AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1997
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, 1997
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, 1997, there were 243,235,436 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.
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AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1997
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, 1997
and 1996 ......................................... 2
Consolidated Balance Sheet at June 30, 1997 and
December 31, 1996 ................................ 3
Consolidated Condensed Statement of Cash Flows for
the six months ended June 30, 1997 and 1996 ...... 4
Notes to Consolidated Financial Statements ......... 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations .............. 11
Part II. OTHER INFORMATION.
Item 1. Legal Proceedings .................................. 30
Item 4. Submission of Matters to a Vote of
Security Holders ................................... 32
Item 6. Exhibits and Reports on Form 8-K ................... 33
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AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1997
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,
1997 1996 1997 1996
Revenues
Premiums and other considerations. $ 1,633 $ 1,604 $ 832 $ 824
Net investment income ............ 1,973 1,869 1,002 945
Finance charges .................. 635 734 315 363
Realized investment gains ........ 14 31 20 3
Equity in earnings of Western
National Corporation ............ 26 17 13 9
Other ............................ 87 72 44 36
Total revenues ............... 4,368 4,327 2,226 2,180
Benefits and expenses
Insurance and annuity benefits ... 2,076 2,075 1,059 1,046
Policyholder dividends ........... 47 47 24 24
Operating costs and expenses ..... 698 692 349 360
Commissions ...................... 424 420 214 218
Change in deferred policy
acquisition costs and cost of
insurance purchased ............. (51) (30) (26) (1)
Provision for finance receivable
losses .......................... 131 211 63 102
Merger-related costs ............. 272 - 272 -
Losses on assets held for sale
and litigation .................. 163 - 163 -
Interest expense
Corporate ....................... 77 81 41 41
Consumer Finance ................ 226 247 113 121
Total benefits and expenses .. 4,063 3,743 2,272 1,911
Earnings
Income (loss) before income
tax expense...................... 305 584 (46) 269
Income tax expense ............... 180 206 56 97
Income (loss) before net dividends
on preferred securities of
subsidiaries .................... 125 378 (102) 172
Net dividends on preferred
securities of subsidiaries ...... 39 19 22 9
Net income (loss) ............ $ 86 $ 359 $ (124) $ 163
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AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1997
Net income (loss) per share ....... $ .36 $ 1.44 $ (.49) $ .65
Dividends paid per common share ... $ .70 $ .65 $ .35 $ .325
Average fully diluted shares
outstanding (in thousands) ...... 250,666 252,746 251,616 254,099
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AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1997
Item 1. Financial Statements (continued).
AMERICAN GENERAL CORPORATION
Consolidated Balance Sheet
(Unaudited)
(In millions, except share amounts)
June 30, December 31,
1997 1996
Assets
Investments
Fixed maturity securities (amortized cost:
$44,673; $42,867) ............................ $45,985 $44,355
Mortgage loans on real estate ................. 3,389 3,228
Equity securities (cost: $89; $111) ........... 110 137
Policy loans .................................. 2,105 2,011
Investment real estate ........................ 587 626
Other long-term investments ................... 166 210
Short-term investments ........................ 365 265
Total investments ......................... 52,707 50,832
Cash ........................................... 289 176
Finance receivables, net ....................... 7,022 7,230
Investment in Western National Corporation ..... 510 535
Deferred policy acquisition costs .............. 3,114 2,954
Cost of insurance purchased .................... 813 755
Acquisition-related goodwill ................... 658 605
Other assets ................................... 2,559 2,517
Assets held for sale ........................... - 667
Assets held in Separate Accounts ............... 9,715 7,863
Total assets .............................. $77,387 $74,134
Liabilities
Insurance and annuity liabilities .............. $47,393 $46,022
Debt (short-term)
Corporate ($766; $631) ........................ 2,238 2,102
Consumer finance ($2,783; $3,131) ............. 6,734 7,630
Income tax liabilities ......................... 950 1,078
Other liabilities .............................. 1,886 1,368
Liabilities related to Separate Accounts ....... 9,715 7,863
Total liabilities ......................... 68,916 66,063
Redeemable equity
Company-obligated mandatorily redeemable
preferred securities of subsidiaries
holding solely company subordinated notes
Non-convertible .............................. 1,479 982
Convertible .................................. 246 245
Total redeemable equity .................... 1,725 1,227
Shareholders' equity
Convertible preferred stock (shares issued
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AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1997
and outstanding: 2,317,701; 2,323,722) ........ 85 85
Common stock (shares issued: 259,135,053;
283,738,546; outstanding: 243,069,549;
241,170,903) .................................. 321 572
Net unrealized gains on securities ............. 533 627
Retained earnings .............................. 6,344 6,420
Cost of treasury stock ......................... (537) (860)
Total shareholders' equity ................ 6,746 6,844
Total liabilities and equity .............. $77,387 $74,134
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AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1997
Item 1. Financial Statements (continued).
AMERICAN GENERAL CORPORATION
Consolidated Condensed Statement of Cash Flows
(Unaudited)
(In millions)
Six Months Ended
June 30,
1997 1996
Operating activities
Net cash provided by operating activities ... $ 910 $ 1,096
Investing activities
Investment purchases .............................. (6,969) (5,341)
Investment dispositions and repayments ............ 6,489 4,767
Finance receivable originations and purchases ..... (2,256) (2,403)
Finance receivable principal payments received .... 2,146 2,530
Sale of finance receivables ....................... 733 -
Net increase in short-term investments ............ (44) (74)
Acquisition of Home Beneficial Life ............... (283) -
Acquisition of Independent Life ................... - (106)
Other, net ........................................ (15) (97)
Net cash used for investing activities ...... (199) (724)
Financing activities
Retirement Services and Life Insurance
Policyholder account deposits ................... 1,602 1,527
Policyholder account withdrawals ................ (1,460) (1,424)
Total Retirement Services and Life Insurance . 142 103
Consumer Finance
Net decrease in short-term debt ................. (348) (48)
Long-term debt issuances ........................ 163 31
Long-term debt redemptions ...................... (711) (358)
Total Consumer Finance ....................... (896) (375)
Corporate
Net increase in short-term debt ................. 135 212
Long-term debt redemptions ...................... - (50)
Issuance of preferred securities of subsidiaries. 498 -
Dividends on common and preferred stock ......... (162) (151)
Common stock repurchases ........................ (365) (90)
Other, net ...................................... 50 (2)
Total Corporate .............................. 156 (81)
Net cash used for financing activities ...... (598) (353)
Net increase in cash ............................... 113 19
Cash at beginning of period ........................ 176 227
Cash at end of period .............................. $ 289 $ 246
Supplemental disclosure of cash flow information:
Cash paid during the period for
Income taxes .................................... $ 222 $ 202
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AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1997
Interest
Corporate ..................................... 67 83
Consumer Finance .............................. 254 249
Dividends on preferred securities of
subsidiaries ................................... 28 28
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AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1997
Item 1. Financial Statements (continued).
AMERICAN GENERAL CORPORATION
Notes to Consolidated Financial Statements
June 30, 1997
1. Accounting Policies. The accompanying unaudited consolidated financial
statements of American General Corporation and its subsidiaries (American
General or the company) 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, 1997, the
consolidated results of operations for the three months and six months
ended June 30, 1997 and 1996, and the consolidated cash flows for the six
months ended June 30, 1997 and 1996.
All prior period consolidated financial statements of American General
have been restated to include the results of operations, financial
position, and cash flows of USLIFE Corporation (USLIFE) under the pooling
of interests method of accounting in conjunction with the acquisition of
USLIFE (See Note 2).
2. Acquisitions.
Home Beneficial Life. On April 16, 1997, American General completed the
acquisition of Home Beneficial Corporation, the holding company of Home
Beneficial Life Insurance Company (Home Beneficial Life), for $665
million. The purchase price consisted of $283 million cash and 9.5
million shares of American General common stock.
The acquisition was accounted for using the purchase method, and the
results of operations and cash flows of Home Beneficial Life were
included in the company's consolidated statements of income and cash
flows from the date of acquisition. The acquired assets and liabilities
were reflected in American General's consolidated balance sheet as of
April 16, 1997, at management's best estimate of their fair values.
Evaluation of fair values assigned to Home Beneficial Life's assets and
liabilities, primarily related to insurance and employee benefit
liabilities, is continuing, and allocation of the purchase price may be
adjusted when additional information is available.
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AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1997
Item 1. Financial Statements (continued).
Noncash investing and financing activities related to the acquisition of
Home Beneficial Life that are not reflected in the consolidated condensed
statement of cash flows for the six months ended June 30, 1997 were as
follows:
(In millions)
Fair value of assets acquired $1,433
Liabilities assumed (768)
Issuance of common treasury shares (382)
Net cash paid for acquisition of Home Beneficial Life $ 283
USLIFE. On June 17, 1997, American General completed its largest
acquisition, the $1.8 billion merger of USLIFE in an all-stock
transaction. American General issued 39.0 million shares of common
stock, or 1.1069 shares in exchange for each USLIFE common share. The
exchange ratio was based on the transaction price of $49 per USLIFE
common share divided by an average trading price of American General
common stock prior to closing. In addition to the issuance of common
stock, American General assumed USLIFE's debt of approximately $600
million.
The acquisition was accounted for using the pooling of interests method
and, accordingly, American General's consolidated financial statements
for all periods prior to the acquisition have been restated to include
the results of operations, financial position, and cash flows of USLIFE.
Revenues and net income for the individual entities were as follows:
Six Months Quarter
Ended June 30, Ended June 30,
(In millions) 1997 1996 1997 1996
Revenues
American General $3,471 $3,431 $1,779 $1,719
USLIFE 897 896 447 461
Total $4,368 $4,327 $2,226 $2,180
Net income (loss)
American General (a) $ 205 $ 337 $ 24 $ 167
USLIFE (b) (119) 22 (148) (4)
Total $ 86 $ 359 $ (124) $ 163
(a) Includes aftertax merger-related costs of $81 million and losses on
assets held for sale and litigation of $106 million in the 1997
periods.
(b) Includes aftertax merger-related costs of $166 million in the 1997
periods and write-down of group business of $32 million in the 1996
periods.
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AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1997
Item 1. Financial Statements (continued).
3. Merger-Related Costs. The company recorded the following costs in second
quarter 1997 related to the merger with USLIFE:
(In millions) Pretax Aftertax
Change in control costs $179 $155
Transaction costs 22 22
Restructuring costs 71 46
Deferred tax asset valuation
allowance - 24
Total $272 $247
Change in control costs consist primarily of severance and supplemental
retirement plan payments to USLIFE executives, payable under various
USLIFE plans in effect prior to the merger. A substantial portion of
these payments are considered excess parachute payments for tax purposes
and are not tax deductible by the company.
Transaction costs include expenses for investment bankers, attorneys,
accountants, and proxy printing costs.
Restructuring costs consist primarily of severance and the elimination of
redundant facilities in connection with the merger and the concurrent
development of a divisional structure (the Independent Producer division
and the Career Agency division) within the Life Insurance segment. This
new divisional structure will utilize shared products and administrative
services in the Independent Producer division while retaining the
distinct marketing attributes of individual subsidiaries. Severance and
related costs of $34 million relate to the elimination of approximately
1,200 positions beginning in third quarter 1997. The positions to be
eliminated relate to USLIFE's corporate operations and to administrative
service functions that will be centralized within the Independent
Producer division. Costs of $37 million to eliminate redundant
facilities relate to contractual payments under lease obligations for
facilities to be vacated, primarily those utilized by USLIFE's corporate
operations, and the write-off of mainframe computer equipment and related
software at various locations that will be centralized.
A valuation allowance for the deferred tax asset related to a portion of
USLIFE's net operating loss carryforward was required as a result of the
USLIFE acquisition in second quarter 1997 since it is more likely than
not that some portion of the deferred tax asset will not be realized.
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AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1997
Item 1. Financial Statements (continued).
4. Losses on Assets Held for Sale. In June 1997, American General recorded
a loss of $113 million ($73 million aftertax) related to disposition of
non-strategic assets, consisting of a loss on the sale of underperforming
credit card and private label finance receivable portfolios, and a charge
relating to the planned sale of American General's land development
operations and its small Canadian life insurance subsidiary. The loss on
the sale of receivables primarily resulted from establishing a liability
for estimated future payments to the purchaser of the credit card
portfolio under a five-year loss sharing arrangement.
5. Company-Obligated Mandatorily Redeemable Preferred Securities of
Subsidiary (Preferred Securities). In March 1997, American General
Institutional Capital B, a subsidiary trust of American General, issued
500,000 shares, or $500 million, of non-convertible preferred securities.
These securities pay semi-annual cash dividends at an annual rate of 8-
1/8%.
The sole assets of the subsidiary trust are Junior Subordinated
Debentures (Subordinated Debentures) issued by American General. The
subsidiary trust has no independent operations. The Subordinated
Debentures are eliminated in the consolidated financial statements. The
interest terms and other payment dates of the company's Subordinated
Debentures held by the subsidiary trust correspond to those of the
subsidiary trust's preferred securities. American General's obligations
under the Subordinated Debentures and related agreements, when taken
together, constitute a full and unconditional guarantee of payments due
on the preferred securities. The Subordinated Debentures are redeemable
at the option of the company. Upon such event, the preferred securities
are redeemable on a proportionate basis.
6. Share Repurchase. On April 15, 1997, American General purchased 6.4
million shares of its common stock in an accelerated share repurchase
transaction. The shares were purchased from an investment bank for $234
million based on the April 14, 1997 closing price of $36.50 per share,
subject to a market price adjustment provision. In order to complete the
transaction, the investment bank borrowed American General common stock
and will purchase replacement shares in the open market. The ultimate
price per share will be adjusted for changes in the market price of
American General common stock prior to settlement and a reimbursement for
dividends paid on the borrowed shares. The final purchase price is
expected to be determined during third quarter 1997, and settled in
either cash or shares of American General common stock at the company's
option in fourth quarter 1997. The settlement cost, currently estimated
at $88 million, will increase the cost of treasury stock as of the date
the final purchase price is determined. This transaction, combined with
3.0 million shares repurchased since the announcement of the definitive
agreement to acquire Home Beneficial Life, has the effect of repurchasing
substantially all of the shares issued in the Home Beneficial Life
acquisition.
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AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1997
Item 1. Financial Statements (continued).
7. New Accounting Standards. In February 1997, the Financial Accounting
Standards Board (FASB) issued Statement of Financial Accounting Standards
(SFAS) 128, "Earnings per Share." This statement, which changes certain
requirements for computing and disclosing earnings per share, is
effective for interim and annual periods ending after December 15, 1997.
Earlier application is not permitted. Restatement for all periods
presented will be required upon adoption. Application of this statement
will change the company's disclosures related to earnings per share, but
will not have a material impact on reported per share amounts.
In June 1997, the FASB issued SFAS 130, "Reporting Comprehensive Income,"
which establishes standards for reporting and displaying comprehensive
income and its components in the financial statements. This statement is
effective for interim and annual periods beginning after December 15,
1997. Reclassification of financial statements for all periods presented
will be required upon adoption. Application of this statement will not
change recognition or measurement of net income and, therefore, will not
impact the company's consolidated results of operations or financial
position.
In June 1997, the FASB also issued SFAS 131, "Disclosures about Segments
of an Enterprise and Related Information," which changes the way
companies report segment information. This statement is effective for
years beginning after December 15, 1997, but need not be applied to
interim financial statements in the initial year of application.
Restatement of comparative information for all periods presented will be
required upon adoption. Adoption of this statement will result in more
detailed segment disclosures but will not have an impact on the company's
consolidated results of operations or financial position.
8. Legal Contingencies. Two real estate subsidiaries of American General
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 million in compensatory damages and for $189 million
in punitive damages. On September 17, 1993, a Texas state district court
reduced the previously awarded punitive damages by $60 million, resulting
in a reduced judgment in the amount of $176 million plus post-judgment
interest of 10% from July 16, 1993. On January 29, 1996, the Texas First
Court of Appeals rendered a decision that affirmed the trial court
judgment and held both companies liable to pay the punitive damages.
Pursuant to court-ordered mediation, the parties have agreed to a
settlement of approximately $50 million as a final resolution of this
lawsuit. As a result, American General recorded an aftertax charge of
$33 million in second quarter 1997.
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AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1997
Item 1. Financial Statements (continued).
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. In June 1993, a
representative suit for refund was filed in the United States Court of
Federal Claims. In February 1996, the court ruled in favor of the
company on all legal issues related to this contingency, and the judgment
entered in favor of the company for the portion of the contingency
related to the representative case was appealed by the government. On
July 9, 1997, the U.S. Court of Appeals for the Federal Circuit ruled in
favor of the company. It is unknown whether the government will pursue
any further appeal; however, the company intends to pursue a full refund
of the amounts paid. Accordingly, no provision has been made in the
company's consolidated financial statements related to this contingency.
In recent years, various life insurance companies have been named as
defendants in class action lawsuits relating to life insurance pricing
and sales practices, and a number of these lawsuits have resulted in
substantial settlements. Certain of American General's subsidiaries are
defendants in such purported class action lawsuits filed in 1996 and
1997, asserting claims related to pricing and sales practices. These
claims are being defended vigorously by the subsidiaries. Given the
uncertain nature of litigation and the early stages of this litigation,
the outcome of these actions cannot be predicted at this time. American
General nevertheless believes that the ultimate outcome of all such
pending litigation should not have a material adverse effect on American
General's consolidated financial position; however, it is possible that
settlements or adverse determinations in one or more of these actions or
other future proceedings could have a material adverse effect on American
General's consolidated results of operations for a given period. No
provision has been made in the consolidated financial statements related
to this pending litigation because the amount of loss, if any, from these
actions cannot be reasonably estimated at this time.
The company is a party 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 will ultimately be paid, if any, arising from these lawsuits
and proceedings will not have a 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.
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AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1997
Item 1. Financial Statements (continued).
9. 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 1988 through
1992. The 1988 tax year has been settled with the exception of two
issues which may be pursued in the United States Tax Court. One issue
from tax returns prior to 1988 has been the subject of litigation, as
described in Note 8. In addition, certain of the tax returns of recently
acquired companies are also being examined. Although the final outcome
of these examinations is uncertain, the company believes that the
ultimate liability, including interest, will not exceed amounts recorded
in the consolidated financial statements.
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.
This analysis should be read in conjunction with the consolidated financial
statements and related notes on pages 2 through 11 of this Quarterly Report on
Form 10-Q.
SIGNIFICANT CORPORATE EVENTS
Home Beneficial Life Acquisition. On April 16, 1997, the company acquired
Home Beneficial Life for $665 million, consisting of $283 million cash and 9.5
million shares of American General common stock. The acquisition was
accounted for using the purchase method and, accordingly, Life Insurance
segment results for the six months and quarter ended June 30, 1997 presented
herein include Home Beneficial Life's results from the date of acquisition.
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<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1997
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued).
Share Repurchase. On April 15, 1997, American General purchased 6.4 million
shares of its common stock in an accelerated share repurchase transaction.
The shares were purchased from an investment bank for $234 million based upon
the April 14, 1997 closing price of $36.50 per share, subject to a market
price adjustment provision. The final purchase price is expected to be
determined during third quarter 1997, and settled in either cash or shares of
American General common stock at the company's option in fourth quarter 1997.
The settlement cost, currently estimated at $88 million, will increase the
cost of treasury stock as of the date the final purchase price is determined.
This transaction, combined with 3.0 million shares repurchased since the
announcement of the definitive agreement to acquire Home Beneficial Life, has
the effect of repurchasing substantially all of the shares issued in the Home
Beneficial Life acquisition.
USLIFE Acquisition. On June 17, 1997, American General completed its largest
acquisition, the $1.8 billion merger of USLIFE in an all-stock transaction.
American General issued 39.0 million shares of common stock, or 1.1069 shares
in exchange for each USLIFE common share. The merger was accounted for on a
pooling of interests basis and, accordingly, American General's consolidated
financial statements for prior periods presented in this Form 10-Q have been
restated to present the combined operations of American General and USLIFE as
if the acquisition had been in effect for all periods presented.
Life Insurance Divisional Realignment. Following completion of the USLIFE
merger, the company realigned its Life Insurance segment into two divisions
based on distribution systems and market focus. The new divisions are the
Independent Producer division and the Career Agency division. The divisional
structure is designed to support the company's expanded distribution system
while achieving operating efficiencies, improved product development, and
enhanced customer service.
Merger-Related Costs. In conjunction with the USLIFE acquisition and the Life
Insurance segment divisional realignment, the company recorded an aftertax
charge of $247 million in second quarter 1997, consisting of the following:
(In millions) Pretax Aftertax
Change in control costs $179 $155
Transaction costs 22 22
Restructuring costs 71 46
Deferred tax asset valuation
allowance - 24
Total $272 $247
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<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1997
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued).
Change in control costs consist primarily of severance and supplemental
retirement plan payments to USLIFE executives, payable under various USLIFE
plans in effect prior to the merger. A substantial portion of these payments
are considered excess parachute payments for tax purposes and are not tax
deductible by the company.
Transaction costs include expenses for investment bankers, attorneys,
accountants, and proxy printing costs.
Restructuring costs consist primarily of severance and the elimination of
redundant facilities in connection with the merger and the concurrent
development of a divisional structure (the Independent Producer division and
the Career Agency division) within the Life Insurance segment. This new
divisional structure will utilize shared products and administrative services
in the Independent Producer division while retaining the distinct marketing
attributes of individual subsidiaries. Severance and related costs of $34
million relate to the elimination of approximately 1,200 positions beginning
in third quarter 1997. The positions to be eliminated relate to USLIFE's
corporate operations and to administrative service functions that will be
centralized within the Independent Producer division. Costs of $37 million to
eliminate redundant facilities relate to contractual payments under lease
obligations for facilities to be vacated, primarily those utilized by USLIFE's
corporate operations, and the write-off of mainframe computer equipment and
related software at various locations that will be centralized. The
integration of USLIFE is expected to be completed within twelve months and
should result in a reduction in operating expenses of approximately $50
million.
A valuation allowance for the deferred tax asset related to a portion of
USLIFE's net operating loss carryforward was required as a result of the
USLIFE acquisition in second quarter 1997 since it is more likely than not
that some portion of the deferred tax asset will not be realized.
Disposition of Non-Strategic Assets. On July 10, 1997, American General
announced the disposition of certain non-strategic assets including
underperforming credit card and private label finance receivable portfolios,
its land development business, and a small Canadian life insurance company.
In conjunction with the sale or planned sale of these non-strategic assets,
the company recorded an aftertax charge of $73 million in second quarter 1997.
Settlement of Litigation. In June 1997, the company agreed to a settlement of
approximately $50 million as final resolution of a lawsuit with an outstanding
judgment of $176 million plus post-judgment interest of 10% from July 16,
1993. As a result, the company recorded a $33 million aftertax charge in
second quarter 1997.
-16-
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1997
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued).
CONSOLIDATED RESULTS OF OPERATIONS
Six Months Ended Quarter Ended
(In millions, June 30, June 30,
except share data) 1997 1996 1997 1996
Net income (loss) $ 86 $ 359 $ (124) $ 163
Net income (loss) per share .36 1.44 (.49) .65
Net income (loss) for the quarter and six months ended June 30, 1997 reflected
aftertax non-recurring charges totaling $353 million ($1.41 per share). The
charges included merger-related costs of $247 million in conjunction with the
USLIFE acquisition and the Life Insurance segment divisional realignment, $73
million in losses on non-strategic assets sold or held for sale, and $33
million for settlement of pending litigation by a real estate subsidiary of
American General.
Net income for the prior year's quarter and six months ended June 30, 1996
reflected a $32 million ($.13 per share) aftertax charge to recognize revised
assumptions reflecting current experience on USLIFE's traditional indemnity
group major medical business.
Excluding the non-recurring charges in 1997 and 1996, net income increased $48
million, or 12%, and $34 million, or 17%, for the first six months and second
quarter of 1997, respectively, compared to the same periods in 1996, primarily
due to improved business segment earnings in both periods and realized gains
from the sale of invested assets in second quarter 1997.
BUSINESS SEGMENTS
The company reports its business operations in three segments. To facilitate
meaningful period-to-period comparisons, earnings of each business 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) and other non-recurring items.
-17-
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1997
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) 1997 1996 1997 1996
Retirement Services $127 $118 $ 64 $ 58
Life Insurance (a) 285 267 143 140
Consumer Finance (b) 79 59 40 31
Segment earnings $491 $444 $247 $229
(a) Excludes aftertax charges of $46 million for restructuring costs in the
1997 periods and $32 million for write-down of USLIFE group business in
the 1996 periods.
(b) Excludes aftertax losses on assets held for sale of $27 million in the
1997 periods.
A discussion of each segment's results follows. The reasons for any
significant variations between the quarters ended June 30, 1997 and 1996 are
the same as those discussed below for the respective six month periods, unless
otherwise noted.
Retirement Services
The Retirement Services segment offers retirement products and planning
services to employees of educational, health care, public sector, and other
not-for-profit organizations. Asset growth through sales and deposits, as
well as management of the investment spread and operating expenses, contribute
to the segment's profitability. Segment results were as follows:
Six Months Ended Quarter Ended
June 30, June 30,
(In millions) 1997 1996 1997 1996
Segment earnings $ 127 $ 118 $ 64 $ 58
Assets
Investments 22,703 21,352 22,703 21,352
Separate Accounts 8,902 5,829 8,902 5,829
Sales 795 576 347 269
Deposits
Fixed 844 811 419 384
Variable 862 593 441 311
-18-
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1997
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued).
Segment earnings for the six months ended June 30, 1997, compared to the same
period of 1996, increased 7%, primarily due to asset growth over the past
twelve months. Asset growth, excluding the fair value adjustment to
securities, was $4.4 billion, or 16%, from June 30, 1996 to June 30, 1997 and
$2.6 billion, or 9%, from December 31, 1996, reflecting strong sales, an
increase in total deposits, and market appreciation in Separate Accounts.
Sales for the six months ended June 30, 1997 increased $219 million, or 38%,
compared to the same period in 1996, primarily due to increased sales of the
Portfolio Director annuity product, which accounted for 72% of total deposits
for the first six months of 1997 compared to 56% in the comparable 1996
period. Variable deposits increased 45% for the six months ended June 30,
1997, compared to the same period in 1996, as a result of policyholders'
demand for equity investments due to the strong performance of the stock
market. The segment's Separate Account assets, which relate to variable
account options, increased $3.1 billion from June 30, 1996 to June 30, 1997
and $1.8 billion from December 31, 1996, reflecting both the increased sales
and the strong market appreciation.
Investment results and crediting rates on fixed accounts were as follows:
Six Months Ended Quarter Ended
June 30, June 30,
($ in millions) 1997 1996 1997 1996
Net investment income $ 845 $ 822 $ 425 $ 411
Investment yield 7.91% 8.08% 7.89% 8.05%
Average crediting rate 6.13 6.24 6.09 6.22
Investment spread on
fixed accounts 1.78 1.84 1.80 1.83
Net investment income, the primary component of revenues, increased 3% for the
first six months of 1997 compared to the same period of 1996, reflecting
growth in invested assets, partially offset by a decrease in investment yield.
Investment yield for the six months ended June 30, 1997 decreased 17 basis
points compared to the same period in 1996. In response to the declining
yield, the company adjusted the rates credited to its policyholders during
1997. As a result, the investment spread on fixed accounts declined only 6
basis points in comparison to the first six months of 1996 and 3 basis points
for second quarter 1997 compared to second quarter 1996.
The rate of policyholder surrenders of fixed accounts was 5.39% of average
reserves for the first six months of 1997 compared to 5.31% for the same
period in 1996. The surrender rate for second quarter 1997 of 5.05% was an
improvement over both the first quarter 1997 and second quarter 1996 rates of
5.74% and 5.18%, respectively.
-19-
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1997
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued).
The ratio of operating expenses to average assets improved to .48% for the
first half of 1997 from .51% for the same period of 1996 due to an increase in
average assets, which more than offset an increase in operating expenses
primarily related to data processing expenses.
Life Insurance
The Life Insurance segment provides traditional and interest-sensitive life
insurance and annuities to three defined markets, based on household income
and product needs. In second quarter 1997, the segment was aligned into two
divisions, the Independent Producer division and the Career Agency division,
based on distribution system and market focus. Recent acquisitions of
companies that complement the segment's existing markets and distribution
systems have contributed to growth and profitability. Segment profitability
is a function of premiums, investment spread, mortality, and operating
expenses. Segment results were as follows:
Six Months Ended Quarter Ended
June 30, June 30,
(In millions) 1997 1996 1997 1996
Segment earnings * $ 285 $ 267 $ 143 $ 140
Premiums and other
considerations 1,490 1,467 760 754
Assets 34,087 32,074 34,087 32,074
Net investment income 1,034 1,000 524 508
* Excludes aftertax charges of $46 million for restructuring costs in the
1997 periods and $32 million for write-down of USLIFE group business in
the 1996 periods.
Segment earnings for the first six months of 1997 increased 7% compared to the
same period of 1996 and increased 2% for the comparable quarter-to-date
periods. The increase was due to additional earnings in the Career Agency
division, generated by the acquisition of Home Beneficial Life (acquired April
16, 1997) and Independent Life (acquired February 29, 1996), and growth in
policyholder funds through increased life insurance sales in the Independent
Producer division. The earnings from acquisitions and growth, which increased
premiums and net investment income, were partially offset by higher
amortization of deferred policy acquisition costs related to growth in the
interest-sensitive life insurance business.
Asset growth, excluding the fair value adjustment to securities, was $1.7
billion, or 5%, from June 30, 1996 to June 30, 1997 and $1.4 billion, or 4%,
from December 31, 1996, primarily due to the acquisition of Home Beneficial
Life, increased sales, and additional deposits.
-20-
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1997
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued).
Net investment income increased $34 million for the first six months of 1997
compared to the same period in 1996, primarily due to growth in average assets
including Home Beneficial Life. Year-to-date investment yields decreased in
both divisions, primarily due to lower interest rates on new investment
purchases.
Information regarding sales and deposits was as follows:
Six Months Ended Quarter Ended
June 30, June 30,
(In millions) 1997 1996 1997 1996
Life Insurance
Sales $ 257 $ 240 $ 141 $ 126
Deposits 565 531 284 264
Annuities
Sales 194 202 98 99
Deposits 251 242 117 124
Life insurance sales and deposits for the first six months of 1997 exceeded
comparable 1996 amounts by 7%, due to a number of new marketing initiatives
and the acquisition of Home Beneficial Life. Annuity sales for the six months
ended June 30, 1997 were 4% below comparable prior year sales, primarily due
to increasingly competitive market conditions. Annuity deposits for such
periods increased 4% primarily due to increased structured settlement sales.
Death claims, included in insurance and annuity benefits, increased 4% from
1996 to 1997, primarily due to the acquisitions of Independent Life and Home
Beneficial Life. Death claims per $1,000 of in force were $3.37 for the first
six months of 1997 compared to $3.38 for the same period in 1996. Overall,
mortality experience was within product pricing assumptions.
The ratio of operating expenses to direct premiums and deposits increased to
16.49% for the first six months of 1997, compared to 15.73% for the same
period in 1996. The increase was primarily due to Home Beneficial Life's and
Independent Life's expense ratios exceeding those of the company's other life
insurance subsidiaries. While anticipated expense savings from consolidation
of these acquired companies' operations are proceeding as expected, the
expense savings have not been fully realized to date. In addition, the
segment experienced higher technology and marketing expenses. The expense
ratios for second quarter 1997 declined slightly compared to the same period
of 1996, due to expense reductions at Independent Life and higher life
insurance deposits.
-21-
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1997
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued).
Consumer Finance
The Consumer Finance segment provides consumer and home equity loans and other
credit-related products. Segment results are influenced by the amount and mix
of finance receivables, credit quality, borrowing cost, and operating
expenses. Segment results were as follows:
Six Months Ended Quarter Ended
June 30, June 30,
($ in millions) 1997 1996 1997 1996
Segment earnings * $ 79 $ 59 $ 40 $ 31
Finance receivables 7,407 8,053 7,407 8,053
Yield on finance receivables 17.02% 18.13% 16.95% 18.13%
Borrowing cost 6.76 6.91 6.82 6.89
Spread 10.26 11.22 10.13 11.24
* Excludes aftertax losses on assets held for sale of $27 million in the
1997 periods.
Segment earnings were above prior period levels, primarily due to an
improvement in credit quality during the first half of 1997. Segment earnings
for the six months ended June 30, 1997 increased $20 million, or 34%, compared
to the same period of 1996. For second quarter 1997, segment earnings were up
$9 million, or 31%, compared to second quarter 1996.
The company's strategy in prior years of emphasizing higher-yielding
receivables, with higher credit risk, resulted in higher than anticipated
levels of delinquencies and charge offs beginning in third quarter 1995. The
company responded by initiating an action program to improve credit quality,
beginning with a comprehensive review of the consumer finance operations in
fourth quarter 1995. This review indicated a need for an increase in the
allowance for losses on finance receivables. As a result, the company
increased the allowance $216 million ($140 million aftertax) in fourth quarter
1995.
Other components of the action program included raising underwriting
standards, slowing branch expansion, increasing collection efforts, and
rebalancing the finance receivable portfolio to increase the proportion of
real estate-secured receivables. During the last six months of 1996, the
company purchased real estate-secured receivables totaling $553 million, which
increased the proportion of these receivables to 52% at June 30, 1997,
compared to 39% at June 30, 1996.
-22-
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1997
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued).
Total finance receivables decreased $218 million from December 31, 1996 to
June 30, 1997 and $646 million during the twelve months ended June 30, 1997.
All lines of receivables, except for real estate-secured consumer loans,
decreased compared to December 31, 1996 and June 30, 1996. The decreases were
due to management's action program to improve credit quality, and the
reclassification of certain finance receivable portfolios to assets held for
sale in December 1996. These portfolios consisted of $520 million of bank
credit card receivables and $355 million of private label finance receivables
at December 31, 1996. The company recognized an aftertax charge of $93
million in fourth quarter 1996 related to the assets held for sale. In April
1997, the company repurchased $100 million of private label and credit card
receivables that previously had been sold through securitization, and offered
$70 million of that portfolio for sale with the company's other finance
receivables held for sale.
In June 1997, the company sold all of the assets held for sale (with a
remaining balance of $658 million) and $81 million of other private label
finance receivables. In connection with these sales, the company took an
aftertax charge of $27 million in second quarter 1997. This additional loss
primarily resulted from establishing a liability for estimated future payments
to the purchaser of the credit card portfolio under a five-year loss sharing
arrangement.
Finance charge revenues decreased $99 million for the first six months of 1997
and $48 million for the second quarter of 1997, compared to the same periods
in 1996, due to lower average receivables, combined with a decline in the
yield on finance receivables.
The yield on finance receivables declined 111 basis points for the first six
months of 1997 and declined 118 basis points for the second quarter of 1997,
compared to the same periods in 1996. The yield decline resulted from the
change in the portfolio mix to a higher proportion of real estate-secured
loans, which generally have lower yields, partially offset by the decreased
proportion of non-accrual delinquent finance receivables during 1997. The
spread between yield and borrowing cost decreased 96 basis points and 111
basis points for the first six months of 1997 and the second quarter of 1997,
respectively, compared to the same periods of 1996. These declines resulted
from a decrease in yield, partially offset by lower borrowing costs.
-23-
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1997
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued).
Charge offs, delinquencies, and the allowance for finance receivable losses
were as follows:
Six Months Ended Quarter Ended
June 30, June 30,
($ in millions) 1997 1996 1997 1996
Charge offs $ 141 $ 221 $ 68 $ 107
% of average finance
receivables 3.76% 5.41% 3.68% 5.33%
June 30,
1997 1996
Delinquencies $ 300 $ 350
% of finance receivables 3.73% 3.99%
Allowance for finance
receivable losses $ 385 $ 482
% of finance receivables 5.20% 5.99%
The charge off, delinquency, and allowance ratios decreased for the six months
ended June 30, 1997 compared to the same period in 1996, primarily due to
improved credit quality related to the increased proportion of real estate-
secured receivables and the reclassification and sale of non-strategic,
underperforming finance receivable portfolios. Excluding the portfolios held
for sale, the charge off and delinquency ratios were 4.61% and 3.77%,
respectively, for the six months ended June 30, 1996.
The delinquency ratio decreased 10 basis points from 3.83% at December 31,
1996, to 3.73% at June 30, 1997. Excluding the receivable portfolios
reclassified to assets held for sale, the charge off ratio decreased from
5.03% for fourth quarter 1996 and 3.83% for first quarter 1997 to 3.68% for
second quarter 1997. These decreases resulted from the positive impact of
management's action program to improve credit quality. The allowance ratio
increased 2 basis points from 5.18% at December 31, 1996 to 5.20% at June 30,
1997 due to a decrease in average finance receivables, partially offset by a
$10 million decrease in the allowance for finance receivable losses in 1997
resulting from improved credit quality of the receivables portfolio.
Operating expenses decreased $27 million, or 11%, for the six months ended
June 30, 1997, compared to the same period in 1996. As a percentage of
average finance receivables, operating expenses were 6.06% and 6.29% for the
six months ended June 30, 1997 and 1996, respectively. The decrease in
operating expenses was primarily due to exclusion of the operating expenses
associated with servicing the portfolios held for sale, decreased collection
expenses, and lower expenses due to workforce reduction, partially offset by a
decrease in deferral of finance receivable origination costs.
-24-
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1997
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued).
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). The components of the adjustment to
report securities at fair value at June 30, 1997 and December 31, 1996, and
the change, were as follows:
June 30, December 31,
(In millions) 1997 1996 Change
Fair value adjustment to securities $ 1,333 $ 1,514 $ (181)
Adjusted by:
Decrease in DPAC/CIP (510) (598) 88
Increase in deferred income taxes (301) (348) 47
Equity in WNC's unrealized gains 11 59 (48)
Net unrealized gains on securities $ 533 $ 627 $ (94)
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 87% of
invested assets at June 30, 1997. Information regarding the fixed maturity
securities portfolio, which included bonds and redeemable preferred stocks, at
June 30, 1997 was as follows:
June 30, Average Credit
(In millions) 1997 % Rating
Investment grade $34,869 76% A
Mortgage-backed 9,308 20 AAA
Below investment grade 1,808 4 BB-
Total fixed maturities $45,985 100% A+
-25-
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1997
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued).
Mortgage-backed securities (MBSs), consisting principally of collateralized
mortgage obligations, are purchased to diversify the portfolio risk
characteristics from primarily corporate credit risk to a mix of credit and
cash flow risk. MBSs represented 20% and 24% of fixed maturity securities at
June 30, 1997 and December 31, 1996, respectively. The reduction represents
the company's actions to reduce its exposure to cash flow risk associated with
these investments.
Below investment grade fixed maturity securities, those rated below BBB-, were
$1.8 billion at June 30, 1997 and $1.7 billion at December 31, 1996. These
investments represented 4% of total fixed maturity securities at both balance
sheet dates. Net investment income from below investment grade fixed maturity
securities, including realized investment gains and losses, was $58 million
and $53 million for the first six months of 1997 and 1996, respectively.
Non-performing fixed maturity securities, defined as securities for which
payment of interest is sufficiently uncertain as to preclude accrual of
interest, represented less than .01% of total fixed maturity securities at
June 30, 1997 and December 31, 1996.
Mortgage Loans. Mortgage loans on real estate represented 6% of invested
assets at June 30, 1997. Information regarding the mortgage loan portfolio at
June 30, 1997 was as follows:
June 30, Non-Performing Loans
(In millions) 1997 Amount %
Commercial loans $ 3,460 $ 184 5.3%
Allowance for losses (71) (30)
Total mortgage loans $ 3,389 $ 154
Non-performing mortgage loans include loans delinquent 60 days or more and
commercial loans that have been restructured and are currently performing
under the modified terms. These loans represented 5.3% of total commercial
loans at June 30, 1997, compared to 5.1% at December 31, 1996.
At June 30, 1997, $197 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 determined to be under-
collateralized. This amount compares to $282 million at December 31, 1996.
The decrease in the watch list amount was primarily due to loans that are no
longer undercollaterized or were reinstated, refinanced, or repaid. 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.
-26-
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1997
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued).
Realized Investment Gains (Losses). Realized investment gains (losses) were as
follows:
Six Months Ended
June 30,
(In millions) 1997 1996
Sales
Fixed maturity securities $ (14) $(16)
Equity securities 4 40
Real estate and other long-term investments 19 8
Write-downs/reserve changes 6 (3)
Other (1) 2
Total realized investment gains (losses) $ 14 $ 31
The 1997 write-downs/reserve changes resulted from the reversal of allowances
on mortgage loans due to improved credit quality. The 1996 write-
downs/reserve changes related to fixed maturity securities and mortgage loans.
Investment Real Estate. Investment real estate consists of land development
projects, income-producing real estate, foreclosed real estate, and the
American General Center, an office complex in Houston. In June 1997, the
company signed a definitive agreement to sell the majority of its land
development projects; the sale is expected to close in August 1997. In
conjunction with the sale of these non-strategic assets, the company
recognized an aftertax loss of approximately $45 million, including expenses
associated with the sale, in second quarter 1997.
CAPITAL RESOURCES
Corporate Debt. Corporate debt is incurred primarily to fund acquisitions,
share repurchases, and capital needs of subsidiaries. Corporate debt increased
$136 million from December 31, 1996 to June 30, 1997, primarily due to an
increase in borrowings to fund repurchases of American General's common stock
and the Home Beneficial Life acquisition, partially offset by the net proceeds
from the March 1997 issuance of 8-1/8% preferred securities.
Interest expense on corporate debt decreased $4 million, or 3%, for the six
months ended June 30, 1997 compared to the same period in 1996. The decrease
relates to lower average short-term borrowings from the use of the proceeds of
preferred securities issued in December 1996 and March 1997 to reduce short-
term debt.
-27-
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1997
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued).
The ratio of corporate debt to corporate capital (excluding the fair value
adjustment to securities) was 22.0% at June 30, 1997 and December 31, 1996.
Management expects to maintain the ratio at or below 25% during the remainder
of 1997.
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 at a level that supports cost-effective funding. Consumer finance
debt decreased $896 million from December 31, 1996 to June 30, 1997, primarily
due to the decline in finance receivables and management's actions to return
the Consumer Finance segment's debt to tangible net worth ratio to the target
level of 7.5 to 1.
Interest expense on Consumer Finance debt decreased $21 million, or 9%, for
the six months ended June 30, 1997 compared to the same period in 1996,
primarily due to the reclassification of interest expense to assets held for
sale.
Redeemable Equity. Redeemable equity increased $498 million from December 31,
1996 to June 30, 1997, due to the March 1997 issuance of 8-1/8% preferred
securities. Net proceeds from this issuance were used to reduce short-term
debt.
Shareholders' Equity. Shareholders' equity decreased from $6.8 billion at
December 31, 1996 to $6.7 billion at June 30, 1997, primarily due to the $94
million decrease in net unrealized gains on securities.
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 securities (see "Investments - Fair Value of Securities
(SFAS 115)" on page 22).
Rating Agencies. As a result of the acquisition of USLIFE, Standard & Poor's
(S&P), Duff & Phelps (D&P), Moody's, and A.M. Best conducted reviews of the
debt, preferred securities, and claims-paying ability ratings of American
General and its subsidiaries. Based on these reviews, several ratings changed
and all ratings were subsequently removed from review by the rating agencies.
-28-
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1997
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued).
As of August 12, 1997, the ratings were as follows:
S&P D&P Moody's A.M. Best
Debt and preferred securities
ratings:
American General Corporation
Commercial paper A-1+ D-1+ P-1
Long-term debt AA- AA- A2
Preferred securities A+ A a2
American General Finance
Corporation
Commercial paper A-1 D-1+ P-1
Long-term debt A+ A+ A2
Claims-paying ability ratings:
All American Life AA+ Aa3 A+
American General Life and Accident AA+ AAA A++
American General Life AA+ AAA Aa3 A++
Franklin Life AA+ AAA Aa3 A++
Old Line Life AA+ Aa3 A+
United States Life AA+ Aa3 A+
VALIC AA+ AAA Aa2 A++
LIQUIDITY
Management believes that the overall sources of cash and liquidity available
to the company will continue to be sufficient to satisfy its foreseeable
financial obligations.
Dividends from subsidiaries are one of the primary sources of cash for the
parent company's operating requirements and are used to fund debt repayments,
dividends to shareholders, acquisitions, and repurchases of American General's
common stock. American General'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.
-29-
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1997
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued).
Parent Company Cash Flows
Six Months Ended
June 30,
(In millions) 1997 1996
Net cash provided by operating activities $ 251 $ 187
Dividends paid by Life Insurance and
Retirement Services segments 210 163
Dividends paid by Consumer Finance segment 106 57
Net cash provided by operating activities increased in the first half of 1997
compared to the same period in 1996 primarily due to dividends paid to
American General by its subsidiaries. During the first six months of 1997,
the Life Insurance and Retirement Services segments paid $353 million of cash
dividends to subsidiaries of American General, of which $210 million was
dividended to the parent company.
Segment Cash Flows
Six Months Ended
June 30,
(In millions) 1997 1996
Life Insurance and Retirement Services
Net cash provided by operating activities $1,021 $ 927
Net cash provided by policyholder
account deposits, net of withdrawals
Fixed 142 103
Variable 911 908
Consumer Finance
Net cash provided by operating activities 283 335
Net cash flows generated by the Life Insurance and Retirement Services
segments include cash provided by operating activities and fixed policyholder
account deposits, net of withdrawals. Cash flows from these sources in the
first half of 1997 compared to 1996 increased by $133 million due to increases
in premiums and net investment income. These increases were partially offset
by an increase in operating expenses due to the addition of Independent Life's
and Home Beneficial Life's operating expenses in 1997. Variable account
deposits (including transfers from fixed accounts), net of withdrawals,
increased $3 million in the first six months of 1997 compared to the prior
year period. These net deposits, which relate to Separate Accounts and are
excluded from the company's consolidated condensed statement of cash flows,
were relatively flat due to an increase in variable deposits of $269 million,
offset by an increase in withdrawals of $78 million and a decrease in
transfers from fixed accounts of $188 million.
-30-
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1997
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued).
The Consumer Finance segment's cash provided by operating activities decreased
$52 million in the first six months of 1997 compared to the first six months
of 1996 primarily due to decreased finance charge revenues attributable to
lower average net receivables.
Consolidated Operating Activities. Net cash flows from operating activities
on a consolidated basis decreased $186 million in the six months ended June
30, 1997 compared to the same period in 1996. This decrease primarily related
to the payment of change in control costs by an intermediate holding company,
partially offset by the increases in parent company and segment operating cash
flows discussed above.
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,
1997 1996 1997 1996
Fixed maturity securities $6,728 $5,049 $5,848 $4,317
Mortgage loans 198 237 433 224
Equity securities 2 1 65 145
Other 41 54 143 81
Total $6,969 $5,341 $6,489 $4,767
Credit Facilities. American General and certain of its subsidiaries use
commercial paper to meet short-term funding requirements. Unsecured bank
credit facilities are used to support commercial paper borrowings. At June
30, 1997, committed credit facilities totaled $3.8 billion, and there were no
borrowings under these facilities.
-31-
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1997
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued).
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;
customer responsiveness to both new products and distribution channels;
competitive, regulatory, or tax changes that affect the cost of or demand for
the company's products; adverse litigation results; and the company's failure
to achieve anticipated levels of earnings or operational efficiencies related
to recently acquired companies, as well as other cost-saving initiatives. The
Consumer Finance segment's future results also could be adversely affected if
finance receivable delinquencies and net charge offs increase or fail to
achieve levels anticipated by management, despite the company's initiatives to
improve credit quality. Investors are also directed to other risks and
uncertainties discussed in documents filed by the company with the Securities
and Exchange Commission.
-32-
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1997
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
As reported initially in the company's Report on Form 8-K dated March 5, 1993
and in subsequent reports, two real estate subsidiaries of American General
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
for $47 million in compensatory damages and for $189 million in punitive
damages. On September 17, 1993, a Texas state district court reduced the
previously awarded punitive damages by $60 million, resulting in a reduced
judgment in the amount of $176 million plus post-judgment interest of 10% from
July 16, 1993. On January 29, 1996, the Texas First Court of Appeals rendered
a decision that affirmed the trial court judgment and held both companies
liable to pay the punitive damages. Pursuant to court-ordered mediation, the
parties have agreed to a settlement of approximately $50 million as a final
resolution of this lawsuit. As a result, American General recorded an
aftertax charge of $33 million in second quarter 1997.
In April 1992, the 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. In
June 1993, a representative 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). In February 1996, the court ruled in favor of the company on all
legal issues related to this contingency, and the judgment entered in favor of
the company for the portion of the contingency related to the representative
case was appealed by the government. On July 9, 1997, the U.S. Court of
Appeals for the Federal Circuit ruled in favor of the company. It is unknown
whether the government will pursue any further appeal; however, the company
intends to pursue a full refund of the amounts paid.
-33-
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1997
Item 1. Legal Proceedings (continued).
In recent years, various life insurance companies have been named as
defendants in class action lawsuits relating to life insurance pricing and
sales practices, and a number of these lawsuits have resulted in substantial
settlements. Certain of American General's subsidiaries are defendants in
such purported class action lawsuits filed in 1996 and 1997, asserting claims
related to pricing and sales practices. These claims are being defended
vigorously by the subsidiaries. Given the uncertain nature of litigation and
the early stages of this litigation, the outcome of these actions cannot be
predicted at this time. American General nevertheless believes that the
ultimate outcome of all such pending litigation should not have a material
adverse effect on American General's consolidated financial position; however,
it is possible that settlements or adverse determinations in one or more of
these actions or other future proceedings could have a material adverse effect
on American General's consolidated results of operations for a given period.
No provision has been made in the consolidated financial statements related to
this pending litigation because the amount of the loss, if any, from these
actions cannot be reasonably estimated at this time.
In addition to those lawsuits or proceedings disclosed herein and in the
company's 1996 Form 10-K, the company is a party 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 will ultimately be paid, if any, arising from these lawsuits and
proceedings will not have a 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.
-34-
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1997
Item 4. Submission of Matters to a Vote of Security Holders
Annual Meeting.
On April 24, 1997, American General held its annual meeting of shareholders.
As of that date, shareholders of the company's common and preferred shares
outstanding were entitled to 202,956,489 votes. At the meeting, the company's
shareholders voted on the following matters: (i) election of ten directors,
constituting the company's entire board, for one-year terms; (ii) approval of
the American General Corporation 1997 Stock and Incentive Plan; and (iii)
ratification of the appointment of Ernst & Young LLP as independent auditors
for 1997. Each matter was approved by the shareholders. The votes cast for,
against, and abstentions as to each such matter were as follows:
Votes For Votes Against Abstentions
ELECTION OF DIRECTORS:
J. Evans Attwell 177,572,734 1,657,061 -
Brady F. Carruth 178,070,315 1,159,480 -
James S. D'Agostino Jr. 178,060,666 1,169,129 -
W. Lipscomb Davis Jr. 178,081,554 1,148,241 -
Robert M. Devlin 178,029,681 1,200,114 -
Larry D. Horner 178,051,287 1,178,508 -
Richard J. V. Johnson 178,075,722 1,154,073 -
Jon P. Newton 178,060,638 1,169,157 -
Robert E. Smittcamp 178,088,317 1,141,478 -
Anne M. Tatlock 178,055,365 1,174,430 -
STOCK AND INCENTIVE PLAN: 171,157,624 6,820,664 1,251,507
INDEPENDENT AUDITORS: 178,573,414 211,440 444,941
A more detailed description of the matters voted on by shareholders of the
company at this meeting is included in the definitive Proxy Statement dated
March 18, 1997 and incorporated herein by reference.
-35-
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1997
Item 4. Submission of Matters to a Vote of Security Holders (continued).
Special Meeting.
On June 17, 1997, American General held a special meeting of shareholders. As
of that date, shareholders of the company's common and preferred shares
outstanding were entitled to 205,606,320 votes. At the meeting, the company's
shareholders voted in favor of the proposal to approve the issuance of
American General common stock (estimated to be a minimum of approximately 39
million and a maximum of approximately 47 million shares) as consideration in
the acquisition of USLIFE. The votes cast for, against, and abstentions were
as follows:
Votes For Votes Against Abstentions
ISSUANCE OF STOCK: 159,832,158 754,466 703,565
Additional information concerning the matter put forward at this meeting is
included in the company's Form S-4 (File No. 333-27361) filed with the
Securities and Exchange Commission on May 19, 1997 and incorporated herein by
reference. A more detailed description of the transaction voted on by
shareholders of the company at this meeting is included in the definitive
Joint Proxy/Prospectus dated May 19, 1997 and incorporated herein by
reference.
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.
-36-
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1997
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 14, 1997
-37-
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1997
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.
-38-
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1997
Exhibit 11
COMPUTATION OF EARNINGS PER SHARE
(Unaudited)
(In millions, except share data)
Six Months Ended
June 30,
1997 1996
Primary:
Net income available to common stock ....... $ 86 $ 359
Average shares outstanding
Common stock ............................. 240,786,060 243,831,111
Assumed conversion of convertible
preferred stock ........................ 1,969,035 1,366,707
Assumed exercise of stock options ........ 1,114,004 1,001,664
Total .................................. 243,869,099 246,199,482
Net income per share ....................... $ .36 $1.46
Fully Diluted:
Net income ................................. $ 86 $ 359
Plus: Net dividends on convertible
preferred securities of subsidiary ........ 5 5
Net income available to common stock ... $ 91 $ 364
Average shares outstanding
Common stock ............................. 240,786,060 243,831,111
Assumed conversion of convertible
preferred securities of subsidiary ..... 6,144,016 6,144,016
Assumed conversion of convertible
preferred stock ........................ 2,371,387 1,636,416
Assumed exercise of stock options ........ 1,364,362 1,134,888
Total .................................. 250,665,825 252,746,431
Net income per share ....................... $ .36 $1.44
<PAGE>
<PAGE>
Exhibit 12
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND
RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
(Unaudited)
($ in millions)
Six Months Ended
June 30,
1997 1996
Consolidated operations:
Income before income tax expense and net dividends
on preferred securities .......................... $ 305 $ 584
Undistributed income of equity investee ............ (23) (15)
Fixed charges deducted from income
Interest expense ................................. 326 331
Implicit interest in rents ....................... 10 11
Total fixed charges deducted from income ....... 336 342
Earnings available for fixed charges.......... $ 618 $ 911
Fixed charges per above ............................ $ 336 $ 342
Capitalized interest ............................... 6 6
Total fixed charges ............................ 342 348
Dividends on preferred stock and securities .... 65 32
Combined fixed charges and preferred
stock dividends ............................ $ 407 $ 380
Ratio of earnings to fixed charges ......... 1.80 2.62
Ratio of earnings to combined fixed charges
and preferred stock dividends ............ 1.52 2.40
Consolidated operations, corporate fixed charges
and preferred stock dividends only:
Income before income tax expense and net dividends
on preferred securities ........................ $ 305 $ 584
Undistributed income of equity investee .......... (23) (15)
Corporate fixed charges deducted from income -
corporate interest expense ..................... 87 89
Earnings available for fixed charges ........... $ 369 $ 658
Total corporate fixed charges per above .......... $ 87 $ 89
Capitalized interest related to real estate
operations ..................................... 5 5
Total corporate fixed charges .................. 92 94
Dividends on preferred stock and securities .... 65 32
Combined corporate fixed charges and
preferred stock dividends .................. $ 157 $ 126
Ratio of earnings to corporate fixed charges 3.99 6.98
Ratio of earnings to combined corporate
fixed charges and preferred stock
dividends ................................ 2.35 5.23
Exhibit 12 (continued)
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND
RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
<PAGE>
(Unaudited)
($ in millions)
Six Months Ended
June 30,
1997 1996
American General Finance:
Income before income tax expense ................... $ 83 $ 92
Fixed charges deducted from income
Interest expense ................................. 249 247
Implicit interest in rents ....................... 5 6
Total fixed charges deducted from income ....... 254 253
Earnings available for fixed charges ......... $ 337 $ 345
Ratio of earnings to fixed charges ......... 1.33 1.36
Exhibit 12 (continued)
<PAGE>
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND
RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
(Unaudited)
($ in millions)
Quarter Ended
June 30,
1997 1996
Consolidated operations:
Income (loss) before income tax expense and net
dividends on preferred securities ................ $ (46) $ 269
Undistributed income of equity investee ............ (11) (8)
Fixed charges deducted from income
Interest expense ................................. 164 164
Implicit interest in rents ....................... 5 6
Total fixed charges deducted from income ....... 169 170
Earnings available for fixed charges.......... $ 112 $ 431
Fixed charges per above ............................ $ 169 $ 170
Capitalized interest ............................... 3 3
Total fixed charges ............................ 172 173
Dividends on preferred stock and securities .... 37 17
Combined fixed charges and preferred
stock dividends ............................ $ 209 $ 190
Ratio of earnings to fixed charges ......... -* 2.50
Ratio of earnings to combined fixed charges
and preferred stock dividends ............ -* 2.27
Consolidated operations, corporate fixed charges
and preferred stock dividends only:
Income (loss) before income tax expense and net
dividends on preferred securities .............. $ (46) $ 269
Undistributed income of equity investee .......... (11) (8)
Corporate fixed charges deducted from income -
corporate interest expense ..................... 47 45
Earnings available for fixed charges ........... $ (10) $ 306
Total corporate fixed charges per above .......... $ 47 $ 45
Capitalized interest related to real estate
operations ..................................... 2 2
Total corporate fixed charges .................. 49 47
Dividends on preferred stock and securities .... 37 17
Combined corporate fixed charges and
preferred stock dividends .................. $ 86 $ 64
Ratio of earnings to corporate fixed charges -* 6.43
Ratio of earnings to combined corporate
fixed charges and preferred stock
dividends ................................ -* 4.73
* Earnings were inadequate to cover fixed charges. The amount of
deficiency was as follows:
Amount
Consolidated operations:
Ratio of earnings to fixed charges ............... $ 60
Ratio of earnings to combined fixed charges
and preferred stock dividends .................. 97
Consolidated operations, corporate fixed charges
and preferred stock dividends only:
Ratio of earnings to corporate fixed charges ..... 59
Ratio of earnings to combined corporate fixed
<PAGE>
charges and preferred stock dividends .......... 96
Exhibit 12 (continued)
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND
RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
(Unaudited)
($ in millions)
Quarter Ended
June 30,
1997 1996
American General Finance:
Income before income tax expense ................... $ 21 $ 48
Fixed charges deducted from income
Interest expense ................................. 124 121
Implicit interest in rents ....................... 2 3
Total fixed charges deducted from income ....... 126 124
Earnings available for fixed charges ......... $ 147 $ 172
Ratio of earnings to fixed charges ......... 1.17 1.38
<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-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<DEBT-HELD-FOR-SALE> 45,985<F1>
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 110
<MORTGAGE> 3,389
<REAL-ESTATE> 587
<TOTAL-INVEST> 52,707
<CASH> 289
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 3,927<F2>
<TOTAL-ASSETS> 77,387
<POLICY-LOSSES> 44,898<F3>
<UNEARNED-PREMIUMS> 229<F3>
<POLICY-OTHER> 370<F3>
<POLICY-HOLDER-FUNDS> 1,896<F3>
<NOTES-PAYABLE> 8,972
1,725<F4>
85<F5>
<COMMON> 321
<OTHER-SE> 6,340<F6>
<TOTAL-LIABILITY-AND-EQUITY> 77,387
1,633<F7>
<INVESTMENT-INCOME> 1,973
<INVESTMENT-GAINS> 14
<OTHER-INCOME> 748<F8>
<BENEFITS> 2,123
<UNDERWRITING-AMORTIZATION> 260<F9>
<UNDERWRITING-OTHER> (311)<F10>
<INCOME-PRETAX> 305<F11>
<INCOME-TAX> 180<F12>
<INCOME-CONTINUING> 86
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 86
<EPS-PRIMARY> 0.35
<EPS-DILUTED> 0.36
<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>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 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 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 $60 MILLION OF DIVIDENDS ON PREFERRED SECURITIES OF SUBSIDIARIES,
SHOWN SEPARATELY, NET OF TAX, IN THE CONSOLIDATED INCOME STATEMENT.
<F12>EXCLUDES $21 MILLION TAX BENEFIT FOR TAX DEDUCTIBLE DIVIDENDS RELATED TO
PREFERRED SECURITIES SUBSIDIARIES.
</FN>
</TABLE>
