American General Reports 16% Increase in Full-Year and Fourth Quarter 1998 Operating Earnings Per Share.HOUSTON--(BUSINESS WIRE)--Jan. 27, 1999--American General (NYSE NYSE See: New York Stock Exchange :AGC AGC Automatic Gain Control AGC Automotive Glass Cartridge (fuse) AGC Associated General Contractors AGC Associated General Contractors of America AGC Atypical Glandular Cells AGC Attorney-General's Chambers ) today reported a 16% increase in 1998 operating earnings Operating Earnings Profits after subtracting expenses such as marketing, cost of goods sold, administration and general operating costs from revenue. Notes: Tax and interest expenses are not subtracted - operating earnings are synonymous with EBIT (earnings before per share to $4.05 compared to $3.49 in 1997. Operating earnings for the year increased 21% to $1.05 billion compared to $868 million in 1997. Net income, which includes net realized gains Realized Gain A gain resulting from selling an asset at a price higher than the original purchase price. Notes: There may be tax consequences for a realized profit. and other non-recurring items, was $764 million in 1998 compared to $542 million in 1997. Net income for 1998 includes a $288 million aftertax charge associated with previously reported market conduct litigation An action brought in court to enforce a particular right. The act or process of bringing a lawsuit in and of itself; a judicial contest; any dispute. When a person begins a civil lawsuit, the person enters into a process called litigation. settlements and Year 2000 readiness costs. Net income for 1997 includes a $353 million aftertax charge primarily associated with the USLIFE acquisition. Operating earnings per share for the quarter increased 16% to $1.02 compared to $.88 in the 1997 fourth quarter. Operating earnings in the fourth quarter increased 21% to $264 million compared to $219 million in the 1997 period. Following is a comparative table of full-year and fourth quarter operating earnings for 1998 and 1997: -0-
Year Ended Dec. 31, Quarter Ended Dec. 31,
------------------- ---------------------
Operating Earnings 1998 1997 Change 1998 1997 Change
------------------ ---- ---- ------ ---- ---- ------
In Millions $1,048 $ 868 + 21% $ 264 $219 + 21%
Per Share (diluted) $ 4.05 $3.49 + 16% $1.02 $.88 + 16%
Commenting on the results, Robert Robert, Henry Martyn 1837-1923. American army engineer and parliamentary authority. He designed the defenses for Washington, D.C., during the Civil War and later wrote Robert's Rules of Order (1876). Noun 1. M. Devlin, chairman, president and chief executive officer, said, "Entering 1998, we established clear operating and financial objectives to challenge this organization to achieve top tier performance. I am pleased to report that American American, river, 30 mi (48 km) long, rising in N central Calif. in the Sierra Nevada and flowing SW into the Sacramento River at Sacramento. The discovery of gold at Sutter's Mill (see Sutter, John Augustus) along the river in 1848 led to the California gold rush of General succeeded on all fronts. "We established a growth objective for operating earnings per share of 12-14% and a profitability objective for return on equity of 15%, which would place American General among the leading industry performers. We finished the year with 16% earnings per share growth and a return on equity of 15.4%. Our financial objectives included attaining the milestones of $1 billion in operating earnings and $100 billion in assets. For 1998, our operating earnings totaled $1.05 billion and our assets grew to $105 billion. Also, American General produced a total return to our shareholders of 47.4% in 1998, substantially above returns for both the broad market as well as the financial sector. "We successfully integrated into our operations all of the acquired businesses following the most active period of corporate development in our company's history. We have developed a platform that will facilitate the consolidation of future acquisitions, while positioning American General as one of the best and most efficient providers of high-quality service to our customers and sales force. We also have expanded our product portfolios and distribution channels to capitalize on Cap´i`tal`ize on` v. t. 1. To turn (an opportunity) to one's advantage; to take advantage of (a situation); to profit from; as, to capitalize on an opponent's mistakes s>. the growth segments of our markets. Most importantly Adv. 1. most importantly - above and beyond all other consideration; "above all, you must be independent" above all, most especially , we are establishing American General as a market-responsive company with excellent opportunities for continued growth. "American General's achievements in 1998 demonstrated that the company is one of the nation's premier providers of financial services The examples and perspective in this article or section may not represent a worldwide view of the subject. Please [ improve this article] or discuss the issue on the talk page. . As much as we accomplished in 1998 -- it is only the beginning. We have instilled a new sense of enthusiasm and purpose within American General and positioned the company for a sustained level of outstanding performance well into the future." Additional Financial Highlights ------------------------------- -- Revenues and deposits increased to $18.5 billion, up 32% from 1997; -- Assets increased $24.5 billion to $105 billion, up 30% from a year ago; -- Operating return on shareholders' equity Shareholders' Equity A firms' total assets minus its total liabilities. Equivalently, it is share capital plus retained earnings minus treasury shares. Shareholders' equity is the amount by which a company is financed through common and preferred shares. was 15.4%, up from 13.6% in 1997; and -- Common stock price per share increased 44.3% in 1998 to $78.00. Key Corporate Activities ------------------------ Western National Acquisition. ---------------------------- On February February: see month. 25, 1998, American General completed the acquisition of the remaining 54% of Western National Corporation for $1.2 billion. Western National was renamed American General Annuity annuity: see insurance. annuity Payment made at a fixed interval. A common example is the payment received by retirees from their pension plan. There are two main classes of annuities: annuities certain and contingent annuities. and has been integrated into the retirement services division. American General Annuity, with assets of $15 billion, is the nation's leading provider of fixed annuities Fixed annuities Contracts in which an insurance company or issuing financial institution pays a fixed dollar amount of money per period. sold through financial institutions. Acquisition of Annuity Business. ------------------------------- On May 21, 1998, the company completed the purchase of a block of tax-sheltered annuities Tax-sheltered annuity A type of retirement plan under Section 403(b) of the Internal Revenue Code that permits employees of public educational organizations or tax-exempt organizations to make before-tax contributions via a salary reduction agreement to a tax-sheltered retirement for $58 million. The transaction included $2.3 billion of annuity reserves that are included in the retirement services division. National Advertising Campaign Launched. -------------------------------------- American General launched its first nationally coordinated advertising and branding campaign during 1998. The campaign positions the company as a dynamic leader, focused on achieving a major strategic goal: to become the nation's premier provider of lifetime financial solutions. The campaign includes cable and network television and print ads in many of the nation's leading financial and business publications. Market Conduct Resolution. ------------------------- As previously announced, certain of the company's life insurance subsidiaries entered into agreements to resolve market conduct class action lawsuits class action lawsuit A lawsuit in which one party or a limited number of parties sue on behalf of a larger group to which the parties belong. For example, investors may bring a class action lawsuit against a brokerage firm that has actively promoted a tax . The company also announced that in conjunction conjunction, in astronomy conjunction, in astronomy, alignment of two celestial bodies as seen from the earth. Conjunction of the moon and the planets is often determined by reference to the sun. with the resolution of this litigation, it would take a non-recurring aftertax charge to net income of approximately ap·prox·i·mate adj. 1. Almost exact or correct: the approximate time of the accident. 2. $246 million. Share Buyback Buyback The buying back of outstanding shares (repurchase) by a company in order to reduce the number of shares on the market. Companies will buyback shares either to increase the value of shares still available (reducing supply), or to eliminate any threats by shareholders who may Activity. ---------------------- American General purchased 755,900 of its common shares for a total cost of $50 million during the fourth quarter. In 1998, the company purchased 3.0 million shares for a total cost of $195 million or an average cost of $65.74 per share. Common Dividend Increase. ------------------------ On January January: see month. 21, 1999, the company declared de·clare v. de·clared, de·clar·ing, de·clares v.tr. 1. To make known formally or officially. See Synonyms at announce. 2. To state emphatically or authoritatively; affirm. 3. a 7% increase in the cash dividend on common stock to an indicated annual rate of $1.60 per share. This is the 24th consecutive annual increase in the regular dividend rate. -0-
Division Reporting
------------------
Year Ended Dec. 31, Quarter Ended Dec. 31,
--------------------- --------------------
In Millions: 1998 1997 Change 1998 1997 Change
----------- ------ ------ ------ ------ ------ ------
Retirement Services $ 466 $ 246 + 90% $ 112 $ 60 + 88%
Life Insurance 674 589 + 14 174 156 + 12
Consumer Finance 201 165 + 22 55 38 + 45
------ ------ ------ ------ ------ ------
Division Earnings $1,341 $1,000 + 34% $ 341 $ 254 + 35%
====== ====== ====== ====== ====== ======
The Retirement Services division is a leading provider of retirement products and services, including tax-qualified annuities sold through a sales force of more than 1,000 financial advisors, and non-qualified annuities marketed through 18,000 financial institution representatives. The division has $57 billion in assets and 1.7 million customers. The Life Insurance division is the third-largest writer of new individual life insurance premium in the United States United States, officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world's third largest country in population and the fourth largest country in area. . With assets of $36 billion, this division has life insurance in force of $341 billion, and serves over eight million customers through 33,000 agents. The Consumer Finance division is a leading provider of home equity loans, consumer loans, and credit-related life insurance products. With finance receivables Receivables An asset designation applicable to all debts, unsettled transactions or other monetary obligations owed to a company by its debtors or customers. Receivables are recorded by a company's accountants and reported on the balance sheet, and they and include all debts owed of $9.7 billion and a nationwide network of over 1,300 branch offices, this division serves 2.3 million customer accounts. Retirement Services ------------------- 1998 Performance Highlights. --------------------------- -- Division earnings increased 90% to $466 million; -- Assets increased 62% to $57 billion; and -- New deposits increased 88% to $6.4 billion. Full-Year Results. ----------------- The retirement services division experienced a strong increase in earnings in 1998, reflecting the contribution from American General Annuity (AGA) acquired during the first quarter, and the growth in assets and higher investment spreads for the division's existing business. During the year, the division increased its investment in new systems and technology to better meet the complex product and service needs of its customers. In addition, a new customer care center was established to better serve the needs of the division's 1.7 million customers. New deposits increased 88% to $6.4 billion, and reflect the inclusion of AGA and increases in the tax-qualified annuity business. Tax-qualified deposits increased 11%, while AGA's non-qualified deposits increased 27% compared to the year-ago period when it was a stand-alone company stand-alone company An independent operating firm. For example, a large diversified firm may consider spinning off a subsidiary because, as a stand-alone company, the subsidiary would command a higher price-earnings ratio than the parent. . Within the tax-qualified market, the shift toward equity-based products continued, with variable deposits accounting for 63% of deposits compared to 53% in the prior year. The increase in non-qualified fixed annuity Fixed Annuity An insurance contract in which the insurance company makes fixed dollar payments to the annuitant for the term of the contract, usually until the annuitant dies. The insurance company guarantees both earnings and principal. deposits is due to new proprietary distribution arrangements with financial institutions and higher production from existing relationships. In the fourth quarter, the division introduced the Portfolio Director Plus product for the tax-qualified market. This next generation product consists of 53 variable and 2 fixed options, and addresses customer demand for lower-cost institutional funds and lifestyle funds. In addition, a new retirement services product, Retirement Services/Value Plans (RS/VP), was introduced to meet the needs of the governmental and health care markets for specific retirement planning Retirement financial planning refers to a collection of systems, methods, and processes which, in their aggregate, support a family unit's (client's) desire to achieve a state of financial independence, such that the need to be gainfully employed is optional. services such as plan administration, record keeping, education, enrollment, marketing, and investments. Fourth Quarter Results. ---------------------- Fourth quarter division earnings increased 88% to $112 million compared to $60 million in the prior year period, reflecting the addition of AGA and increased earnings resulting from the growth in assets and investment spread. The division's active spread management program led to an improvement in investment margin over the prior year period. New deposits increased 94% to $1.8 billion. Life Insurance -------------- 1998 Performance Highlights. --------------------------- -- Division earnings increased 14% to $674 million; -- Annualized annualized Of or relating to a variable that has been mathematically converted to a yearly rate. Inflation and interest rates are generally annualized since it is on this basis that these two variables are ordinarily stated and compared. premium life sales increased 17% to $612 million; and -- Return on equity increased to 11.9% from 10.8%. Full-Year Results. ----------------- The life insurance division produced strong earnings growth, reflecting growth in insurance in force, increased investment spreads, and continued efficiency gains from expansion of the division's shared services shared services, n.pl the administrative, clinical, or other service functions that are common to two or more hospitals or their health care facilities and used jointly or cooperatively by them. operation. The life insurance division produced excellent sales growth with life insurance sales increasing 17% and annuity sales increasing 22%. The growth in life insurance sales includes strong results from the division's indexed universal life and corporate executive benefits products, as well as the successful introduction of variable universal life products. Total annuity sales of $523 million included $350 million of variable annuities Variable annuities Investment contracts whose issuer pays a periodic amount linked to the investment performance of an underlying portfolio. , an increase of 172%. The higher sales levels contributed to the 11% increase in new deposits to $1.9 billion, consisting of a 10% increase in life insurance deposits and a 15% increase in annuity deposits. Life insurance in force increased 5% over the prior year. During the year, the division continued to develop its wholesaler network for distribution of variable products, entering into selling agreements with 67 independent broker/dealers. New product development was accelerated in 1998 which led to the introduction of a number of new and enhanced products, including the variable universal life portfolio. In addition, in the fourth quarter, the division began selling a full line of competitive fixed annuity products developed and serviced by the retirement services division. Fourth Quarter Results. ---------------------- Fourth quarter earnings for the life insurance division increased 12% to $174 million compared to $156 million in the 1997 period as a result of the growth in insurance in force and increased investment spreads. Life insurance sales increased 18%, reflecting the division's success in the corporate executive benefits market and the sale of indexed and variable universal life products. Annuity sales increased 36% primarily due to 150% increase in variable annuity Variable Annuity An insurance contract in which, at the end of the accumulation stage, the insurance company guarantees a minimum payment. The remaining income payments can vary depending on the performance of the managed portfolio. sales. New deposits increased 13% to $484 million. Consumer Finance ---------------- 1998 Performance Highlights. --------------------------- -- Division earnings increased 22% to $201 million; -- Charge-off Eliminate or write off. The term charge-off is used to describe the process of removing from the records of a company something that was once regarded as an asset but has subsequently become worthless. ratio improved to 2.60% from 3.60%; and -- Return on equity increased to 19.2% from 17.6%. Full-Year Results. ----------------- The consumer finance division achieved a 22% increase in earnings as a result of growth in the receivables portfolio and improved credit quality. The decrease in charge offs resulted from the higher percentage of real estate secured receivables in the portfolio, and benefits from enhanced underwriting Underwriting 1. The process by which investment bankers raise investment capital from investors on behalf of corporations and governments that are issuing securities (both equity and debt). 2. The process of issuing insurance policies. and risk scoring capabilities. Volume generated from internal sources increased 6% and was supplemented by purchases of real estate secured loans, leading to a $1.6 billion increase in receivables to $9.7 billion at year end. The receivables portfolio consisted of 60% real estate secured loans at year end, up from 52% a year ago. The higher quality receivables portfolio contributed to the lower level of charge offs and led to an improvement in risk-adjusted spread to 6.75% from 6.41% a year ago. The delinquency delinquency Criminal behaviour carried out by a juvenile. Young males make up the bulk of the delinquent population (about 80% in the U.S.) in all countries in which the behaviour is reported. ratio was 3.75% at year end compared to 3.60% a year ago, and was unchanged from the end of the 1998 third quarter. At year end, the allowance for loan losses was conservative at $382 million or 3.96% of finance receivables, providing a coverage ratio of annualized fourth quarter charge offs of 161%. Expense management efforts combined with the increase in the receivables portfolio led to an improvement in the expense ratio to 5.5% from 6.0%. Fourth Quarter Results. ---------------------- Consumer finance division earnings were $55 million in the quarter, a 45% increase over the prior year period. The improvement in earnings was primarily due to the lower level of charge offs and the growth of receivables. The charge-off ratio improved to 2.64% from 3.64% in the fourth quarter of 1997, and compares to 2.44% in the third quarter of 1998. Seasonal factors typically lead to an increase in charge offs in the fourth quarter. During the quarter, the division acquired several portfolios of real estate receivables as a result of favorable fa·vor·a·ble adj. 1. Advantageous; helpful: favorable winds. 2. Encouraging; propitious: a favorable diagnosis. 3. pricing conditions in the bulk loan acquisition market. In addition, several marketing relationships have been established with mortgage originators to provide an additional source of new loans. -0-
Corporate Items
---------------
Year Ended Dec. 31, Quarter Ended Dec. 31,
------------------- ----------------------
In Millions: 1998 1997 1998 1997
------------ ------- ------- ------- -------
Interest on Corporate Debt $ (127) $ (107) $ (32) $ (26)
Dividends on Preferred Securities (89) (84) (22) (22)
Net Equity (Minority Interest) in
Earnings of Western National (11) 46 - 15
Other Corporate (66) 13 (23) (2)
------- ------- ------- -------
Total Corporate Operations $ (293) $ (132) $ (77) $ (35)
======= ======= ======= =======
Realized Investment Gains $ 4 $ 27 $ 1 $ 11
Non-recurring Items $ (288) $ (353) $ (264) $ -
The increase in interest on corporate debt primarily resulted from the higher level of debt outstanding following the Western National acquisition, partially offset by lower funding costs. The 1998 minority interest represents the portion of Western National's earnings prior to February 25, 1998, which were not attributable attributable emanating from or pertaining to attribute. attributable proportion see attributable risk (below). attributable risk to American General. The change in the other corporate category resulted from a lower level of assets not allocated to the business divisions and an increase in goodwill amortization. The non-recurring items for 1998 consist of a $246 million aftertax charge for market conduct litigation settlements and $42 million of aftertax costs associated with the company's Year 2000 readiness effort. The 1997 non-recurring items are primarily costs associated with the company's acquisition of USLIFE Corporation and the sale of non-strategic assets. American General Financial Group is one of the nation's largest diversified financial The diversified financial services segment includes a range of consumer and commercially-oriented companies offering a wide variety of products and services, including various lending products (such as home equity loans and credit cards), insurance, and securities and investment services organizations, with assets of $105 billion and market capitalization Market Capitalization A measure of a public company's size. Market capitalization is the total dollar value of all outstanding shares. It's calculated by multiplying the number of shares times the current market price. This term is often referred to as market cap. of $18 billion. Headquartered in Houston Houston, city (1990 pop. 1,630,553), seat of Harris co., SE Tex., a deepwater port on the Houston Ship Channel; inc. 1837. Economy The fourth largest city in the nation and the largest in the entire South and Southwest, Houston is a port of entry; , it is a leading provider of retirement services, life insurance, and consumer loans to 12 million customers. American General common stock is listed on the New York New York, state, United States New York, Middle Atlantic state of the United States. It is bordered by Vermont, Massachusetts, Connecticut, and the Atlantic Ocean (E), New Jersey and Pennsylvania (S), Lakes Erie and Ontario and the Canadian province of , Pacific, London London, city, Canada London, city (1991 pop. 303,165), SE Ont., Canada, on the Thames River. The site was chosen in 1792 by Governor Simcoe to be the capital of Upper Canada, but York was made capital instead. London was settled in 1826. , and Swiss stock exchanges. All statements, trend analyses, and other information contained in this report and elsewhere (such as other filings by the company with the Securities and Exchange Commission, press releases, presentations by the company or its management, or oral statements) relative to markets for the company's products and trends in the company's operations or financial results, as well as other statements including words such as "anticipate," "believe," "plan," "estimate," "expect," "intend," and other similar expressions, constitute forward-looking statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. under the Private Securities Litigation Reform Act The Private Securities Litigation Reform Act of 1995 (PSLRA) implemented several significant substantive changes affecting certain cases brought under the federal securities laws, including changes related to pleading, discovery, liability, class representation and awards fees and of 1995. Forward-looking statements are made based upon management's current expectations and beliefs concerning future developments and their potential effects upon the company. There can be no assurance that future developments affecting the company will be those anticipated by management. 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: (1) changes in general economic conditions, including the performance of financial markets and interest rates; (2) customer responsiveness responsiveness Medtalk The ability to respond to a stimulus. See Airway responsiveness. to both new products and distribution channels; (3) competitive, regulatory reg·u·late tr.v. reg·u·lat·ed, reg·u·lat·ing, reg·u·lates 1. To control or direct according to rule, principle, or law. 2. , or tax changes that affect the cost of or demand for the company's products; (4) the company's ability to achieve Year 2000 readiness for significant systems and operations on a timely basis; and (5) adverse litigation results or resolution of litigation, including market conduct litigation. Investors are also directed to other risks and uncertainties discussed in documents filed by the company with the Securities and Exchange Commission. The company undertakes no obligation to update or revise any forward-looking for·ward-look·ing adj. Concerned with or making provision for the future: forward-looking educators; a forward-looking corporate plan. Adj. 1. information, whether as a result of new information, future developments, or otherwise. -0-
SUPPLEMENT TO NEWS RELEASE 99-02 DATED JANUARY 27, 1999
TITLED "AMERICAN GENERAL REPORTS 16% INCREASE IN FULL-YEAR
AND FOURTH QUARTER 1998 OPERATING EARNINGS PER SHARE"
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American General Financial Group
Comparative Results
(In millions, except per share data) (Unaudited)
Year ended Quarter ended
Dec. 31, Dec. 31,
---------------------------------
1998 1997 1998 1997
-------- -------- ------- -------
1. Revenues and Deposits $ 18,461 $ 13,973 $ 4,882 $ 3,667
======== ======== ======= =======
Business Division Earnings:
2. Retirement Services $ 466 $ 246 $ 112 $ 60
3. Life Insurance 674 589 174 156
4. Consumer Finance 201 165 55 38
-------- -------- ------- -------
5. Total Business Division
Earnings 1,341 1,000 341 254
-------- -------- ------- -------
Corporate Operations:
6. Interest on Corporate Debt (127) (107) (32) (26)
7. Dividends on Preferred
Securities of Subsidiaries (89) (84) (22) (22)
8. Expenses Not Allocated to
Divisions (51) (54) (16) (19)
9. Earnings on Corporate Assets 30 91 6 23
10. Goodwill Amortization (45) (24) (13) (6)
11. Net Equity (Minority Interest)
in Earnings of Western
National Corporation (11) 46 - 15
-------- -------- ------- -------
12. Total Corporate Operations ( 293) (132) (77) (35)
-------- -------- ------- -------
13. Operating Earnings/a 1,048 868 264 219
14. Realized Investment Gains 4 27 1 11
15. Non-recurring Items (288) (353) (264) -
-------- -------- ------- -------
16. Net Income $ 764 $ 542 $ 1 $ 230
======== ======== ======= =======
17. Operating Earnings per Share
(diluted) 4.05 3.49 1.02 .88
18. Average Diluted Shares -
Operating Earnings 261.5 251.6 262.5 253.1
19. Net Income Per Share (diluted) 2.96 2.19 - .92
20. Average Diluted Shares - Net
Income 261.5 249.2 252.0 253.1
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At December 31,
-----------------
1998 1997
-------- --------
21. Assets $105,107 $ 80,620
22. Shareholders' Equity 8,871 7,583
23. Book Value Per Share 34.71 30.93
24. Market Price Per Share 78.00 54.06
Excluding Fair Value
Adjustment Related
To Securities (SFAS 115)/b:
25. Assets $102,671 $ 78,838
26. Shareholders' Equity 7,296 6,429
27. Book Value Per Share 28.71 26.30
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/a Operating earnings exclude aftertax realized investment
gains (losses), non-recurring items, and one-time accounting
changes.
/b Under Financial Accounting Standard 115, American General
classifies most fixed maturity and equity securities as
available-for-sale and records them at fair value. The
company adjusts related balance sheet accounts and
shareholders' equity as if the associated unrealized gains
(losses) had been realized at the balance sheet date.
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