts of said attorneys-in-fact and each of them.
IN WITNESS WHEREOF, the undersigned has executed this
instrument this second day of February, 1995.
/s/ W.LIPSCOMB DAVIS, JR.
------------------------
<PAGE> 4
American General Corporation: Board of Directors
Date: February 2, 1995
Subject: Form 10-K; Limited Power of Attorney for
Purpose. The purpose of this limited power of attorney is to authorize
certain officers of the company to execute, on behalf of the
undersigned person, the company's 1994 annual report on
Form 10-K, with such amendments thereto as may be necessary or appropriate,
together with any and all exhibits and other related documents, and to file the
Form 10-K with the SEC.
LIMITED POWER OF ATTORNEY
WHEREAS, AMERICAN GENERAL CORPORATION, a Texas corporation
(company), will file with the Securities and Exchange Commission (Commission)
under Section 13 of the Securities Exchange Act of 1934, as amended (Act), its
annual report on Form 10-K for the fiscal year ended December 31, 1994 (Form
10-K), with such amendments thereto as may be necessary or appropriate,
together with any and all exhibits and other documents related thereto;
NOW, THEREFORE, the undersigned in his capacity as a director
or officer or both, as the case may be, of the company does hereby appoint
AUSTIN P. YOUNG, JON P. NEWTON, and JOHN A. ADKINS, and each of them,
severally, his true and lawful attorney or attorneys-in-fact with or without
the others and with full power of substitution and resubstitution, to execute
in his name, place, and stead, in his capacity as a director or officer or
both, as the case may be, of the company, the Form 10-K and any and all
amendments thereto as said attorneys-in-fact or any of them shall deem
necessary or appropriate, together with all instruments necessary or incidental
in connection therewith, and to file the same or cause the same to be filed
with the Commission. Each of said attorneys-in-fact shall have full power and
authority to do and perform in the name and on behalf of the undersigned, in
any and all capacities, every act whatsoever necessary or desirable in
connection with the Form 10-K, as fully and for all intents and purposes as the
undersigned might or could do in person, the undersigned hereby ratifying and
approving the acts of said attorneys-in-fact and each of them.
IN WITNESS WHEREOF, the undersigned has executed this
instrument this second day of February, 1995.
/s/ ROBERT M. DEVLIN
------------------------
<PAGE> 5
American General Corporation: Board of Directors
Date: February 2, 1995
Subject: Form 10-K; Limited Power of Attorney for
Purpose. The purpose of this limited power of attorney is to authorize
certain officers of the company to execute, on behalf of the
undersigned person, the company's 1994 annual report on
Form 10-K, with such amendments thereto as may be necessary or appropriate,
together with any and all exhibits and other related documents, and to file the
Form 10-K with the SEC.
LIMITED POWER OF ATTORNEY
WHEREAS, AMERICAN GENERAL CORPORATION, a Texas corporation
(company), will file with the Securities and Exchange Commission (Commission)
under Section 13 of the Securities Exchange Act of 1934, as amended (Act), its
annual report on Form 10-K for the fiscal year ended December 31, 1994 (Form
10-K), with such amendments thereto as may be necessary or appropriate,
together with any and all exhibits and other documents related thereto;
NOW, THEREFORE, the undersigned in his capacity as a director
or officer or both, as the case may be, of the company does hereby appoint
AUSTIN P. YOUNG, JON P. NEWTON, and JOHN A. ADKINS, and each of them,
severally, his true and lawful attorney or attorneys-in-fact with or without
the others and with full power of substitution and resubstitution, to execute
in his name, place, and stead, in his capacity as a director or officer or
both, as the case may be, of the company, the Form 10-K and any and all
amendments thereto as said attorneys-in-fact or any of them shall deem
necessary or appropriate, together with all instruments necessary or incidental
in connection therewith, and to file the same or cause the same to be filed
with the Commission. Each of said attorneys-in-fact shall have full power and
authority to do and perform in the name and on behalf of the undersigned, in
any and all capacities, every act whatsoever necessary or desirable in
connection with the Form 10-K, as fully and for all intents and purposes as the
undersigned might or could do in person, the undersigned hereby ratifying and
approving the acts of said attorneys-in-fact and each of them.
IN WITNESS WHEREOF, the undersigned has executed this
instrument this second day of February, 1995.
/s/ LARRY D. HORNER
------------------------
<PAGE> 6
American General Corporation: Board of Directors
Date: February 2, 1995
Subject: Form 10-K; Limited Power of Attorney for
Purpose. The purpose of this limited power of attorney is to authorize
certain officers of the company to execute, on behalf of the
undersigned person, the company's 1994 annual report on
Form 10-K, with such amendments thereto as may be necessary or appropriate,
together with any and all exhibits and other related documents, and to file the
Form 10-K with the SEC.
LIMITED POWER OF ATTORNEY
WHEREAS, AMERICAN GENERAL CORPORATION, a Texas corporation
(company), will file with the Securities and Exchange Commission (Commission)
under Section 13 of the Securities Exchange Act of 1934, as amended (Act), its
annual report on Form 10-K for the fiscal year ended December 31, 1994 (Form
10-K), with such amendments thereto as may be necessary or appropriate,
together with any and all exhibits and other documents related thereto;
NOW, THEREFORE, the undersigned in his capacity as a director
or officer or both, as the case may be, of the company does hereby appoint
AUSTIN P. YOUNG, JON P. NEWTON, and JOHN A. ADKINS, and each of them,
severally, his true and lawful attorney or attorneys-in-fact with or without
the others and with full power of substitution and resubstitution, to execute
in his name, place, and stead, in his capacity as a director or officer or
both, as the case may be, of the company, the Form 10-K and any and all
amendments thereto as said attorneys-in-fact or any of them shall deem
necessary or appropriate, together with all instruments necessary or incidental
in connection therewith, and to file the same or cause the same to be filed
with the Commission. Each of said attorneys-in-fact shall have full power and
authority to do and perform in the name and on behalf of the undersigned, in
any and all capacities, every act whatsoever necessary or desirable in
connection with the Form 10-K, as fully and for all intents and purposes as the
undersigned might or could do in person, the undersigned hereby ratifying and
approving the acts of said attorneys-in-fact and each of them.
IN WITNESS WHEREOF, the undersigned has executed this
instrument this second day of February, 1995.
/s/ RICHARD J.V. JOHNSON
------------------------
<PAGE> 7
American General Corporation: Board of Directors
Date: February 2, 1995
Subject: Form 10-K; Limited Power of Attorney for
Purpose. The purpose of this limited power of attorney is to authorize
certain officers of the company to execute, on behalf of the
undersigned person, the company's 1994 annual report on
Form 10-K, with such amendments thereto as may be necessary or appropriate,
together with any and all exhibits and other related documents, and to file the
Form 10-K with the SEC.
LIMITED POWER OF ATTORNEY
WHEREAS, AMERICAN GENERAL CORPORATION, a Texas corporation
(company), will file with the Securities and Exchange Commission (Commission)
under Section 13 of the Securities Exchange Act of 1934, as amended (Act), its
annual report on Form 10-K for the fiscal year ended December 31, 1994 (Form
10-K), with such amendments thereto as may be necessary or appropriate,
together with any and all exhibits and other documents related thereto;
NOW, THEREFORE, the undersigned in his capacity as a director
or officer or both, as the case may be, of the company does hereby appoint
AUSTIN P. YOUNG, JON P. NEWTON, and JOHN A. ADKINS, and each of them,
severally, his true and lawful attorney or attorneys-in-fact with or without
the others and with full power of substitution and resubstitution, to execute
in his name, place, and stead, in his capacity as a director or officer or
both, as the case may be, of the company, the Form 10-K and any and all
amendments thereto as said attorneys-in-fact or any of them shall deem
necessary or appropriate, together with all instruments necessary or incidental
in connection therewith, and to file the same or cause the same to be filed
with the Commission. Each of said attorneys-in-fact shall have full power and
authority to do and perform in the name and on behalf of the undersigned, in
any and all capacities, every act whatsoever necessary or desirable in
connection with the Form 10-K, as fully and for all intents and purposes as the
undersigned might or could do in person, the undersigned hereby ratifying and
approving the acts of said attorneys-in-fact and each of them.
IN WITNESS WHEREOF, the undersigned has executed this
instrument this second day of February, 1995.
/s/ ROBERT E. SMITTCAMP
------------------------
<PAGE> 8
American General Corporation: Board of Directors
Date: February 2, 1995
Subject: Form 10-K; Limited Power of Attorney for
Purpose. The purpose of this limited power of attorney is to authorize
certain officers of the company to execute, on behalf of the
undersigned person, the company's 1994 annual report on
Form 10-K, with such amendments thereto as may be necessary or appropriate,
together with any and all exhibits and other related documents, and to file the
Form 10-K with the SEC.
LIMITED POWER OF ATTORNEY
WHEREAS, AMERICAN GENERAL CORPORATION, a Texas corporation
(company), will file with the Securities and Exchange Commission (Commission)
under Section 13 of the Securities Exchange Act of 1934, as amended (Act), its
annual report on Form 10-K for the fiscal year ended December 31, 1994 (Form
10-K), with such amendments thereto as may be necessary or appropriate,
together with any and all exhibits and other documents related thereto;
NOW, THEREFORE, the undersigned in his capacity as a director
or officer or both, as the case may be, of the company does hereby appoint
AUSTIN P. YOUNG, JON P. NEWTON, and JOHN A. ADKINS, and each of them,
severally, his true and lawful attorney or attorneys-in-fact with or without
the others and with full power of substitution and resubstitution, to execute
in his name, place, and stead, in his capacity as a director or officer or
both, as the case may be, of the company, the Form 10-K and any and all
amendments thereto as said attorneys-in-fact or any of them shall deem
necessary or appropriate, together with all instruments necessary or incidental
in connection therewith, and to file the same or cause the same to be filed
with the Commission. Each of said attorneys-in-fact shall have full power and
authority to do and perform in the name and on behalf of the undersigned, in
any and all capacities, every act whatsoever necessary or desirable in
connection with the Form 10-K, as fully and for all intents and purposes as the
undersigned might or could do in person, the undersigned hereby ratifying and
approving the acts of said attorneys-in-fact and each of them.
IN WITNESS WHEREOF, the undersigned has executed this
instrument this second day of February, 1995.
/s/ JAMES R. TUERFF
------------------------
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<DEBT-HELD-FOR-SALE> 25,700<F1>
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 224
<MORTGAGE> 2,651
<REAL-ESTATE> 564
<TOTAL-INVEST> 30,697
<CASH> 45
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 2,731
<TOTAL-ASSETS> 46,295
<POLICY-LOSSES> 28,892<F2>
<UNEARNED-PREMIUMS> 153<F2>
<POLICY-OTHER> 126<F2>
<POLICY-HOLDER-FUNDS> 452<F2>
<NOTES-PAYABLE> 8,926
<COMMON> 364
0
0
<OTHER-SE> 3,093<F3>
<TOTAL-LIABILITY-AND-EQUITY> 46,295
1,210
<INVESTMENT-INCOME> 2,493
<INVESTMENT-GAINS> (172)
<OTHER-INCOME> 1,310<F4>
<BENEFITS> 2,224
<UNDERWRITING-AMORTIZATION> 213<F5>
<UNDERWRITING-OTHER> (353)<F6>
<INCOME-PRETAX> 802
<INCOME-TAX> 289
<INCOME-CONTINUING> 513
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 513
<EPS-PRIMARY> 2.45
<EPS-DILUTED> 2.45
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
<FN>
<F1>ALL FIXED MATURITY SECURITIES ARE CLASSIFIED AS AVAILABLE-FOR-SALE
AND RECORDED AT FAIR VALUE.
<F2>THE SUM OF POLICY LOSSES, UNEARNED PREMIUMS, POLICY OTHER, AND POLICYHOLDER
FUNDS COMPRISES INSURANCE AND ANNUITY LIABILITIES.
<F3>CONSISTS OF NET OF THE FOLLOWING: NET UNREALIZED GAINS (LOSSES) ON
SECURITIES; RETAINED EARNINGS; AND COST OF TREASURY STOCK.
<F4>INCLUDES FINANCE CHARGES.
<F5>AMORTIZATION OF POLICY ORIGINATION COSTS AND COST OF INSURANCE PURCHASED.
<F6>CAPITALIZATION OF POLICY ORIGINATION COSTS.
</FN>
</TABLE>
