AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended March 31, 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 March 31, 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 April 30, 1997, there were 203,601,402 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 March 31, 1997
INDEX TO FORM 10-Q
Page
Part I. FINANCIAL INFORMATION.
Item 1. Financial Statements.
Consolidated Statement of Income for the three
months ended March 31, 1997 and 1996 ............. 2
Consolidated Balance Sheet at March 31, 1997 and
December 31, 1996 ................................ 3
Consolidated Condensed Statement of Cash Flows for
the three months ended March 31, 1997 and 1996 ... 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 .................................. 24
Item 6. Exhibits and Reports on Form 8-K ................... 24
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AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended March 31, 1997
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
AMERICAN GENERAL CORPORATION
Consolidated Statement of Income
(Unaudited)
(In millions, except per share data)
Three Months Ended
March 31,
1997 1996
Revenues
Premiums and other considerations ................ $ 487 $ 480
Net investment income ............................ 846 800
Finance charges .................................. 320 371
Realized investment gains (losses) ............... (7) 27
Equity in earnings of Western National Corporation 13 8
Other ............................................ 33 25
Total revenues ............................... . 1,692 1,711
Benefits and expenses
Insurance and annuity benefits ................... 762 774
Policyholder dividends ........................... 23 23
Operating costs and expenses ..................... 274 264
Commissions ...................................... 136 125
Change in deferred policy acquisition costs and
cost of insurance purchased ..................... (19) (16)
Provision for finance receivable losses .......... 68 109
Interest expense
Corporate ....................................... 27 30
Consumer Finance ................................ 113 126
Total benefits and expenses .................. 1,384 1,435
Earnings
Income before income tax expense ................. 308 276
Income tax expense ............................... 109 97
Income before net dividends on preferred
securities of subsidiaries....................... 199 179
Net dividends on preferred securities of
subsidiaries .................................... 17 10
Net income ................................... $ 182 $ 169
Net income per share ............................. $ .88 $ .81
Dividends paid per common share .................. $ .35 $ .325
Average fully diluted shares outstanding
(in thousands) .................................. 210,709 212,653
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AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended March 31, 1997
Item 1. Financial Statements (continued).
AMERICAN GENERAL CORPORATION
Consolidated Balance Sheet
(Unaudited)
(In millions, except share data)
March 31, December 31,
1997 1996
Assets
Investments
Fixed maturity securities (amortized cost:
$37,833; $37,194) ........................... $38,138 $38,490
Mortgage loans on real estate ................. 2,944 2,970
Equity securities (cost: $95; $107) ........... 116 133
Policy loans .................................. 1,744 1,728
Investment real estate ........................ 591 598
Other long-term investments ................... 207 191
Short-term investments ........................ 405 160
Total investments ......................... 44,145 44,270
Cash ........................................... 164 149
Finance receivables, net ....................... 7,064 7,230
Investment in Western National Corporation ..... 506 535
Deferred policy acquisition costs .............. 2,542 2,169
Cost of insurance purchased .................... 796 755
Acquisition-related goodwill ................... 550 557
Assets held for sale ........................... 634 667
Other assets ................................... 2,109 2,059
Assets held in Separate Accounts ............... 8,157 7,863
Total assets .............................. $66,667 $66,254
Liabilities
Insurance and annuity liabilities .............. $40,614 $40,232
Debt (short-term)
Corporate ($393; $362) ........................ 1,565 1,533
Consumer Finance ($3,037; $3,131) ............. 7,330 7,630
Income tax liabilities ......................... 815 1,020
Other liabilities .............................. 1,263 1,128
Liabilities related to Separate Accounts ....... 8,157 7,863
Total liabilities ......................... 59,744 59,406
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 and outstanding: 2,317,701)..... 85 85
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AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended March 31, 1997
Common stock (shares issued: 220,122,120;
outstanding: 200,478,385; 203,090,677)......... 395 398
Net unrealized gains on securities ............. 142 559
Retained earnings .............................. 5,203 5,093
Cost of treasury stock ......................... (627) (514)
Total shareholders' equity ................ 5,198 5,621
Total liabilities and equity .............. $66,667 $66,254
Item 1. Financial Statements (continued).
AMERICAN GENERAL CORPORATION
Consolidated Condensed Statement of Cash Flows
(Unaudited)
(In millions)
Three Months Ended
March 31,
1997 1996
Operating activities
Net cash provided by operating activities ... $ 629 $ 657
Investing activities
Investment purchases .............................. (3,623) (2,040)
Investment dispositions and repayments ............ 3,068 1,589
Finance receivable originations and purchases ..... (1,017) (1,010)
Finance receivable principal payments received .... 1,082 1,270
Net (increase) decrease in short-term investments . (245) 13
Acquisition of Independent Life ................... - (106)
Other, net ........................................ 5 (64)
Net cash used for investing activities ...... (730) (348)
Financing activities
Retirement Services and Life Insurance
Policyholder account deposits ................... 708 677
Policyholder account withdrawals ................ (616) (590)
Total Retirement Services and Life Insurance.. 92 87
Consumer Finance
Net decrease in short-term debt ................. (94) (268)
Long-term debt issuances ........................ 2 30
Long-term debt redemptions ...................... (208) (151)
Total Consumer Finance ....................... (300) (389)
Corporate
Net increase in short-term debt ................. 31 104
Issuance of preferred securities of subsidiaries. 498 -
Dividends on common and preferred stock ......... (72) (66)
Common stock repurchases ........................ (123) (22)
Other, net ...................................... (10) 4
Total Corporate .............................. 324 20
Net cash provided by (used for)
financing activities ....................... 116 (282)
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AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended March 31, 1997
Net increase in cash ............................... 15 27
Cash at beginning of period ........................ 149 161
Cash at end of period .............................. $ 164 $ 188
Supplemental disclosure of cash flow information:
Cash paid (received) during the period for
Income taxes .................................... $ (13) $ (49)
Interest
Corporate ...................................... 16 32
Consumer Finance ............................... 130 121
Dividends on preferred securities of
subsidiaries ................................... 14 14
Item 1. Financial Statements (continued).
AMERICAN GENERAL CORPORATION
Notes to Consolidated Financial Statements
March 31, 1997
1. Accounting Policies. The accompanying unaudited consolidated financial
statements of American General Corporation (American General) and its
subsidiaries (collectively, 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
March 31, 1997, and the consolidated results of operations and cash flows
for the three months ended March 31, 1997 and 1996.
To conform with the 1997 presentation, certain items in the prior period
have been reclassified.
2. New Accounting Standard. In February 1997, the Financial Accounting
Standards Board 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. Retroactive restatement for all
periods presented will be required upon adoption. Application of this
statement will change disclosures related to earnings per share, but is
not expected to have a material impact on reported per share amounts.
3. Derivative Financial Instruments. Derivative financial instruments
related to investment securities did not have a material effect on net
investment income during the three months ended March 31, 1997 or 1996.
Derivative financial instruments related to debt securities did not have
a material effect on the weighted-average borrowing rate or reported
interest expense during the three months ended March 31, 1997 or 1996.
4. Assets Held for Sale. During fourth quarter 1996, the company decided to
offer for sale $875 million of non-strategic, underperforming credit card
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AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended March 31, 1997
and private label finance receivable portfolios. These assets held for
sale are carried at net realizable value, after considering related
expenses. The decrease in assets held for sale during first quarter 1997
was due to the net activity of the associated finance receivables and
their related results of operations.
In April 1997, the company repurchased $100 million of private label and
credit card receivables that previously had been sold through
securitization. No gain or loss resulted from this transaction. These
Item 1. Financial Statements (continued).
repurchased credit card receivables will be offered for sale along with
the company's other credit card receivables, increasing the carrying
amount of assets held for sale by approximately $70 million in April
1997.
5. Company-Obligated Mandatorily Redeemable Preferred Securities of
Subsidiary (Preferred Securities). On March 14, 1997, American General
Institutional Capital B, a subsidiary trust of American General, issued
500,000 shares, or $500 million, of non-convertible preferred securities.
The non-convertible preferred 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. Subsequent Events.
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 (43%) and 9.5
million shares of American General common stock (57%). The acquisition
will be accounted for using the purchase method.
Share Repurchase. On April 15, 1997, American General purchased 6.4
million shares of its common stock in an accelerated share buyback
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AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended March 31, 1997
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. In order to complete the
transaction, the investment bank borrowed American General common stock
and will purchase replacement shares in the open market. This buyback,
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.
Item 1. Financial Statements (continued).
7. 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. 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. The company intends to continue 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. Based upon information
presently available, the company believes that the total amount that will
ultimately be paid, if any, arising from this lawsuit will not have a
material adverse effect on the company's consolidated results of
operations and financial position.
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
representative suit for refund was filed in the United States Court of
Federal Claims. On February 7, 1996, the court ruled in favor of the
company on all legal issues related to this contingency, and a judgment
was entered in favor of the company on July 9, 1996, for the portion of
the contingency related to the representative case. The government has
appealed this judgment; however, the company intends to pursue a full
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AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended March 31, 1997
refund of the amounts paid. Accordingly, no provision has been made in
the consolidated financial statements related to this contingency.
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
Item 1. Financial Statements (continued).
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.
Certain of American General's subsidiaries are defendants in lawsuits
filed as purported class actions asserting claims related to sales
practices of certain life insurance products. Because these cases are in
the early stages of litigation, it is premature to address their
materiality. The claims are being defended vigorously by the
subsidiaries.
8. 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. One issue from prior tax returns has been the subject of
litigation, as described in Note 7.
9. 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:
Three Months Ended
March 31,
1997 1996
Ratio of Earnings to Fixed
Charges:
Consolidated operations .................... 2.90 2.65
Consolidated operations,
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AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended March 31, 1997
corporate fixed charges only .............. 10.18 8.40
American General Finance, Inc. ............. 1.48 1.34
Ratio of Earnings to Combined
Fixed Charges and Preferred
Stock Dividends:
Consolidated operations .................... 2.47 2.44
Consolidated operations,
corporate fixed charges and
preferred stock dividends only ............ 5.51 6.01
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 1996
Annual Report to Shareholders, including Management's Discussion and Analysis
on pages 16 through 25 thereof.
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.
CORPORATE DEVELOPMENT
On February 13, 1997, American General announced a definitive agreement under
which USLIFE Corporation (USLIFE) will merge into American General in a
transaction valued at $1.8 billion. Under the agreement, USLIFE shareholders
will exchange each share of USLIFE common stock for American General common
stock valued at $49. The exchange ratio will be based on an average trading
price of American General common stock prior to closing, subject to a minimum
of 1.0919 shares and a maximum of 1.2937 shares of American General common
stock.
The transaction, which is subject to approval by American General and USLIFE
shareholders and to requisite regulatory approvals, is expected to close by
June 30, 1997. The merger will be accounted for using the pooling of
interests method.
To complete the merger with USLIFE, American General expects to issue
approximately 39 million to 47 million shares of common stock. Additionally,
the company will assume USLIFE's debt of approximately $600 million. Non-
recurring costs of approximately $170 million ($167 million aftertax) directly
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AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended March 31, 1997
attributable to the merger, including change in control costs and fees for
investment bankers, accountants, and attorneys, will be charged to expense in
second quarter 1997.
CONSOLIDATED RESULTS OF OPERATIONS
Three Months Ended
(In millions, March 31,
except share data) 1997 1996
Net income $ 182 $ 169
Net income per share .88 .81
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued).
Net income for the three months ended March 31, 1997 increased 7% compared to
the same period in the prior year. This increase was due to higher earnings
in the Consumer Finance segment, inclusion of three months of operations for
Independent Life (acquired February 29, 1996) in the Life Insurance segment,
and growth in the Retirement Services segment.
Net income per share for the three months ended March 31, 1997 increased 9%
compared to the same period of 1996. Net income per share increased to a
greater degree than net income, primarily due to the effect of 7.2 million
shares of common stock repurchased during the last twelve months, partially
offset by 3.7 million shares of common stock and 2.3 million shares of
convertible preferred stock, issued for the acquisition of Independent Life,
being outstanding only one month in first quarter 1996.
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.
Segment earnings were as follows:
Three Months Ended
March 31,
(In millions) 1997 1996
Retirement Services $ 63 $ 60
Life Insurance 104 91
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AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended March 31, 1997
Consumer Finance 39 28
Total segment earnings $ 206 $ 179
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued).
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:
Three Months Ended
March 31,
(In millions) 1997 1996
Segment earnings $ 63 $ 60
Assets
Investments 21,956 21,460
Separate Accounts 7,435 5,106
Sales 448 307
Deposits
Fixed 424 426
Variable 421 282
Segment earnings for the three months ended March 31, 1997, compared to the
same period of 1996, increased 6%, primarily due to asset growth over the past
twelve months. Asset growth, excluding the fair value adjustment on
securities, was $3.5 billion, or 13%, from March 31, 1996 to March 31, 1997
and $.7 billion, or 2%, from December 31, 1996, reflecting strong sales, an
increase in total deposits, and market appreciation in Separate Accounts.
Sales for the three months ended March 31, 1997 increased $141 million, or
46%, compared to the same period in 1996 primarily due to increased sales of
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AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended March 31, 1997
the Portfolio Director and Portfolio Director 2 product series, which provide
numerous variable investment options. Variable deposits increased 49% for the
three months ended March 31, 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 $2.3 billion from March 31, 1996
to March 31, 1997 and $.3 billion from December 31, 1996, reflecting both the
increased sales and the strong market appreciation.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued).
Investment results and crediting rates on fixed accounts were as follows:
Three Months Ended
March 31,
($ in millions) 1997 1996
Net investment income $ 420 $ 411
Investment yield 7.93% 8.10%
Average crediting rate 6.18 6.25
Investment spread -
fixed accounts 1.75 1.85
Net investment income, the primary component of revenues, increased 2% for the
first three 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 three months ended March 31, 1997 decreased 17 basis
points compared to the same period in 1996. In response to these declining
yields, the company adjusted the rates credited to its policyholders during
first quarter 1997. As a result, the investment spread on fixed accounts
declined only 10 basis points in comparison to first quarter 1996.
The rate of policyholder surrenders of fixed accounts was 5.74% of average
reserves for the first three months of 1997 compared to 5.44% for the same
period in 1996. The increase was primarily due to customer preference for
variable account options, competition from mutual funds and other financial
institutions, and the trend toward lower fixed interest crediting rates.
The ratio of operating expenses to average assets improved to .48% for first
quarter 1997 from .52% for first quarter 1996 due to an increase in average
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AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended March 31, 1997
assets, which more than offset an increase in operating expenses related to
growth in the business.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued).
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. 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:
Three Months Ended
March 31,
(In millions) 1997 1996
Segment earnings $ 104 $ 91
Premiums and other considerations 416 412
Net investment income 389 372
Insurance and annuity benefits 447 464
Assets 24,918 24,672
Segment earnings for first quarter 1997 compared to first quarter 1996
increased 14% primarily due to the acquisition of Independent Life on February
29, 1996. Premiums and other considerations increased 1% and insurance and
annuity benefits decreased 4% primarily due to first quarter 1996 including a
$27 million group annuity purchase and the effect of the Independent Life
acquisition. Asset growth, excluding the fair value adjustment on securities,
was $513 million, or 2%, from March 31, 1996 to March 31, 1997 and $180
million, or 1%, from December 31, 1996, primarily due to sales and an increase
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<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended March 31, 1997
in deposits.
Information regarding sales and deposits was as follows:
Three Months Ended
March 31,
(In millions) 1997 1996
Life Insurance
Sales $ 78 $ 69
Deposits 181 170
Annuities
Sales 92 97
Deposits 128 109
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued).
Life insurance sales and deposits for first quarter 1997 exceeded comparable
1996 amounts by 14% and 7%, respectively, due to a number of new marketing
initiatives and the acquisition of Independent Life on February 29, 1996.
Annuity sales for the three months ended March 31, 1997 were 5% below
comparable prior year sales, primarily due to increasingly competitive market
conditions. Annuity deposits for such periods increased 17% primarily due to
increased structured settlement sales.
Net investment income increased $17 million for the first three months of 1997
compared to the same period in 1996, primarily due to the acquisition of
Independent Life on February 29, 1996. The average investment yield, interest
crediting rate, and investment spread for the primary operating companies were
as follows:
Three Months Ended
March 31,
1997 1996
American General Life
Investment yield 7.72% 7.78%
Average crediting rate 5.89 5.87
Investment spread 1.83 1.91
American General Life and Accident
Investment yield 8.39% 8.56%
Average crediting rate 6.50 6.74
Investment spread 1.89 1.82
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AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended March 31, 1997
Franklin Life
Investment yield 8.36% 8.48%
Average crediting rate 6.28 6.59
Investment spread 2.08 1.89
Investment yields decreased at the primary operating companies for the first
three months of 1997 compared to the same period in 1996, reflecting declining
interest rates on new investments purchased in 1996 and 1997, combined with
the inclusion of Independent Life (at American General Life and Accident),
which has a lower yield, for a full quarter in 1997. Although investment
spreads have fluctuated at the primary operating companies, these spreads are
still within product pricing assumptions.
Death claims, included in insurance and annuity benefits, increased 5% from
1996 to 1997, primarily due to the acquisition of Independent Life. Death
claims per $1,000 of in force were $4.58 for the first three months of 1997
compared to $4.49 for the same period in 1996. Overall, mortality experience
was within product pricing assumptions.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued).
The ratio of operating expenses to direct premiums and deposits increased to
16.62% for the first three months of 1997, compared to 14.70% for the same
period in 1996, due to the higher expense ratio at Independent Life.
Independent Life's expense ratio exceeds those of the company's other life
insurance subsidiaries because anticipated expense savings from consolidation
of its operations have not been fully realized to date.
Consumer Finance
The Consumer Finance segment provides consumer and home equity loans and other
credit-related products. Segment results are influenced by the amount and mix
of finance receivables, credit quality, borrowing cost, and operating
expenses. Segment results were as follows:
Three Months Ended
March 31,
($ in millions) 1997 1996
Segment earnings $ 39 $ 28
Finance receivables 7,454 8,020
Yield on finance receivables 17.09% 18.14%
Borrowing cost 6.71 6.93
Spread 10.38 11.21
Segment earnings for the three months ended March 31, 1997, increased $11
million, or 37%, compared to the same period of 1996. The increase primarily
relates to an improvement in credit quality during first quarter 1997.
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<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended March 31, 1997
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 1996, the company purchased real
estate-secured receivables totaling $754 million, which increased the
proportion of these receivables to 51% at March 31, 1997, compared to 36% at
March 31, 1996.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued).
Total finance receivables at March 31, 1997 decreased $566 million from March
31, 1996 and $171 million from December 31, 1996. All lines of receivables,
except for real estate-secured consumer loans, decreased compared to December
31, 1996 and March 31, 1996, due to management's action program to improve
credit quality and the December 1996 reclassification of two non-strategic,
underperforming finance receivable portfolios to assets held for sale. These
portfolios consisted of $520 million of bank credit card receivables and $355
million of private label finance receivables. The assets held for sale are
carried at net realizable value, after considering related expenses. The
carrying amount at March 31, 1997 was $634 million, compared to $667 million
at December 31, 1996. The decrease was due to the net activity of the
associated finance receivables and their related results of operations.
Discussions with potential purchasers are continuing; however, no definitive
sale agreement has been signed to date.
Finance charge revenues decreased $51 million for the first three months of
1997, compared to the same period in 1996, due to lower average receivables,
resulting from reclassification of the receivables to assets held for sale,
combined with a 105 basis points decline in yield on finance receivables. The
yield decline resulted from the change in the portfolio mix to a higher
proportion of real estate-secured loans, which generally have lower yields,
partially offset by the decreased proportion of non-accrual delinquent finance
receivables during 1997. The spread between yield and borrowing cost
decreased 83 basis points resulting from the decrease in yield, partially
offset by lower short-term borrowing cost.
The allowance for finance receivable losses, delinquencies, and charge offs
-16-
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended March 31, 1997
were as follows:
Three Months Ended
March 31,
($ in millions) 1997 1996
Allowance for finance
receivable losses $ 390 $ 487
% of finance receivables 5.23% 6.07%
Delinquencies $ 304 $ 354
% of finance receivables 3.76% 4.03%
Charge offs $ 73 $ 114
% of average finance
receivables 3.83% 5.50%
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued).
The allowance, delinquency, and charge off ratios decreased for the three
months ended March 31, 1997 compared to the same period in 1996 primarily due
to the increased proportion of real estate-secured receivables and the
reclassification of the portfolios to assets held for sale. Excluding the
portfolios held for sale, the delinquency and charge off ratios were 3.76% and
4.62%, respectively, for the three months ended March 31, 1996.
The delinquency ratio decreased 7 basis points from 3.83% at December 31, 1996
to 3.76% at March 31, 1997 and the charge off ratio, excluding the portfolios
held for sale, decreased 120 basis points from 5.03% for fourth quarter 1996
to 3.83% for first quarter 1997. These decreases resulted from the positive
impact of management's action program to improve credit quality. The
allowance ratio increased 5 basis points from 5.18% at December 31, 1996 to
5.23% at March 31, 1997 due to a decrease in average finance receivables,
partially offset by a $5 million decrease in the allowance for finance
receivable losses in first quarter 1997 resulting from improved credit quality
of the receivables portfolio.
Operating expenses decreased $14 million, or 10%, for the three months ended
March 31, 1997, compared to the same period in 1996. As a percentage of
average finance receivables, operating expenses were 6.04% and 6.09% for the
three months ended March 31, 1997 and 1996, respectively. The decrease in
operating expenses is primarily due to reclassifying operating expenses
(associated with servicing the portfolios for sale) to assets held for sale,
decreased collection expenses, and lower expenses due to workforce reduction,
partially offset by a decrease in deferral of finance receivable origination
-17-
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended March 31, 1997
costs.
Management believes that the anticipated sale of the non-strategic,
underperforming portfolios combined with the ongoing credit quality
improvement program will continue to result in improved earnings. However,
adverse changes in credit fundamentals within the consumer finance market,
including the current high level of personal bankruptcies, could negatively
impact expected results.
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.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued).
Fair Value of Securities (SFAS 115). An increase in market interest rates and
resulting decreases in bond values during the first three months of 1997
caused a $1.0 billion decrease in the fair value adjustment to fixed maturity
securities and a related $414 million decrease in shareholders' equity. The
components of the adjustment to report fixed maturity and equity securities at
fair value at March 31, 1997 and December 31, 1996, and the change, were as
follows:
March 31, December 31,
(In millions) 1997 1996 Change
Fair value adjustment to fixed
maturity securities $ 323 $ 1,355 $(1,032)
Adjusted by:
Decrease in DPAC/CIP (118) (512) 394
Increase in deferred income taxes (77) (301) 224
Net unrealized gains on fixed
maturity securities 128 542 (414)
Net unrealized gains on equity
securities 14 17 (3)
Net unrealized gains on
securities $ 142 $ 559 $ (417)
Accounting rules do not permit adjustment to fair value of the insurance
liabilities supported by these securities, thereby creating volatility in
-18-
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended March 31, 1997
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 March 31, 1997. Information regarding the fixed maturity
securities portfolio, which included bonds and redeemable preferred stocks, at
March 31, 1997 was as follows:
March 31, Average Credit
(In millions) 1997 % Rating
Investment grade $27,339 72% A
Mortgage-backed 9,307 24 AAA
Below investment grade 1,492 4 BB-
Total fixed maturities $38,138 100% A+
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 88% of mortgage-backed
securities at March 31, 1997 and December 31, 1996, respectively.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued).
Below investment grade fixed maturity securities, those rated below BBB-, were
$1.5 billion at March 31, 1997 and 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 $23 million for the first
three months of 1997 and 1996.
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
March 31, 1997 and December 31, 1996.
Mortgage Loans. Mortgage loans on real estate represented 7% of invested
assets at March 31, 1997. Information regarding the mortgage loan portfolio
at March 31, 1997 was as follows:
March 31, Non-Performing Loans
(In millions) 1997 Amount %
Commercial loans $ 3,021 $ 150 5.0%
Allowance for losses (77) (22)
Total mortgage loans $ 2,944 $ 128
Non-performing mortgage loans include loans delinquent 60 days or more and
-19-
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended March 31, 1997
commercial loans that have been restructured and are currently performing
under the modified terms. These loans represented 5.0% of total commercial
loans at March 31, 1997, compared to 5.2% at December 31, 1996.
At March 31, 1997, $264 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.
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:
Three Months Ended
March 31,
(In millions) 1997 1996
Sales and calls
Fixed maturity securities $ (14) $ 14
Equity securities 1 16
Write-downs/reserve changes 1 (4)
Other 5 1
Total realized investment gains (losses) $ (7) $ 27
Write-downs and reserve changes were related to mortgage loans for the three
months ended March 31, 1997 and to fixed maturity securities and mortgage
loans in the comparable prior period.
CAPITAL RESOURCES
Corporate Debt. Corporate debt is incurred primarily to fund acquisitions,
share repurchases, and capital needs of subsidiaries. Corporate debt increased
-20-
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended March 31, 1997
$32 million from December 31, 1996 to March 31, 1997, primarily due to an
increase in borrowings to fund increased capitalization of the business
segments and repurchases of American General's common stock, partially offset
by the net proceeds from the March 1997 issuance of 8-1/8% preferred
securities.
Interest expense on corporate debt decreased $3 million, or 9%, for the three
months ended March 31, 1997 compared to the same period in 1996, primarily due
to lower average short-term borrowings in the first three months of 1997 due
to the proceeds from issuance of preferred securities being used to reduce
short-term debt.
The ratio of corporate debt to corporate capital (excluding the fair value
adjustment on securities) was 18.7% at March 31, 1997, compared to 19.6% at
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 $300 million from December 31, 1996 to March 31, 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.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued).
Interest expense on Consumer Finance debt decreased $13 million, or 10%, for
the three months ended March 31, 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 March 31, 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 $5.6 billion at
December 31, 1996 to $5.2 billion at March 31, 1997, primarily due to the $417
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 fixed maturity securities (see "Investments - Fair Value
of Securities (SFAS 115)" on page 18).
Rating Agencies. Following the disclosure of the merger with USLIFE, Standard
& Poor's (S&P), Duff & Phelps, Moody's, and other rating agencies announced
that the ratings of certain securities of American General and certain of its
-21-
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended March 31, 1997
subsidiaries and the claims-paying ability ratings of American General's
principal life insurance subsidiaries would be reviewed for possible downgrade
or other action. Subsequently, S&P indicated that it expects to reduce its
ratings of certain securities of American General and certain of its
subsidiaries by one notch, upon completion of the merger with USLIFE. In
addition, Duff & Phelps confirmed its ratings while reducing the rating of
American General's preferred securities from "A+" to "A". American General's
ratings remain under review by Moody's.
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.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued).
Parent Company Cash Flows
Three Months Ended
March 31,
(In millions) 1997 1996
Net cash (used for)/provided
by operating activities $ (51) $ 132
Dividends paid by Life Insurance and
Retirement Services segments - 78
Dividends paid by Consumer Finance segment - 27
Net cash provided by operating activities decreased in first quarter 1997
compared to first quarter 1996 since no dividends were paid to American
General because the company is currently re-evaluating the capital
requirements for its business segments. The business segments expect to
resume payment of dividends to American General later in 1997.
Segment Cash Flows
Three Months Ended
March 31,
(In millions) 1997 1996
-22-
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended March 31, 1997
Life Insurance and Retirement Services
Net cash provided by operating activities $ 510 $ 520
Net cash provided by fixed policyholder
account deposits, net of withdrawals 92 87
Variable account deposits, net of withdrawals 469 404
Consumer Finance
Net cash provided by operating activities 169 173
Net cash flows generated by the Life Insurance and Retirement Services
segments include cash provided by operating activities and cash provided by
fixed policyholder account deposits, net of withdrawals. Cash flows from
these sources in first quarter 1997 approximated the amounts in the same
period in 1996. Variable account deposits, net of withdrawals, related to
Separate Accounts that are not included in the consolidated condensed
statement of cash flows, increased $65 million in the first three months of
1997 compared to the same period of 1996 due to strong sales in the Retirement
Services segment.
The Consumer Finance segment's cash provided by operating activities for the
first three months of 1997 approximated the amount in the first three months
of 1996.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued).
Investing Activities. Cash flows related to investing activities were as
follows:
Calls, Maturities,
Purchases and Sales
Three Months Ended Three Months Ended
(In millions) March 31, March 31,
1997 1996 1997 1996
Fixed maturity securities $3,486 $1,958 $2,889 $1,370
Mortgage loans 92 61 120 95
Equity securities - 1 19 87
Other 45 20 40 37
Total $3,623 $2,040 $3,068 $1,589
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 March
31, 1997, committed credit facilities totaled $3.5 billion, which increased to
$3.8 billion at May 5, 1997. There were no outstanding borrowings under these
facilities.
-23-
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended March 31, 1997
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. Failure to dispose of assets held for sale for
carrying value could also adversely affect this segment's future results.
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 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.
Certain of American General's subsidiaries are defendants in lawsuits filed as
purported class actions asserting claims related to sales practices of certain
life insurance products. Because these cases are in the early stages of
litigation, it is premature to address their materiality. The claims are
being defended vigorously by the subsidiaries.
-24-
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended March 31, 1997
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.
(1) Current Report on Form 8-K dated February 12, 1997, with respect to
the issuance of a joint news release announcing the signing of a
definitive agreement under which USLIFE will merge into American
General in a transaction valued at $1.8 billion, or $49.00 per
share, subject to approval by USLIFE and American General
shareholders and requisite regulatory authorities.
(2) Current Report on Form 8-K dated February 21, 1997, with respect to
the filing of American General's Consolidated Financial Statements
and the related Management's Discussion and Analysis for the three
years ended December 31, 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)
-25-
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended March 31, 1997
Date: May 14, 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.
-26-
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended March 31, 1997
Exhibit 11
COMPUTATION OF EARNINGS PER SHARE
(Unaudited)
(In millions, except share data)
Three Months Ended
March 31,
1997 1996
Primary:
Net income available to common stock ....... $ 182 $ 169
Average shares outstanding
Common stock ............................. 201,414,263 205,083,849
Assumed conversion of convertible
preferred stock ........................ 1,915,349 652,481
Assumed exercise of stock options ........ 832,698 635,510
Total .................................. 204,162,310 206,371,840
Net income per share ....................... $ .89 $ .82
Fully Diluted:
Net income ................................. $ 182 $ 169
Plus: Net dividends on convertible
preferred securities of subsidiary ........ 3 3
Net income available to common stock ... $ 185 $ 172
Average shares outstanding
Common stock ............................. 201,414,263 205,083,849
Assumed conversion of convertible
preferred securities of subsidiary ...... 6,144,016 6,144,016
Assumed conversion of convertible
preferred stock ........................ 2,317,701 789,546
Assumed exercise of stock options ........ 832,698 635,510
Total .................................. 210,708,678 212,652,921
Net income per share ....................... $ .88 $ .81
<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)
Three Months Ended
March 31,
1997 1996
Consolidated operations:
Income before income tax expense and net dividends
on preferred securities of subsidiaries .......... $ 308 $ 276
Fixed charges deducted from income
Interest expense ................................. 153 158
Implicit interest in rents ....................... 4 4
Total fixed charges deducted from income ....... 157 162
Earnings available for fixed charges.......... $ 465 $ 438
Fixed charges per above ............................ $ 157 $ 162
Capitalized interest ............................... 3 3
Total fixed charges ............................ 160 165
Dividends on preferred stock and securities .... 28 15
Combined fixed charges and preferred
stock dividends ............................ $ 188 $ 180
Ratio of earnings to fixed charges ......... 2.90 2.65
Ratio of earnings to combined fixed charges
and preferred stock dividends ............ 2.47 2.44
Consolidated operations, corporate fixed charges
and preferred stock dividends only:
Income before income tax expense and net dividends
on preferred securities of subsidiaries ........ $ 308 $ 276
Corporate fixed charges deducted from income -
corporate interest expense ..................... 31 34
Earnings available for fixed charges ........... $ 339 $ 310
Total corporate fixed charges per above .......... $ 31 $ 34
Capitalized interest related to real estate
operations ..................................... 3 3
Total corporate fixed charges .................. 34 37
Dividends on preferred stock and securities .... 28 15
Combined corporate fixed charges and
preferred stock dividends .................. $ 62 $ 52
Ratio of earnings to corporate fixed charges 10.18 8.40
Ratio of earnings to combined corporate
fixed charges and preferred stock
dividends ................................ 5.51 6.01
American General Finance, Inc.:
Income before income tax expense ................... $ 62 $ 44
Fixed charges deducted from income
Interest expense ................................. 125 126
Implicit interest in rents ....................... 3 3
Total fixed charges deducted from income ....... 128 129
Earnings available for fixed charges ......... $ 190 $ 173
Ratio of earnings to fixed charges ......... 1.48 1.34
<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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<DEBT-HELD-FOR-SALE> 38,138<F1>
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 116
<MORTGAGE> 2,944
<REAL-ESTATE> 591
<TOTAL-INVEST> 44,145
<CASH> 164
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 3,338<F2>
<TOTAL-ASSETS> 66,667
<POLICY-LOSSES> 38,480<F3>
<UNEARNED-PREMIUMS> 197<F3>
<POLICY-OTHER> 184<F3>
<POLICY-HOLDER-FUNDS> 1,753<F3>
<NOTES-PAYABLE> 8,895
1,725<F4>
85<F5>
<COMMON> 395
<OTHER-SE> 4,718<F6>
<TOTAL-LIABILITY-AND-EQUITY> 66,667
487<F7>
<INVESTMENT-INCOME> 846
<INVESTMENT-GAINS> (7)
<OTHER-INCOME> 366<F8>
<BENEFITS> 785
<UNDERWRITING-AMORTIZATION> 82<F9>
<UNDERWRITING-OTHER> (101)<F10>
<INCOME-PRETAX> 308<F11>
<INCOME-TAX> 109<F12>
<INCOME-CONTINUING> 182
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 182
<EPS-PRIMARY> 0.89
<EPS-DILUTED> 0.88
<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 $26 MILLION OF DIVIDENDS ON PREFERRED SECURITIES OF SUBSIDIARIES,
SHOWN SEPARATELY, NET OF TAX, IN THE CONSOLIDATED INCOME STATEMENT.
<F12>EXCLUDES $9 MILLION TAX BENEFIT FOR TAX DEDUCTIBLE DIVIDENDS RELATED TO
PREFERRED SECURITIES OF SUBSIDIARIES.
</FN>
</TABLE>
