AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1996
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________________ to _____________________
Commission file number 1-7981
American General Corporation
(Exact name of registrant as specified in its articles of incorporation)
Texas 74-0483432
(State of Incorporation) (I.R.S. Employer
Identification No.)
2929 Allen Parkway, Houston, Texas 77019-2155
(Address of principal executive offices) (Zip Code)
(713) 522-1111
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X . No .
As of July 31, 1996, there were 204,581,189 shares (excluding shares held in
treasury and by a subsidiary) of American General's Common Stock and 2,317,701
shares of American General's 7% Convertible Preferred Stock outstanding.
<PAGE>
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1996
INDEX TO FORM 10-Q
Page
Part I. FINANCIAL INFORMATION.
Item 1. Financial Statements.
Consolidated Statement of Income for the six
months and quarter ended June 30, 1996 and 1995 .. 2
Consolidated Balance Sheet at June 30, 1996 and
December 31, 1995 ................................ 3
Consolidated Condensed Statement of Cash Flows for
the six months ended June 30, 1996 and 1995 ...... 4
Notes to Consolidated Financial Statements ......... 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations .............. 9
Part II. OTHER INFORMATION.
Item 1. Legal Proceedings .................................. 23
Item 4. Submission of Matters to a Vote of
Security Holders ................................. 23
Item 6. Exhibits and Reports on Form 8-K ................... 24
<PAGE>
-1-
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1996
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
AMERICAN GENERAL CORPORATION
Consolidated Statement of Income
(Unaudited)
(In millions, except share data)
Six Months Ended Quarter Ended
June 30, June 30,
1996 1995 1996 1995
Revenues
Premiums and other considerations. $ 976 $ 842 $ 496 $ 439
Net investment income ............ 1,620 1,494 820 772
Finance charges .................. 734 729 363 370
Realized investment gains ........ 32 3 5 1
Equity in earnings of Western
National Corporation ............ 17 21 9 12
Other ............................ 53 56 28 33
Total revenues ............... 3,432 3,145 1,721 1,627
Benefits and expenses
Insurance and annuity benefits ... 1,538 1,416 764 739
Policyholder dividends ........... 45 41 22 25
Operating costs and expenses ..... 552 476 288 242
Commissions ...................... 263 260 138 134
Change in deferred policy
acquisition costs and cost of
insurance purchased ............. (36) (89) (20) (46)
Provision for finance receivable
losses .......................... 211 147 102 75
Interest expense
Corporate ....................... 61 83 31 44
Consumer Finance ................ 247 255 121 130
Total benefits and expenses .. 2,881 2,589 1,446 1,343
Earnings
Income before income tax expense.. 551 556 275 284
Income tax expense ............... 195 199 98 102
Income before net dividends on
preferred securities of
subsidiaries .................... 356 357 177 182
Net dividends on preferred
securities of subsidiaries ...... 19 2 9 2
Net income ................... $ 337 $ 355 $ 168 $ 180
Net income per share .............. $ 1.60 $ 1.73 $ .79 $ .88
Dividends paid per common share ... $ .65 $ .62 $ .325 $ .31
-2-
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1996
Average fully diluted shares
outstanding (in thousands) ...... 214,118 206,279 215,560 207,363
-3-
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1996
Item 1. Financial Statements (continued).
AMERICAN GENERAL CORPORATION
Consolidated Balance Sheet
(Unaudited)
(In millions, except share amounts)
June 30, December 31,
1996 1995
Assets
Investments
Fixed maturity securities (amortized cost:
$36,118; $34,590) ............................ $36,737 $37,213
Mortgage loans on real estate ................. 3,184 3,041
Equity securities (cost: $114; $138) .......... 144 186
Policy loans .................................. 1,675 1,605
Investment real estate ........................ 606 577
Other long-term investments ................... 167 179
Short-term investments ........................ 167 103
Total investments ......................... 42,680 42,904
Cash ........................................... 190 161
Finance receivables, net ....................... 7,571 7,918
Investment in Western National Corporation ..... 357 407
Deferred policy acquisition costs .............. 2,301 1,625
Cost of insurance purchased .................... 776 504
Acquisition-related goodwill ................... 567 577
Other assets ................................... 2,081 1,887
Assets held in Separate Accounts ............... 6,494 5,170
Total assets .............................. $63,017 $61,153
Liabilities
Insurance and annuity liabilities .............. $39,478 $37,983
Debt (short-term)
Corporate ($677; $553) ........................ 1,847 1,723
Consumer Finance ($2,442; $2,490) ............. 7,097 7,470
Income tax liabilities ......................... 846 1,268
Other liabilities .............................. 1,212 1,009
Liabilities related to Separate Accounts ....... 6,494 5,170
Total liabilities ......................... 56,974 54,623
Redeemable equity
Company-obligated mandatorily redeemable
preferred securities of subsidiaries
holding solely company subordinated notes
Non-convertible ............................. 486 485
Convertible ................................. 245 244
Total redeemable equity ................... 731 729
Shareholders' equity
Mandatorily convertible preferred stock
(shares issued and outstanding: 2,317,701) ... 85 -
-4-
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1996
Common stock (shares issued: 220,122,120;
outstanding: 205,391,487; 203,948,246) ....... 398 364
Net unrealized gains on securities ............. 268 1,100
Retained earnings .............................. 4,989 4,787
Cost of treasury stock ......................... (428) (450)
Total shareholders' equity ................ 5,312 5,801
Total liabilities and equity .............. $63,017 $61,153
-5-
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1996
Item 1. Financial Statements (continued).
AMERICAN GENERAL CORPORATION
Consolidated Condensed Statement of Cash Flows
(Unaudited)
(In millions)
Six Months Ended
June 30,
1996 1995
Operating activities
Net cash provided by operating activities ... $ 966 $ 999
Investing activities
Investment purchases .............................. (4,914) (3,978)
Investment calls, maturities, and sales ........... 4,465 2,560
Finance receivable originations or acquisitions ... (2,403) (3,081)
Finance receivable principal payments received .... 2,530 2,448
Finance receivables sold through securitization ... - 100
Net (increase) decrease in short-term investments . (61) 168
Acquisition of Independent ........................ (106) -
Acquisition of Franklin Life ...................... - (920)
Other, net ........................................ (94) (95)
Net cash used for investing activities ...... (583) (2,798)
Financing activities
Retirement Annuities and Life Insurance
Policyholder account deposits ................... 1,320 1,573
Policyholder account withdrawals ................ (1,228) (883)
Total Retirement Annuities and Life Insurance 92 690
Consumer Finance
Net decrease in short-term debt ................. (48) (468)
Long-term debt issuances ........................ 31 1,340
Long-term debt redemptions ...................... (358) (519)
Total Consumer Finance ....................... (375) 353
Corporate
Net increase in short-term debt ................. 124 167
Long-term debt issuances ........................ - 286
Long-term debt redemption ....................... - (100)
Issuance of preferred securities of subsidiaries,
net of commissions paid
Non-convertible ............................... - 277
Convertible ................................... - 244
Common stock dividend payments .................. (133) (127)
Preferred stock dividend payments ............... (2) -
Common stock purchases .......................... (81) -
Other, net ...................................... 21 2
Total Corporate .............................. (71) 749
Net cash provided by (used for)
financing activities ....................... (354) 1,792
Net increase (decrease) in cash .................... 29 (7)
-6-
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1996
Cash at beginning of period ........................ 161 45
Cash at end of period .............................. $ 190 $ 38
Supplemental disclosure of cash flow information:
Cash paid during the period for
Income taxes .................................... $ 153 $ 91
Interest
Corporate ..................................... 63 84
Consumer Finance .............................. 249 238
Dividends on preferred securities of
subsidiaries ................................... 28 3
-7-
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1996
Item 1. Financial Statements (continued).
AMERICAN GENERAL CORPORATION
Notes to Consolidated Financial Statements
June 30, 1996
1. Accounting Policies. The accompanying unaudited consolidated financial
statements of American General Corporation ("American General" or "the
company") and its subsidiaries have been prepared in accordance with
generally accepted accounting principles for interim periods. In the
opinion of management, these statements include all adjustments,
consisting only of normal recurring accruals, that are necessary for a
fair presentation of the company's consolidated financial position at
June 30, 1996, and the consolidated results of operations for the three
months and six months ended June 30, 1996 and 1995, and the consolidated
cash flows for the six months ended June 30, 1996 and 1995.
To conform with the 1996 presentation, certain items in the prior period
have been reclassified.
2. New Accounting Standard. In June 1996, the Financial Accounting
Standards Board (FASB) issued Statement of Financial Accounting Standards
(SFAS) 125, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities." This statement provides accounting
standards for determining whether transfers of financial assets are sales
or secured borrowings. The statement must be applied prospectively to
all applicable transactions occurring after December 31, 1996. Earlier
or retroactive application is not permitted. The company does not
anticipate a material effect on consolidated results of operations and
financial position related to adoption of this statement.
3. Acquisitions.
Independent Insurance Group, Inc. On February 29, 1996, American
General, through its wholly-owned subsidiary, AGC Life Insurance Company
(AGC Life), acquired Independent Insurance Group, Inc. (Independent) for
$362 million. Prior to closing, Independent shareholders could elect to
exchange each share of Independent stock for $27.50 in cash, .7480 share
of American General common stock, or .7480 share of American General 7%
mandatorily convertible preferred stock. The exchange ratio was based on
$36.7625, the average market price of American General common stock
during the ten trading days ending on and including the fifth trading day
prior to closing. The consideration at closing consisted of: 1) $139
million of cash (38%), 2) 3.7 million shares of common stock (38%), and
3) 2.3 million shares of preferred stock (24%).
The acquisition was accounted for using the purchase method, and the
results of operations of Independent were included in the company's
consolidated statement of income from the date of acquisition. The
acquired assets and liabilities were reflected in American General's
-8-
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1996
Item 1. Financial Statements (continued).
consolidated balance sheet as of February 29, 1996, at management's best
estimate of their fair values. Evaluation of fair values assigned to
Independent's assets and liabilities, primarily related to insurance,
employee benefits, and litigation liabilities, is continuing, and
allocation of the purchase price may be adjusted when additional
information is available.
Noncash investing and financing activities related to the acquisition of
Independent that are not reflected in the consolidated condensed
statement of cash flows for the six months ended June 30, 1996 were as
follows:
(In millions)
Fair value of assets acquired, excluding $34 million of cash $1,280
Liabilities assumed (951)
Issuance of common treasury shares (138)
Issuance of mandatorily convertible preferred stock (85)
Net cash paid for acquisition of Independent $ 106
Franklin Life Insurance Company. On January 31, 1995, American General,
through AGC Life, acquired American Franklin Company (AFC), the holding
company of The Franklin Life Insurance Company (Franklin Life). The
following unaudited proforma information presents the consolidated
results of operations of the company and AFC for the six months ended
June 30, 1995. The proforma information is presented as if the
acquisition and its permanent financing had been effective at January 1,
1995. This information is intended for informational purposes only and
may not necessarily be indicative of American General's future results of
operations.
Proforma
Six Months Ended
June 30, 1995
(In millions, except share data)
Total revenues $ 3,225
Income before income tax expense $ 574
Income before net dividends on
preferred securities of subsidiaries $ 369
Net income $ 354
Net income per share $ 1.72
Average fully diluted shares
outstanding (thousands) 206,279
Included in net income above are aftertax realized gains of $2 million.
-9-
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1996
Item 1. Financial Statements (continued).
4. Mandatorily Convertible Preferred Stock. In connection with the
acquisition of Independent, American General issued 2.3 million shares,
or $85 million, of mandatorily convertible preferred stock. Holders of
the preferred stock are entitled to receive annual cumulative dividends
of 7% and have the right to vote, together with holders of American
General common stock, on the basis of four-fifths of one vote for each
share of preferred stock. The preferred stock is non-callable for four
years, and each share is mandatorily convertible into not more than one
share of American General common stock during the fifth year.
5. Derivative Financial Instruments. During the six months ended June 30,
1996, the company entered into interest rate swap agreements with a total
notional amount of $44.5 million to convert specific investment
securities from a floating to a fixed-rate basis, or vice versa. No
other transactions involving derivative financial instruments were
entered into during the period. Derivative financial instruments related
to investment securities did not have a material effect on net investment
income in the six months ended June 30, 1996 or 1995. Derivative
financial instruments related to debt securities did not have a material
effect on the weighted-average borrowing rate or reported interest
expense in the six months ended June 30, 1996 or 1995.
6. Legal Contingencies. 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 for
$47.3 million in compensatory damages and 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. On January 29, 1996, the Texas First Court of Appeals rendered
a two-to-one decision that affirmed the trial court judgment and held
both companies liable to pay the punitive damages. The company intends
to vigorously contest the matter through the appellate process. Although
substantial risks and uncertainties remain with respect to the ultimate
outcome, legal counsel has advised the company that it is not probable
within the meaning of SFAS 5, "Accounting for Contingencies," that the
company will ultimately incur a material liability in connection with
this matter. 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.
-10-
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1996
On February 7, 1996, the court ruled in favor of the company on all legal
Item 1. Financial Statements (continued).
issues related to this contingency, and a judgment was entered in favor
of the company on July 7, 1996. The company does not yet know whether
the IRS will appeal this decision; however, the company intends to pursue
a full 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 parties to various
other lawsuits and proceedings arising in the ordinary course of
business. Many of these lawsuits and proceedings arise in jurisdictions,
such as Alabama, that permit damage awards disproportionate to the actual
economic damages incurred. Based upon information presently available,
the company believes that the total amounts that ultimately will be paid,
if any, arising from these lawsuits and proceedings will have no material
adverse effect on the company's consolidated results of operations and
financial position. However, it should be noted that the frequency of
large damage awards, including large punitive damage awards, that bear
little or no relation to actual economic damages incurred by plaintiffs
in jurisdictions like Alabama continues to increase and creates the
potential for an unpredictable judgment in any given suit.
7. Status of Federal Tax Return Examinations. The company and the majority
of its subsidiaries file a consolidated federal income tax return. The
IRS is currently examining the company's tax returns for 1986 through
1992. One issue from prior tax returns has been the subject of
litigation, as described in Note 6.
8. Ratio of Earnings to Fixed Charges and Ratio of Earnings to Combined
Fixed Charges and Preferred Stock Dividends. The ratio of earnings to
fixed charges and the ratio of earnings to combined fixed charges and
preferred stock dividends were as follows:
Six Months Ended Quarter Ended
June 30, June 30,
1996 1995 1996 1995
Ratio of Earnings to Fixed
Charges:
Consolidated operations ......... 2.67 2.53 2.68 2.53
Consolidated operations,
corporate fixed charges only ... 8.32 6.61 8.24 6.51
American General Finance, Inc. .. 1.36 1.75 1.38 1.75
Ratio of Earnings to Combined
Fixed Charges and Preferred
Stock Dividends:
Consolidated operations .......... 2.43 2.51 2.43 2.48
Consolidated operations,
-11-
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1996
corporate fixed charges and
preferred stock dividends only .. 5.84 6.40 5.68 6.13
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
This item presents specific comments on material changes to the company's
consolidated results of operations, capital resources, and liquidity for the
periods reflected in the interim financial statements filed with this report.
The reader is presumed to have read or have access to the company's 1995
Annual Report to Shareholders, including the Management's Discussion and
Analysis on pages 16 through 25 thereof, and the company's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1996.
This analysis should be read in conjunction with the consolidated financial
statements and related notes on pages 2 through 8 of this Quarterly Report on
Form 10-Q.
CONSOLIDATED RESULTS OF OPERATIONS
Six Months Ended Quarter Ended
(In millions, June 30, June 30,
except share data) 1996 1995 1996 1995
Net income $ 337 $ 355 $ 168 $ 180
Net income per share 1.60 1.73 .79 .88
Net income for the six months and quarter ended June 30, 1996 decreased 5% and
7%, respectively, compared to the same periods in the prior year, primarily
due to lower earnings in the Consumer Finance segment, partially offset by
positive contributions from the acquisitions of Franklin Life (first quarter
1995) and Independent (first quarter 1996) in the Life Insurance segment, as
well as growth in the Retirement Annuities segment. In addition, net income
includes a $19 million increase in net realized investment gains for the six
months ended June 30, 1996 compared to 1995, and a $3 million increase for the
quarters then ended.
Net income per share for the six months and quarter ended June 30, 1996
decreased 8% and 10%, respectively, compared to the same periods of 1995. Net
income per share decreased to a greater degree than net income, primarily due
to the issuance of convertible preferred securities of a subsidiary in June
1995.
BUSINESS SEGMENTS
The company reports its business operations in three segments. To facilitate
meaningful period-to-period comparisons of business segment results, earnings
of each segment include income from its business operations and earnings on
-12-
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1996
that amount of equity considered necessary to support its business, and
exclude net realized investment gains, non-recurring items, and the effect of
accounting changes.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued).
Segment earnings were as follows:
Six Months Ended Quarter Ended
June 30, June 30,
(In millions) 1996 1995 1996 1995
Retirement Annuities $ 118 $ 108 $ 58 $ 54
Consumer Finance 59 122 31 62
Life Insurance 191 170 100 86
Total segment earnings $ 368 $ 400 $ 189 $ 202
A discussion of each segment's results follows. The reasons for any
significant variations between the quarters ended June 30, 1996 and 1995 are
the same as those discussed below for the respective six month periods, unless
otherwise noted.
Retirement Annuities
Six Months Ended Quarter Ended
June 30, June 30,
($ in millions) 1996 1995 1996 1995
Segment earnings $ 118 $ 108 $ 58 $ 54
Assets 28,308 24,968 28,308 24,968
Deposits
Fixed 812 905 386 450
Variable 593 376 311 194
Net investment income 822 779 411 393
Investment spread 1.84% 1.84% 1.83% 1.77%
Segment earnings for the six months ended June 30, 1996, compared to the same
period of 1995, increased $10 million, or 10%, primarily due to an increase in
fixed investment margin (net investment income less interest credited to
policyholders), resulting from asset growth over the past twelve months.
Assets (excluding the fair value adjustment related to fixed maturity
securities) increased $3.6 billion, or 14%, from June 30, 1995 to June 30,
1996 (and $1.7 billion, or 7%, since December 31, 1995), reflecting strong
sales and an increase in total deposits. The increase in total deposits for
the first six months of 1996 compared to the same period of 1995 reflects an
increase in variable account deposits, partially offset by a decrease in fixed
deposits, due to policyholders' preference for equity-based investments and
-13-
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1996
lower interest crediting rates on fixed accounts. Assets and liabilities
related to Separate Accounts increased $2.3 billion from June 30, 1995 to
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued).
June 30, 1996 (and $1.3 billion from December 31, 1995 to June 30, 1996), also
reflecting the demand for equity-based products, as well as the accumulation
of investment returns due to the strong performance of the stock market.
Net investment income, the primary component of revenues, increased 5% for the
first six months of 1996 compared to the same period of 1995, reflecting
growth in invested assets, partially offset by a decrease in the investment
yield. The yield decreased 13 basis points in the six months ended June 30,
1996 compared to June 30, 1995 (14 basis points during the comparable
quarters). Management's ability to make corresponding reductions in rates
credited to policyholders resulted in the stable investment spread for the
first half of 1996 compared to the same period of 1995, and the 6 basis point
increase during the comparable quarters. The stable investment spread,
combined with growth in invested assets, contributed to the increase in fixed
investment margin.
The ratio of operating expenses to average assets improved to .51% for the six
months ended June 30, 1996 from .53% for the same period in 1995 due to an
increase in average assets, which more than offset an $8 million increase in
operating expenses related to the growth in business. The ratio of
policyholder surrenders to average fixed deferred annuity liabilities
increased to 5.31% for the first six months of 1996 compared to 3.99% for the
same period in 1995. The increase was primarily due to policyholders'
increased interest in variable investment options, lower fixed interest
crediting rates, and an increase in systematic withdrawals.
Consumer Finance
Six Months Ended Quarter Ended
June 30, June 30,
($ in millions) 1996 1995 1996 1995
Segment earnings $ 59 $ 122 $ 31 $ 62
Finance receivables 8,053 8,335 8,053 8,335
Yield on finance receivables 18.13% 17.95% 18.13% 17.95%
Loss-adjusted yield on
finance receivables 12.72 15.07 12.80 15.01
Operating expenses $ 259 $ 219 $ 129 $ 111
Operating expense ratio 6.29% 5.21% 6.50% 5.28%
As expected, segment earnings were below prior period levels, reflecting a
significant decline in credit quality in the last six months of 1995, and
-14-
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1996
subsequent corrective actions to improve credit quality. Segment earnings for
the six months ended June 30, 1996 decreased $63 million, or 52%, from the
same period a year ago. For second quarter 1996, segment earnings were down
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued).
$31 million, or 50%, compared to second quarter 1995. The declines were
primarily due to increased provision for loan losses, minimal growth in
finance charges due to lower finance receivables, and increased operating
expenses.
Total finance receivables at June 30, 1996 decreased $357 million from
December 31, 1995 and $282 million from June 30, 1995. Real estate secured
consumer loans increased to $3.1 billion at June 30, 1996 from $2.9 billion at
December 31, 1995 and June 30, 1995, primarily due to a second quarter 1996
purchase of a $200 million block of receivables. Other lines of receivables
decreased as compared to December 31, 1995 and June 30, 1995, due to
management s action program to improve credit quality.
An 18 basis point improvement in yield on finance receivables for the three
months and six months ended June 30, 1996, compared to the same periods of
1995, contributed to a $5 million increase in year-to-date finance charge
revenues although average finance receivables decreased during the same
period. Finance charge revenues for second quarter 1996 decreased $7 million
compared to the prior year period, due to lower average finance receivables,
partially offset by the higher yield.
The Consumer Finance segment's strategy in recent years has emphasized
improvement of loss-adjusted yield (yield less net charge off percentage) by
extending credit to customers with risk characteristics somewhat higher than
those traditionally serviced by the company. As expected, growth in higher-
yielding finance receivables adversely affected credit quality; however, the
delinquencies and charge offs experienced by this segment sharply increased to
greater than anticipated levels beginning in third quarter 1995. As a result,
loss-adjusted yield on finance receivables decreased 235 basis points in the
six months ended June 30, 1996 compared to the same period in 1995.
In response to this unanticipated increase in delinquencies and charge offs, a
comprehensive review of the Consumer Finance segment's loan portfolio was
initiated in fourth quarter 1995. This review, which consisted of extensive
internal analysis, together with credit loss development projections supplied
by outside credit consultants, indicated a need for an increase in the
allowance for finance receivable losses. A $216 million increase in the
allowance was recorded in fourth quarter 1995. In addition, the company
adopted an action program for improving credit quality that included raising
underwriting standards, expanding the use of credit scoring, and slowing
branch expansion and receivable growth (other than real estate loan growth),
-15-
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1996
while stressing collections and improved branch office training. This action
program is being accomplished primarily by redirecting segment resources
rather than employing additional resources.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued).
Information regarding the provision for finance receivable losses and charge
offs was as follows:
Six Months Ended Quarter Ended
June 30, June 30,
($ in millions) 1996 1995 1996 1995
Provision for finance
receivable losses $ 211 $ 147 $ 102 $ 75
Charge offs, net of recoveries 221 117 107 61
Net charge offs as percentage
of average finance receivables 5.41% 2.88% 5.33% 2.94%
Compared to the same periods of 1995, the provision for finance receivable
losses increased $64 million, or 43%, for the six months ended June 30, 1996
and $27 million, or 37%, for the quarter then ended. The increases were due
to higher net charge offs, partially offset by a decrease in the amounts
provided for the allowance for finance receivable losses. Net charge offs as
a percentage of average finance receivables improved from 6.04% and 5.50% for
the quarters ended December 31, 1995 and March 31, 1996, respectively.
Information regarding the allowance for finance receivable losses and
delinquencies was as follows:
June 30, December 31, June 30,
($ in millions) 1996 1995 1995
Allowance for finance receivable
losses $ 482 $ 492 $ 256
Allowance as percentage of
finance receivables 5.99% 5.85% 3.07%
Delinquencies as percentage of
finance receivables 3.99% 4.11% 3.04%
The allowance for finance receivable losses decreased $10 million from
December 31, 1995 to June 30, 1996, while it increased as a percentage of
finance receivables by 14 basis points, as a result of the decline in finance
receivables. Delinquencies as a percentage of finance receivables improved
-16-
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1996
from December 31, 1995 to June 30, 1996, primarily as a result of the action
program to improve credit quality. Management believes that the allowance for
finance receivable losses is adequate given the current level of delinquencies
and net charge offs.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued).
Operating expenses increased $40 million, or 19%, for the six months ended
June 30, 1996, compared to the same period in 1995. Operating expenses as a
percentage of average finance receivables increased 108 basis points for the
same periods, due to the higher expenses and a decrease in finance
receivables. The increase in operating expenses reflects lower deferrals of
loan origination costs, higher salaries to support branch expansion and
account growth that occurred in 1994 and 1995, and increased collection
efforts associated with the higher levels of delinquent receivables.
Operating expenses for the quarter ended June 30, 1996 included $7 million of
non-recurring expenses related to marketing initiatives that have either been
restructured or discontinued based on the comprehensive review of operations.
This review and the decrease in finance receivables during 1996 resulted in a
second quarter workforce reduction of approximately 450 positions throughout
the United States, primarily through attrition.
Management believes the improvement programs implemented in late 1995 and
throughout 1996 will continue to address the overall credit quality issues and
lead to further expense reductions. During the second half of the year,
charge offs and provisions for losses are expected to moderate. However,
adverse changes in general economic conditions, which include the recent
increase in the level of personal bankruptcies, could negatively impact
expected results.
Life Insurance
Six Months Ended Quarter Ended
June 30, June 30,
($ in millions) 1996 1995 1996 1995
Segment earnings $ 191 $ 170 $ 100 $ 86
Revenues
Premiums 838 712 426 373
Net investment income 759 673 387 358
Insurance and annuity benefits 914 812 450 434
Operating expense ratio 15.77% 12.97% 16.80% 13.27%
Results for the first half of 1996 for the Life Insurance segment reflect six
months of operations for Franklin Life, acquired January 31, 1995, and four
months of operations for Independent, acquired February 29, 1996. Increases
-17-
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1996
in segment earnings of $21 million, or 12%, segment revenues (consisting
principally of premiums and net investment income) of $217 million, or 15%,
and insurance and annuity benefits of $102 million, or 12%, were primarily due
to the acquisitions. For second quarter 1996, the increase in insurance and
annuity benefits was partially offset by reinsurance of the credit life and
health lines of business at Franklin Life.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued).
The ratio of operating expenses to direct premiums and deposits increased in
the first six months of 1996 compared to the same period of 1995, reflecting
Independent's higher overall expense ratio and a lower level of annuity
deposits in two operating companies.
Information regarding sales and deposits was as follows:
Six Months Ended Quarter Ended
June 30, June 30,
(In millions) 1996 1995 1996 1995
Sales
Life insurance $153 $185 $ 84 $ 94
Annuities 163 324 79 158
Deposits
Life insurance 339 329 169 158
Annuities 227 371 118 199
Strict adherence to pricing standards, which is essential to long-term
profitability objectives, has caused short-term pressure on both life
insurance and annuity sales in 1996. Life insurance sales for the first six
months of 1996 were 17% below comparable 1995 sales due to price competition
in higher-end products and major changes in field administration systems.
Annuity sales for the six months ended June 30, 1996 were 50% below comparable
prior year sales, primarily due to increasingly competitive market conditions
related to interest crediting rates. The lower 1996 sales resulted in a
reduction in the deferral of acquisition costs for the six months ended
June 30, 1996 compared to the same period in 1995. Annuity deposits for such
periods decreased 39%, primarily due to lower fixed and variable annuity
sales.
Selected balance sheet information was as follows:
June 30, December 31,
(In millions) 1996 1995
Invested assets $19,659 $19,444
Cost of insurance purchased 776 504
-18-
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1996
Insurance and annuity liabilities 18,520 17,403
Excluding the fair value adjustment related to fixed maturity securities, the
Life Insurance segment's invested assets increased $1.2 billion, cost of
insurance purchased increased $127 million, and insurance and annuity
liabilities increased $1.1 billion from December 31, 1995 to June 30, 1996,
primarily due to the acquisition of Independent.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued).
Guaranty Associations. State guaranty fund expense included in operating
costs and expenses was $4 million and $3 million for the six months ended June
30, 1996 and 1995, respectively. Amounts assessed American General's life
insurance and annuity subsidiaries by state life and health insurance guaranty
funds resulting from past industry insolvencies were $7 million during the
first six months of 1996, compared to $12 million for the same period in 1995.
These assessments are expected to be partially recovered against the payment
of future premium taxes.
At June 30, 1996, the accrued liability for anticipated assessments was $50
million, compared to $51 million at December 31, 1995. The company has
recorded receivables of $45 million at June 30, 1996, compared to $44 million
at December 31, 1995, for expected recoveries against the payment of future
premium taxes.
INVESTMENTS
Invested assets consist primarily of fixed maturity securities, mortgage loans
on real estate, policy loans, and investment real estate. The company reviews
invested assets on a regular basis and records write-downs for declines in
fair value below cost that are considered other than temporary.
Fair Value of Securities (SFAS 115). An increase in market interest rates and
resulting decreases in bond values during the first six months of 1996 caused
an $821 million decrease in shareholders' equity related to the fair value
adjustment to fixed maturity securities under SFAS 115, "Accounting for
Certain Investments in Debt and Equity Securities", at June 30, 1996. The
components of the adjustment to report fixed maturity and equity securities at
fair value at June 30, 1996 and December 31, 1995, and the change, were as
follows:
June 30, December 31,
(In millions) 1996 1995 Change
Fair value adjustment to fixed
maturity securities $ 619 $ 2,623 $(2,004)
-19-
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1996
Adjusted by:
Decrease in DPAC/CIP (261) (1,061) 800
Increase in deferred income taxes (138) (586) 448
Equity in WNC's unrealized gains 28 93 (65)
Net unrealized gains on fixed
maturity securities 248 1,069 (821)
Net unrealized gains on equity
securities 20 31 (11)
Net unrealized gains on
securities $ 268 $ 1,100 $ (832)
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued).
Accounting rules do not permit adjustment to fair value of the insurance
liabilities supported by these securities, thereby creating volatility in
shareholders' equity as interest rates change. Care should be exercised in
drawing conclusions based on balance sheet amounts that are only partially
adjusted to fair value.
Fixed Maturity Securities. Fixed maturity securities represented 86% of
invested assets at June 30, 1996. Fixed maturity securities are carried at
fair value. Information regarding the fixed maturity securities portfolio,
which included bonds and redeemable preferred stocks, at June 30, 1996 was as
follows:
June 30, Average Credit
(In millions) 1996 % Rating
Investment grade $ 24,413 67% A
Mortgage-backed 10,807 29 AAA
Below investment grade 1,517 4 BB-
Total fixed maturities $ 36,737 100% AA-
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. CMOs represented 89% and 90% of mortgage-backed
securities at June 30, 1996 and December 31, 1995, respectively.
At June 30, 1996, below investment grade fixed maturity securities, those
rated below BBB-, were $1.5 billion compared to $1.4 billion at December 31,
1995. These investments represented 4% of total fixed maturity securities at
both balance sheet dates. Net income from below investment grade fixed
maturity securities, including realized investment gains and losses, was $44
million and $37 million for the first six months of 1996 and 1995,
respectively.
Non-performing fixed maturity securities, defined as securities for which
payment of interest is sufficiently uncertain as to preclude accrual of
interest, represented .01% of total fixed maturity securities at June 30, 1996
-20-
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1996
and December 31, 1995.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued).
Mortgage Loans. Mortgage loans on real estate totaled 7% of invested assets
at June 30, 1996. Information regarding the mortgage loan portfolio at June
30, 1996 was as follows:
June 30, Non-Performing Loans
(In millions) 1996 Amount %
Commercial $3,197 $183 5.7%
Residential 70 3 4.1%
Allowance for losses (83) (28)
Total mortgage loans $3,184 $158
Non-performing mortgage loans include loans delinquent 60 days or more and
commercial loans that have been restructured. These loans represented 5.7% of
total commercial loans at June 30, 1996, compared to 5.5% at December 31,
1995. The increase in non-performing loans was a result of the Independent
acquisition.
At June 30, 1996, $251 million of performing commercial mortgage loans were
included on the company's watch list because they were either delinquent 30-59
days, the borrower was in bankruptcy, or the loan was potentially under-
collateralized. This amount compares to $263 million at year-end 1995. While
the watch list loans may be predictive of higher non-performing loans in the
future, the company does not anticipate a significant effect on operations,
liquidity, or capital from these loans.
Investment Real Estate. Investment real estate totaled 1% of invested assets
at June 30, 1996 and December 31, 1995. The breakdown of investment real
estate was as follows:
June 30, December 31,
(In millions) 1996 1995
Land development projects $ 360 $ 366
American General Center, Houston 114 115
-21-
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1996
Income-producing real estate 69 56
Foreclosed real estate 91 75
Allowance for losses (28) (35)
Total investment real estate $ 606 $ 577
The increases in income-producing and foreclosed real estate primarily related
to the acquisition of Independent and foreclosures of $14 million in 1996.
American General's principal exposure to environmental regulation arises from
its ownership of investment real estate. Probable costs related to
environmental cleanup are immaterial.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued).
Realized Investment Gains. Realized investment gains (losses) were as follows:
Six Months Ended Quarter Ended
June 30, June 30,
(In millions) 1996 1995 1996 1995
Sales of fixed maturity securities $ (34) $ (11) $ (37) $ (3)
Calls of fixed maturity securities 18 7 7 5
Sales/calls of equity securities 40 - 24 -
Write-downs/reserve increases (5) (12) (1) (13)
Other 13 19 12 12
Total realized investment gains $ 32 $ 3 $ 5 $ 1
Write-downs and reserve increases primarily related to mortgage loans for the
six months ended June 30, 1996 and to investment real estate in the comparable
prior period.
CAPITAL RESOURCES
Corporate Debt. Corporate debt is incurred primarily to fund acquisitions,
the share buyback program, and capital needs of subsidiaries. Corporate debt
increased $124 million from December 31, 1995 to June 30, 1996, primarily due
to $139 million in short-term debt used to finance the cash portion of the
Independent acquisition. Interest expense on corporate debt decreased $22
million, or 27%, for the six months ended June 30, 1996 compared to the same
period in 1995, primarily due to higher average short-term borrowings in the
first six months of 1995 due to the initial financing of the Franklin Life
acquisition. The company issued preferred securities of a subsidiary in 1995
to refinance a portion of this and other short-term debt.
The ratio of corporate debt to corporate capital (excluding the fair value
adjustment related to fixed maturity securities) was 24.2% at June 30, 1996,
compared to 24.0% at December 31, 1995. Management expects to maintain the
-22-
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1996
ratio at or below 25% in 1996.
Consumer Finance Debt. The capital of American General's Consumer Finance
segment varies directly with the amount of finance receivables outstanding.
The mix of capital between debt and equity is based primarily on maintaining
leverage that supports cost-effective funding. Consumer finance debt
decreased $373 million from December 31, 1995 to June 30, 1996, due to the
decline in finance receivables. Interest expense on Consumer Finance debt
decreased $8 million, or 3%, for the six months ended June 30, 1996 compared
to the same period in 1995, primarily due to the lower average borrowings.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued).
Shareholders' Equity. Shareholders' equity decreased from $5.8 billion at
December 31, 1995 to $5.3 billion at June 30, 1996, primarily due to the $832
million decrease in net unrealized gains on securities, partially offset by
issuances of stock in connection with the acquisition of Independent. The
issuances consisted of 3.7 million shares of common stock from treasury, which
increased shareholders' equity by $138 million, and 2.3 million shares of
American General 7% mandatorily convertible preferred stock, which increased
shareholders' equity by $85 million.
Due to the requirements of certain accounting rules, shareholders equity will
be subject to future volatility from the effects of interest rate fluctuations
on the fair value of fixed maturity securities (see "Investments - Fair Value
of Securities (SFAS 115)" on page 16).
LIQUIDITY
Management believes that the overall sources of cash and liquidity available
to the company and its subsidiaries will continue to be sufficient to satisfy
its foreseeable financial obligations.
Parent Company Cash Flows
Six Months Ended
June 30,
(In millions) 1996 1995
Net operating cash flows $187 $ 65
Dividends paid by Life Insurance and
Retirement Annuities segments 163 -
Dividends paid by Consumer Finance segment 57 70
Dividends from subsidiaries are the primary source of cash for operating
requirements of the company and are used to fund interest obligations,
-23-
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1996
dividends to shareholders, acquisitions, and to buy back common stock. The
company's insurance subsidiaries are restricted by state insurance laws as to
the amounts they may pay as dividends without prior notice to, or in some
cases prior approval from, their respective state insurance departments.
Certain non-insurance subsidiaries are similarly restricted by long-term debt
agreements. These restrictions have not affected, and are not expected to
affect, the ability of the company to meet its cash obligations.
During the first six months of 1996, the Life Insurance and Retirement
Annuities segments paid $183 million of cash dividends to AGC Life, a
subsidiary of American General. Of this amount, $20 million was used by AGC
Life to reduce intercompany borrowings and the remaining $163 million was
dividended to American General. During the first six months of 1995, the Life
Insurance and Retirement Annuities segments paid $117 million of cash
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued).
dividends to AGC Life, all of which was used to reduce intercompany
borrowings. The increase in dividends paid by the Life Insurance and
Retirement Annuities segments is primarily attributable to cash dividends paid
by Franklin Life in the first six months of 1996.
Segment Cash Flows
Six Months Ended
June 30,
(In millions) 1996 1995
Life Insurance and Retirement Annuities
Cash provided by operating activities $778 $761
Cash provided by fixed policyholder account
deposits, net of withdrawals 92 690
Variable account deposits, net of withdrawals 908 555
Consumer Finance
Cash provided by operating activities 335 377
Net cash flows generated by the Life Insurance and Retirement Annuities
segments include cash provided by operating activities and cash provided by
fixed policyholder account deposits, net of withdrawals. The $17 million
increase in cash provided by operating activities was primarily due to an
increase in premiums and net investment income in the first six months of
1996, partially offset by an increase in insurance and annuity benefits. The
decrease of $598 million in cash provided by fixed policyholder account
deposits, net of withdrawals, was primarily due to policyholders' increased
demand for variable accounts. Variable account deposits, net of withdrawals,
related to Separate Accounts that are not included in the consolidated
condensed statement of cash flows, increased $353 million in the first six
months of 1996 compared to the same period of 1995.
The Consumer Finance segment's cash provided by operating activities decreased
-24-
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1996
$42 million for the first six months of 1996 compared to the first six months
of 1995, primarily due to higher operating expenses.
Investing Activities. Cash flows related to investing activities were as
follows:
Calls, Maturities,
Purchases and Sales
Six Months Ended Six Months Ended
(In millions) June 30, June 30,
1996 1995 1996 1995
Fixed maturity securities $4,646 $3,832 $4,041 $2,153
Mortgage loans 229 95 199 174
Equity securities 1 20 145 105
Other 38 31 80 128
Total $4,914 $3,978 $4,465 $2,560
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued).
Income Taxes Paid. In the first six months of 1996, the company paid income
taxes of $153 million compared to $91 million for the same period in 1995.
The increase in income taxes paid is primarily due to a tax refund received in
1995 resulting from the 1994 capital gains offset program.
Credit Facilities. Committed credit facilities are maintained by American
General and certain of its subsidiaries to support the issuance of commercial
paper and to provide an additional source of cash for operating requirements.
At June 30, 1996, committed credit facilities totaled $3.1 billion; there were
no outstanding borrowings under these facilities.
Share Buyback. During the first six months of 1996, the company purchased 2.4
million shares of its common stock at a cost of $87 million, pursuant to its
share buyback program.
FORWARD-LOOKING STATEMENTS
The statements contained in this filing on Form 10-Q that are not historical
facts are forward-looking statements within the meaning of the Private
Securities Litigation Reform Act. Actual results may differ materially from
those included in the forward-looking statements. These forward-looking
statements involve risks and uncertainties including, but not limited to, the
following: changes in general economic conditions, including the performance
of financial markets, interest rates, and the level of personal bankruptcies;
competitive, regulatory, or tax changes that affect the cost of or demand for
the company's products; adverse litigation results; and failure to achieve the
company's anticipated levels of expense savings from cost-saving initiatives.
The Consumer Finance segment's future results also could be adversely affected
if finance receivable volume is lower than anticipated (which could occur, for
example, as a result of the company's recently implemented action program to
-25-
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1996
tighten underwriting standards) or if, despite the company's initiatives to
improve credit quality, finance receivable delinquencies and net charge offs
fail to trend downward to the extent anticipated by management. Investors are
also directed to other risks and uncertainties discussed in documents filed by
the company with the Securities and Exchange Commission.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
In addition to those lawsuits or proceedings disclosed in the company's 1995
Form 10-K, American General and certain of its subsidiaries are parties to
various other lawsuits and proceedings arising in the ordinary course of
business. Many of these lawsuits and proceedings arise in jurisdictions, such
as Alabama, that permit damage awards disproportionate to the actual economic
damages incurred. Based upon information presently available, the company
believes that the total amounts that ultimately will be paid, if any, arising
from these lawsuits and proceedings will have no material adverse effect on
the company's consolidated results of operations and financial position.
However, it should be noted that the frequency of large damage awards,
including large punitive damage awards, that bear little or no relation to
actual economic damages incurred by plaintiffs in jurisdictions like Alabama
continues to increase and creates the potential for an unpredictable judgment
in any given suit.
Item 4. Submission of Matters to a Vote of Security Holders.
Election of Directors. American General's Annual Meeting of Shareholders was
held on April 25, 1996. The following directors, constituting American
General's entire board, were elected to terms ending in 1997:
Number of Number of
Name Votes For Votes Withheld
J. Evans Attwell 178,240,286 4,310,103
Brady F. Carruth 179,790,311 2,760,078
W. Lipscomb Davis Jr. 179,805,667 2,744,722
Robert M. Devlin 179,729,190 2,821,199
Harold S. Hook 178,195,797 4,354,592
Larry D. Horner 179,780,428 2,769,961
-26-
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1996
Richard J. V. Johnson 179,802,029 2,748,360
Jon P. Newton 179,753,123 2,797,266
Robert E. Smittcamp 179,814,263 2,736,126
Anne M. Tatlock 179,757,391 2,792,998
Independent Auditors. The appointment of Ernst & Young LLP as Independent
Auditors was ratified with 181,737,491 votes for, 404,070 votes against, and
408,828 abstentions.
Item 6. Exhibits and Reports on Form 8-K.
a. Exhibits.
Exhibit 11 Computation of Earnings per Share.
Exhibit 12 Computation of Ratio of Earnings to Fixed
Charges and Ratio of Earnings to Combined
Fixed Charges and Preferred Stock
Dividends.
Exhibit 27 Financial Data Schedule.
b. Reports on Form 8-K.
None.
-27-
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1996
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
AMERICAN GENERAL CORPORATION
(Registrant)
By: PAMELA J. PENNY
Pamela J. Penny
Vice President and Controller
(Duly Authorized Officer and
Chief Accounting Officer)
Date: August 9, 1996
-28-
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1996
EXHIBIT INDEX
Exhibit
11 Computation of Earnings per Share.
12 Computation of Ratio of Earnings to Fixed
Charges and Ratio of Earnings to Combined
Fixed Charges and Preferred Stock
Dividends.
27 Financial Data Schedule.
-29-
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1996
Exhibit 11
COMPUTATION OF EARNINGS PER SHARE
(Unaudited)
(In millions, except share data)
Six Months Ended
June 30,
1996 1995
Primary:
Net income available to common stock ....... $ 337 $ 355
Average shares outstanding
Common stock ............................. 205,773,050 204,797,065
Assumed conversion of mandatorily
convertible preferred stock ............. 1,283,915 -
Assumed exercise of stock options ........ 605,758 396,104
Total .................................. 207,662,723 205,193,169
Net income per share ....................... $1.62 $1.73
Fully Diluted:
Net income ................................. $ 337 $ 355
Plus: Net dividends on convertible
preferred securities of subsidiary ........ 5 1
Net income available to common stock ... $ 342 $ 356
Average shares outstanding
Common stock ............................. 205,773,050 204,797,065
Assumed conversion of convertible
preferred securities of subsidiary ...... 6,144,016 1,018,345
Assumed conversion of mandatorily
convertible preferred stock ............. 1,553,624 -
Assumed exercise of stock options ........ 646,841 463,313
Total .................................. 214,117,531 206,278,723
Net income per share ....................... $1.60 $1.73
<PAGE>
<PAGE>
Exhibit 12
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND
RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
(Unaudited)
($ in millions)
Six Months Ended
June 30,
1996 1995
Consolidated operations:
Income before income tax expense and net dividends
on preferred securities .......................... $ 551 $ 556
Fixed charges deducted from income
Interest expense ................................. 311 339
Implicit interest in rents ....................... 9 9
Total fixed charges deducted from income ....... 320 348
Earnings available for fixed charges.......... $ 871 $ 904
Fixed charges per above ............................ $ 320 $ 348
Capitalized interest ............................... 6 9
Total fixed charges ............................ 326 357
Dividends on preferred stock and securities .... 32 3
Combined fixed charges and preferred
stock dividends ............................ $ 358 $ 360
Ratio of earnings to fixed charges ......... 2.67 2.53
Ratio of earnings to combined fixed charges
and preferred stock dividends ............ 2.43 2.51
Consolidated operations, corporate fixed charges
and preferred stock dividends only:
Income before income tax expense and net dividends
on preferred securities ........................ $ 551 $ 556
Corporate fixed charges deducted from income -
corporate interest expense ..................... 69 89
Earnings available for fixed charges ........... $ 620 $ 645
Total corporate fixed charges per above .......... $ 69 $ 89
Capitalized interest related to real estate
operations ..................................... 5 9
Total corporate fixed charges .................. 74 98
Dividends on preferred stock and securities .... 32 3
Combined corporate fixed charges and
preferred stock dividends .................. $ 106 $ 101
Ratio of earnings to corporate fixed charges 8.32 6.61
Ratio of earnings to combined corporate
fixed charges and preferred stock
dividends ................................ 5.84 6.40
American General Finance, Inc.:
Income before income tax expense ................... $ 92 $ 195
Fixed charges deducted from income
Interest expense ................................. 247 255
Implicit interest in rents ....................... 6 6
Total fixed charges deducted from income ....... 253 261
Earnings available for fixed charges ......... $ 345 $ 456
Ratio of earnings to fixed charges ......... 1.36 1.75
Exhibit 12 (continued)
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND
<PAGE>
RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
(Unaudited)
($ in millions)
Quarter Ended
June 30,
1996 1995
Consolidated operations:
Income before income tax expense and net dividends
on preferred securities .......................... $ 275 $ 284
Fixed charges deducted from income
Interest expense ................................. 153 174
Implicit interest in rents ....................... 5 5
Total fixed charges deducted from income ....... 158 179
Earnings available for fixed charges.......... $ 433 $ 463
Fixed charges per above ............................ $ 158 $ 179
Capitalized interest ............................... 3 4
Total fixed charges ............................ 161 183
Dividends on preferred stock and securities .... 17 3
Combined fixed charges and preferred
stock dividends ............................ $ 178 $ 186
Ratio of earnings to fixed charges ......... 2.68 2.53
Ratio of earnings to combined fixed charges
and preferred stock dividends ............ 2.43 2.48
Consolidated operations, corporate fixed charges
and preferred stock dividends only:
Income before income tax expense and net dividends
on preferred securities ........................ $ 275 $ 284
Corporate fixed charges deducted from income -
corporate interest expense ..................... 35 47
Earnings available for fixed charges ........... $ 310 $ 331
Total corporate fixed charges per above .......... $ 35 $ 47
Capitalized interest related to real estate
operations ..................................... 2 4
Total corporate fixed charges .................. 37 51
Dividends on preferred stock and securities .... 17 3
Combined corporate fixed charges and
preferred stock dividends .................. $ 54 $ 54
Ratio of earnings to corporate fixed charges 8.24 6.51
Ratio of earnings to combined corporate
fixed charges and preferred stock
dividends ................................ 5.68 6.13
American General Finance, Inc.:
Income before income tax expense ................... $ 48 $ 99
Fixed charges deducted from income
Interest expense ................................. 121 130
Implicit interest in rents ....................... 3 3
Total fixed charges deducted from income ....... 124 133
Earnings available for fixed charges ......... $ 172 $ 232
Ratio of earnings to fixed charges ......... 1.38 1.75
<PAGE>
<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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<DEBT-HELD-FOR-SALE> 36,737<F1>
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 144
<MORTGAGE> 3,184
<REAL-ESTATE> 606
<TOTAL-INVEST> 42,680
<CASH> 190
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 3,077<F2>
<TOTAL-ASSETS> 63,017
<POLICY-LOSSES> 37,258<F3>
<UNEARNED-PREMIUMS> 225<F3>
<POLICY-OTHER> 190<F3>
<POLICY-HOLDER-FUNDS> 1,805<F3>
<NOTES-PAYABLE> 8,944
731<F4>
85<F5>
<COMMON> 398
<OTHER-SE> 4,829<F6>
<TOTAL-LIABILITY-AND-EQUITY> 63,017
976<F7>
<INVESTMENT-INCOME> 1,620
<INVESTMENT-GAINS> 32
<OTHER-INCOME> 804<F8>
<BENEFITS> 1,583
<UNDERWRITING-AMORTIZATION> 168<F9>
<UNDERWRITING-OTHER> (204)<F10>
<INCOME-PRETAX> 551<F11>
<INCOME-TAX> 195<F12>
<INCOME-CONTINUING> 337
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 337
<EPS-PRIMARY> 1.62
<EPS-DILUTED> 1.60
<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 CURRENTLY CLASSIFIED AS
AVAILABLE-FOR-SALE AND ARE RECORDED AT FAIR VALUE.
<F2>INCLUDES COST OF INSURANCE PURCHASED (CIP).
<F3>THE SUM OF POLICY LOSSES, UNEARNED PREMIUMS, POLICY-OTHER, AND POLICYHOLDER
FUNDS COMPRISES INSURANCE AND ANNUITY LIABILITIES.
<F4>CONSISTS OF NON-CONVERTIBLE AND CONVERTIBLE MANDATORILY REDEEMABLE
PREFERRED SECURITIES OF SUBSIDIARIES.
<F5>CONSISTS OF MANDATORILY CONVERTIBLE PREFERRED STOCK.
<F6>CONSISTS OF NET OF THE FOLLOWING: NET UNREALIZED GAINS (LOSSES) ON
SECURITIES; RETAINED EARNINGS; AND COST OF TREASURY STOCK.
<F7>INCLUDES TOTAL INSURANCE CHARGES.
<F8>INCLUDES PRIMARILY FINANCE CHARGES ON FINANCE RECEIVABLES.
<F9>CONSISTS OF AMORTIZATION OF POLICY ACQUISITION COSTS AND CIP, NET OF
ACCRETION OF INTEREST.
<F10>CONSISTS OF CAPITALIZATION OF POLICY ACQUISITION COSTS AND CIP.
<F11>EXCLUDES $29 MILLION OF DIVIDENDS ON PREFERRED SECURITIES OF SUBSIDIARIES
SHOWN SEPARATELY, NET OF TAX, IN THE CONSOLIDATED INCOME STATEMENT.
<F12>EXCLUDES $10 MILLION TAX BENEFIT FOR TAX DEDUCTIBLE DIVIDENDS ON PREFERRED
SECURITIES OF SUBSIDIARIES.
</FN>
</TABLE>
