AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended September 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 September 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 October 31, 1997, there were 243,577,782 shares (excluding shares held
in treasury and by a subsidiary) of American General's Common Stock and
2,317,701 shares of American General's 7% Convertible Preferred Stock
outstanding.
<PAGE>
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended September 30, 1997
INDEX TO FORM 10-Q
Page
Part I. FINANCIAL INFORMATION.
Item 1. Financial Statements.
Consolidated Statement of Income for the nine
months and quarter ended September 30, 1997
and 1996 ......................................... 2
Consolidated Balance Sheet at September 30, 1997 and
December 31, 1996 ................................ 3
Consolidated Condensed Statement of Cash Flows for
the nine months ended September 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 .............. 13
Part II. OTHER INFORMATION.
Item 1. Legal Proceedings .................................. 30
Item 5. Other Information .................................. 31
Item 6. Exhibits and Reports on Form 8-K ................... 35
<PAGE>
-1-
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended September 30, 1997
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
AMERICAN GENERAL CORPORATION
Consolidated Statement of Income
(Unaudited)
(In millions, except share data)
Nine Months Ended Quarter Ended
September 30, September 30,
1997 1996 1997 1996
Revenues
Premiums and other considerations. $ 2,472 $ 2,424 $ 839 $ 820
Net investment income ............ 2,983 2,812 1,010 943
Finance charges .................. 950 1,093 315 359
Realized investment gains ........ 25 57 11 26
Equity in earnings of Western
National Corporation ............ 39 27 13 10
Other ............................ 134 111 47 39
Total revenues ............... 6,603 6,524 2,235 2,197
Benefits and expenses
Insurance and annuity benefits ... 3,127 3,090 1,051 1,028
Policyholder dividends ........... 70 71 23 24
Operating costs and expenses ..... 1,058 1,041 360 349
Commissions ...................... 648 635 224 215
Change in deferred policy
acquisition costs and cost of
insurance purchased ............. (71) (92) (20) (25)
Provision for finance receivable
losses .......................... 187 301 56 90
Merger-related costs ............. 272 - - -
Losses on assets held for sale ... 113 20 - 20
Litigation and other charges ..... 50 50 - -
Interest expense
Corporate ....................... 117 121 40 40
Consumer Finance ................ 343 369 117 122
Total benefits and expenses .. 5,914 5,606 1,851 1,863
Earnings
Income before income tax
expense ......................... 689 918 384 334
Income tax expense ............... 315 331 135 125
Income before net dividends on
preferred securities of
subsidiaries .................... 374 587 249 209
Net dividends on preferred
securities of subsidiaries ...... 62 29 23 10
Net income ................... $ 312 $ 558 $ 226 $ 199
-2-
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended September 30, 1997
Net income per share .............. $ 1.27 $ 2.24 $ .91 $ .80
Dividends paid per common share ... $ 1.05 $ .98 $ .35 $ .33
Average fully diluted shares
outstanding (in thousands) ...... 251,371 252,441 252,827 251,924
-3-
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended September 30, 1997
Item 1. Financial Statements (continued).
AMERICAN GENERAL CORPORATION
Consolidated Balance Sheet
(Unaudited)
(In millions, except share amounts)
September 30, December 31,
1997 1996
Assets
Investments
Fixed maturity securities (amortized cost:
$45,289; $42,867) ............................ $47,557 $44,355
Mortgage loans on real estate ................. 3,258 3,228
Equity securities (cost: $85; $111) ........... 110 137
Policy loans .................................. 2,142 2,011
Investment real estate ........................ 245 626
Other long-term investments ................... 169 210
Short-term investments ........................ 108 265
Total investments ......................... 53,589 50,832
Cash ........................................... 218 176
Finance receivables, net ....................... 7,146 7,230
Investment in Western National Corporation ..... 540 535
Deferred policy acquisition costs .............. 2,877 2,954
Cost of insurance purchased .................... 735 755
Acquisition-related goodwill ................... 673 605
Other assets ................................... 2,554 2,517
Assets held for sale ........................... - 667
Assets held in Separate Accounts ............... 11,084 7,863
Total assets .............................. $79,416 $74,134
Liabilities
Insurance and annuity liabilities .............. $47,592 $46,022
Debt (short-term)
Corporate ($553; $631) ........................ 2,025 2,102
Consumer finance ($2,677; $3,131) ............. 6,856 7,630
Income tax liabilities ......................... 1,180 1,078
Other liabilities .............................. 1,634 1,368
Liabilities related to Separate Accounts ....... 11,084 7,863
Total liabilities ......................... 70,371 66,063
Redeemable equity
Company-obligated mandatorily redeemable
preferred securities of subsidiaries
holding solely company subordinated notes
Non-convertible .............................. 1,480 982
Convertible .................................. 246 245
Total redeemable equity .................... 1,726 1,227
Shareholders' equity
Convertible preferred stock (shares issued
-4-
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended September 30, 1997
and outstanding: 2,317,701; 2,323,722) ........ 85 85
Common stock (shares issued: 259,135,053;
283,738,546; outstanding: 243,532,716;
241,170,903) .................................. 318 572
Net unrealized gains on securities ............. 953 627
Retained earnings .............................. 6,484 6,420
Cost of treasury stock ......................... (521) (860)
Total shareholders' equity ................ 7,319 6,844
Total liabilities and equity .............. $79,416 $74,134
-5-
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended September 30, 1997
Item 1. Financial Statements (continued).
AMERICAN GENERAL CORPORATION
Consolidated Condensed Statement of Cash Flows
(Unaudited)
(In millions)
Nine Months Ended
September 30,
1997 1996
Operating activities
Net cash provided by operating activities ... $ 1,167 $ 1,669
Investing activities
Investment purchases .............................. (9,323) (7,430)
Investment dispositions and repayments ............ 8,447 6,609
Finance receivable originations and purchases ..... (3,481) (3,860)
Finance receivable principal payments received .... 3,200 3,730
Sale of finance receivables ....................... 733 -
Sale of land development operations ............... 287 -
Net decrease (increase) in short-term
investments ...................................... 213 (136)
Acquisition of Home Beneficial Life ............... (283) -
Acquisition of Independent Life ................... - (106)
Investment in Western National Corporation ........ - (126)
Other, net ........................................ (68) (155)
Net cash used for investing activities ...... (275) (1,474)
Financing activities
Retirement Services and Life Insurance
Policyholder account deposits ................... 2,309 2,238
Policyholder account withdrawals ................ (2,317) (2,113)
Total Retirement Services and Life Insurance . (8) 125
Consumer Finance
Net (decrease) increase in short-term debt ...... (454) 211
Long-term debt issuances ........................ 485 73
Long-term debt redemptions ...................... (808) (426)
Total Consumer Finance ....................... (777) (142)
Corporate
Net (decrease) increase in short-term debt ...... (79) 310
Long-term debt redemptions ...................... - (50)
Issuance of preferred securities of subsidiaries. 498 -
Dividends on common and preferred stock ......... (248) (227)
Common stock repurchases ........................ (365) (161)
Other, net ...................................... 129 (50)
Total Corporate .............................. (65) (178)
Net cash used for financing activities ...... (850) (195)
Net increase in cash ............................... 42 -
Cash at beginning of period ........................ 176 227
Cash at end of period .............................. $ 218 $ 227
-6-
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended September 30, 1997
Supplemental disclosure of cash flow information:
Cash paid during the period for
Income taxes .................................... $ 292 $ 225
Interest
Corporate ..................................... 110 125
Consumer Finance .............................. 378 369
Dividends on preferred securities of
subsidiaries ................................... 93 43
-7-
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended September 30, 1997
Item 1. Financial Statements (continued).
AMERICAN GENERAL CORPORATION
Notes to Consolidated Financial Statements
September 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 that are necessary
for a fair presentation of the company's consolidated financial position
at September 30, 1997, the consolidated results of operations for the
three months and nine months ended September 30, 1997 and 1996, and the
consolidated cash flows for the nine months ended September 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. The purchase price was allocated to specific assets and
liabilities based on management's best estimate of their respective fair
values at that date. 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.
-8-
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended September 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 nine months ended September 30, 1997 were
as follows:
(In millions)
Fair value of assets acquired $1,441
Fair values of liabilities assumed (776)
Issuance of common treasury shares (382)
Net cash paid for acquisition of Home Beneficial Life $ 283
USLIFE. On June 17, 1997, American General completed the merger of
USLIFE in an all-stock transaction. American General issued 39.0 million
shares of common stock (with a market value of approximately $1.8
billion), 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 for a period prior to closing.
The acquisition was accounted for using the pooling of interests method
of accounting and, accordingly, American General's consolidated financial
statements and notes 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 Ended
(In millions) June 30, 1997
Revenues
American General $3,471
USLIFE 897
Total $4,368
Net income (loss)
American General $ 205 (a)
USLIFE (119) (b)
Total $ 86
(a) Includes aftertax merger-related costs of $81 million, losses on
assets held for sale of $73 million, and litigation charge of $33
million.
(b) Includes aftertax merger-related costs of $166 million.
-9-
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended September 30, 1997
Item 1. Financial Statements (continued).
Western National Corporation. On September 12, 1997, American General
announced a definitive agreement to acquire the remaining 54% equity
ownership of Western National Corporation (Western National) that the
company does not currently own. The purchase price will be $1.2 billion,
or $29.75 per share, in cash or American General common stock. The
aggregate cash consideration and the aggregate stock consideration will
each be limited to 50% of the total consideration.
The exchange ratio for American General common stock will be determined
by dividing $29.75 by an average trading price of American General common
stock prior to closing, subject to a 6% collar above and below $50.00 per
share for American General common stock. Outside of the collars, the
value of the transaction would vary, subject to a maximum value of $31.71
per Western National share at American General share prices of $60.00 and
above, and a minimum value of $27.53 per Western National share at
American General share prices of $40.00 and below. The acquisition
agreement may be terminated if the average American General share price
is below $40.00 and American General elects not to increase the aggregate
consideration to maintain a minimum value of $27.53 per Western National
share.
The transaction, which is subject to approval by Western National's
shareholders and requisite regulatory authorities, is expected to close
in early 1998. Upon completion of the transaction, Western National will
be reported as part of American General's Retirement Services segment,
using the purchase method of accounting.
Investment in Grupo Nacional Provincial Pensiones. On October 2, 1997,
the company announced a definitive agreement to acquire a 40% interest in
Grupo Nacional Provincial Pensiones S.A. de C.V., a new holding company
formed by Grupo Nacional Provincial, S.A. (GNP), a Mexican financial
services company. GNP will own the remaining 60% of the holding company,
which will own a 51% interest in Profuturo GNP, a company which provides
enrollment, administration, and investment services for employees covered
by the Mexican social security system. The holding company also owns a
100% interest in Porvenir GNP, a company which provides single premium
immediate annuities to participants covered under the Mexican social
security system. The transaction, which is subject to approval by
requisite regulatory authorities, is expected to close during fourth
quarter 1997.
-10-
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended September 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.
The restructuring costs recorded in second quarter 1997 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 include
centralized support units focused on product development, insurance
administration, and customer service, 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, which began in third quarter 1997. The positions being
eliminated relate to USLIFE's corporate operations and to administrative
service functions that are being 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 proceeding as planned toward an expected completion date in
mid-1998. During third quarter 1997, the Independent Producer division
combined the operations of two broker-dealer companies and initiated
processes to consolidate its various data center operations and the
sharing of common insurance products.
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.
-11-
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended September 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.
On August 15, 1997, American General completed the sale of its land
development operations to Westbrook American Holding, L.P. On September
29, 1997, the company announced a definitive agreement to sell its
Canadian life insurance subsidiary to a subsidiary of Aetna, Inc. The
transaction, which is subject to requisite regulatory approvals, is
expected to close by year-end 1997.
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.
-12-
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended September 30, 1997
Item 1. Financial Statements (continued).
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 purchased replacement shares in the open market. On October 7, 1997,
the transaction was completed at a final price of $48.86 per share, and
American General made a cash payment of $82 million to the investment
bank to settle the transaction. This payment included changes in the
market price of American General common stock prior to settlement ($12.36
per share) and a reimbursement for dividends paid on the borrowed shares.
The settlement cost, which is not reflected in the consolidated balance
sheet as of September 30, 1997, will increase the cost of treasury stock
in fourth quarter 1997. This transaction, combined with 3.0 million
shares repurchased since the announcement of the definitive agreement to
acquire Home Beneficial Life, had the effect of repurchasing
substantially all of the shares issued in the Home Beneficial Life
acquisition.
7. Derivative Financial Instruments. During the nine months ended September
30, 1997, the company purchased options to enter into interest rate swap
agreements (call swaptions) with a total notional amount of $1.5 billion,
to limit its exposure to declining interest rates over prolonged periods.
During such periods, the investment spread (the difference between the
investment yield and the interest crediting rate) may be reduced as a
result of certain limitations on the company's ability to manage interest
crediting rates. The call swaptions allow the company to enter into
interest rate swap agreements to receive fixed rates and pay lower
floating rates, effectively increasing the investment spread. Since the
call swaptions hedge insurance and annuity liabilities, the fair values
of the call swaptions are not recognized in the consolidated balance
sheet. The associated fair values, as well as the premiums paid to
purchase the call swaptions, were immaterial as of September 30, 1997.
No call swaptions were exercised as of September 30, 1997.
During the nine months ended September 30, 1997, the company entered into
interest rate swap agreements with a total notional amount of $310
million to convert specific investment securities or debt from a floating
rate to a fixed rate basis, and currency swap agreements with a notional
amount of $40 million to convert cash flows from specific investments
denominated in Canadian dollars to U.S. dollars.
Derivative financial instruments related to investment securities and
debt did not have a material effect on net investment income, the
weighted average borrowing rate, or reported interest expense during the
nine months ended September 30, 1997 or 1996.
-13-
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended September 30, 1997
Item 1. Financial Statements (continued).
8. 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.
9. 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 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.
-14-
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended September 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. The government recently determined that it does
not plan any further appeal. American General has requested that the IRS
refund all related assessments plus associated interest.
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.
-15-
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended September 30, 1997
Item 1. Financial Statements (continued).
10. 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 that 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 9.
In addition, certain 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.
The reader is presumed to have read or have access to the company's Current
Report on Form 8-K dated October 10, 1997 which includes the company's
consolidated balance sheets as of December 31, 1996 and 1995, and the related
consolidated statements of income, shareholders' equity, common stock
activity, and cash flows, and Management's Discussion and Analysis, for the
three years ended December 31, 1996, restated to reflect the acquisition of
USLIFE under the pooling of interests method of accounting.
This analysis should be read in conjunction with the consolidated financial
statements and related notes on pages 2 through 13 of this Quarterly Report on
Form 10-Q.
-16-
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended September 30, 1997
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued).
CONSOLIDATED RESULTS OF OPERATIONS
Nine Months Ended Quarter Ended
(In millions, September 30, September 30,
except share data) 1997 1996 1997 1996
Net income $ 312 $ 558 $ 226 $ 199
Net income per share 1.27 2.24 .91 .80
Net income for the nine months ended September 30, 1997 reflected aftertax
non-recurring charges totaling $353 million ($1.41 per share) recorded in
second quarter 1997. 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 periods included aftertax non-recurring charges
of $18 million ($.07 per share) in third quarter 1996 for the anticipated loss
on certain assets held for sale, and $32 million ($.13 per share) in second
quarter 1996 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 $57
million, or 9%, and $9 million, or 4%, for the first nine months and third
quarter, respectively, of 1997 compared to the same periods in 1996. These
increases were primarily due to improved business segment earnings and higher
earnings on corporate assets, primarily on assets of the life and annuity
subsidiaries in excess of those needed to support the business, partially
offset by a decrease in net realized investment gains.
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 September 30, 1997
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued).
Segment earnings were as follows:
Nine Months Ended Quarter Ended
September 30, September 30,
(In millions) 1997 1996 1997 1996
Retirement Services $186 $175 $ 59 $ 57
Life Insurance 424 (a) 399 (b) 146 139
Consumer Finance 120 (c) 102 41 43
Segment earnings $730 $676 $246 $239
(a) Excludes aftertax charges of $46 million for restructuring costs.
(b) Excludes $32 million for write-down of USLIFE group business.
(c) Excludes aftertax losses on assets held for sale of $27 million.
A discussion of each segment's results follows. The reasons for any
significant variations between the quarters ended September 30, 1997 and 1996
are the same as those discussed below for the respective nine 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 investment spread on fixed accounts, variable account
fees, and operating expenses, contribute to the segment's profitability.
Segment results were as follows:
Nine Months Ended Quarter Ended
September 30, September 30,
(In millions) 1997 1996 1997 1996
Segment earnings $ 186 $ 175 $ 59 $ 57
Assets
Investments 23,224 21,574 23,224 21,574
Separate Accounts 10,194 6,387 10,194 6,387
Sales 1,217 965 422 389
Deposits
Fixed 1,180 1,181 336 370
Variable 1,292 917 430 324
-18-
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended September 30, 1997
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued).
Segment earnings increased 7% for the nine months ended September 30, 1997
compared to the same period of 1996, primarily due to asset growth over the
past twelve months. Asset growth, excluding the fair value adjustment to
securities, was $5.1 billion, or 18%, from September 30, 1996 to September 30,
1997, reflecting strong sales, an increase in total deposits, and market
appreciation in Separate Accounts.
Sales for the nine months ended September 30, 1997 increased $252 million, or
26%, compared to the same period in 1996, primarily due to increased sales of
the segment's new Portfolio Director annuity product introduced in mid-1996.
Variable deposits increased 41% for the nine months ended September 30, 1997,
compared to the same period in 1996, as a result of policyholders' continued
demand for equity investments due to the strong performance of the stock
market. Sales and deposits in third quarter 1997 compared to third quarter
1996 increased at lower percentages than on a year-to-date basis due to strong
sales in 1996, immediately following the introduction of Portfolio Director 2.
Separate Account assets, which relate to variable account options, increased
$3.8 billion from September 30, 1996 to September 30, 1997, reflecting both
the increased sales and the strong market appreciation.
Investment results and crediting rates on fixed accounts were as follows:
Nine Months Ended Quarter Ended
September 30, September 30,
($ in millions) 1997 1996 1997 1996
Net investment income $1,274 $1,235 $ 429 $ 413
Investment yield 7.92% 8.06% 7.90% 8.02%
Average crediting rate 6.14 6.24 6.11 6.24
Investment spread on
fixed accounts 1.78 1.82 1.79 1.78
Net investment income, the primary component of revenues, increased 3% for the
first nine months of 1997 compared to the same period of 1996, reflecting a 5%
growth in invested assets supporting fixed account liabilities, partially
offset by a decrease in investment yield due to the declining interest rate
environment. Investment yield for the nine months ended September 30, 1997
decreased 14 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 for the first nine months of 1997 declined only 4 basis points in
comparison to the first nine months of 1996 and increased 1 basis point for
third quarter 1997 compared to third quarter 1996.
Variable account fees, included in premiums and other considerations,
increased $28 million, or 54%, for the first nine months of 1997 compared to
the same period in 1996 due to strong sales growth and market appreciation in
Separate Accounts.
-19-
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended September 30, 1997
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued).
The rate of policyholder surrenders as a percentage of average fixed deferred
annuity and Separate Account reserves was 5.08% for the first nine months of
1997 compared to 4.97% for the same period in 1996. The surrender ratio for
third quarter 1997 was 5.23% compared to 4.67% for third quarter 1996, due to
lower interest crediting rates on fixed accounts, early retirement packages
offered by certain large public school groups, and higher systematic
withdrawals, which allow participants to receive automatic payments over a
five or ten year period.
The ratio of operating expenses to average assets improved to .48% for the
first nine months 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 technology expenses.
Life Insurance
The Life Insurance segment provides traditional and interest-sensitive life
insurance and annuities to customers based on household income and product
needs. Following completion of the USLIFE merger, the company realigned this
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 strengthen the company's
distribution system while achieving operating efficiencies, improved product
development, and enhanced customer service.
Segment profitability is a function of premiums, investment spread, mortality,
and operating expenses. Segment results were as follows:
Nine Months Ended Quarter Ended
September 30, September 30,
(In millions) 1997 1996 1997 1996
Segment earnings $ 424 (a) $ 399 (b) $ 146 $ 139
Premiums and other
considerations 2,254 2,217 764 750
Assets 34,656 32,314 34,656 32,314
Net investment income 1,561 1,508 527 508
(a) Excludes aftertax charges of $46 million for restructuring costs.
(b) Excludes $32 million for write-down of USLIFE group business.
Segment earnings for the nine months ended September 30, 1997 increased 6%
compared to the same period of 1996, primarily due to additional earnings
generated by the acquisition of Home Beneficial Life (acquired April 16, 1997)
and Independent Life (acquired February 29, 1996). The earnings from
acquisitions were partially offset by higher amortization and reduced deferral
of deferred policy acquisition costs.
-20-
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended September 30, 1997
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued).
Asset growth, excluding the fair value adjustment to securities, was $1.7
billion, or 5%, from September 30, 1996 to September 30, 1997 primarily due to
the acquisition of Home Beneficial Life, increased sales, and additional
deposits.
Net investment income increased $53 million, or 3%, for the nine months of
1997 compared to the same period in 1996, primarily due to growth in average
assets, which included the Home Beneficial Life acquisition. Year-to-date and
quarter-to-date average investment yields decreased 7 and 11 basis points,
respectively, primarily due to lower interest rates on new investment
purchases.
Information regarding sales and deposits was as follows:
Nine Months Ended Quarter Ended
September 30, September 30,
(In millions) 1997 1996 1997 1996
Life Insurance
Sales $ 390 $ 354 $ 133 $ 114
Deposits 859 792 294 261
Annuities
Sales 308 292 114 90
Deposits 372 348 121 106
Life insurance sales and deposits for the nine months of 1997 exceeded
comparable 1996 amounts by 10% and 8%, respectively, due to a number of new
marketing initiatives, including the introduction of a corporate executive
benefits product in second quarter 1997, and the acquisition of Home
Beneficial Life. Annuity sales and deposits for the nine months ended
September 30, 1997 exceeded comparable 1996 amounts by 6% and 7%,
respectively, (and for the quarter ended September 30, 1997 exceeded
comparable 1996 amounts by 27% and 15%, respectively) primarily due to
increased structured settlement sales, partially offset by lower fixed annuity
sales in the first half of 1997 due to competitive market conditions.
Death claims, included in insurance and annuity benefits, increased 5% 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 $3.35 for the nine
months of 1997 compared to $3.29 for the same period in 1996. Overall,
mortality experience was within product pricing assumptions.
-21-
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended September 30, 1997
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued).
The ratio of operating expenses to direct premiums and deposits increased to
17.05% for the first nine months of 1997, compared to 16.60% for the same
period in 1996. The increase was primarily due to Home Beneficial Life's and
Independent Life's expense ratios, which exceeded those of the company's other
life insurance subsidiaries. Anticipated expense savings from consolidation
of these acquired companies' operations are proceeding as expected; however,
the expense savings have not been fully realized to date. In addition, the
segment experienced higher technology and marketing expenses. The expense
ratio for third quarter 1997 declined slightly to 17.20% compared to 17.26% in
the same period of 1996, due to expense reductions at Independent Life and
higher life insurance deposits in third quarter 1997.
Consumer Finance
The Consumer Finance segment provides consumer and home equity loans and other
credit-related products. Segment results are influenced by the amount and mix
of finance receivables, credit quality, borrowing cost, and operating
expenses. Segment results were as follows:
Nine Months Ended Quarter Ended
September 30, September 30,
($ in millions) 1997 1996 1997 1996
Segment earnings $ 120 * $ 102 $ 41 $ 43
Finance receivables 7,526 8,208 7,526 8,208
Yield on finance receivables 16.96% 18.02% 16.83% 17.80%
Borrowing cost 6.80 6.90 6.90 6.87
Spread 10.16 11.12 9.93 10.93
* Excludes aftertax losses on assets held for sale of $27 million.
Segment earnings for the nine months ended September 30, 1997 increased $18
million, or 17%, compared to the same period of 1996, primarily due to an
improvement in credit quality during 1997. For third quarter 1997, segment
earnings were down $2 million, or 6%, compared to third quarter 1996,
primarily due to a larger reduction in the allowance for finance receivable
losses in third quarter 1996, partially offset by an improvement in credit
quality in third quarter 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.
-22-
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended September 30, 1997
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued).
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. The proportion of real estate-secured
receivables increased to 51% at September 30, 1997, compared to 42% at
September 30, 1996, primarily due to purchases of real estate loan portfolios
during the last three months of 1996 totaling $277 million and real estate
loan growth during 1997.
Total finance receivables decreased $99 million from December 31, 1996 to
September 30, 1997 and $682 million during the twelve months ended September
30, 1997. All lines of receivables, except for real estate-secured consumer
loans, decreased compared to December 31, 1996 and September 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 $143 million, or 13%, for the first nine
months of 1997 and $44 million, or 12%, for the third quarter of 1997,
compared to the same periods in 1996, due to lower average finance
receivables, combined with a decline in the yield on finance receivables.
The yield on finance receivables declined 106 basis points for the first nine
months of 1997 and 97 basis points for the third quarter of 1997, compared to
the same periods in 1996. The yield decline resulted from the change in the
portfolio mix to a higher proportion of real estate-secured loans, which
generally have lower yields, partially offset by the decreased proportion of
non-accrual delinquent finance receivables during 1997. The spread between
yield and borrowing cost decreased 96 basis points and 100 basis points for
the first nine months of 1997 and the third quarter of 1997, respectively,
compared to the same periods of 1996. These declines resulted from a decrease
in yield, partially offset by lower borrowing cost on a year-to-date basis and
increased by higher borrowing cost in third quarter 1997.
-23-
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended September 30, 1997
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued).
Charge offs, delinquencies, and the allowance for finance receivable losses
were as follows:
Nine Months Ended Quarter Ended
September 30, September 30,
($ in millions) 1997 1996 1997 1996
Charge offs $ 202 $ 328 $ 61 $ 107
% of average finance
receivables 3.59% 5.40% 3.27% 5.37%
September 30,
1997 1996
Delinquencies $ 312 $ 380
% of finance receivables 3.83% 4.28%
Allowance for finance
receivable losses $ 380 $ 465
% of finance receivables 5.05% 5.67%
The charge off, delinquency, and allowance ratios decreased for the nine
months ended September 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 4.59% and 3.93%,
respectively, for the nine months ended September 30, 1996.
The delinquency ratio at September 30, 1997 was unchanged from 3.83% at
December 31, 1996. Excluding the receivable portfolios reclassified to assets
held for sale, the charge off ratio has decreased as follows:
Quarter Ended Quarter Ended Quarter Ended Quarter Ended
December 31, 1996 March 31, 1997 June 30, 1997 September 30, 1997
5.03% 3.83% 3.68% 3.27%
These decreases resulted from the positive impact of management's action
program to improve credit quality. The allowance ratio decreased 13 basis
points from 5.18% at December 31, 1996 to 5.05% at September 30, 1997 due to a
$15 million decrease in the allowance for finance receivable losses in 1997
resulting from improved credit quality of the receivables portfolio, partially
offset by a decrease in average finance receivables.
-24-
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended September 30, 1997
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued).
Operating expenses decreased $35 million, or 9%, for the nine months ended
September 30, 1997, compared to the same period in 1996. As a percentage of
average finance receivables, operating expenses were 6.08% and 6.17% for the
nine months ended September 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.
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 fixed maturity and equity securities at fair value at September 30,
1997 and December 31, 1996, and the change, were as follows:
September 30, December 31,
(In millions) 1997 1996 Change
Fair value adjustment to
fixed maturity securities $ 2,268 $ 1,488 $ 780
Adjusted by:
Decrease in DPAC/CIP (837) (598) (239)
Increase in deferred income taxes (523) (339) (184)
Equity in WNC's unrealized gains 29 59 (30)
Net unrealized gains on
fixed maturity securities 937 610 327
Net unrealized gains on equity
securities 16 17 (1)
Net unrealized gains on
securities $ 953 $ 627 $ 326
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.
-25-
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended September 30, 1997
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued).
Fixed Maturity Securities. Fixed maturity securities represented 89% of
invested assets at September 30, 1997. Information regarding the fixed
maturity securities portfolio, which included bonds and redeemable preferred
stocks, at September 30, 1997 was as follows:
September 30, Average Credit
(In millions) 1997 % Rating
Investment grade $36,174 76% A
Mortgage-backed 9,392 20 AAA
Below investment grade 1,991 4 BB-
Total fixed maturities $47,557 100% A+
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
September 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
$2.0 billion at September 30, 1997 and $1.7 billion at December 31, 1996.
These investments represented 4% of total fixed maturity securities at both
balance sheet dates. Investment income from below investment grade fixed
maturity securities was $126 million and $121 million for the first nine
months of 1997 and 1996, respectively. Realized investment gains (losses)
were immaterial.
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 .03% and .01% of total fixed maturity
securities at September 30, 1997 and December 31, 1996, respectively.
Mortgage Loans. Mortgage loans on real estate represented 6% of invested
assets at September 30, 1997. Information regarding the mortgage loan
portfolio at September 30, 1997 was as follows:
September 30, Non-Performing Loans
(In millions) 1997 Amount %
Commercial loans $ 3,319 $ 189 5.7%
Allowance for losses (61) (24)
Total mortgage loans $ 3,258 $ 165
-26-
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended September 30, 1997
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued).
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 5.7% of total commercial
loans at September 30, 1997, compared to 5.1% at December 31, 1996.
At September 30, 1997, $168 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
undercollateralized. This amount compares to $286 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.
Realized Investment Gains (Losses). Realized investment gains (losses) were as
follows:
Nine Months Ended
September 30,
(In millions) 1997 1996
Sales
Fixed maturity securities $ (11) $ (7)
Equity securities 4 50
Real estate and other long-term investments 25 7
Write-downs/reserve changes 12 7
Other (5) -
Total realized investment gains (losses) $ 25 $ 57
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 resulted from the reversal of allowances on investment
real estate.
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 closed 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.
-27-
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended September 30, 1997
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued).
CAPITAL RESOURCES
Corporate Debt. Corporate debt is incurred primarily to fund acquisitions,
share repurchases, and capital needs of subsidiaries. Corporate debt decreased
$77 million from December 31, 1996 to September 30, 1997, primarily due to the
net proceeds from the March 1997 issuance of 8-1/8% preferred securities and
dividends paid by subsidiaries, partially offset by an increase in borrowings
to fund repurchases of American General's common stock and the Home Beneficial
Life acquisition.
Interest expense on corporate debt decreased $4 million, or 3%, for the nine
months ended September 30, 1997 compared to the same period in 1996. The
decrease relates to lower average short-term borrowings resulting from the use
of the proceeds of preferred securities issued in December 1996 and March 1997
to reduce short-term debt.
The ratio of corporate debt to corporate capital (excluding the fair value
adjustment to securities) was 20.0% at September 30, 1997, compared to 22.0%
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 $774 million from December 31, 1996 to September 30, 1997,
primarily due to the sale of the underperforming credit card and private label
finance receivable portfolios.
Interest expense on Consumer Finance debt decreased $26 million, or 7%, for
the nine months ended September 30, 1997, compared to the same period in 1996,
primarily due to the lower level of debt and the reclassification to assets
held for sale of interest expense on non-strategic assets sold in June 1997.
Redeemable Equity. Redeemable equity increased $499 million from December 31,
1996 to September 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
corporate debt.
Shareholders' Equity. Shareholders' equity increased from $6.8 billion at
December 31, 1996 to $7.3 billion at September 30, 1997, primarily due to the
$326 million increase 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).
-28-
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended September 30, 1997
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued).
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 removed from review by the rating agencies.
In conjunction with the company's September 12, 1997 announcement of a
definitive agreement to acquire the remaining 54% equity ownership of Western
National, S&P, D&P, and Moody's affirmed all of American General's ratings.
As of November 10, 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++
Year 2000 Contingency. Management has been engaged in a company-wide program
to render its computer systems (hardware and mainframe and personal
applications software) year 2000 compliant. The company will continue to
incur internal staff costs as well as third-party vendor and other expenses to
prepare the systems for year 2000. The cost of testing and conversion of
systems applications has not had, and is not expected to have, a material
adverse effect on the company's consolidated results of operations or
financial condition. However, risks and uncertainties exist in most
significant systems development projects. If conversion of the company's
systems is not completed on a timely basis, due to nonperformance by third-
party vendors or other unforeseen circumstances, the year 2000 problem could
have a material adverse impact on the operations of the company.
-29-
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended September 30, 1997
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued).
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.
Parent Company Cash Flows
Nine Months Ended
September 30,
(In millions) 1997 1996
Net cash provided by operating activities $ 238 $ 404
Dividends paid by Life Insurance and
Retirement Services segments 328 301
Dividends paid by Consumer Finance segment 127 139
Net cash provided by operating activities decreased in the first nine months
of 1997 compared to the same period in 1996 primarily due to an increase in
federal income taxes paid and payment of a litigation settlement and a portion
of the USLIFE merger-related transaction costs. During the first nine months
of 1997, the Life Insurance and Retirement Services segments paid $471 million
of cash dividends to subsidiaries of American General, of which $328 million
was dividended to the parent company.
-30-
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended September 30, 1997
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued).
Segment Cash Flows
Nine Months Ended
September 30,
(In millions) 1997 1996
Life Insurance and Retirement Services
Net cash provided by operating activities $1,476 $1,457
Net cash provided by (used for) policyholder
account deposits, net of withdrawals
Fixed (8) 125
Variable 1,423 1,337
Consumer Finance
Net cash provided by operating activities 374 477
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 operating activities
were relatively flat in the first nine months of 1997 compared to 1996. Cash
provided by fixed account deposits decreased by $133 million, primarily due to
a $204 million increase in fixed account withdrawals in the first nine months
of 1997. The increases in both fixed withdrawals and net variable deposits,
which include transfers from fixed accounts, were the result of policyholders
seeking higher returns in equity-based investments, including the company's
Separate Accounts. Because the investment risk on variable accounts lies with
the policyholder, deposits and withdrawals related to Separate Accounts are
not included in the company's consolidated condensed statement of cash flows.
The Consumer Finance segment's cash provided by operating activities decreased
$103 million in the first nine months of 1997 compared to the first nine
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 $502 million in the nine months ended
September 30, 1997 compared to the same period in 1996 primarily due to
payment of USLIFE merger-related costs and a litigation settlement, increased
federal income taxes paid, and decreased finance charge revenues in the
Consumer Finance segment.
-31-
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended September 30, 1997
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:
Dispositions and
Purchases Repayments
Nine Months Ended Nine Months Ended
(In millions) September 30, September 30,
1997 1996 1997 1996
Fixed maturity securities $9,047 $7,019 $7,563 $5,980
Mortgage loans 220 323 595 352
Equity securities 2 1 70 161
Other 54 87 506 116
Total $9,323 $7,430 $8,734 $6,609
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
September 30, 1997, committed credit facilities totaled $3.6 billion, and
there were no borrowings under these facilities.
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; the company's ability to
render its computer systems year 2000 compliant; 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.
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 September 30, 1997
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
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. The government
recently determined that it does not plan any further appeal. American
General has requested that the IRS refund all related assessments plus
associated interest.
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 Current Report on Form 8-K filed on October 10, 1997, 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
-33-
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended September 30, 1997
Item 1. Legal Proceedings (continued).
large damage awards, including large punitive damage awards, that bear little
or no relation to actual economic damages incurred by plaintiffs in
jurisdictions like Alabama continues to increase and creates the potential for
an unpredictable judgment in any given suit.
Item 5. Other Information.
Executive Officers
Information regarding the 13 executive officers of the company is as follows:
Present Principal Position with
the Company and Other Material
Name and Age Positions Held during Last Five Years
Robert M. Devlin Chairman (since 1997) and Chief Executive
(57) Officer (since 1996), Director (since 1993),
President (1995-97), and Vice Chairman (1993-
95), American General Corporation; President
and Chief Executive Officer (1986-93),
American General Life Insurance Company,
Houston, Texas, a subsidiary of American
General Corporation. Director, Cooper
Industries, Inc.
James S. D'Agostino Jr. President (since 1997) and Director (since
(51) 1996), American General Corporation; Chairman
(1995-97), Chief Executive Officer (1993-97),
and President (1993-95), American General Life
and Accident Insurance company, Nashville,
Tennessee, a subsidiary of American General
Corporation; with American General Corporation
during the remainder of last five years in
various other capacities including Executive
Vice President - Administration (1993).
Jon P. Newton Vice Chairman and Director (since 1995),
(56) Vice Chairman and General Counsel (1995-97),
and Senior Vice President and General Counsel
(1993-95), American General Corporation.
Partner (1985-93), Clark, Thomas, Winters &
Newton, Austin, Texas.
Mark S. Berg Senior Vice President and General Counsel
(39) (since 1997), American General Corporation.
Partner (1991-97), Vinson & Elkins L.L.P.,
Houston, Texas.
-34-
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended September 30, 1997
Item 5. Other Information (continued).
Present Principal Position with
the Company and Other Material
Name and Age Positions Held during Last Five Years
Frederick W. Geissinger President and Chief Executive Officer (since
(52) 1995), American General Finance, Inc.,
Evansville, Indiana, a subsidiary of American
General Corporation; President and Chief
Executive Officer (1994-95), American General
Land Development, Inc., Houston, Texas, a
subsidiary of American General Corporation.
Independent Consultant (1992-94), New York,
New York.
Albert E. Haines Senior Vice President - Administration (since
(53) 1996), American General Corporation.
President (1992-96), Chamber of Commerce, The
Greater Houston Partnership, Houston, Texas.
Joe Kelley President (since 1995) and Chief Executive
(50) Officer (since 1997), American General Life
and Accident Insurance Company, Nashville,
Tennessee, a subsidiary of American General
Corporation; Senior Vice President and Chief
Marketing Officer (1994-95), American General
Life Insurance Company, Houston, Texas, a
subsidiary of American General Corporation.
Senior Vice President (1992-94), Prudential
Preferred Financial Services, Houston, Texas.
Rodney O. Martin Jr. President (since 1997), American General (45)
Independent Producer Division, Houston, Texas,
a subsidiary of American General Corporation;
President and Chief Executive Officer (since
1996), American General Life Insurance
Company, Houston, Texas, a subsidiary of
American General Corporation; President and
Chief Executive Officer (1995-96), American
General Life Insurance Company of New York,
Syracuse, New York, a subsidiary of American
General Corporation. President (1993-95),
Connecticut Mutual Insurance Services,
Hartford,Connecticut. Senior Vice President -
Corporate Distribution (1992-93), Connecticut
Mutual Life Insurance Company, Hartford,
Connecticut.
-35-
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended September 30, 1997
Item 5. Other Information (continued).
Present Principal Position with
the Company and Other Material
Name and Age Positions Held during Last Five Years
Ellen H. Masterson Senior Vice President and Chief Financial
(46) Officer (since 1997), American General
Corporation. Partner (1985-97), Coopers &
Lybrand L.L.P., Dallas, Texas.
Nicholas R. Rasmussen Senior Vice President (since 1983) and Senior
(51) Vice President - Corporate Development (since
1993), and Senior Vice President - Group
Executive (1990-93), American General
Corporation.
Carl J. Santillo Senior Vice President (since 1997), and Senior
(48) Vice President - Finance (1996-97), American
General Corporation. Senior Vice President -
Life & Health Operations (1993-96), Nationwide
Life Insurance Company, Columbus, Ohio.
President (1993-96), Employers Life of Wausau,
Wausau, Wisconsin. Executive Vice President -
Operations (1987-93), Wausau Insurance
Companies, Wausau, Wisconsin.
Peter V. Tuters Senior Vice President (since 1992) and Chief
(45) Investment Officer (since 1993), American
General Corporation.
Thomas L. West Jr. President (since 1994) and Chief Executive
(60) Officer (since 1997), The Variable Annuity
Life Insurance Company, Houston, Texas, a
subsidiary of American General Corporation.
Senior Vice President, Annuity Operations
(1991-94), Aetna Life & Casualty Company,
Hartford, Connecticut.
-36-
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended September 30, 1997
Item 5. Other Information (continued).
Election of New Director
On September 23, 1997, the company announced the election of Michael E. Murphy
to the company's board of directors. His biographical information is as
follows:
Michael E. Murphy Director (since 1997), American General (60)
Corporation. Vice Chairman (since 1993) and
Director (since 1979), Executive Vice
President and Chief Financial and
Administrative Officer (1979-93), Sara Lee
Corporation, Chicago, Illinois. Director,
Bassett Furniture Industries, Incorporated;
GATX Corporation; Payless ShoeSource, Inc.,
and True North Communications Inc.
-37-
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended September 30, 1997
Item 6. Exhibits and Reports on Form 8-K.
a. Exhibits.
* Exhibit 3 Amended and Restated Bylaws of American General
Corporation (As of October 23, 1997).
Exhibit 10 Form of Severance Agreement between American General
Corporation and Ellen H. Masterson (incorporated by
reference to Exhibit 10.10 to American General's Annual
Report on Form 10-K for 1993).
* 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.
* Filed herewith
b. Reports on Form 8-K.
(1) Current Report on Form 8-K dated August 15, 1997, with respect to
the filing of American General's consolidated financial information
for the seven months and one month ended July 31, 1997.
(2) Current Report on Form 8-K dated September 11, 1997, with respect to
the issuance of a joint news release announcing a definitive
agreement under which American General will acquire the remaining
53.8% of the common equivalent shares of Western National for a
total consideration consisting of cash and American General common
stock valued at approximately $1.2 billion, or $29.75 per share.
(3) Current Report on Form 8-K dated October 10, 1997, with respect to
the filing of American General's consolidated balance sheets as of
December 31, 1996 and 1995, and the related consolidated statements
of income, shareholders' equity, common stock activity, and cash
flows, and Management's Discussion and Analysis, for the three years
ended December 31, 1996, restated to include the acquisition of
USLIFE under the pooling of interests method of accounting.
-38-
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended September 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: November 13, 1997
-39-
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended September 30, 1997
EXHIBIT INDEX
Exhibit
* 3 Amended and Restated Bylaws of American General
Corporation (As of October 23, 1997).
10 Form of Severance Agreement between American General
Corporation and Ellen H. Masterson (incorporated by
reference to Exhibit 10.10 to American General's Annual
Report on Form 10-K for 1993).
* 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.
* Filed herewith
-40-
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended September 30, 1997
Exhibit 11
COMPUTATION OF EARNINGS PER SHARE
(Unaudited)
(In millions, except share data)
Nine Months Ended
September 30,
1997 1996
Primary:
Net income available to common stock ....... $ 312 $ 558
Average shares outstanding
Common stock ............................. 241,631,360 243,320,348
Assumed conversion of convertible
preferred stock ........................ 1,950,940 1,578,392
Assumed exercise of stock options ........ 934,163 996,788
Total .................................. 244,516,463 245,895,528
Net income per share ....................... $1.28 $2.27
Fully Diluted:
Net income ................................. $ 312 $ 558
Plus: Net dividends on convertible
preferred securities of subsidiary ........ 8 8
Net income available to common stock ... $ 320 $ 566
Average shares outstanding
Common stock ............................. 241,631,360 243,320,348
Assumed conversion of convertible
preferred securities of subsidiary ..... 6,144,016 6,144,016
Assumed conversion of convertible
preferred stock ........................ 2,353,292 1,892,638
Assumed exercise of stock options ........ 1,241,842 1,083,695
Total .................................. 251,370,510 252,440,697
Net income per share ....................... $1.27 $2.24
<PAGE>
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended September 30, 1997
Exhibit 12
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND
RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
(Unaudited)
($ in millions)
Nine Months Ended
September 30,
1997 1996
Consolidated operations:
Income before income tax expense and net dividends
on preferred securities .......................... $ 689 $ 918
Undistributed income of equity investee ............ (35) (24)
Fixed charges deducted from income
Interest expense ................................. 485 495
Implicit interest in rents ....................... 15 16
Total fixed charges deducted from income ....... 500 511
Earnings available for fixed charges.......... $1,154 $1,405
Fixed charges per above ............................ $ 500 $ 511
Capitalized interest ............................... 5 9
Total fixed charges ............................ 505 520
Dividends on preferred stock and securities .... 102 49
Combined fixed charges and preferred
stock dividends ............................ $ 607 $ 569
Ratio of earnings to fixed charges ......... 2.28 2.70
Ratio of earnings to combined fixed charges
and preferred stock dividends ............ 1.90 2.47
Consolidated operations, corporate fixed charges
and preferred stock dividends only:
Income before income tax expense and net dividends
on preferred securities ........................ $ 689 $ 918
Undistributed income of equity investee .......... (35) (24)
Corporate fixed charges deducted from income -
corporate interest expense ..................... 136 135
Earnings available for fixed charges ........... $ 790 $1,029
Total corporate fixed charges per above .......... $ 136 $ 135
Capitalized interest related to real estate
operations ..................................... 5 8
Total corporate fixed charges .................. 141 143
Dividends on preferred stock and securities .... 102 49
Combined corporate fixed charges and
preferred stock dividends .................. $ 243 $ 192
Ratio of earnings to corporate fixed charges 5.61 7.21
Ratio of earnings to combined corporate
fixed charges and preferred stock
dividends ................................ 3.26 5.38
Exhibit 12 (continued)
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended September 30, 1997
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND
RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
(Unaudited)
($ in millions)
Nine Months Ended
September 30,
1997 1996
American General Finance:
Income before income tax expense ................... $ 148 $ 160
Fixed charges deducted from income
Interest expense ................................. 366 369
Implicit interest in rents ....................... 8 9
Total fixed charges deducted from income ....... 374 378
Earnings available for fixed charges ......... $ 522 $ 538
Ratio of earnings to fixed charges ......... 1.39 1.42
Exhibit 12 (continued)
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended September 30, 1997
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
September 30,
1997 1996
Consolidated operations:
Income before income tax expense and net
dividends on preferred securities ................ $ 384 $ 334
Undistributed income of equity investee ............ (12) (9)
Fixed charges deducted from income
Interest expense ................................. 159 164
Implicit interest in rents ....................... 5 5
Total fixed charges deducted from income ....... 164 169
Earnings available for fixed charges.......... $ 536 $ 494
Fixed charges per above ............................ $ 164 $ 169
Capitalized interest ............................... - 3
Total fixed charges ............................ 164 172
Dividends on preferred stock and securities .... 37 17
Combined fixed charges and preferred
stock dividends ............................ $ 201 $ 189
Ratio of earnings to fixed charges ......... 3.27 2.86
Ratio of earnings to combined fixed charges
and preferred stock dividends ............ 2.67 2.61
Consolidated operations, corporate fixed charges
and preferred stock dividends only:
Income before income tax expense and net
dividends on preferred securities .............. $ 384 $ 334
Undistributed income of equity investee .......... (12) (9)
Corporate fixed charges deducted from income -
corporate interest expense ..................... 49 46
Earnings available for fixed charges ........... $ 421 $ 371
Total corporate fixed charges per above .......... $ 49 $ 46
Capitalized interest related to real estate
operations ..................................... - 3
Total corporate fixed charges .................. 49 49
Dividends on preferred stock and securities .... 37 17
Combined corporate fixed charges and
preferred stock dividends .................. $ 86 $ 66
Ratio of earnings to corporate fixed charges 8.72 7.65
Ratio of earnings to combined corporate
fixed charges and preferred stock
dividends ................................ 4.95 5.67
Exhibit 12 (continued)
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND
RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
(Unaudited)
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended September 30, 1997
($ in millions)
Quarter Ended
September 30,
1997 1996
American General Finance:
Income before income tax expense ................... $ 65 $ 68
Fixed charges deducted from income
Interest expense ................................. 117 122
Implicit interest in rents ....................... 3 3
Total fixed charges deducted from income ....... 120 125
Earnings available for fixed charges ......... $ 185 $ 193
Ratio of earnings to fixed charges ......... 1.54 1.55
<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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<DEBT-HELD-FOR-SALE> 47,557<F1>
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 110
<MORTGAGE> 3,258
<REAL-ESTATE> 245
<TOTAL-INVEST> 53,589
<CASH> 218
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 3,612<F2>
<TOTAL-ASSETS> 79,416
<POLICY-LOSSES> 45,078<F3>
<UNEARNED-PREMIUMS> 189<F3>
<POLICY-OTHER> 380<F3>
<POLICY-HOLDER-FUNDS> 1,945<F3>
<NOTES-PAYABLE> 8,881
1,726<F4>
85<F5>
<COMMON> 318
<OTHER-SE> 6,916<F6>
<TOTAL-LIABILITY-AND-EQUITY> 79,416
2,472<F7>
<INVESTMENT-INCOME> 2,983
<INVESTMENT-GAINS> 25
<OTHER-INCOME> 1,123<F8>
<BENEFITS> 3,197
<UNDERWRITING-AMORTIZATION> 405<F9>
<UNDERWRITING-OTHER> (476)<F10>
<INCOME-PRETAX> 689<F11>
<INCOME-TAX> 315<F12>
<INCOME-CONTINUING> 312
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 312
<EPS-PRIMARY> 1.28
<EPS-DILUTED> 1.27
<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; COST OF TREASURY STOCK; AND FOREIGN CURRENCY
TRANSLATION GAINS (LOSSES).
<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 $95 MILLION OF DIVIDENDS ON PREFERRED SECURITIES OF SUBSIDIARIES,
SHOWN SEPARATELY, NET OF TAX, IN THE CONSOLIDATED INCOME STATEMENT.
<F12>EXCLUDES $33 MILLION TAX BENEFIT FOR TAX DEDUCTIBLE DIVIDENDS RELATED TO
PREFERRED SECURITIES OF SUBSIDIARIES.
</FN>
</TABLE>
Exhibit 3
AMENDED AND RESTATED BYLAWS
(As of October 23, 1997)
of
American General Corporation
Houston, Texas
<PAGE>
AMENDED AND RESTATED BYLAWS
OF
AMERICAN GENERAL CORPORATION
ARTICLE I.
Capital Stock
SECTION 1. Certificates for Shares. The certificates for shares of the
capital stock of the company shall be in such form as shall be approved by the
board of directors. The certificates shall be signed by the chairman of the
board or president, and also by the secretary, and may be sealed with the seal
of the company or a facsimile thereof. Where any such certificate is
countersigned by a transfer agent, or registered by a registrar, either of
which is other than the company itself or an employee of the company, the
signatures of the chairman of the board or president and of the secretary may
be facsimiles. The certificates shall be consecutively numbered and shall be
entered on the stock records of the company as they are issued, and each shall
exhibit the holder's name and the number of shares.
SECTION 2. Transfer of Shares. The shares of stock of the company shall be
transferable only on the stock records of the company by the registered
holders thereof in person or by their duly authorized attorneys or legal
representatives, upon surrender of certificates representing such shares duly
endorsed or in proper form for transfer, with appropriate evidence of
authority to transfer, and cancellation thereof.
SECTION 3. Fixing of Record Date; Closing of Transfer Books. For the purpose
of determining shareholders entitled to notice of or to vote at any meeting of
shareholders, or any adjournment thereof, or entitled to receive payment of
any dividend, or for any other proper purpose, the board of directors may fix
in advance a date as the record date for any such determination of
shareholders, such date in any case to be not more than fifty (50) days and,
in case of a meeting of shareholders, not less than ten (10) days prior to the
date on which the particular action requiring such determination of
shareholders is to be taken. In lieu of fixing a record date, the board of
directors may provide that the stock transfer books of the company shall be
closed for a stated period not to exceed, in any case, fifty (50) days. If
the stock transfer books shall be closed for the purpose of determining
shareholders entitled to notice of or to vote at a meeting of shareholders,
such books shall be closed for at least ten (10) days immediately preceding
such meeting. If the stock transfer books are not closed and no record date
is fixed for the determination of shareholders entitled to notice of or to
vote at a meeting of shareholders, or shareholders entitled to receive payment
of a dividend, the date on which the notice of the meeting is mailed or the
date on which the resolution of the board of directors declaring such dividend
is adopted, as the case may be, shall be the record date for such
determination of shareholders.
When a determination of shareholders entitled to vote at any meeting of
shareholders has been made as provided herein, such determination shall apply
to any adjournment of the meeting except where the determination has been made
through the closing of stock transfer books and the stated period of closing
has expired.
<PAGE>
SECTION 4. Registered Shareholders. The company shall be entitled to treat
the holder of record of any share or shares of stock as the holder in fact
thereof, and accordingly shall not be bound to recognize any equitable or
other claim to or interest in such share or shares on the part of any other
person or entity, whether or not it shall have express or other notice
thereof, except as expressly provided by the laws of the State of Texas.
SECTION 5. Lost, Destroyed, or Stolen Stock Certificates. No certificate for
shares of stock in the company shall be issued in place of any certificate
alleged to have been lost, destroyed, or stolen except on production of
evidence satisfactory to the board of directors, or such person or persons as
it may designate, of such loss, destruction, or theft, and, if the board of
directors so requires, upon the furnishing of an indemnity bond in such amount
(but not to exceed twice the then-market value of the shares represented by
the certificate) and with such terms and such surety or sureties as the board
of directors may, in its discretion, require.
SECTION 6. Regulations. The board of directors shall have the power and
authority to make all such rules and regulations to the extent permitted by
law, the articles of incorporation, and these bylaws, as it may deem expedient
concerning the issue, transfer, registration, or replacement of certificates
for shares of the capital stock of the company.
ARTICLE II.
Shareholders
SECTION 1. Annual Meeting. The annual meeting of the shareholders shall be
held at such hour as shall be designated by the board of directors either (i)
on the last business day of April of each year, or (ii) on such other date,
not more than thirteen (13) months after the last preceding annual meeting, as
the board of directors shall designate, for the purpose of electing directors
and for the transaction of such other business as may properly be brought
before the meeting.
SECTION 2. Special Meetings. A special meeting of shareholders for any
purpose or purposes may be called at any time by the chairman of the board,
the president, or a majority of the board of directors, and shall be called by
the chairman of the board, the president, or the secretary upon the written
request therefor, stating the purpose or purposes of the meeting, delivered to
such officer, signed by the holders of at least ten percent (10%) of the
issued and outstanding shares entitled to vote at such meeting. Only such
business as shall be stated or indicated in the notice of the meeting shall be
transacted at any such special meeting of shareholders.
SECTION 3. Place. The annual meeting of shareholders may be held at any place
as may be designated in the call of the meeting. Meetings of shareholders
shall be held at the principal office of the company unless another place is
designated for a meeting in the manner provided herein.
SECTION 4. Notice. Written or printed notice stating the place, day, and hour
of each meeting of shareholders, and in case of a special meeting the purpose
or purposes for which the meeting is called, shall be delivered not less than
ten (10) nor more than fifty (50) days before the date of the meeting, either
personally or by mail, by or at the direction of the officer calling the
meeting, to each shareholder of record entitled to vote at such meeting.
<PAGE>
SECTION 5. Quorum. Except as may be otherwise provided by law or the articles
of incorporation, no meeting of shareholders shall elect directors, or
transact other business of the company, unless there shall be present, in
person or by proxy, a quorum, which is defined as the holders of a majority of
the issued and outstanding shares of capital stock of the company entitled to
vote at the meeting, and the act of a majority of the shares represented at
any meeting at which a quorum is present shall be the act of the meeting. The
shareholders present at any meeting, though less than a quorum, may adjourn
the meeting, and any business may be transacted at the adjourned meeting that
could have been transacted at the original meeting. No notice of adjournment,
other than the announcement at the meeting, need be given.
SECTION 6. Proxies. At any meeting of shareholders, a shareholder may vote
either in person or by proxy executed in writing by the shareholder or by his
duly authorized attorney-in-fact. Such proxies shall be filed with the
secretary of the company before or at the time of the meeting. No proxy shall
be valid after eleven (11) months from the date of its execution unless
otherwise provided in the proxy. Each proxy shall be revocable unless it is
expressly provided therein that the proxy shall be irrevocable or unless it is
otherwise made irrevocable by law.
SECTION 7. Voting of Shares. Each outstanding share of a class of stock
entitled to vote upon a matter submitted to a vote at a meeting of
shareholders shall be entitled to one vote on such matter. Votes for
directors, and upon demand of any shareholder votes upon any question before a
meeting, shall be by ballot.
SECTION 8. Presiding Officer and Secretary. The chairman of the board, or in
his absence the president, shall preside at each meeting of shareholders, and
in the absence of both such officers, a vice chairman of the board shall
preside. Should none be present, the meeting shall appoint one of the vice
presidents, or in the absence of all vice presidents, one of the shareholders,
to preside at the meeting. The records of each meeting shall be kept by the
secretary, or in his absence an assistant secretary, or in the absence of
both, a person appointed by the chairman of the meeting.
SECTION 9. List of Shareholders. A complete list of shareholders entitled to
vote at each shareholders' meeting, arranged in alphabetical order, with the
address of each and number of shares of each class and series of stock held by
each, shall be prepared by the secretary and filed at the registered office of
the company, and shall be subject to inspection by any shareholder during
usual business hours for a period of ten (10) days prior to such meeting. It
shall be produced at such meeting and shall at all times during such meeting
be subject to inspection by any shareholder.
SECTION 10. Inspectors of Election. The chairman of each meeting of
shareholders shall appoint a committee to act as inspectors of election. Such
committee shall report to the meeting the number of shares of each class and
series of stock, and of all classes, represented by proxy and shall prepare a
list showing the total number of shares of each class and series of stock, and
of all classes, represented either in person or by proxy. The inspectors of
election shall oversee the vote of the shareholders for the election of
directors and for any other matters that are put to a vote of shareholders at
the meeting; receive a ballot evidencing votes cast by the proxy committee;
judge the qualifications of shareholders voting; collect, count, and report
the results of ballots cast by any shareholders voting in person; and perform
<PAGE>
such other duties as may be required by the chairman of the meeting or the
shareholders.
SECTION 11. Nature of Business at Meetings of Shareholders. No business may
be transacted at an annual meeting of shareholders, other than business that
is either (a) specified in the notice of meeting (or any supplement thereto)
given by or at the direction of the board of directors (or any duly authorized
committee thereof), (b) otherwise properly brought before the annual meeting
by or at the direction of the board of directors (or any duly authorized
committee thereof) or (c) otherwise properly brought before the annual meeting
by an shareholder of the company (i) who is a shareholder of record on the
date of the giving of the notice provided for in this Section 11 and on the
record date for the determination of shareholders entitled to vote at such
annual meeting and (ii) who complies with the notice procedures set forth in
this Section 11.
In addition to any other applicable requirements, for business to be properly
brought before an annual meeting by a shareholder, such shareholder must have
given timely notice thereof in proper written form to the Secretary of the
company.
To be timely, a shareholder's notice to the Secretary must be delivered to or
mailed and received at the principal executive offices of the company not less
than one hundred and twenty (120) days nor more than one hundred and fifty
(150) days prior to the anniversary date of the immediately preceding annual
meeting of shareholders; provided, however, that in the event that the annual
meeting is called for a date that is not within thirty (30) days before or
after such anniversary date, notice by the shareholder in order to be timely
must be so received not later than the close of business on the tenth (10th)
day following the day on which such notice of the date of the annual meeting
was mailed or such public disclosure of the date of the annual meeting was
made, whichever first occurs.
To be in proper written form, a shareholder's notice to the Secretary must set
forth as to each matter such shareholder proposes to bring before the annual
meeting (i) a brief description of the business desired to be brought before
the annual meeting and the reasons for conducting such business at the annual
meeting, (ii) the name and record address of such shareholder, (iii) the class
or series and number of shares of capital stock of the company which are owned
beneficially or of record by such shareholder, (iv) a description of all
arrangements or understandings between such shareholder and any other person
or persons (including their names) in connection with the proposal of such
business by such shareholder and any material interest of such shareholder in
such business and (v) a representation that such shareholder intends to appear
in person or by proxy at the annual meeting to bring such business before the
meeting.
No business shall be conducted at the annual meeting of shareholders except
business brought before the annual meeting in accordance with the procedures
set forth in this Section 11; provided, however, that, once business has been
properly brought before the annual meeting in accordance with such procedures,
nothing in this Section 11 shall be deemed to preclude discussion by any
shareholder of any such business. If the Chairman of an annual meeting
determines that business was not properly brought before the annual meeting in
accordance with the foregoing procedures, the Chairman shall declare to the
meeting that the business was not properly brought before the meeting and such
<PAGE>
business shall not be transacted.
ARTICLE III.
Board of Directors
SECTION 1. Number, Term of Office, Nomination, Vacancy and Removal. The
business affairs and property of the company shall be managed and controlled
by the board of directors, and, subject to the restrictions imposed by law, by
the articles of incorporation, or by these bylaws, the board of directors may
exercise all of the powers of the company.
(a) Number. Subject to the rights of holders of any class or series of
stock having a preference over the Common Stock of the company as to
dividends or upon liquidation to elect additional directors under
specified circumstances, the number of the directors of the company
shall be fixed from time to time by the board of directors but shall not
be fewer than three (3) nor more than twenty-five (25). Within these
limits, the number of directors may be increased or decreased (provided
that any decrease does not shorten the term of any incumbent director)
from time to time by resolution of the board of directors. Directors
must be shareholders, but they need not be residents of the State of
Texas.
(b) Election and Terms. Subject to the rights of holders of any class or
series of stock having a preference over the Common Stock of the company
as to dividends or upon liquidation to elect additional directors under
specified circumstances, directors shall be elected at the annual
meeting of the shareholders. Each director shall serve until the next
annual meeting and until his successor shall have been elected and
qualified, or until his earlier death, resignation, or removal;
provided, however, that the term of any director who is also an officer
of the company or of any subsidiary of the company shall simultaneously
terminate when that director ceases, for whatever reason, to be an
officer of the company or of any subsidiary of the company, unless the
board of directors, in its discretion and upon resolution adopted by a
majority of the remaining directors then in office, waives the
applicability hereof.
(c) Nomination of Directors. Only persons who are nominated in accordance
with the following procedures shall be eligible for election as
directors of the company, except as may be otherwise provided in the
Certificate of Incorporation with respect to the right of holders of
preferred stock of the company to nominate and elect a specified number
of directors in certain circumstances. Nominations of persons for
election to the board of directors may be made at any annual meeting of
shareholders, or at any special meeting of shareholders called for the
purpose of electing directors, (a) by or at the direction of the board
of directors (or any duly authorized committee thereof) or (b) by any
shareholder of the company (i) who is a shareholder of record on the
date of the giving of the notice provided for in this Section 1(c) and
on the record date for the determination of shareholders entitled to
vote at such meeting and (ii) who complies with the notice procedures
<PAGE>
set forth in this Section 1(c).
In addition to any other applicable requirements, for a nomination to be
made by a shareholder, such shareholder must have given timely notice
thereof in proper written form to the Secretary of the company.
To be timely, a shareholder's notice to the Secretary must be delivered
to or mailed and received at the principal executive offices of the
company (a) in the case of an annual meeting, not less than one hundred
and twenty (120) days nor more than one hundred fifty (150) days prior
to the anniversary date of the immediately preceding annual meeting of
shareholders; provided, however, that in the event that the annual
meeting is called for a date that is not within thirty (30) days before
or after such anniversary date, notice by the shareholder in order to be
timely must be so received not later than the close of business on the
tenth (10th) day following the day on which such notice of the date of
the annual meeting was mailed or such public disclosure of the date of
the annual meeting was made, whichever first occurs; and (b) in the case
of a special meeting of shareholders called for the purpose of electing
directors, not later than the close of business on the tenth (10th) day
following the day on which notice of the date of the special meeting was
mailed or public disclosure of the date of the special meeting was made,
whichever first occurs.
To be in proper written form, a shareholder's notice to the Secretary
must set forth (a) as to each person whom the shareholder proposes to
nominate for election as a director (i) the name, age, business address
and residence address of the person, (ii) the principal occupation or
employment of the person, (iii) the class or series and number of shares
of capital stock of the company which are owned beneficially or of
record by the person and (iv) any other information relating to the
person that would be required to be disclosed in a proxy statement or
other filings required to be made in connection with solicitations of
proxies for election of directors pursuant to Section 14 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and
the rules and regulations promulgated thereunder; and (b) as to the
shareholder giving the notice (i) the name and record address of such
shareholder, (ii) the class or series and number of shares of capital
stock of the company which are owned beneficially or of record by such
shareholder, (iii) a description of all arrangements or understandings
between such shareholder and each proposed nominee and any other person
or persons (including their names) pursuant to which the nomination(s)
are to be made by such shareholder, (iv) a representation that such
shareholder intends to appear in person or by proxy at the meeting to
nominate the persons named in its notice and (v) any other information
relating to such shareholder that would be required to be disclosed in a
proxy statement or other filings required to be made in connection with
solicitations of proxies for election of directors pursuant to Section
14 of the Exchange Act and the rules and regulations promulgated
thereunder. Such notice must be accompanied by a written consent of
each proposed nominee to being named as a nominee and to serve as a
director if elected.
No person shall be eligible for election as a director of the company
<PAGE>
unless nominated in accordance with the procedures set forth in this
Section 1(c). If the Chairman of the meeting determines that a
nomination was not made in accordance with the foregoing procedures, the
Chairman shall declare to the meeting that the nomination was defective
and such defective nomination shall be disregarded.
(d) Vacancies. Subject to the rights of the holders of any class or series
of stock having a preference over the Common Stock of the company as to
dividends or upon liquidation to elect directors under specified
circumstances, any vacancies on the board of directors resulting from
death, resignation, retirement, disqualification, removal from office or
other cause shall be filled by the affirmative vote of a majority of the
remaining directors then in office, even though less than a quorum of
the board of directors. Any director so elected by the board of
directors to fill a vacancy shall hold office for the remainder of the
full term of the director whose departure from the board created the
vacancy. A directorship to be filled by reason of an increase in the
number of directors by action of the board of directors (within the
limits set forth in paragraph (a) of Section 1 of this article) may be
filled by the board of directors for a term of office continuing only
until the next election at an annual meeting or at a special meeting of
shareholders called for that purpose; provided, however, that the board
of directors shall not fill more than two such directorships during the
period between two successive annual meetings of shareholders.
(e) Removal. Subject to the rights of any class or series of stock having a
preference over the Common Stock of the company as to dividends or upon
liquidation to elect directors under specified circumstances, any
director may be removed from office, with or without cause, only by the
affirmative vote of the holders of at least seventy-five percent (75%)
of the combined voting power of the then outstanding shares of all
classes of stock of the company entitled to vote generally in the
election of directors, voting together as a single class.
SECTION 2. Annual Meeting. Each newly elected board of directors shall hold
its first meeting immediately following the annual meeting of shareholders
each year, for the purposes of organization, the election of officers of the
company, and the transaction of such other business as may properly come
before such meeting, and no notice of such meeting shall be necessary.
SECTION 3. Regular Meetings. In addition to the annual meeting of the board
of directors, four (4) regular meetings shall be held in each year at the time
and place designated by the chairman of the board, for the purpose of
transacting any business within the powers of the board. Notice of such
regular meetings shall be given as provided herein.
SECTION 4. Special Meetings. A special meeting of the board of directors
shall be held whenever called by the chief executive officer or by the
secretary on the written request of any five (5) of the directors, and at such
time and place as may be specified in the notice thereof. Such notice, or any
waiver pursuant to Article VII, Section 6 hereof, need not state the purpose
or purposes of such meeting.
<PAGE>
SECTION 5. Notice. The secretary shall give notice to each director of each
regular and special meeting in person or by mail or by any form of
telecommunication, at least twenty-four (24) hours before the meeting. The
attendance of a director at any meeting shall constitute a waiver of notice of
such meeting, except where a director attends a meeting for the express
purpose of objecting to the transaction of any business on the grounds that
the meeting has not been lawfully called or convened.
SECTION 6. Quorum. A majority of the directors in office shall constitute a
quorum for the transaction of business, but if at any meeting of the board of
directors there is less than a quorum present, a majority of those present or
any director solely present may adjourn the meeting from time to time without
further notice. The act of a majority of the directors present at a meeting
at which a quorum is in attendance shall be the act of the board of directors,
unless the act of a greater number is required by law, the articles of
incorporation, or these bylaws.
SECTION 7. Order of Business and Officers at Meetings. At meetings of the
board of directors, business shall be transacted in such order as the board
may determine from time to time. At all meetings of the board of directors,
the chairman of the board shall preside, and in the absence of the chairman of
the board the president shall preside, and in the absence of both, a vice
chairman shall preside. Should all three be absent, a chairman shall be
chosen by the board of directors from among the directors present. The
secretary of the company shall act as secretary of all meetings of the board
of directors, or in the absence of the secretary an assistant secretary shall
so act; or in the absence of both, the presiding officer shall appoint any
person to act as secretary of the meeting.
SECTION 8. Compensation. Directors shall not receive any stated salary for
their service as directors, but by resolution of the board of directors an
annual retainer may be paid and a fixed sum and expenses of attendance, if
any, may be allowed for attendance at any meeting of the board of directors;
provided that nothing contained herein shall be construed to preclude any
director from serving the company in any other capacity and receiving
compensation therefor.
SECTION 9. Presumption of Assent. A director of the company who is present at
a meeting of the board of directors at which action on any company matter is
taken shall be presumed to have assented to the action unless his dissent
shall be entered in the minutes of the meeting or unless he shall file his
written dissent to such action with the person acting as secretary of the
meeting before the adjournment thereof or shall forward such dissent by
registered mail to the secretary of the company immediately after the
adjournment of the meeting. Such right to dissent shall not apply to a
director who voted in favor of such action.
SECTION 10. Retirement. No director of the company shall stand for reelection
as a director following his seventieth birthday with the exception of any
person who shall serve, or has served, as chief executive officer of the
company at any time, who shall not be prevented by this provision from
standing for reelection as a director for five years after retirement from the
position of chief executive officer, or until the annual meeting following the
attainment of age seventy-five, whichever shall first occur. Any director who
<PAGE>
is also an officer, other than the chief executive officer, of the company or
an officer of any subsidiary of the company shall retire as provided in
Section 1 of this article.
ARTICLE IV.
Committees of the Board of Directors
SECTION 1. Executive Committee. The board of directors, acting by resolution
adopted by a majority of the full board of directors, may elect from among its
members an executive committee of not fewer than three (3) nor more than ten
(10) members, which committee shall have and may exercise all of the authority
of the
board of directors in the business and affairs of the company except where
action of the full board of directors is specified by law. The chief
executive officer shall be a member of the executive committee and shall be
chairman of such committee. The executive committee shall meet at such times
and places as may be fixed by the committee, or on the call of the chief
executive officer, at such times and places as may be designated in the call
of such meetings. The executive committee shall maintain a record of its
proceedings and shall report to each regular meeting of the board of directors
a summary of the actions taken by such committee since the last regular
meeting of the board of directors.
The executive committee shall function as the company's nominating committee.
In its capacity as nominating committee, it has the power and duty to
recommend candidates for election to the board of directors, to the committees
of the board, and for the chairmanship of each committee except the executive
committee.
SECTION 2. Audit Committee. The board of directors, acting by resolution
adopted by a majority of the full board of directors, may elect from among its
members an audit committee of not fewer than three (3) nor more than ten (10)
members, none of whom shall be an officer of the company or of any of its
subsidiaries during the time of service on such committee. The chairman of
the committee shall be elected by a majority of the full board of directors at
the time the committee is elected or at such time as it becomes necessary to
elect a new chairman because of the chairman's death or resignation. The
audit committee shall meet at such times and places as may be fixed by the
committee, or on the call of its chairman, at such times and places as may be
designated in the call of such meetings. The committee shall also meet
promptly upon the request of the company's principal independent auditors.
The audit committee shall maintain a record of its proceedings and shall
report to the board of directors a summary of its activities not less
frequently than twice each fiscal year.
The audit committee shall have the following powers and duties:
(a) to recommend to the board of directors each year the engagement of a
firm of certified public accountants to act as principal independent
auditors for the company and its subsidiaries;
(b) to review at regular intervals audit arrangements for the company and
its subsidiaries and the reports to be rendered;
<PAGE>
(c) to review in advance the plan and scope of the audit of the company and
its subsidiaries to be performed for the following year by the principal
independent auditors and the related detailed estimate of fees;
(d) to review and approve non-audit services and fees of the company's
principal independent auditors, giving appropriate consideration to the
possible effect on the auditors' independence of each non-audit service
provided;
(e) to review periodically with the company's principal independent auditors
the accounting principles and policies of the company and such matters
relating to the internal auditing systems and procedures and the
internal accounting controls of the company and its subsidiaries as the
committee or the board of directors may determine to be necessary or
desirable;
(f) to review periodically the coordination between the company's principal
independent auditors and the company's internal audit staff, and to
review with the company's principal independent auditors, upon
completion of their audit, their findings and recommendations and the
responses of the company's management to such findings and
recommendations;
(g) to review the annual financial statements issued by the company to its
security holders;
(h) to conduct from time to time, or cause to be conducted, such
investigations or inquiries relating to accounting or audit matters as
the facts presented to the committee warrant and as the committee may
deem necessary or appropriate in the interest of the company and its
shareholders;
(i) to confer with and direct the officers of the company to the extent
necessary to exercise the committee's powers and to carry out its
duties;
(j) to meet with representatives of any independent auditors of the company
and/or its internal audit staff in the absence of management, whenever
the committee deems such to be appropriate; and
(k) to perform such additional duties as may be assigned to the committee by
the board of directors.
SECTION 3. Personnel Committee. The board of directors, acting by resolution
adopted by a majority of the full board of directors, may elect from among its
members a personnel committee of not fewer than three (3) nor more than ten
(10) members, none of whom shall be an officer of the company or of any of its
subsidiaries during the time of service on this committee. The chairman of
the committee shall be elected by a majority of the full board of directors at
the time the committee is elected or at such time as it becomes necessary to
elect a new chairman because of the chairman's death or resignation. The
committee shall meet at such times and places as may be fixed by the
committee, or on the call of its chairman, at such times and places as may be
<PAGE>
designated in the call of such meetings. The committee shall maintain a
record of its proceedings and shall report to each regular meeting of the
board of directors a summary of the actions taken by the committee since the
last regular meeting of the board of directors.
The personnel committee shall have the following powers and duties:
(a) to review the relationship of the contribution of key officers and
employees to the company's performance and prospects;
(b) to review and approve and recommend to the board of directors for
approval or ratification the annual salary of any officer of the company
or of a subsidiary of the company whose annual salary is or will be of
an amount which will place him or her among the twenty-five most highly
salaried officers in the group;
(c) to review and approve or ratify the annual salary of any officer or
employee of the company or of a subsidiary of the company whose annual
salary is or will be of an amount which will place him or her among the
second twenty-five most highly salaried officers in the group;
(d) to review and approve incentive compensation and other employee benefit
programs;
(e) to review key personnel issues; and
(f) to perform such additional duties as may be assigned to the committee by
the board of directors.
SECTION 4. Other Committees. In addition to the executive, audit, and
personnel committees, the board of directors may, by resolution adopted by a
majority of the full board of directors, elect from among its own
members such other committees as it shall deem to be appropriate, each of
which shall have and may exercise that authority of the board of directors
which shall have been delegated to it in the resolution creating such
committee, except as may be prohibited by law.
SECTION 5. Term of Office and Committee Size. The term of office of each
member of any committee shall be the period designated by the board of
directors, but shall not be longer than one year and until his successor shall
be elected, unless such member shall be removed by the board of directors, as
provided in this section, or the committee is dissolved by the board of
directors. A member of any committee may be removed during the period between
annual meetings by action of the majority of the full board of directors at
any regular or special meeting. The membership of any committee elected by
the board of directors may be increased or decreased during the period between
annual meetings, subject to any limitations of this article, by action of the
majority of the full board of directors at any regular or special meeting.
SECTION 6. Quorum. A majority of the members of any committee shall
constitute a quorum for the transaction of business. The act of the majority
of the members present at a meeting at which a quorum is present shall be the
act of the committee.
SECTION 7. Responsibility. The designation of any committee and the
<PAGE>
delegation thereto of authority shall not operate to relieve the board of
directors, or any member thereof, of any responsibility imposed upon it or him
by law.
SECTION 8. Vacancies. The board of directors may fill all vacancies in any
committee.
ARTICLE V.
Officers
SECTION 1. Titles and Term of Office. The board of directors at its annual
meeting shall elect officers of the company as follows: a chairman of the
board, a president and a secretary. The board of directors may also elect one
or more vice chairmen. The board of directors or the executive committee may
elect other officers, including one or more executive vice presidents, senior
vice presidents, vice presidents, a general counsel, a controller, a general
auditor, and other officers and assistant officers as the board of directors
or the executive committee deems necessary. Each officer shall hold office
for the term for which he is elected and until his successor shall have been
duly elected and
qualified, or until his death, resignation, or removal in the manner
hereinafter provided. One person may hold more than one office except that
the president shall not also hold the office of secretary. The chairman of
the board, each vice chairman of the board, if any, and the president shall be
directors of the company, but no other officer need be a director.
SECTION 2. Removal. Any officer who may be elected only by the board of
directors may be removed only by the board of directors. Any officer who may
be elected by either the board of directors or the executive committee may be
removed by either the board of directors or the executive committee. Removal
of any officer may occur whenever in the judgment of the board of directors or
the executive committee, as the case may be, the best interests of the company
will be served thereby, but such removal shall be without prejudice to the
contract rights, if any, of the person so removed. Election of an officer
shall not of itself create contract rights.
SECTION 3. Vacancies. A vacancy in the office of any officer may be filled
for the unexpired portion of the term by the board of directors.
SECTION 4. Chief Executive Officer. The board of directors shall designate
either the chairman of the board or the president to be the chief executive
officer of the company. All other officers of the company shall be
subordinate to the chief executive officer and shall report to him as he may
direct. The chief executive officer shall have responsibility for the general
management and direction of the business of the company and for the execution
of all orders and resolutions of the board of directors. In addition to the
powers prescribed in these bylaws, he shall have all of the powers usually
vested in the chief executive officer of a corporation and such other powers
as may be prescribed from time to time by the board of directors. He may
delegate any of his powers and duties to any other officer with such
limitations as he may deem proper.
<PAGE>
SECTION 5. Chairman of the Board. The chairman of the board shall preside at
all meetings of the shareholders and of the board of directors; shall have
authority to execute all legal instruments necessary for the transaction of
the company's business; may sign certificates for shares of capital stock of
the company; and may be designated as chief executive officer, as provided in
these bylaws. He shall be a member of all standing committees of the board of
directors except those the membership of which is restricted to non-officer
directors, and shall have such other responsibilities and powers as may be
prescribed in these bylaws or from time to time by the board of directors. If
he is not designated as chief executive officer, the chairman of the board
shall have such powers and perform such duties as maybe delegated to him by
the chief executive officer, and shall be vested with all the powers and
authorized to perform all the duties of the chief executive officer in his
absence or inability to act.
SECTION 6. Vice Chairman of the Board. In the absence of the chairman of the
board and the president, a vice chairman of the board shall preside at all
meetings of the shareholders and the board of directors; shall have authority
to execute all legal instruments necessary for the transaction of the
company's business; and shall have such other powers and duties as may be
delegated to him by the board of directors or the chief executive officer.
SECTION 7. President. In the absence of the chairman of the board, the
president shall preside at all meetings of the shareholders and of the board
of directors; shall have authority to execute all legal instruments necessary
for the transaction of the company's business; may sign certificates for
shares of
capital stock of the company; and may be designated as chief executive
officer, as provided in these bylaws. He may delegate such of his powers and
duties to
other officers with such limitations as he may deem proper. The president
shall have such other powers and duties as may be prescribed in these bylaws
or from time to time by the board of directors. If he is not designated as
chief executive officer, the president shall have such powers and perform such
duties as may be delegated to him by the chief executive officer, and shall be
vested with all the powers and authorized to perform all the duties of the
chief executive officer in his absence or inability to act.
SECTION 8. Vice President. Each vice president shall have such powers and
duties as may be delegated to him by the board of directors or the chief
executive officer, or any authorized officers senior to the vice president,
and may exercise the powers of the president during his absence or inability
to act. Any action taken by a vice president in the performance of the duties
of the president shall be conclusive evidence of the absence or inability to
act of the president at the time such action was taken.
SECTION 9. Secretary. The secretary shall keep the minutes of all meetings of
the board of directors, of the shareholders, and of the executive committee;
shall issue all notices; may sign with the chairman of the board, a vice
chairman of the board, or the president in the name of the company all legal
instruments necessary for the transaction of the company's business and affix
the seal of the company thereto; shall sign with the chairman of the board or
president all certificates for shares of the capital stock of the company; and
shall have such other powers and duties as may be prescribed by the board of
directors or the chief executive officer.
<PAGE>
SECTION 10. Treasurer. The treasurer shall have responsibility for the
safekeeping and custody of all the funds and securities of the company; shall
establish and execute programs for the provision of the capital required by
the company, including negotiating the procurement of capital and maintaining
the required financial arrangements; shall establish and maintain adequate
sources for the company's short-term borrowings; shall establish and maintain
liaison with investment bankers and financial analysts; shall establish and
maintain banking arrangements; and shall have such other powers and duties as
may be prescribed by the board of directors or the chief executive officer.
SECTION 11. Powers and Duties of Assistant Secretaries. Each assistant
secretary shall have the usual powers and duties pertaining to his office,
together with such other powers and duties as may be assigned to him by the
secretary, and may exercise the powers of the secretary during that officer's
absence or inability to act. Any action taken by an assistant secretary in
the performance of the duties of the secretary shall be conclusive evidence of
the absence or inability to act of the secretary at the time such action was
taken.
SECTION 12. Powers and Duties of Assistant Treasurers. Each assistant
treasurer shall have the usual powers and duties pertaining to his office,
together with such other powers and duties as may be assigned to him by the
treasurer, and may exercise the powers of the treasurer during that officer's
absence or inability to act. Any action taken by an assistant treasurer in
the performance of the duties of the treasurer shall be conclusive evidence of
the absence or inability to act of the treasurer at the time such action was
taken.
ARTICLE VI.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
SECTION 1. Actions. The company shall indemnify any person who was or is a
named defendant or respondent or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative, arbitrative, or investigative (including any
action by or in the right of the company), or any appeal of such action, suit
or proceeding and any inquiry or investigation that could lead to such an
action, suit or proceeding, by reason of the fact that he is or was a
director, officer or employee of the company, or is or was serving at the
request of the company as a director, officer, partner, venturer, proprietor,
trustee, employee, or similar functionary of another foreign or domestic
corporation or non-profit corporation, partnership, joint venture, sole
proprietorship, trust, employee benefit plan or other enterprise (any such
person acting in any such capacity being hereinafter referred to as "potential
indemnitee"), against judgments, penalties (including excise and similar
taxes), fines, amounts paid in settlement, and reasonable expenses (including
court costs and attorneys' fees) actually incurred by him in connection with
such action, suit or proceeding, if he acted in good faith and in a manner he
reasonably believed, (i) in the case of conduct in his official capacity as a
director of the company, to be in the best interests of the company and (ii)
in all other cases, to be not opposed to the best interests of the company;
and, with respect to any criminal action or proceeding, if he had no
<PAGE>
reasonable cause to believe his conduct was unlawful; provided, however, that
in connection with any action, suit or proceeding in which the person shall
have been adjudged to be liable to the company or liable on the basis that
personal benefit was improperly received by him, whether or not the benefit
resulted from an action taken in the person's official capacity as a director
or officer, (i) indemnification shall be limited to reasonable expenses
(including court costs or attorneys' fees) actually incurred in connection
with such proceeding, and (ii) indemnification shall be prohibited, if the
person is found liable for willful or intentional misconduct in the
performance of his duty to the company. The termination of any action, suit
or proceeding by judgment, order, settlement, or conviction, or on a plea of
nolo contendere or its equivalent shall not, of itself, create a presumption
that the person did not act in good faith and in a manner which he reasonably
believed to be in the best interests of the company; and, with respect to any
criminal action or proceeding, shall not create a presumption that the person
had reasonable cause to believe that his conduct was unlawful.
SECTION 2. Success on Merits or 0therwise. Where a potential indemnitee has
been wholly successful, on the merits or otherwise, in defense of any such
action, suit or proceeding, he shall be indemnified against reasonable
expenses (including court costs and attorneys' fees) actually incurred by him
in connection therewith.
SECTION 3. Determination that Indemnification is Proper. Any indemnification
under Section 1 of this article (unless otherwise ordered by a court of
competent jurisdiction) shall be made by the company only as authorized in a
specific case upon a determination that the applicable standard of conduct has
been met. Such determination shall be made (i) by the board of directors by a
majority vote of a quorum consisting of directors who at the time of the vote
have not been named as defendants or respondents in such action, suit or
proceeding, or (ii) if such a quorum cannot be obtained, by a majority vote of
a committee of the board of directors, designated to act in the matter by a
majority vote of all directors,
consisting solely of two or more directors who at the time of the vote are not
named defendants or respondents in such action, suit or proceeding, or (iii)
by special legal counsel selected by the board of directors (or a committee
thereof) by vote in the manner set forth in subparagraphs (i) and (ii) of this
Section 3, or if such a quorum cannot be obtained and such a committee cannot
be established, by a majority vote of all directors, or (iv) by the
shareholders in a vote that excludes the shares held by any director who is
named as a defendant or respondent in such action, suit or proceeding.
SECTION 4. Expenses Prior to Final Disposition. Reasonable expenses incurred
by a director, officer, or employee of the company or other person entitled to
indemnity hereunder, who was, is or is threatened to be made a named defendant
or respondent in any such action, suit or proceeding described in Section 1
shall be paid by the company in advance of the final disposition thereof upon
receipt of a written affirmation by the director, officer, employee or other
person of his good faith belief that he has met the standard of conduct
necessary for indemnification under this article and a written undertaking by
or on behalf of the director, officer, employee or other person to repay such
amount if it is ultimately determined that the person has not met such
necessary standard of conduct or that indemnification is prohibited by Section
1 of this article. Determinations with respect to payments under this Section
4 shall be made in the manner specified by Section 3 for determining that
<PAGE>
indemnification is permissible, except as otherwise provided by law.
SECTION 5. Nonexclusive Rights-Continuance Beyond Tenure. The indemnification
provided by this article shall not be deemed (i) to be exclusive of any other
rights consistent with law to which the person indemnified may be entitled
under the articles of incorporation of the company, bylaws, any general or
specific action of the board of directors, agreement, authorization of
shareholders, or otherwise, or as may be permitted or required by law, both as
to action in his official capacity as a director and as to action in another
capacity while holding such office, or (ii) to be a limitation upon the power
of the company to indemnify and to advance expenses, consistent with law. The
indemnification provided by this article shall continue as to a person who has
ceased to be a director, officer, or employee of the company or other person
entitled to indemnity hereunder or to serve in such other capacity in which he
was entitled to indemnification hereunder, and shall inure to the benefit of
his heirs and legal representatives.
SECTION 6. Insurance Authorized. Subject to any restrictions now or hereafter
established by applicable law, the company shall have power to purchase and
maintain insurance on behalf of any person who is or was a director, officer,
or employee of the company or who is or was serving at the request of the
company as a director, officer, partner, venturer, proprietor, trustee,
employee, agent, or similar functionary of another foreign or domestic
corporation or non-profit corporation, partnership, joint venture, sole
proprietorship, trust, employee benefit plan, or other enterprise, against any
liability asserted against him and incurred by him in such a capacity or
arising out of his status as such a person, whether or not the company would
have the power to indemnify him against that liability under the provisions of
this article or the Texas Business Corporation Act.
SECTION 7. Definitions. For purposes of this article, references to "the
company" include any domestic or foreign predecessor entity of the company in
a merger, consolidation, or other transaction in which the liabilities of the
predecessor are transferred to the company by operation of law and in any
other transaction in which the company assumes the liabilities of the
predecessor but does not specifically exclude liabilities that are the subject
matter of this article. For purposes of this article, references to "serving
at the request of the company" shall include any service as a director,
officer or employee of the company which imposes duties on, or involves
services by, such director, officer or employee with respect to an employee
benefit plan, its participants or beneficiaries; and a person who acted in
good faith and in a manner he reasonably believed to be in the interest of the
participants and beneficiaries of an employee benefit plan shall be deemed to
have acted in a manner "not opposed to the best interests of the company" as
referred to in this article.
SECTION 8. Expenses as Witness. Notwithstanding any other provision of this
article, the company may pay or reimburse expenses incurred by any director,
officer, or employee of the company or any other potential indemnitee
hereunder in connection with his appearance as a witness or other
participation in any action, suit or a proceeding described in Section 1 at a
<PAGE>
time when he is not a named defendant or respondent in such action, suit or
proceeding.
SECTION 9. Notice to Shareholders. Any indemnification of or advance of
expenses to a director in accordance with this article shall be reported in
writing to the shareholders of the company with or before the notice or waiver
of notice of the next shareholders' meeting or with or before the next
submission to shareholders of a consent to action without a meeting and, in
any case, within the twelve-month period immediately following the date of the
indemnification or advance.
ARTICLE VII.
Miscellaneous Provisions
SECTION 1. Registered Office. Unless the board of directors otherwise
determines, the registered office of the company, required by the Texas
Business Corporation Act to be maintained in the State of Texas, shall be the
principal place of business of the company, but such registered office may be
changed from time to time by the board of directors in the manner provided by
law and need not be identical to the principal place of business of the
company.
SECTION 2. Books and Records. Correct and complete books and records of
account of the company and the minutes of the proceedings of its shareholders,
board of directors, and each committee of its board of directors shall be kept
at the registered office of the company. Records of the original issuance of
shares issued by the company and of each transfer of those shares that have
been presented for registration of transfer shall be kept at the registered
office of the company or at the office of its principal transfer agent or
registrar. A record of the past and present shareholders of the company,
giving the names and addresses of all such shareholders and the number of
shares of each class and series of stock held by each, shall also be kept at
the registered office of the company or at the office of its principal
transfer agent or registrar. Any books, records, and minutes may be in
written form or in any other form capable of being converted into written form
within a reasonable time. Any person who shall have been a holder of record
of shares for at least six (6) months
immediately preceding his demand, or who shall be the holder of record of at
least five percent (5%) of all the outstanding shares of the company, upon
written demand stating the purpose thereof, or any director of the company
shall have the right to examine, in person or by agent, accountant, or
attorney, at any reasonable time or times, for any proper purpose, its
relevant books and records of account, minutes, and share transfer records,
and to make extracts therefrom.
SECTION 3. Action Without Meeting and Telephone Meetings. Any action
permitted, or required by law, these bylaws, or the articles of incorporation
of the company, to be taken at a meeting of the board of directors or of any
committee thereof may be taken without a meeting if a consent in writing,
setting forth the action so taken, is signed by all the members of the board
of directors or of such committee, as the case may be. Such consent shall
have the same force and effect as a unanimous vote at a meeting.
<PAGE>
Subject to the notice requirements of these bylaws, members of the board of
directors or of any committee created by the board of directors may
participate in and hold a meeting of such board or committee by means of
conference telephone or similar communications equipment, including
teleconferencing via a satellite communications system, provided all persons
participating in the meeting can hear each other.
SECTION 4. Fiscal Year. The fiscal year of the company shall be the calendar
year.
SECTION 5. Seal. The seal of the company shall be such as from time to time
may be approved by the board of directors.
SECTION 6. Notice and Waiver of Notice. Whenever any notice is required to be
given under the provisions of these bylaws, said notice shall be deemed to be
sufficient if given by depositing the same in a post office box in a sealed
postpaid wrapper addressed to the person entitled thereto at his post office
address, as it appears on the records of the company, and such notice shall be
deemed to have been given on the day of such mailing. A waiver of notice,
signed by the person or persons entitled to said notice, whether before or
after the date and time stated therein, shall be deemed equivalent thereto.
SECTION 7. Resignations. Any director or officer may resign at any time.
Such resignation shall be made in writing and shall take effect at the time
specified therein, or if no time be specified, at the time of its receipt by
the chairman of the board, the president, or the secretary. The acceptance of
a resignation shall not be necessary to make it effective, unless expressly so
provided in the resignation.
SECTION 8. Securities of Other Corporations. The board of directors shall by
resolution designate the officers of the company who shall have power and
authority to transfer, endorse for transfer, vote, or consent to or take any
other action with respect to any securities of another issuer which may be
held or owned by the company and to make, execute, and deliver any waiver,
proxy, or consent with respect to any such securities.
SECTION 9. Investments and Loans. Investments and loans of the company shall
be made pursuant and subject to the provisions of the law.
SECTION 10. Execution of Contracts and Other Instruments. All contractual or
obligatory undertakings, including but not limited to deeds, conveyances,
transfers, and releases, shall be signed by, (a) the chairman of the board, a
vice chairman of the board, the president, or a vice president, or (b) any
attorney-in-fact or agent of the company who has been, or at any time in the
future may be, appointed by the chairman of the board, a vice chairman of the
board, the president, or a vice president, and by the company secretary or an
assistant secretary. When necessary, such instruments may have the corporate
seal affixed and may be attested by the secretary or an assistant secretary.
Checks may be signed by the chairman of the board, a vice chairman of the
board, the president, a vice president, the secretary, the treasurer, or any
other person who may be authorized by the board of directors or the chief
executive officer.
<PAGE>
SECTION 11. Rules and Regulations. Rules and regulations for the conduct of
the company's business not in conflict with these bylaws may be adopted by the
executive committee by resolution duly recorded in the minutes of the
committee; provided, however, that such action may be modified or abrogated by
the board of directors.
ARTICLE VIII.
Amendments
Unless otherwise provided in the Articles of Incorporation, the power to
alter, amend, or repeal these bylaws or adopt new bylaws shall be vested in
the full board of directors subject, however, to repeal or change by action of
the affirmative vote of the holders of at least seventy-five percent (75%) of
the then outstanding shares of all classes of stock of the company entitled to
vote generally in election of directors, voting together as a single class.
CERTIFICATION
I HEREBY CERTIFY that the foregoing is a true and full copy of the bylaws of
AMERICAN GENERAL CORPORATION as the same are now in effect.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed the corporate seal
of AMERICAN GENERAL CORPORATION this ______day of __________________, 19__.
________________________________
Secretary
<PAGE>
