<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Quarterly Period Ended Commission File
March 31, 1995 No. 1-11632
AMERICAN ANNUITY GROUP, INC.
Incorporated under IRS Employer
I.D.
the Laws of Delaware No. 06-1356481
250 East Fifth Street, Cincinnati, Ohio 45202
(513) 333-5300
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months, and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
As of May 1, 1995, there were 39,141,080 shares of the Registrant's Common
Stock outstanding.
Page 1 of 15
<PAGE>
AMERICAN ANNUITY GROUP, INC. 10-Q
PART I
FINANCIAL INFORMATION
AMERICAN ANNUITY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Dollars in millions)
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994
<S> <C> <C>
ASSETS
Investments:
Fixed maturities:
Held to maturity - at amortized cost
(market - $3,265.1 and $3,062.4) $3,352.4 $3,273.7
Available for sale - at market
(amortized cost - $1,373.9 and $1,326.4) 1,360.9 1,258.6
Equity securities - at market (cost - $9.8
and $10.7) 19.1 21.7
Investment in affiliate 22.2 20.8
Mortgage loans on real estate 45.2 47.2
Real estate, net of accumulated depreciation 28.7 28.0
Policy loans 189.0 185.5
Short-term investments 14.2 26.0
Total investments 5,031.7 4,861.5
Cash 14.4 36.7
Accrued investment income 82.8 77.7
Deferred policy acquisition costs, net 68.7 65.1
Other assets 59.7 48.9
Total assets $5,257.3 $5,089.9
LIABILITIES AND STOCKHOLDERS' EQUITY
Annuity policyholders' funds accumulated $4,706.3 $4,618.1
Notes payable 174.2 183.3
Payable for securities purchased 33.6 -
Payable to affiliates, net 22.2 1.2
Accounts payable, accrued expenses and other
liabilities 76.2 82.9
Total liabilities 5,012.5 4,885.5
Preferred Stock - -
Common Stock, $1 par value
-100,000,000 shares authorized
- 39,141,080 shares outstanding 39.1 39.1
Capital surplus 330.8 330.8
Retained earnings (deficit) (125.1) (136.5)
Unrealized loss on marketable securities, net of
deferred income taxes and insurance adjustments - (29.0)
Total stockholders' equity 244.8 204.4
Total liabilities and stockholders' equity $5,257.3 $5,089.9
</TABLE>
2
<PAGE>
AMERICAN ANNUITY GROUP, INC. 10-Q
AMERICAN ANNUITY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENT
(In millions, except per share amounts)
<TABLE>
<CAPTION>
Three months ended
March 31,
1995 1994
<S> <C> <C>
Revenues:
Net investment income $95.9 $90.4
Realized gains on sales of investments 0.1 0.6
Equity in net earnings of affiliate 1.6 1.6
Other income 0.6 0.3
98.2 92.9
Costs and Expenses:
Benefits to annuity policyholders 64.3 59.2
Interest on borrowings and other debt expenses 4.6 6.0
Amortization of deferred policy acquisition costs 1.8 1.7
Other operating and general expenses 10.0 9.3
80.7 76.2
Income before income taxes, extraordinary item and
cumulative effect of accounting change 17.5 16.7
Provision for income taxes 6.1 5.9
Income before extraordinary item and
cumulative effect of accounting change 11.4 10.8
Extraordinary item, net of tax - (1.1)
Cumulative effect of accounting change, net of tax - (0.5)
Net Income $11.4 $ 9.2
Preferred dividend requirement - 0.9
Net income applicable to Common Stock $11.4 $ 8.3
Average Common Shares outstanding 39.1 35.1
Earnings (loss) per common share:
Continuing operations $0.29 $0.28
Extraordinary items - (0.03)
Cumulative effect of accounting change - (0.01)
Net income $0.29 $0.24
</TABLE>
3
<PAGE>
AMERICAN ANNUITY GROUP, INC. 10-Q
AMERICAN ANNUITY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(In millions)
Three months ended
March 31,
1995 1994
Preferred Stock:
Balance at beginning of period $ - $ 29.9
Exchanged for Common Stock - (30.0)
Accretion of discount - 0.1
Balance at end of period $ - $ -
Common Stock:
Balance at beginning of period $ 39.1 $ 35.1
Issued during the period - 4.0
Balance at end of period $ 39.1 $ 39.1
Capital Surplus:
Balance at beginning of period $330.8 $301.0
Common Stock issuance - 33.0
Preferred dividends declared - (0.8)
Accretion of preferred stock discount - (0.1)
Balance at end of period $330.8 $333.1
Retained Earnings (Deficit):
Balance at beginning of period ($136.5) ($172.6)
Net Income 11.4 9.2
Balance at end of period ($125.1) ($163.4)
Unrealized Gains (Losses), Net:
Balance at beginning of period ($ 29.0) $ 56.9
Change during period 29.0 (32.2)
Balance at end of period $ - $ 24.7
4
<PAGE>
AMERICAN ANNUITY GROUP, INC. 10-Q
AMERICAN ANNUITY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(In millions)
<TABLE>
<CAPTION>
Three months ended
March 31,
1995 1994
<S> <C> <C>
Operating activities:
Net income $ 11.4 $ 9.2
Adjustments:
Extraordinary losses on retirement of debt - 1.1
Cumulative effect of accounting change - 0.5
Benefits to annuity policyholders 64.3 59.2
Amortization of deferred policy acquisition costs 1.8 1.7
Equity in net earnings of affiliate (1.6) (1.6)
Depreciation and amortization 0.6 (2.2)
Realized gains on investing activities (0.1) (0.6)
Increase in accrued investment income (5.1) (8.7)
Increase in deferred policy acquisition costs (8.8) (6.4)
Increase in accounts payable, accrued
expenses and other liabilities 2.1 (6.0)
Other, net 1.0 (0.5)
65.6 45.7
Investing activities:
Purchases of:
Fixed maturity investments (181.6) (408.7)
Real estate, mortgage loans and other assets (1.7) (3.1)
Maturities and paydowns of fixed maturity investments 29.4 53.6
Sales of:
Fixed maturity investments 43.4 241.8
Equity securities 1.0 0.5
Real estate, mortgage loans and other assets 2.3 9.9
Increase in policy loans (3.5) (1.6)
(110.7) (107.6)
Financing activities:
Annuity receipts 119.4 94.9
Annuity surrenders, benefits and withdrawals (99.4) (86.4)
Additions to notes payable 2.5 3.0
Reductions of notes payable (11.5) -
11.0 11.5
Net decrease in cash and short-term investments (34.1) (50.4)
Cash and short-term investments at beginning of period 62.7 72.0
Cash and short-term investments at end of period $ 28.6 $ 21.6
</TABLE>
5
<PAGE>
AMERICAN ANNUITY GROUP, INC. 10-Q
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. Accounting Policies
Basis of Presentation The accompanying consolidated financial
statements for American Annuity Group, Inc. ("AAG" or the "Company") and
subsidiaries are unaudited, but management believes that all adjustments
(consisting only of normal recurring accruals unless otherwise disclosed
herein) necessary for fair presentation have been made. The results of
operations for interim periods are not necessarily indicative of results
to be expected for the year. The financial statements have been
prepared in accordance with the instructions to Form 10-Q and therefore
do not include all information and footnotes necessary to be in
conformity with generally accepted accounting principles. Certain
reclassifications have been made to prior periods to conform to the
current year's presentation.
On April 3, 1995, American Premier Group, Inc. acquired 100% of the
common stock (79% of the voting stock) of American Financial Corporation
("AFC"). American Premier and its subsidiaries owned 31,872,721 shares
(81%) of AAG's Common Stock at April 30, 1995.
Investments When available, fair values for investments are based on
prices quoted in the most active market for each security. If quoted
prices are not available, fair value is estimated based on present
values, fair values of comparable securities, or similar methods.
AAG implemented Statement of Financial Accounting Standards ("SFAS") No.
115, "Accounting for Certain Investments in Debt and Equity Securities",
beginning December 31, 1993. This standard requires that (i) debt
securities be classified as "held to maturity" and reported at amortized
cost if AAG has the positive intent and ability to hold them to
maturity, (ii) debt and equity securities be classified as "trading" and
reported at fair value, with unrealized gains and losses included in
earnings, if they are bought and held principally for selling in the
near term and (iii) debt and equity securities not classified as held to
maturity or trading be classified as "available for sale" and reported
at fair value, with unrealized gains and losses reported as a separate
component of stockholders' equity. Only in certain limited
circumstances, such as significant issuer credit deterioration or if
required by insurance or other regulators, may a company change its
intent to hold a certain security to maturity without calling into
question its intent to hold other debt securities to maturity in the
future.
Short-term investments are carried at cost; mortgage loans on real
estate are generally carried at amortized cost; policy loans are stated
at the aggregate unpaid balance. Carrying amounts of these investments
approximate their fair value.
Gains or losses on sales of securities are recognized at the time of
disposition with the amount of gain or loss determined on the specific
identification basis. When a decline in the value of a specific
investment is considered to be other than temporary, a provision for
impairment is charged to earnings and the carrying value of that
investment is reduced. Premiums and discounts on CMOs are amortized
over their expected average lives using the interest method.
6
<PAGE>
AMERICAN ANNUITY GROUP, INC. 10-Q
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Investment in Affiliate AAG's investments in equity securities of
companies that are 20% to 50% owned by AFC and its subsidiaries are
carried at cost, adjusted for a proportionate share of their
undistributed earnings or losses.
Deferred Policy Acquisition Costs ("DPAC") DPAC (principally
commissions, advertising, policy issuance and sales expenses that vary
with and are primarily related to the production of new business) is
deferred and amortized, with interest, in relation to the present value
of expected gross profits on the policies. These gross profits consist
principally of net investment income and future surrender charges, less
interest on policyholders' funds and future policy administration
expenses. DPAC is reported net of unearned revenue relating to certain
policy charges that represent compensation for future services. These
unearned revenues are recognized as income using the same assumptions
and factors used to amortize DPAC.
To the extent that unrealized gains (losses) from securities classified
as "available for sale" would result in adjustments to DPAC, unearned
revenues and policyholder liabilities had those gains (losses) actually
been realized, such balance sheet amounts are adjusted, net of deferred
taxes.
Annuity Policyholders' Funds Accumulated Annuity receipts and benefit
payments are generally recorded as increases or decreases in "annuity
policyholders' funds accumulated" rather than as revenue and expense.
Increases in this liability for interest credited are charged to expense
and decreases for surrender charges are credited to other income.
Income Taxes AAG and its 80%-owned subsidiaries are consolidated with
AFC for federal income tax purposes.
AAG and Great American Life Insurance Company ("GALIC") have separate
tax allocation agreements with AFC which designate how tax payments are
shared by members of the tax group. In general, both companies compute
taxes on a separate return basis. GALIC is obligated to make payments
to (or receive benefits from) AFC based on taxable income without regard
to temporary differences. In accordance with terms of AAG's indentures,
AAG receives GALIC's tax allocation payments for the benefit of AAG's
deductions arising from current operations. If GALIC's taxable income
(computed on a statutory accounting basis) exceeds a current period net
operating loss of AAG, the taxes payable by GALIC associated with the
excess are payable to AFC. If the AFC tax group utilizes any of AAG's
net operating losses or deductions that originated prior to 1993, AFC
will pay to AAG an amount equal to the benefit received.
The Company recognizes deferred tax assets if it is more likely than not
that a benefit will be realized. Deferred income tax assets and
liabilities are determined based on differences between financial
reporting and tax bases and are measured using enacted tax rates.
Current and deferred tax assets and liabilities are aggregated with
other amounts receivable or payable to affiliates.
Statement of Cash Flows For cash flow purposes, "investing activities"
are defined as making and collecting loans and acquiring and disposing
of debt or equity instruments and property and equipment. "Financing
activities" include annuity receipts, surrenders and withdrawals and
7
<PAGE>
AMERICAN ANNUITY GROUP, INC. 10-Q
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
obtaining resources from owners andproviding them with a return on their
investments. All other activities are considered "operating". Short
term investments having original maturities of three months or less when
purchased are considered to be cash equivalents for purposes of
financial statements.
Benefit Plans AAG and certain of its subsidiaries provide certain
benefits to former employees. Effective January 1, 1994, AAG
implemented SFAS No. 112, "Employers' Accounting for Postemployment
Benefits".
AAG sponsors an Employee Stock Ownership Retirement Plan ("ESORP")
covering all employees who are qualified as to age and length of
service. The ESORP, which invests primarily in securities of AAG, is a
trusteed, noncontributory plan for the benefit of the employees of AAG
and its participating subsidiaries. Contributions are discretionary by
the directors of AAG and are charged against earnings in the year for
which they are declared. Qualified employees having vested rights in
the plan are entitled to benefit payments at age 60.
B. Investments
The carrying value of AAG's fixed maturity portfolio was comprised of
the following at March 31, 1995:
Held toAvailable
Maturity for Sale Total
U. S. Government and government
agencies and authorities 0% 2% 2%
Public utilities 10 1 11
Mortgage-backed securities 15 13 28
All other corporate 46 13 59
71% 29% 100%
"Investing activities" related to fixed maturity investments during
1995 in AAG's Statement of Cash Flows consisted of the following:
Held toAvailable
Maturity for Sale Total
Purchases ($69.9) ($111.7) ($181.6)
Maturities and paydowns 12.7 16.7 29.4
Sales - 43.4 43.4
C. Investment in Affiliate
Investment in affiliate reflects AAG's 5% ownership (2.7 million
shares) of the common stock of Chiquita Brands International
("Chiquita") which is accounted for under the equity method. AFC and
its other subsidiaries own an additional 40% interest in the common
stock of Chiquita. Chiquita is a leading international marketer,
processor and producer of quality food products. The market value of
AAG's investment in Chiquita was approximately $34 million at March 31,
1995, compared to $36 million at December 31, 1994.
8
<PAGE>
AMERICAN ANNUITY GROUP, INC. 10-Q
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
D. Deferred Policy Acquisition Costs
The DPAC balances at March 31, 1995 and December 31, 1994 are shown net
of unearned revenues of $157.1 million and $158.8 million,
respectively.
E. Notes Payable
Notes payable consisted of the following (in millions):
<TABLE>
<CAPTION>
March 31, December 31,
<S> <C> <C>
AAG (Parent Company): 1995 1994
11-1/8% Senior Subordinated Notes due 2003 $103.9 $103.9
9-1/2% Senior Notes due 2001 41.5 44.0
Bank Credit Line due 1998 23.5 30.0
Subsidiary debt 5.3 5.4
Total $174.2 $183.3
</TABLE>
In January 1995, AAG repurchased $2.5 million principal amount of its
notes payable, realizing no material gain or loss.
AAG has no scheduled principal payments on its 9-1/2% Notes and 11-1/8%
Notes until 2001; its Bank Credit Line matures in 1998.
F. Stockholders' Equity
The Company is authorized to issue 25,000,000 shares of Preferred Stock,
par value $1.00 per share.
On March 31, 1994, AAG issued approximately 3.2 million shares of Common
Stock in exchange for its outstanding Series A Preferred Stock. The
Preferred shares had a redemption value of $100 per share and paid
dividends at the rate of $7.00 per share per annum.
G. Contingencies
The Company is continuing its investigations and clean-up activities in
accordance with consent agreements with state environmental agencies.
Based on the costs incurred over the past several years and discussions
with independent environmental consultants, management does not believe
that these clean-up activities will have a material effect upon the
Company's financial position, results of operations or cash flows.
In 1991, the Company identified possible deficiencies in procedures for
reporting quality assurance information to the Defense Electronics
Supply Center ("DESC") with respect to the Company's former
manufacturing operations. Over the last several years, the Company has
been engaged in negotiations with the United States Government with
respect to the settlement of claims the Government might have arising
out of the reporting deficiencies. Based on these negotiations, the
Company believed it had sufficient reserves to cover the estimated
settlement amount. In March 1995, the Company received notification
from the government indicating additional reporting deficiencies. The
Company is in the process of evaluating this information and is unable
to ascertain the validity of these new claims or the amounts involved.
It is impossible to determine the impact, if any, of these alleged
claims on the Company and its financial condition.
9
<PAGE>
AMERICAN ANNUITY GROUP, INC. 10-Q
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
H. Statutory Information
GALIC is required to file financial statements with state insurance
regulatory authorities prepared on an accounting basis prescribed or
permitted by such authorities (statutory basis). For the three months
ended March 31, 1995, GALIC's statutory net income was $12.9 million
compared to $14.7 million for the same period in 1994. Certain
statutory balance sheet amounts were as follows (in millions):
March 31, December 31,
1995 1994
Policyholders' surplus $254.3 $255.9
Asset valuation reserve 77.0 79.5
Interest maintenance reserve 26.1 27.7
The amount of dividends which can be paid by GALIC without prior
approval of regulatory authorities is subject to restrictions relating
to capital and surplus and statutory net income. Based on earned
surplus at December 31, 1994, GALIC may pay approximately $49.7 million
in dividends in 1995 without prior approval. In the first three months
of 1995, AAG received $16.8 million in capital distributions from GALIC.
10
<PAGE>
AMERICAN ANNUITY GROUP, INC. 10-Q
Management's Discussion and Analysis
of Financial Condition and Results of Operations
GENERAL
AAG is organized as a holding company with nearly all of its operations
being conducted by Great American Life Insurance Company ("GALIC"). The
parent corporation, however, has continuing expenditures for administrative
expenses, corporate services, liabilities in connection with discontinued
operations and, most importantly, for the payment of interest and principal
on borrowings. Since its continuing business is financial in nature, AAG
does not prepare its consolidated financial statements using a current-
noncurrent format. Consequently, certain traditional ratios and financial
analysis tests are not meaningful.
LIQUIDITY AND CAPITAL RESOURCES
Ratios AAG's ratio of earnings to fixed charges was 4.5 for the first
quarter of 1995 compared to 3.4 for the first quarter of 1994. The ratio of
AAG's consolidated debt to equity, excluding the effects of unrealized gains
and losses on stockholders' equity, was .71 at March 31, 1995, compared to
.79 at December 31, 1994 and 1.17 at December 31, 1993. These same ratios
including the effects of unrealized gains and losses were .71, .90, and .90,
respectively.
The National Association of Insurance Commissioners ("NAIC") has adopted a
model law enacting risk-based capital ("RBC") formulas and setting
thresholds for regulatory action. At March 31, 1995, GALIC's capital ratios
significantly exceeded RBC requirements.
Sources and Uses of Funds AAG's ability to make payments of interest and
principal on its debt and other holding company costs is dependent on
payments from GALIC in the form of capital distributions and income tax
payments. Through March 31, 1995, $23.1 million in such payments had been
received from GALIC.
The amount of capital distributions which can be paid by GALIC is subject to
restrictions relating to capital and surplus and statutory net income. In
addition, any dividend or distribution paid from other than earned surplus
is considered an extraordinary dividend and may be paid only after prior
regulatory approval. The maximum amount of dividends payable by GALIC in
1995 without prior regulatory approval is approximately $49.7 million, of
which $16.8 million was paid in the first quarter of 1995.
AAG has a $50 million revolving bank line with three banks under which $23.5
million was outstanding at March 31, 1995. Amounts outstanding under this
agreement bear interest at variable rates tied to either Prime or LIBOR, at
the discretion of the Company. Borrowings thereunder may be used for
general corporate purposes. AAG has used the amounts borrowed under the
bank line primarily to repurchase its outstanding debt.
Based upon the current level of operations and anticipated growth, AAG
believes that it will have sufficient resources to meet its liquidity
requirements.
11
<PAGE>
AMERICAN ANNUITY GROUP, INC. 10-Q
Management's Discussion and Analysis
of Financial Condition and Results of Operations - Continued
Investments The Ohio Insurance Code contains rules restricting the types
and amounts of investments which are permissible for Ohio life insurers.
These rules are designed to ensure the safety and liquidity of insurers'
investment portfolios. The National Association of Insurance Commissioners
("NAIC") is considering the formulation of a model investment law which, if
adopted, would have to be considered by Ohio for adoption. The formulation
is in the preliminary stages and management believes its impact on AAG's
operations will not be material.
The NAIC assigns quality ratings to publicly traded as well as privately
placed securities. These ratings range from Class 1 (highest quality) to
Class 6 (lowest quality). The following table shows the Company's fixed
maturity portfolio by NAIC designation (and comparable Standard & Poor's
Corporation rating) as of March 31, 1995:
NAIC % of Total
Rating Comparable S&P Rating Market Value
1 AAA, AA, A 60%
2 BBB 34
Total investment grade 94
3 BB 4
4 B 2
5 CCC, CC, C *
6 D 0
Total non-investment grade 6
Total fixed maturities 100%
[FN]
* less than 1%
Management believes that AAG's high quality investment portfolio should
generate a stable and predictable overall investment return.
AAG invests primarily in fixed income investments which, including loans and
short-term investments, comprised over 98% of its investment portfolio at
March 31, 1995. AAG generally invests in securities with intermediate-term
maturities with an objective of optimizing interest yields while maintaining
an appropriate relationship of maturities between AAG's assets and expected
liabilities. AAG's fixed maturity portfolio is classified into two
categories: "held to maturity" and "available for sale" (see Note A to the
financial statements).
As of March 31, 1995, the pretax unrealized loss on AAG's fixed maturity
portfolio had decreased approximately $178 million since year end 1994.
This decrease, representing approximately 4% of the carrying value of AAG's
bond portfolio, resulted primarily due to a decrease in the general level of
interest rates.
At March 31, 1995, none of the Company's fixed maturity investments were
non-performing. In addition, AAG has little exposure to mortgage loans and
real estate, which represented only 1.4% of total assets at March 31, 1995.
The majority of mortgage loans and real estate was purchased within the last
two years.
12
<PAGE>
AMERICAN ANNUITY GROUP, INC. 10-Q
Management's Discussion and Analysis
of Financial Condition and Results of Operations - Continued
At March 31, 1995, AAG's mortgage-backed securities portfolio, which
consisted primarily of collateralized mortgage obligations ("CMOs"),
represented approximately 28% of fixed maturity investments. As of March
31, 1995, interest only (I/O), principal only (P/O) and other "high risk"
CMOs were less than three tenths of one percent of total assets. AAG
invests primarily in CMOs which are structured to minimize prepayment risk.
In addition, the majority of CMOs held by AAG were purchased at a discount
to par value. Management believes that the structure and discounted nature
of the CMOs will minimize the effect of prepayments on earnings over the
anticipated life of the CMO portfolio.
Substantially all of AAG's CMOs are AAA-rated by Standard & Poor's
Corporation and are collateralized primarily by GNMA, FNMA and FHLMC single-
family residential pass-through certificates. The market in which these
securities trade is highly liquid. Aside from interest rate risk, AAG does
not believe a material risk (relative to earnings or liquidity) is inherent
in holding such investments.
RESULTS OF OPERATIONS
Pretax Earnings and General Pretax earnings from operations (before
realized gains and non-recurring charges) were $17.4 million in the first
three months of 1995 compared to $16.1 million for the same period in 1994.
This improvement can be attributed to the growth in invested assets.
The following table summarizes GALIC's annuity receipts (in millions):
Three months ended
March 31,
1995 1994
Flexible Premium Deferred Annuities:
First Year $ 11 $ 11
Renewal 53 55
64 66
Single Premium Deferred Annuities 55 29
Total annuity receipts $119 $ 95
Annuity premiums increased 25% during the first quarter of 1995 compared to
the same period in 1994 due to strong growth in sales of single premium
products.
All of GALIC's products are fixed rate annuities which permit GALIC to
change the crediting rate at any time (subject to minimum interest rate
guarantees of 3% to 4% per annum). As a result, management has been able to
react to changes in interest rates and maintain a desired interest rate
spread with little or no effect on persistency.
Net Investment Income Net investment income increased 6% over the
comparable three month period in 1994 due primarily to an increase in the
Company's average fixed maturity investment base. Investment income is
reflected net of investment expenses of $1.2 million in 1995 and 1994.
13
<PAGE>
AMERICAN ANNUITY GROUP, INC. 10-Q
Management's Discussion and Analysis
of Financial Condition and Results of Operations - Continued
Realized Gains Individual securities are sold from time to time as market
opportunities appear to present optimal situations under AAG's investment
strategies.
Equity in Net Earnings of Affiliate Chiquita's quarterly results are
subject to significant seasonal variations and are not necessarily
indicative of its results of operations for a full fiscal year. Seasonal
pricing generally produces stronger earnings in the first six months of the
year.
Benefits to Annuity Policyholders Benefits to annuity policyholders
increased 9% over the comparable three month period in 1994 due primarily to
an increase in average annuity policyholder funds accumulated. The rate at
which GALIC credits interest on annuity policyholders' funds is subject to
change based on management's judgment of market conditions.
Interest on Borrowings and Other Debt Expenses Interest expense decreased
23% in the first quarter of 1995 compared to the same period in 1994 due to
debt repurchases throughout 1994.
Other Operating and General Expenses Other operating and general expenses
increased by $700,000 in the first quarter of 1995 compared to the same
period in 1994 due primarily to an increase in marketing expenses related to
new distribution channels.
Extraordinary Items On March 31, 1994, AAG retired approximately $7.1
million principal amount of its 11-1/8% Senior Subordinated Notes realizing
a pretax loss of approximately $570,000. In addition, AAG recorded a pretax
charge of approximately $1.1 million in the first quarter of 1994,
representing AAG's proportionate share of Chiquita's extraordinary loss on
the retirement of certain of its debt in the first quarter of 1994.
Accounting Change Effective January 1, 1994, AAG implemented SFAS No. 112,
"Employers' Accounting for Postemployment Benefits", and recorded a pretax
charge of $740,000 for the projected future costs of providing certain
benefits to former employees of GALIC.
14
<PAGE>
AMERICAN ANNUITY GROUP, INC. 10-Q
PART II
OTHER INFORMATION
Item 6 - Exhibits and reports on Form 8-K
(a) Exhibit 27 - Financial Data Schedule as of March 31, 1995. For
submission in electronic filing only.
(b) Report on Form 8-K - None.
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 duly authorized.
American Annuity Group, Inc.
May 12, 1995 BY:/s/William J. Maney
William J. Maney
Senior Vice President, Treasurer
and Chief Financial Officer
15
<TABLE> <S> <C>
<ARTICLE> 7
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1995
<DEBT-HELD-FOR-SALE> 1,360,900
<DEBT-CARRYING-VALUE> 3,352,400
<DEBT-MARKET-VALUE> 3,265,100
<EQUITIES> 19,100
<MORTGAGE> 45,200
<REAL-ESTATE> 28,700
<TOTAL-INVEST> 5,031,700
<CASH> 14,400
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 68,700
<TOTAL-ASSETS> 5,257,300
<POLICY-LOSSES> 0
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 4,706,300
<NOTES-PAYABLE> 174,200
<COMMON> 39,100
0
0
<OTHER-SE> 205,700
<TOTAL-LIABILITY-AND-EQUITY> 5,257,300
0
<INVESTMENT-INCOME> 95,900
<INVESTMENT-GAINS> 100
<OTHER-INCOME> 600
<BENEFITS> 64,300
<UNDERWRITING-AMORTIZATION> 1,800
<UNDERWRITING-OTHER> 0
<INCOME-PRETAX> 17,500
<INCOME-TAX> 6,100
<INCOME-CONTINUING> 11,400
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,400
<EPS-PRIMARY> 0.29
<EPS-DILUTED> 0.29
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
