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
September 30, 1997 No. 1-11453
AMERICAN FINANCIAL GROUP, INC.
Incorporated under IRS Employer I.D.
the Laws of Ohio No. 31-1422526
One East Fourth Street, Cincinnati, Ohio 45202
(513) 579-2121
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 November 1, 1997, there were 58,752,219 shares of the
Registrant's Common Stock outstanding, excluding 18,666,614 shares
owned by subsidiaries.
Page 1 of 19
<PAGE>
AMERICAN FINANCIAL GROUP, INC. 10-Q
PART I
FINANCIAL INFORMATION
AMERICAN FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Dollars In Thousands)
September 30, December 31,
1997 1996
Assets
Cash and short-term investments $ 353,951 $ 448,296
Investments:
Bonds and redeemable preferred stocks:
Held to maturity - at amortized cost
(market - $3,318,500 and $3,528,100) 3,250,282 3,491,126
Available for sale - at market
(amortized cost - $7,051,321 and $6,362,597) 7,307,421 6,494,597
Other stocks - principally at market
(cost - $110,812 and $142,364) 401,112 327,664
Investment in investee corporations 219,044 199,651
Loans receivable 542,763 568,765
Real estate and other investments 217,513 208,765
Total investments 11,938,135 11,290,568
Recoverables from reinsurers and prepaid
reinsurance premiums 1,001,615 942,450
Agents' balances and premiums receivable 709,882 609,403
Deferred acquisition costs 481,859 452,041
Other receivables 260,189 272,595
Deferred tax asset 12,384 137,284
Assets held in separate accounts 280,461 247,579
Prepaid expenses, deferred charges and other
assets 374,780 372,321
Cost in excess of net assets acquired 269,850 278,581
$15,683,106 $15,051,118
Liabilities and Capital
Unpaid losses and loss adjustment expenses $ 4,199,056 $ 4,123,701
Unearned premiums 1,336,031 1,247,806
Annuity benefits accumulated 5,505,794 5,365,612
Life, accident and health reserves 600,105 575,380
Long-term debt:
Holding companies 243,719 339,504
Subsidiaries 147,134 178,415
Liabilities related to separate accounts 280,461 247,579
Accounts payable, accrued expenses and other
liabilities 987,542 924,244
Total liabilities 13,299,842 13,002,241
Minority interest 671,989 494,440
<PAGE>
Shareholders' Equity:
Common Stock, $1 par value
- 200,000,000 shares authorized
- 58,974,057 and 61,071,626 shares outstanding 58,974 61,072
Capital surplus 721,668 745,649
Retained earnings 612,433 559,716
Net unrealized gain on marketable securities,
net of deferred income taxes 318,200 188,000
Total shareholders' equity 1,711,275 1,554,437
$15,683,106 $15,051,118
2
<PAGE>
AMERICAN FINANCIAL GROUP, INC. 10-Q
AMERICAN FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF EARNINGS
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Income:
Property and casualty insurance
premiums $ 739,858 $ 718,826 $2,102,001 $2,162,634
Life, accident and health premiums 32,149 24,809 84,845 80,323
Investment income 218,684 212,614 646,178 627,489
Realized gains on sales of securities 29,682 3,161 35,693 24,604
Equity in net earnings (losses) of
investee corporations (13,914) (3,361) 18,094 22,505
Gain on sale of investee corporation - 169,376 - 169,376
Gains on sales of subsidiaries - - 731 36,837
Other income 28,347 38,088 80,633 103,424
1,034,806 1,163,513 2,968,175 3,227,192
Costs and Expenses:
Property and casualty insurance:
Losses and loss adjustment expenses 545,915 616,294 1,510,426 1,655,634
Commissions and other underwriting
expenses 208,975 187,486 586,580 596,505
Annuity benefits 72,868 69,514 212,305 206,319
Life, accident and health benefits 28,250 21,742 78,238 70,212
Interest charges on borrowed money 12,879 17,843 40,433 61,243
Minority interest expense 16,794 17,024 46,851 37,327
Other operating and general expenses 91,657 82,838 238,882 244,351
977,338 1,012,741 2,713,715 2,871,591
Earnings before income taxes and
extraordinary items 57,468 150,772 254,460 355,601
Provision for income taxes 23,801 29,196 96,396 94,484
Earnings before extraordinary items 33,667 121,576 158,064 261,117
Extraordinary items - loss on prepayment
of debt (6,973) (8,411) (7,051) (25,912)
Net Earnings $ 26,694 $ 113,165 $ 151,013 $ 235,205
Earnings (loss) per Common Share:
Before extraordinary items $.57 $2.00 $2.65 $4.30
Extraordinary items (.12) (.14) (.12) (.43)
Net earnings $.45 $1.86 $2.53 $3.87
Average number of Common Shares 58,939 60,954 59,747 60,722
</TABLE>
3
<PAGE>
AMERICAN FINANCIAL GROUP, INC. 10-Q
AMERICAN FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(In Thousands)
Nine months ended
September 30,
1997 1996
Operating Activities:
Net earnings $ 151,013 $ 235,205
Adjustments:
Extraordinary items 7,051 25,912
Depreciation and amortization 51,202 50,724
Annuity benefits 212,144 206,319
Equity in net earnings of investee corporations (18,094) (22,505)
Changes in reserves on assets (102) 11,866
Realized gains on investing activities (36,102) (230,142)
Decrease (increase) in reinsurance and other
receivables (216,610) 47,854
Decrease in other assets 64,850 31,117
Increase in insurance claims and reserves 188,305 62,453
Decrease in other liabilities (86,022) (131,959)
Increase in minority interest 16,542 13,993
Dividends from investees 3,600 3,600
Other, net (17,590) (7,014)
320,187 297,423
Investing Activities:
Purchases of and additional investments in:
Fixed maturity investments (1,816,909) (1,522,674)
Equity securities (22,783) (9,270)
Investees and subsidiaries (4,900) -
Real estate, property and equipment (35,396) (25,629)
Maturities and redemptions of fixed maturity
investments 535,178 455,315
Sales of:
Fixed maturity investments 935,942 587,677
Equity securities 85,677 32,687
Investees and subsidiaries 2,500 286,648
Real estate, property and equipment 2,792 7,438
Cash and short-term investments of former
subsidiaries (70) (4,589)
Increase in other investments (4,448) (9,438)
(322,417) (201,835)
<PAGE>
Financing Activities:
Annuity receipts 369,731 410,203
Annuity payments (439,818) (372,005)
Additional long-term borrowings 63,090 278,275
Reductions of long-term debt (110,494) (515,253)
Issuances of Common Stock 4,835 15,320
Repurchases of Common Stock (84,226) (8,563)
Issuances of trust preferred securities 149,353 -
Cash dividends paid (44,586) (45,482)
(92,115) (237,505)
Net Decrease in Cash and Short-term Investments (94,345) (141,917)
Cash and short-term investments at beginning
of period 448,296 544,408
Cash and short-term investments at end of period $ 353,951 $ 402,491
4
<PAGE>
AMERICAN FINANCIAL GROUP, INC. 10-Q
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. Accounting Policies
Basis of Presentation The accompanying consolidated financial
statements for American Financial Group, Inc. ("AFG") and
subsidiaries are unaudited; however, 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 years to
conform to the current year's presentation. All significant
intercompany balances and transactions have been eliminated.
All acquisitions have been treated as purchases. The results of
operations of companies since their formation or acquisition are
included in the consolidated financial statements.
The preparation of the financial statements requires management
to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes.
Changes in circumstances could cause actual results to differ
materially from those estimates.
AFG's ownership of subsidiaries and significant investees with
publicly traded common shares was as follows:
September 30, December 31,
1997 1996 1995
American Annuity Group, Inc. ("AAG") 81% 81% 81%
American Financial Enterprises, Inc. ("AFEI") 81% 83% 83%
Chiquita Brands International, Inc. 40% 43% 44%
Citicasters Inc. (a) (a) 38%
(a) Sold in September 1996.
Investments Debt securities are classified as "held to maturity" and
reported at amortized cost if AFG has the positive intent and ability
to hold them to maturity. Debt and equity securities are classified as
"available for sale" and reported at fair value with unrealized gains
and losses reported as a separate component of shareholders' equity if
the securities are not classified as held to maturity or bought and held
principally for selling in the near term. 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.
<PAGE>
Premiums and discounts on mortgage-backed securities are amortized
over their expected average lives using the interest method. 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.
Short-term investments are carried at cost; loans receivable are
stated primarily at the aggregate unpaid balance.
5
<PAGE>
AMERICAN FINANCIAL GROUP, INC. 10-Q
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Investment in Investee Corporations Investments in securities of
20%- to 50%-owned companies are carried at cost, adjusted for AFG's
proportionate share of their undistributed earnings or losses.
Investments in less than 20%-owned companies are accounted for by the
equity method when, in the opinion of management, AFG can exercise
significant influence over operating and financial policies of the
investee.
Cost in Excess of Net Assets Acquired The excess of cost of
subsidiaries and investees over AFG's equity in the underlying
net assets ("goodwill") is being amortized over 40 years. The
excess of AFG's equity in the net assets of other subsidiaries
and investees over its cost of acquiring these companies
("negative goodwill") is allocated to AFG's basis in these
companies' fixed assets, goodwill and other long-term assets and
is amortized on a 10- to 40-year basis.
Insurance As discussed under "Reinsurance" below, unpaid losses
and loss adjustment expenses and unearned premiums have not been
reduced for reinsurance recoverable.
Reinsurance In the normal course of business, AFG's insurance
subsidiaries cede reinsurance to other companies to diversify
risk and limit maximum loss arising from large claims. To the
extent that any reinsuring companies are unable to meet
obligations under the agreements covering reinsurance ceded,
AFG's insurance subsidiaries would remain liable. Amounts
recoverable from reinsurers are estimated in a manner consistent
with the claim liability associated with the reinsurance
policies. AFG's insurance subsidiaries report as assets (a) the
estimated reinsurance recoverable on unpaid losses, including an
estimate for losses incurred but not reported, and (b) amounts
paid to reinsurers applicable to the unexpired terms of policies
in force. AFG's insurance subsidiaries also assume reinsurance
from other companies. Income on reinsurance assumed is
recognized based on reports received from ceding reinsurers.
Deferred Acquisition Costs Policy acquisition costs (principally
commissions, premium taxes and other underwriting expenses) related
to the production of new business are deferred ("DPAC"). For the
property and casualty companies, the deferral of acquisition costs
is limited based upon their recoverability without any consideration
for anticipated investment income. DPAC is charged against income
ratably over the terms of the related policies. For the annuity
companies, DPAC is amortized, with interest, in relation to the
present value of expected gross profits on the policies.
<PAGE>
Unpaid Losses and Loss Adjustment Expenses The net liabilities
stated for unpaid claims and for expenses of investigation and
adjustment of unpaid claims are based upon (a) the accumulation
of case estimates for losses reported prior to the close of the
accounting period on the direct business written; (b) estimates
received from ceding reinsurers and insurance pools and
associations; (c) estimates of unreported losses based on past
experience; (d) estimates based on experience of expenses for
investigating and adjusting claims and (e) the current state of
the law and coverage litigation. These liabilities are subject
to the impact of changes in claim amounts and frequency and
other factors. In spite of the variability inherent in such
estimates, management believes that the liabilities for unpaid
losses and loss adjustment expenses are adequate. Changes in
estimates of the liabilities for losses and loss adjustment
expenses are reflected in the Statement of Earnings in the
period in which determined.
6
<PAGE>
AMERICAN FINANCIAL GROUP, INC. 10-Q
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Annuity Benefits Accumulated Annuity receipts and benefit payments
are recorded as increases or decreases in "annuity benefits 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.
Life, Accident and Health Reserves Liabilities for future policy
benefits under traditional ordinary life, accident and health policies
are computed using a net level premium method. Computations are based
on anticipated investment yields, mortality, morbidity and surrenders
and include provisions for unfavorable deviations. Reserves are
modified as necessary to reflect actual experience and developing trends.
Assets Held In and Liabilities Related to Separate Accounts Investment
annuity deposits and related liabilities represent primarily deposits
maintained by several banks under a previously offered tax-deferred
annuity program. AAG receives an annual fee from each bank for
sponsoring the program; if depositors elect to purchase an annuity
from AAG, funds are transferred to AAG.
Premium Recognition Property and casualty premiums are earned over
the terms of the policies on a pro rata basis. Unearned premiums
represent that portion of premiums written which is applicable to
the unexpired terms of policies in force. On reinsurance assumed
from other insurance companies or written through various
underwriting organizations, unearned premiums are based on reports
received from such companies and organizations. For traditional
life, accident and health products, premiums are recognized as
revenue when legally collectible from policyholders. For
interest-sensitive life and universal life products, premiums are
recorded in a policyholder account which is reflected as a liability.
Revenue is recognized as amounts are assessed against the policyholder
account for mortality coverage and contract expenses.
Policyholder Dividends Dividends payable to policyholders are
included in "Accounts payable, accrued expenses and other liabilities"
and represent estimates of amounts payable on participating policies
which share in favorable underwriting results. The estimate is accrued
during the period in which the related premium is earned. Changes in
estimates are included in income in the period determined. Policyholder
dividends do not become legal liabilities unless and until declared by
the boards of directors of the insurance companies.
<PAGE>
Income Taxes American Financial Corporation ("AFC") and
American Premier Underwriters, Inc. ("American Premier" or
"APU") have each filed consolidated federal income tax returns
which include all 80%-owned U.S. subsidiaries, except for certain
life insurance subsidiaries and their subsidiaries. AFG (parent)
has been included in American Premier's consolidated return for
1996. At the close of business on December 31, 1996, AFG contributed
81% of the common stock of American Premier to AFC. Accordingly, AFC
and American Premier will file a single consolidated return for 1997.
Because holders of AFC Preferred Stock hold in excess of 20% of AFC's
voting rights, AFG (parent) owns less than 80% of AFC, and therefore,
will file a separate return.
Deferred income taxes are calculated using the liability method.
Under this method, deferred income tax assets and liabilities
are determined based on differences between financial reporting
and tax bases and are measured using enacted tax rates.
Deferred tax assets are recognized if it is more likely than not
that a benefit will be realized.
7
<PAGE>
AMERICAN FINANCIAL GROUP, INC. 10-Q
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Benefit Plans AFG provides retirement benefits to qualified
employees of participating companies through contributory and
noncontributory defined contribution plans. Contributions to
benefit plans are charged against earnings in the year for which
they are declared. Both AFC and American Premier had
contributory employee savings plans and noncontributory Employee
Stock Ownership Retirement Plans ("ESORP"). Under one of the
savings plans, American Premier matched a specific portion of
employee contributions. Under the ESORP plans, contributions
were invested in securities of AFG and affiliates for the
benefit of AFG employees. In 1997, these ESORP plans were
combined into a new plan.
AFG and many of its subsidiaries provide health care and life
insurance benefits to eligible retirees. AFG also provides
postemployment benefits to former or inactive employees
(primarily those on disability) who were not deemed retired
under other company plans. The projected future cost of
providing these benefits is expensed over the period the
employees qualify for such benefits.
Under AFG's stock option plan, options are granted to officers,
directors and key employees at exercise prices equal to the fair
value of the shares at the dates of grant. No compensation
expense is recognized for stock option grants.
Minority Interest For balance sheet purposes, minority interest
represents the interests of noncontrolling shareholders in AFG
subsidiaries, including AFC preferred stock and preferred
securities issued by trust subsidiaries of AFG. For income
statement purposes, minority interest expense represents those
shareholders' interest in the earnings of AFG subsidiaries as
well as AFC preferred dividends and accrued distributions on the
trust preferred securities.
Earnings Per Share Earnings per share are calculated on the
basis of the weighted average number of shares of common stock
outstanding during the period and the dilutive effect, if
material, of assumed conversion of common stock options.
New accounting standards issued in 1997 revise current rules for
computing and presenting earnings per share beginning with
financial statements issued for periods ending after December
15, 1997. The new rules require the presentation of basic and
diluted earnings per share for entities with potentially
dilutive securities. Implementation of these new rules will not
materially affect AFG's reported earnings per share amounts.
<PAGE>
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
obtaining resources from owners and providing them with a return
on their investments, borrowing money and repaying amounts
borrowed. Annuity receipts, benefits and withdrawals are also
reflected as financing activities. 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 the financial statements.
8
<PAGE>
AMERICAN FINANCIAL GROUP, INC. 10-Q
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
B. Segments of Operations AFG operates its property and casualty
insurance business in three major segments: nonstandard automobile,
specialty lines, and commercial and personal lines. AFG's annuity
and life business primarily sells tax-deferred annuities to employees
of primary and secondary educational institutions and hospitals.
In addition, AFG has owned significant portions of the voting equity
securities of certain companies (investee corporations - see Note C).
The following table (in thousands) shows AFG's revenues by significant
business segment.
Nine months ended September 30,
Revenues 1997 1996
Property and casualty insurance:
Premiums earned:
Nonstandard automobile $ 898,390 $ 900,989
Specialty lines 778,447 742,075
Commercial and personal lines 425,140 519,112
Other lines 24 458
2,102,001 2,162,634
Investment and other income 340,608 423,294
2,442,609 2,585,928
Annuities and life (*) 466,046 437,763
Other 41,426 180,996
2,950,081 3,204,687
Equity in net earnings of investee
corporations 18,094 22,505
$2,968,175 $3,227,192
(*) Represents primarily investment income.
C. Investment in Investee Corporations Investment in investee corporations
reflects primarily AFG's 40% ownership (24 million shares; carrying value
of $214.1 million at September 30, 1997) of Chiquita common stock. The
market value of AFG's investment in Chiquita was $387 million and
$306 million at September 30, 1997 and December 31, 1996, respectively.
Chiquita is a leading international marketer, producer and distributor
of bananas and other quality fresh and processed food products.
Summarized financial information for Chiquita follows (in millions):
Nine months ended September 30,
1997 1996
Net Sales $1,834 $1,880
Operating Income 134 149
Income before Extraordinary Item 56 60
Extraordinary Loss from Debt Refinancings - (23)
Net Income 56 37
In September 1996, AFG sold its investment in Citicasters to Jacor
Communications for approximately $220 million in cash plus warrants to
purchase Jacor common stock. AFG realized a pretax gain of approximately
$169 million, before minority interest of $6.5 million, on the sale.
9
<PAGE>
AMERICAN FINANCIAL GROUP, INC. 10-Q
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
D. Long-Term Debt The carrying value of long-term debt consisted of the
following (in thousands):
September 30, December 31,
1997 1996
Holding Companies:
9-3/4% AFC Debentures due April 2004 $ 80,446 $164,368
9-3/4% APU Subordinated Notes due August 1999 92,299 93,604
10-5/8% APU Subordinated Notes due April 2000 44,676 54,595
10-7/8% APU Subordinated Notes due May 2011 18,158 18,496
Other 8,140 8,441
$243,719 $339,504
Subsidiaries:
AAG notes payable under bank lines due
September 1998 and 1999 $ 56,000 $ 44,700
9-1/2% AAG Senior Notes due August 2001 - 40,845
11-1/8% AAG Senior Subordinated Notes
due February 2003 24,080 24,080
Notes payable secured by real estate 52,120 52,543
Other 14,934 16,247
$147,134 $178,415
In a September 1997 tender offer, AFC retired $82.8 million of its 9-3/4%
Debentures for $90.6 million in cash. In addition, during the first nine
months of 1997, American Premier repurchased $10.1 million of its Notes
for $11.1 million in cash and AAG redeemed all of its outstanding 9-1/2%
Senior Notes for $42.5 million in cash.
At September 30, 1997, sinking fund and other scheduled principal payments
on debt for the balance of 1997 and the subsequent five years were as
follows (in thousands):
Holding
Companies Subsidiaries Total
1997 $ 5,282 $ 670 $ 5,952
1998 - 18,841 18,841
1999 90,903 42,433 133,336
2000 42,967 8,746 51,713
2001 - 1,453 1,453
2002 - 1,458 1,458
Debentures purchased in excess of scheduled payments may be applied to
satisfy any sinking fund requirement. The scheduled principal payments
shown above assume that debentures previously purchased are applied to the
earliest scheduled retirements.
<PAGE>
E. Minority Interest Included in minority interest in AFG's balance sheet
are the following securities.
Trust Issued Preferred Securities In October 1996, a wholly-owned
subsidiary trust of AFG issued 4 million units of 9-1/8% trust originated
preferred securities ("TOPrS") for $100 million cash. The Trust then
purchased $100 million of newly issued AFG 9-1/8% Subordinated Debentures
due 2026, which, along with related interest and principal payments
received, are the only assets of the Trust. Holders of the TOPrS are
entitled to quarterly cash distributions of $.57 per unit; payment dates
and amounts for the TOPrS correspond to those on the Subordinated
Debentures. The TOPrS are mandatorily redeemable upon maturity or
redemption of the Subordinated Debentures. The Subordinated Debentures
are redeemable by AFG on or after October 22, 2001. AFG effectively
provides an unconditional guarantee of the Trust's obligations under the
TOPrS.
10
<PAGE>
AMERICAN FINANCIAL GROUP, INC. 10-Q
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
In November 1996, a wholly-owned subsidiary trust of AAG issued $75 million
of similar TOPrS. The related 9-1/4% Subordinated Debentures of the AAG
subsidiary are due in 2026 and are redeemable on or after November 7, 2001.
Through private transactions completed in March and May 1997, wholly-owned
subsidiary trusts of AAG issued $75 million of 8-7/8% preferred securities
and $75 million of 7-1/4% Remarketed Par Securities ("ROPES"), respectively,
and used the proceeds to purchase the related debentures of their parent
due in 2027 and 2041.
AFC Preferred Stock Outstanding shares of AFC voting preferred stock
consisted of the following (see Note J - "Subsequent Event"):
Series F, $1 par value; $20.00 liquidating value per share; annual
dividends per share $1.80; nonredeemable; 11,900,725 shares (stated
value $145.4 million) outstanding at September 30, 1997 and
December 31, 1996.
Series G, $1 par value; annual dividends per share $1.05; redeemable
at $10.50 per share; 1,964,158 shares (stated value $17.4 million)
outstanding at September 30, 1997 and December 31, 1996.
F. Capital Stock At September 30, 1997, there were 58,974,057 shares of AFG
Common Stock outstanding, including 1,369,635 shares held by American
Premier for distribution to certain creditors and other claimants pursuant
to a plan of reorganization relating to American Premier's predecessor.
AFG is authorized to issue 12.5 million shares of Voting Preferred Stock
and 12.5 million shares of Nonvoting Preferred Stock, each without par
value.
At September 30, 1997, there were 5.3 million shares of AFG Common Stock
reserved for issuance upon exercise of stock options. As of that date, AFG
had options for 3.9 million shares outstanding. Options become exercisable
at the rate of 20% per year commencing one year after grant; those granted
to non-employee directors of AFG are generally fully exercisable upon
grant. All options expire ten years after the date of grant.
<PAGE>
A progression of AFG's Shareholders' Equity is as follows (dollars in
thousands) (see Note J - "Subsequent Event"):
<TABLE>
<CAPTION>
Common Stock
Common and Capital Retained
Shares Surplus Earnings Unrealized
<S> <C> <C> <C> <C>
Balance at December 31, 1996 61,071,626 $806,721 $559,716 $188,000
Net earnings - - 151,013 -
Change in unrealized - - - 130,200
Dividends on Common Stock - - (44,844) -
Shares issued:
Exercise of stock options 131,994 2,849 - -
Dividend reinvestment plan 6,651 257 - -
Employee stock purchase plan 50,065 1,942 - -
Portion of bonuses paid in stock 40,500 1,521 - -
Directors fees paid in stock 1,164 45 - -
Shares repurchased (2,327,943) (30,774) (53,452) -
Capital transactions of subsidiaries - (1,470) - -
Change in foreign currency translation - (449) - -
Balance at September 30, 1997 58,974,057 $780,642 $612,433 $318,200
</TABLE>
11
<PAGE>
AMERICAN FINANCIAL GROUP, INC. 10-Q
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
G. Extraordinary Items Extraordinary items represent AFG's proportionate
share of gains and losses related to debt retirements by the following
companies. Amounts shown are net of minority interest and income tax
benefits (in thousands):
Nine months ended
September 30,
Subsidiaries: 1997 1996
AFC (parent) ($5,357) ($ 9,605)
APU (parent) (444) (566)
AAG (1,250) (7,159)
Other - 57
Investee:
Chiquita - (8,639)
($7,051) ($25,912)
H. Cash Flows - Fixed Maturity Investments "Investing activities" related
to fixed maturity investments in AFG's Statement of Cash Flows consisted
of the following (in thousands):
Held to Available
1997 Maturity For Sale Total
Purchases $ 4,118 $1,812,791 $1,816,909
Maturities and redemptions 268,432 266,746 535,178
Sales - 935,942 935,942
1996
Purchases $176,177 $1,346,497 $1,522,674
Maturities and redemptions 230,746 224,569 455,315
Sales 9,310 578,367 587,677
Securities classified as "held to maturity" having an amortized cost of
$9.5 million were sold in 1996 due to significant deterioration in the
issuers' creditworthiness.
I. Commitments and Contingencies There have been no significant changes to
the matters discussed and referred to in Note M "Commitments and
Contingencies" in AFG's Annual Report on Form 10-K for 1996.
J. Subsequent Events
Sale of Millennium Dynamics On October 22, 1997, AFG announced that it
has agreed to sell the assets of its software solutions and consulting
services subsidiary, Millennium Dynamics, Inc., to a subsidiary of Peritus
Software Services, Inc. AFG is to receive $30 million in cash and
2,175,000 shares of Peritus common stock on the sale which is expected to
close in the fourth quarter of 1997. AFG estimates that its basis in the
subsidiary plus fees and expenses related to the sale will be
approximately $15 million to $20 million.
Merger Transactions Involving AFC and AFEI In July 1997, AFG announced
that it has entered into agreements with two of its subsidiaries, AFC and
AFEI, to reduce its corporate expenses and improve its corporate capital
structure.
<PAGE>
AFG has proposed a merger transaction, as amended in October 1997, whereby
holders of AFC's Series F preferred would receive consideration of the
greater of $23.75 per share or a Fixed Spread Price which will be measured
at the time of the closing of the transaction. Also, accrued dividends on
Series F preferred stock will be paid from November 1, 1997 to the
closing date. Holders of AFC's Series G preferred would receive
consideration of $10.50 per share plus accrued dividends. Consideration
would be payable, at the holder's election, in shares of a new issue of
AFC preferred stock, in
12
<PAGE>
AMERICAN FINANCIAL GROUP, INC. 10-Q
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
cash, or a combination of the two. It is a condition to the merger that
there be approximately $70.4 million in liquidation value of new preferred
stock issued, representing at least 20% of AFC's total voting power. The
new preferred would be redeemable at AFC's option after the eighth
anniversary of its issuance, have a liquidation value of $25.00 per share
and pay an 8% dividend of $2.00 per share per year on a semi-annual basis.
AFG has also proposed that AFEI engage in a merger transaction whereby all
publicly held shares of AFEI would be exchanged, at the option of AFEI
shareholders, for shares of AFG common stock on a one-for-one basis, or
$37.00 per share in cash. There are approximately 2.7 million shares of
AFEI common stock outstanding (including yet-unexercised employee stock
options) which are not beneficially owned by AFG.
In conjunction with the AFEI merger, AFG shareholders will be asked to
approve an AFG plan of reorganization that provides that a new holding
company be formed which would be the ultimate parent entity of AFG and all
of its subsidiaries, and which would be the issuer of the new AFG stock in
exchange for AFEI common stock. No material change in AFG's financial
statements or in the rights of its security holders would occur as a result
of such a reorganization.
These transactions are subject to the receipt of all required shareholder,
stock exchange listing and regulatory approvals. Shareholder meetings for
the companies involved in these transactions are scheduled for December 2,
1997.
13
<PAGE>
AMERICAN FINANCIAL GROUP, INC. 10-Q
ITEM 2
Management's Discussion and Analysis
of Financial Condition and Results of Operations
GENERAL
AFG and its subsidiaries, AFC and American Premier, are organized as
holding companies with almost all of their operations being conducted by
subsidiaries. These parent corporations, however, have continuing cash needs
for administrative expenses, the payment of principal and interest on
borrowings, shareholder dividends, and taxes. Therefore, certain analyses
are best done on a parent only basis while others are best done on a total
enterprise basis. In addition, since most of its businesses are financial
in nature, AFG 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 AFG's debt to total capital ratio at the parent holding company level
was approximately 11% at September 30, 1997 and 15% at December 31, 1996.
AFG's ratio of earnings to fixed charges on a total enterprise basis was 3.45
for the first nine months of 1997 and 4.22 for the entire year of 1996.
Sources of Funds Management believes AFG has sufficient resources to meet
the liquidity requirements of AFG, AFC and American Premier through operations
in the short-term and long-term future. If funds generated from operations,
including dividends from subsidiaries, are insufficient to meet fixed charges
in any period, these companies would be required to generate cash through
borrowings, sales of securities or other assets, or similar transactions.
Bank credit lines at several subsidiary holding companies provide ample
liquidity and can be used to obtain funds for the operating subsidiaries or,
if necessary, for the parent companies, AFC, American Premier and ultimately
AFG. Agreements with the banks generally run for three to seven years and
are renewed before maturity. While it is highly unlikely that all such
amounts would ever be borrowed at one time, a maximum of $510 million is
available under these bank facilities, $56 million of which was
borrowed at September 30, 1997.
In the past, funds have been borrowed under certain of these bank
facilities and used for working capital, capital infusions into
subsidiaries, and to retire other issues of short-term or high-rate
debt. Also, AFG believes it may be prudent and advisable to borrow
up to $200 million of bank debt in the normal course in order to
retire public or privately held fixed rate obligations over the
next year or two.
In February 1997, AFG filed a shelf registration statement for the future
issuance of up to an aggregate of $500 million in common stock, debt or
trust securities, with no more than $200 million of any one security being
issued. The filing provides AFG with greater flexibility to access the
capital markets from time to time as market and other conditions permit.
At the date of this filing, AFG is considering issuing up to $150 million
in Senior Debentures under this registration in November 1997.
<PAGE>
The cash to be utilized for the proposed merger transactions involving AFC
and AFEI is expected to come from internally generated funds, existing credit
lines and the above mentioned sale of Senior Debentures (see Note J).
Dividend payments from subsidiaries have been very important to the liquidity
and cash flow of the individual holding companies in the past. However, the
reliance on such dividend payments has been lessened by the combination of
(i) strong capital at AFG's insurance subsidiaries (and the related decreased
likelihood of
14
<PAGE>
AMERICAN FINANCIAL GROUP, INC. 10-Q
Management's Discussion and Analysis
of Financial Condition and Results of Operations - Continued
a need for investment in those companies), (ii) the reductions of debt at the
holding companies (and the related decrease in ongoing cash needs for interest
and principal payments), (iii) AFG's ability to obtain financing in capital
markets, as well as (iv) the sales of non-insurance investments.
Investments Approximately 93% of the bonds and redeemable preferred stocks
held by AFG were rated "investment grade" (credit rating of AAA to BBB) by
nationally recognized rating agencies at September 30, 1997. Investment
grade securities generally bear lower yields and lower degrees of risk than
those that are unrated and non-investment grade. Management believes that
the high quality investment portfolio should generate a stable and
predictable investment return.
AFG's equity securities are concentrated in a relatively limited number of
major positions. This approach allows management to more closely monitor the
companies and the industries in which they operate.
RESULTS OF OPERATIONS
General Pretax earnings before extraordinary items for the three months
ended September 30, 1997 were $57.5 million compared to $150.8 million for
the third quarter of 1996. Results for 1996 include (i) $166 million in
pretax gains (net of minority interest) primarily on the sale of
Citicasters, (ii) a charge of $80 million resulting from an increase in
insurance reserves relating to asbestos and other environmental matters
("A&E") and (iii) losses of about $30 million from Hurricane Fran.
Excluding realized gains and the unusual 1996 items, pretax earnings before
extraordinary items were approximately $30 million and $95 million for the
third quarter of 1997 and 1996, respectively. This decrease is attributable
to a deterioration in underwriting profit in the property and casualty
operations due primarily to increasing claims severity in the California
workers' compensation business, several unusually large commercial lines
casualty losses, increased investee losses, and a nonrecurring charge
associated with an arbitration settlement.
Pretax earnings before extraordinary items were $254.5 million for the first
nine months of 1997 compared to $355.6 million for the first nine months of
1996. Excluding realized gains (net of minority interest), the A&E charge
and the effect of Hurricane Fran, pretax earnings before extraordinary items
were approximately $220 million and $240 million for the first nine months
of 1997 and 1996, respectively. This decrease was due primarily to third
quarter results which more than offset improved earnings in the first six
months of 1997.
<PAGE>
Property and Casualty Insurance - Underwriting AFG manages and operates
its property and casualty business as three major sectors. The nonstandard
automobile insurance companies (the "NSA Group") insure risks not typically
accepted for standard automobile coverage because of the applicant's driving
record, type of vehicle, age or other criteria. The specialty lines are a
diversified group of over twenty-five business lines that offer a wide
variety of specialty insurance products. Some of the more significant areas
are California workers' compensation, executive liability, inland and ocean
marine, U.S.-based operations of Japanese companies, agricultural-related
coverages, excess and surplus lines, aviation coverages and fidelity and
surety bonds. The commercial and personal lines provide coverages in
commercial multi-peril, workers' compensation, umbrella and commercial
automobile, standard private passenger automobile and homeowners insurance.
Underwriting profitability is measured by the combined ratio which is a sum
of the ratios of underwriting losses, loss adjustment expenses, underwriting
expenses and policyholder dividends to premiums. When the combined ratio is
under 100%, underwriting results are generally considered profitable; when
the
15
<PAGE>
AMERICAN FINANCIAL GROUP, INC. 10-Q
Management's Discussion and Analysis
of Financial Condition and Results of Operations - Continued
ratio is over 100%, underwriting results are generally considered
unprofitable. The combined ratio does not reflect investment
income, other income or federal income taxes.
For certain lines of business and products where the credibility of
the range of loss projections is less certain (primarily the
various specialty lines listed above), management believes that it
is prudent and appropriate to use conservative assumptions until
such time as the data, experience and projections have more
credibility, as evidenced by data volume, consistency and maturity
of the data. While this practice mitigates the risk of adverse
development on this business, it does not eliminate it.
Net written premiums and combined ratios for AFG's property and casualty
insurance subsidiaries were as follows (dollars in millions):
Three months ended Nine months ended
September 30, September 30,
1997 1996 1997 1996
Net Written Premiums (GAAP)
NSA Group $299.1 $277.2 $ 957.0 $ 868.8
Specialty Operations 304.8 270.5 826.8 755.6
Commercial and Personal
Operations 136.4 160.7 367.0 488.9
Other Lines - - - .3
$740.3 $708.4 $2,150.8 $2,113.6
Combined Ratios (GAAP)
NSA Group 97.3% 98.2% 97.2% 100.3%
Specialty Operations 101.5 69.2 94.5 85.0
Commercial and Personal
Operations 111.7 126.7 105.8 111.2
Aggregate (including A&E
and other lines) 102.0 111.8 99.8 104.2
Operating results for the third quarter and first nine months of 1996 were
adversely impacted by two unusual items: (i) approximately $30 million in
losses due to Hurricane Fran and (ii) increases in A&E reserves (exposures
for which AFG has been held liable under general liability policies written
years ago). A standard insurance measure used in analyzing the adequacy of
A&E reserves is the "survival ratio" (reserves divided by three-year
average annual paid losses). Due in part to the greater uncertainties
inherent in estimating A&E claims, management evaluates its survival ratio
in relation to those published for the industry. Based primarily on industry
survival ratios published in mid-1996, AFG increased A&E reserves of its
discontinued insurance lines by $120 million by recording a third quarter,
non-cash, pretax charge of $80 million and reallocating $40 million, or
approximately 2%, of reserves from its Specialty Operations. Reserves for
unpaid losses and loss adjustment expenses of the Specialty Lines were
approximately $2.1 billion at September 30, 1997 and December 31, 1996. A&E
reserves at September 30, 1997, were approximately $348 million, an amount
equal to approximately 10 times the preceding three years' average claim
payments.
<PAGE>
NSA Group Net written premiums for the NSA Group increased 8% during the
third quarter and 10% during the first nine months of 1997 from the
comparable 1996 periods due primarily to volume increases in California
resulting from enactment of legislation which requires drivers to provide
proof of insurance in order to obtain a valid permit. The improvement in
the combined ratio reflects rate increases in various states over the last
couple of years.
16
<PAGE>
AMERICAN FINANCIAL GROUP, INC. 10-Q
Management's Discussion and Analysis
of Financial Condition and Results of Operations - Continued
Specialty Operations Net written premiums for the specialty
operations increased 13% during the third quarter and 9% during the
first nine months of 1997 from the comparable 1996 periods due
primarily to premiums recorded by a newly acquired aviation
division and the return of premiums related to the withdrawal from
a voluntary pool in 1996. Underwriting results for the third
quarter and first nine months of 1997 declined due primarily to (i)
the reallocation of $40 million in reserves to A&E reserves (a
combined ratio impact of 15.0 points and 5.4 points for the third
quarter and first nine months of 1996, respectively), (ii) 1996
reductions in reserves for business written primarily prior to 1995
in response to fundamental changes in the California workers'
compensation market and actuarial evaluations, and (iii) increased
losses during the third quarter of 1997 relating to deteriorating
underwriting margins in California workers' compensation business
written in 1996 and 1997.
Commercial and Personal Operations Net written premiums for the
commercial and personal operations decreased 15% during the third
quarter and 25% during the first nine months of 1997 from the
comparable 1996 periods due primarily to a reinsurance agreement,
effective January 1, 1997, under which 80% of all AFG's homeowners'
business will be reinsured, and reduced writings of personal
automobile coverages in certain states. Excluding the impact of
the reinsurance agreement, premiums decreased 6% and 9%,
respectively. Underwriting results for 1997 were impacted by
several current year commercial casualty losses as well as adverse
development in certain prior year claims. Underwriting results for
1996 included losses attributable to Hurricane Fran and other
weather-related losses.
Investment Income Investment income increased approximately 3% in the
third quarter and the first nine months of 1997 compared to 1996 due
primarily to an increase in the average amount of investments held.
Realized Gains Realized capital gains have been an important part
of the return on investments in marketable securities. Individual
securities are sold creating gains and losses as market
opportunities exist.
<PAGE>
Investee Corporations Equity in net earnings of investee corporations
in 1997 represents AFG's proportionate share of Chiquita's earnings.
Chiquita reported net earnings (losses) before extraordinary item for
the third quarter and first nine months of 1997 of ($28 million) and
$56.4 million, respectively, and ($7.6 million) and $59.7 million for
the comparable 1996 periods. Chiquita's results for 1997 have been
adversely affected by (i) a stronger dollar, mitigated in part by the
company's foreign currency hedging program and (ii) increased banana
production costs arising from weather-related effects on current
productivity. Chiquita's results for 1996 include first quarter
writedowns and costs of $12 million resulting from flood damage in
Costa Rica. Included in earnings from investees in 1996 were
earnings of $1.5 million attributable to AFG's investment in
Citicasters which was sold in September 1996.
Gain on Sale of Investee Corporation The gain on sale of investee
corporation for the third quarter and first nine months of 1996
represent pretax gains, before minority interest, on the sale of
Citicasters common stock.
Gains on Sales of Subsidiaries The gain on sale of subsidiaries in
1997 represents a pretax gain on the sale of a travel agency. The
gains on sales of subsidiaries in 1996 include a pretax gain of
$33.9 million on the sale of Buckeye Management Company and the
settlement of litigation related to a subsidiary sold in 1993.
17
<PAGE>
AMERICAN FINANCIAL GROUP, INC. 10-Q
Management's Discussion and Analysis
of Financial Condition and Results of Operations - Continued
Other Income Other income decreased $9.7 million (26%) in the
third quarter of 1997 and $22.8 million (22%) in the first nine
months of 1997 compared to 1996 due primarily to the sale of a
subsidiary in the first quarter of 1997.
Annuity Benefits Annuity benefits reflect interest credited to
annuity policyholders' funds accumulated. The majority of AAG's
fixed rate annuity products permit AAG to change the crediting rate
at any time (subject to minimum interest rate guarantees of 3% or
4% per annum). As a result, management has been able to react to
changes in market interest rates and maintain a desired interest
rate spread without a substantial effect on persistency. Annuity
benefits increased 5% in the third quarter and 3% in the first nine
months of 1997 due primarily to an increase in average annuity
benefits accumulated.
Interest on Borrowed Money Interest expense decreased $5 million
(28%) during the third quarter and $20.8 million (34%) during the
first nine months of 1997 from the comparable 1996 periods. The
decrease reflects significant debt reductions in 1996.
Minority Interest Expense Minority interest expense decreased $230,000 during
the third quarter of 1997 compared to 1996. Reductions of AFC preferred
dividends and the absence of the $6.5 million in minority interest recorded
from the sale of Citicasters common stock in the third quarter of 1996
offset increases in the charge for distribution requirements on trust
preferred securities. Excluding the Citicasters gain, minority interest
expense increased $16 million (52%) during the first nine months of 1997
from the comparable 1996 period due primarily to distribution requirements
on trust preferred securities.
Other Operating and General Expenses Other operating and general expenses
increased $8.8 million (11%) during the third quarter of 1997 compared to
1996. Decreases in other operating and general expenses resulting from the
sale of a subsidiary in 1997 were more than offset by additional expenses
recorded including a nonrecurring charge of $5.5 million relating to an
arbitration settlement and a $4 million charge related to the estimated costs
of relocating operations of a subsidiary to Cincinnati. Other operating and
general expenses decreased $5.5 million (2%) during the first nine months of
1997.
New Accounting Standards to be Implemented During 1997, the
Financial Accounting Standards Board issued the following Statement
of Financial Accounting Standards ("SFAS"); the implementation of
these standards will not have a significant effect on AFG's
financial position or results of operations.
SFAS # Subject of Standard Period to be Implemented
128 Earnings per Share 4th quarter of 1997
129 Capital Structure 4th quarter of 1997
130 Comprehensive Income 1st quarter of 1998
131 Segment Information 4th quarter of 1998
18
<PAGE>
AMERICAN FINANCIAL GROUP, INC. 10-Q
PART II
OTHER INFORMATION
Item 6
Exhibits and Reports on Form 8-K
(a) Exhibits:
Number Description
11 Computation of earnings per share.
27 Financial Data Schedule - Included in Report
filed electronically with the Securities and
Exchange Commission.
(b) Reports on Form 8-K:
Date of Report Item Reported
July 14, 1997 Execution of merger agreements involving two
subsidiaries (AFC and AFEI) and AFG's
Reorganization.
Signature
Pursuant to the requirements of the Securities Exchange Act of
1934, American Financial Group, Inc. has duly caused this Report to
be signed on its behalf by the undersigned duly authorized.
American Financial Group, Inc.
November 13, 1997 BY:Fred J. Runk
Fred J. Runk
Senior Vice President and Treasurer
19
<PAGE>
AMERICAN FINANCIAL GROUP, INC. AND SUBSIDIARIES
EXHIBIT 11 - COMPUTATION OF EARNINGS PER SHARE
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Net earnings before extraordinary items
available to common shareholders $33,667 $121,576 $158,064 $261,117
Extraordinary items (6,973) (8,411) (7,051) (25,912)
Net earnings available to common shareholders $26,694 $113,165 $151,013 $235,205
Computation of primary earnings per
common share
Shares used in calculation of per share data:
Weighted average common shares outstanding 58,939 60,954 59,747 60,722
Dilutive effect of assumed exercise of
certain stock options 1,415 481 1,117 570
Dilutive effect of assumed conversion of
certain preferred shares - - - 44
Weighted average common shares used to
calculate primary earnings per share 60,354 61,435 60,864 61,336
Primary earnings per common share (*) (*) (*) (*)
Computation of fully diluted earnings per
common share
Shares used in calculation of per share data:
Weighted average common shares outstanding 58,939 60,954 59,747 60,722
Dilutive effect of assumed exercise of
certain stock options 1,415 548 1,413 610
Dilutive effect of assumed conversion of
certain preferred shares - - - 45
Weighted average common shares used to
calculate fully diluted earnings per share 60,354 61,502 61,160 61,377
Fully diluted earnings per common share (*) (*) (*) (*)
Reported earnings per share based on
weighted average common shares outstanding
Before extraordinary items $.57 $2.00 $2.65 $4.30
Extraordinary items (.12) (.14) (.12) (.43)
Net earnings $.45 $1.86 $2.53 $3.87
</TABLE>
(*) Dilution less than 3%
E-1
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from American
Financial Group, Inc. 10-Q for the nine months ended September 30, 1997 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> $353,951
<SECURITIES> 11,177,859<F1>
<RECEIVABLES> 709,882
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 15,683,106
<CURRENT-LIABILITIES> 0
<BONDS> 390,853
0
0
<COMMON> 58,974
<OTHER-SE> 1,652,301
<TOTAL-LIABILITY-AND-EQUITY> 15,683,106
<SALES> 0
<TOTAL-REVENUES> 2,968,175
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 238,882
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 40,433
<INCOME-PRETAX> 254,460
<INCOME-TAX> 96,396
<INCOME-CONTINUING> 158,064
<DISCONTINUED> 0
<EXTRAORDINARY> (7,051)
<CHANGES> 0
<NET-INCOME> $151,013
<EPS-PRIMARY> 2.53
<EPS-DILUTED> 2.53
<FN>
<F1>Includes an investment in investee corporation of $219 million.
</FN>
</TABLE>
