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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1994
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to ________ .
Commission file number 1-7422
American General Finance, Inc.
(Exact name of registrant as specified in its charter)
Indiana 35-1313922
(State of Incorporation) (I.R.S. Employer Identification No.)
601 N.W. Second Street, Evansville, IN 47708
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (812) 424-8031
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
The registrant meets the conditions set forth in General Instruction
H(1)(a) and (b) of Form 10-Q and is therefore filing this Form 10-Q with
the reduced disclosure format.
As of August 3, 1994, there were 2,000,000 shares of registrant's common
stock, $.50 par value, outstanding.
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
The unaudited condensed consolidated financial statements of American
General Finance, Inc. are presented on pages 3 through 6.
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American General Finance, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
June 30, December 31,
1994 1993
Assets (dollars in thousands)
Finance receivables, net of unearned
finance charges:
Loans:
Real estate loans $2,650,975 $2,641,879
Non-real estate loans 2,452,768 2,318,102
Retail sales contracts 1,047,920 922,856
Credit cards 927,336 691,151
Net finance receivables 7,078,999 6,573,988
Deduct allowance for finance
receivable losses 199,225 183,756
Net finance receivables, less allowance
for finance receivable losses 6,879,774 6,390,232
Marketable securities 684,190 699,697
Cash and cash equivalents 56,880 48,374
Goodwill 293,489 299,653
Other assets 211,102 220,819
Total assets $8,125,435 $7,658,775
Liabilities and Shareholder's Equity
Long-term debt $4,455,268 $4,018,797
Short-term notes payable:
Commercial paper 1,673,174 1,643,961
Banks and other 172,000 171,000
Investment certificates 8,722 9,406
Insurance claims and
policyholder liabilities 435,390 415,488
Other liabilities 215,665 231,737
Accrued taxes 32,940 57,686
Total liabilities 6,993,159 6,548,075
Shareholder's equity:
Common stock 1,000 1,000
Additional paid-in capital 616,021 616,021
Net unrealized investment (losses) gains (2,989) 33,740
Retained earnings 518,244 459,939
Total shareholder's equity 1,132,276 1,110,700
Total liabilities and shareholder's equity $8,125,435 $7,658,775
See Notes to Condensed Consolidated Financial Statements.
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American General Finance, Inc. and Subsidiaries
Condensed Consolidated Statements of Income
Three Months Ended Six Months Ended
June 30, June 30,
1994 1993 1994 1993
(dollars in thousands)
Revenues
Finance charges $301,183 $270,452 $582,624 $533,934
Insurance 43,823 36,388 83,227 69,312
Other 15,407 15,645 30,149 30,154
Total revenues 360,413 322,485 696,000 633,400
Expenses
Interest expense 99,782 95,146 192,807 190,796
Operating expenses 94,265 81,237 184,566 167,821
Provision for finance
receivable losses 45,174 36,010 88,254 68,838
Insurance losses and loss
adjustment expenses 23,016 20,299 46,179 38,835
Total expenses 262,237 232,692 511,806 466,290
Income before provision for
income taxes and cumulative
effect of accounting changes 98,176 89,793 184,194 167,110
Provision for Income Taxes 37,031 33,402 69,887 62,306
Income before cumulative
effect of accounting changes 61,145 56,391 114,307 104,804
Cumulative Effect of
Accounting Changes - - - (12,652)
Net Income $ 61,145 $56,391 $114,307 $ 92,152
See Notes to Condensed Consolidated Financial Statements.
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American General Finance, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
Six Months Ended
June 30,
1994 1993
(dollars in thousands)
Cash Flows from Operating Activities
Net income $114,307 $ 92,152
Reconciling adjustments to net cash
provided by operating activities:
Provision for finance receivable losses 88,254 68,838
Depreciation and amortization 65,164 53,459
Deferral of finance receivable
origination costs (41,938) (31,887)
Deferred federal income tax benefit (5,819) (3,684)
Change in other assets and other liabilities 41,815 38,736
Change in insurance claims and
policyholder liabilities 19,902 26,468
Other, net (324) 1,999
Net cash provided by operating activities 281,361 246,081
Cash Flows from Investing Activities
Finance receivables originated or purchased (2,761,941) (2,120,407)
Principal collections on finance receivables 2,175,824 1,826,085
Marketable securities purchased (84,888) (126,777)
Marketable securities called, matured and sold 45,847 74,449
Other, net (7,305) (11,485)
Net cash used for investing activities (632,463) (358,135)
Cash Flows from Financing Activities
Proceeds from issuance of long-term debt 644,656 614,635
Repayment of long-term debt (210,377) (311,745)
Change in investment certificates (684) (10,197)
Change in short-term notes payable 30,213 (115,703)
Dividends paid (104,200) (67,600)
Net cash provided by financing activities 359,608 109,390
Increase (decrease) in cash and cash equivalents 8,506 (2,664)
Cash and cash equivalents at beginning of period 48,374 43,584
Cash and cash equivalents at end of period $ 56,880 $ 40,920
Supplemental Disclosure of Cash Flow Information
Income taxes paid $ 93,793 $ 62,083
Interest paid $190,526 $195,049
See Notes to Condensed Consolidated Financial Statements.
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American General Finance, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
June 30, 1994
Note 1. Principles of Consolidation
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles.
These condensed consolidated financial statements include the accounts of
American General Finance, Inc. (AGFI) and all of its subsidiaries (the
Company). The subsidiaries are all wholly-owned, and all intercompany
items have been eliminated. Per share information is not included because
AGFI is a wholly-owned subsidiary of American General Corporation (American
General).
Note 2. Adjustments and Reclassifications
These condensed consolidated financial statements include all adjustments,
consisting only of normal recurring adjustments, which the Company
considers necessary for a fair presentation of the consolidated financial
position at June 30, 1994 and December 31, 1993, the consolidated results
of operations for the three months and six months ended June 30, 1994 and
1993, and the consolidated cash flows for the six months ended June 30,
1994 and 1993. These condensed consolidated financial statements should be
read in conjunction with the consolidated financial statements and related
notes included in the Company's Annual Report on Form 10-K for the year
ended December 31, 1993. Certain amounts in the 1993 condensed
consolidated financial statements have been reclassified to conform to the
1994 presentation. Amounts previously reported in the 1993 second quarter
Form 10-Q have been restated to reflect the retroactive adoption of
Statement of Financial Accounting Standards 112, "Employers' Accounting for
Postemployment Benefits", effective January 1, 1993.
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Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Capital Resources
Overview. The Company believes that its overall sources of liquidity will
continue to be sufficient to satisfy its foreseeable financial obligations.
Operating Activities. The Condensed Consolidated Statements of Cash Flows
included in Item 1. herein indicate the adjustments for non-cash items in
order to reconcile net income to net cash from operating activities. Such
non-cash items include the provision for finance receivable losses, the
depreciation and amortization of assets, the deferral of finance receivable
origination costs, the change in other assets and other liabilities, and
the change in insurance claims and policyholder liabilities.
Net cash flows from operating activities include the receipt of finance
charges on finance receivables and the payment of interest on borrowings,
the payment of operating expenses and income taxes, the receipt of
insurance premiums and payment of contractual obligations to policyholders,
and net investment revenue. The Company's increase in finance charges for
the six months ended June 30, 1994, when compared to the same period in
1993, reflects an increase in average finance receivables net of unearned
finance charges (ANR) and an increase in yield (finance charges annualized
as a percentage of ANR). The increase in interest expense for the six
months ended June 30, 1994, when compared to the same period in 1993,
reflects an increase in average borrowings and short-term borrowing cost
which more than offset a decline in long-term borrowing cost. The increase
in operating expenses for the six months ended June 30, 1994, when compared
to the same period in 1993, reflects an increase in salaries, data
processing, and advertising expense.
Investing Activities. Net cash flows from investing activities include
funding finance receivables originated or purchased, which is the Company's
primary requirement for cash, and principal collections on finance
receivables, which is the Company's primary source of cash. Finance
receivables originated or purchased increased for the six months ended June
30, 1994, when compared to the same period in 1993, primarily due to
business development efforts. Principal collections on finance receivables
increased for the six months ended June 30, 1994, when compared to the same
period in 1993, primarily due to the higher level of ANR. Also included in
net cash flows from investing activities are the marketable securities
purchased and sold by the insurance operations.
Financing Activities. To the extent net cash flows from operating
activities do not match net cash flows from investing activities, the
Company adjusts its financing activities accordingly. Net cash flows from
financing activities include proceeds from issuance of long-term debt and
short-term debt as major sources of funds, and repayment of such borrowings
and the payment of dividends as major uses of funds. The ability of AGFI
to pay dividends is substantially dependent on the receipt of dividends or
other funds from its subsidiaries. The Company's issuances of long-term
debt and the increase in short-term notes payable for the six months ended
June 30, 1994 reflect the funding of asset growth and maturing issues of
long-term obligations.
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The Company's principal borrowing subsidiary is American General Finance
Corporation (AGFC), a direct, wholly-owned subsidiary of AGFI. AGFC
obtains funds by the issuance of commercial paper, long-term debt, and
through bank borrowings. AGFC is a party to various interest conversion
agreements, which are used to manage its exposure to the volatility of
short-term interest rates. On a portfolio basis, the Company attempts
generally to match the cash flows of its debt to those anticipated for its
finance receivables. Fixed-rate finance receivables are generally funded
with fixed-rate debt while floating-rate finance receivables are generally
funded with commercial paper. Some of the long-term debt agreements of
AGFC contain restrictive covenants which limit the amount of various levels
of debt based upon maintenance of defined ratios.
Credit Facilities. Credit facilities are maintained to support the
issuance of commercial paper by AGFC and as an additional source of funds
for operating requirements. At June 30, 1994, the Company had committed
credit facilities of $545.0 million and was an eligible borrower under $2.5
billion of committed credit facilities extended to American General and
certain of its subsidiaries. The annual commitment fees for all committed
facilities range from .08% to .3125%. At June 30, 1994, the Company also
had $561.0 million of uncommitted credit facilities and was an eligible
borrower under $195.0 million of uncommitted credit facilities extended to
American General and certain of its subsidiaries. Available borrowings
under all facilities are reduced by any amounts outstanding thereunder. At
June 30, 1994, Company borrowings outstanding under all credit facilities
were $377.6 million with remaining availability to the Company of $3.0
billion in committed facilities and $423.4 million in uncommitted
facilities.
Selected Financial Statistics
The following table sets forth certain selected financial information and
ratios of the Company and illustrates certain aspects of the Company's
business for the periods indicated:
Three Months Ended Six Months Ended
June 30, June 30,
1994 1993 1994 1993
(dollars in thousands)
Average finance receivables
net of unearned finance
charges (ANR) $6,867,236 $6,370,211 $6,742,042 $6,310,596
Average borrowings $6,094,798 $5,665,882 $5,987,445 $5,635,946
Finance charges (annualized)
as a percentage of ANR
(yield) 17.57% 17.01% 17.37% 16.95%
Interest expense (annualized)
as a percentage of average
borrowings (borrowing cost) 6.55% 6.73% 6.45% 6.78%
Spread between yield and
borrowing cost 11.02% 10.28% 10.92% 10.17%
Insurance revenues (annualized)
as a percentage of ANR 2.55% 2.28% 2.47% 2.20%
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Selected Financial Statistics Continued
Three Months Ended Six Months Ended
June 30, June 30,
1994 1993 1994 1993
Operating expenses (annualized)
as a percentage of ANR 5.49% 5.10% 5.48% 5.32%
Return on average assets
(annualized) 3.09% 3.04% 2.93% 2.51%
Return on average assets
before deducting cumulative
effect of accounting changes
(annualized) 3.09% 3.04% 2.93% 2.85%
Return on average equity
(annualized) 21.70% 20.85% 20.30% 17.22%
Return on average equity
before deducting cumulative
effect of accounting changes
(annualized) 21.70% 20.61% 20.30% 19.37%
Net charge-offs (annualized)
as a percentage of ANR
(charge-off ratio) 2.20% 2.00% 2.20% 1.96%
Ratio of earnings to fixed
charges (refer to Exhibit 12
in Item 6. herein for
calculations) - - 1.93 1.85
At June 30,
1994 1993
Finance receivables any portion of
which was 60 days or more past due
(delinquency) as a percentage of
related receivables (including
unearned finance charges and
excluding deferred origination
costs, a fair value adjustment
on finance receivables and
accrued interest) 2.49% 2.26%
Allowance for finance receivable
losses as a percentage of net
finance receivables 2.81% 2.63%
Debt to equity ratio 5.57 5.32
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Analysis of Operating Results
Net income was $61.1 million and $114.3 million for the three months and
six months ended June 30, 1994, compared to $56.4 million and $92.2 million
for the same 1993 periods. Income before cumulative effect of accounting
changes was $61.1 million and $114.3 million for the three months and six
months ended June 30, 1994, compared to $56.4 million and $104.8 million
for the same 1993 periods.
Finance Charges. Changes in finance charge revenues, the principal
component of total revenues, are a function of period to period changes in
the levels of ANR and yield. ANR for the three months and six months ended
June 30, 1994 increased when compared to the same periods in 1993. Finance
receivables increased primarily due to finance receivables originated or
renewed by the Company due to business development efforts. The yield
during the three months and six months ended June 30, 1994 also increased
when compared to the same periods in 1993 primarily due to the increased
proportion of higher-rate, non-real estate secured loans in the loan
portfolio.
Insurance Revenues. Insurance revenues increased for the three months and
six months ended June 30, 1994, when compared to the same periods in 1993,
primarily due to an increase in earned premiums. Earned premiums increased
primarily due to increased written premiums in prior periods, resulting
from increased loan activity, and reinsurance assumptions.
Other Revenues. Other revenues for the three months and six months ended
June 30, 1994 remained at near the same level when compared to the same
periods in 1993. The decrease in investment revenue was offset by a
decrease in writedowns on real estate foreclosures and an adjustment to
servicing fee income. The decrease in investment revenue resulted from a
decline in investment portfolio yields partially offset by an increase in
invested assets. Investment portfolio yields declined primarily due to
prepayments of higher yielding investments and lower reinvestment rates in
recent years.
Interest Expense. Changes in interest expense are a function of period to
period changes in average borrowings and borrowing cost. Average
borrowings for the three months and six months ended June 30, 1994
increased when compared to the same periods in 1993 primarily to fund asset
growth. The borrowing cost for the three months and six months ended June
30, 1994 decreased when compared to the same periods in 1993 due to lower
long-term borrowing cost partially offset by an increase in short-term
borrowing cost.
Operating Expenses. Operating expenses for the three months and six months
ended June 30, 1994 increased when compared to the same periods in 1993.
The increase was primarily due to increases in salaries, data processing,
and advertising expense. The increase in salaries expense was primarily
due to an increase in operations staffing to support the Company's growth
and merit increases. The increase in data processing expense was primarily
due to an increase in processor fees to support increased credit card
activity and equipment expenses resulting from a branch office automation
program. The increase in advertising expense was primarily due to the
early implementation of the planned marketing programs for 1994. The
increase in operating expenses was partially offset by an increase in
deferral of finance receivable origination costs.
Provision for Finance Receivable Losses. Provision for finance receivable
losses for the three months and six months ended June 30, 1994 increased
when compared to the same periods in 1993, due to an increase in net
charge-offs and amounts provided for the allowance for finance receivable
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losses. Net charge-offs increased due to the increase in charge-off rates
on non-real estate loans and retail sales contracts, the increase in ANR,
and the increased proportion of non-real estate secured loans in the loan
portfolio. As expected, the increased proportion of non-real estate loans
in the loan portfolio has contributed to both higher charge-off rates and
corresponding higher yields. The allowance for finance receivable losses
increased primarily to bring the balance to appropriate levels based upon
the balance of finance receivables, portfolio mix, levels of delinquency,
net charge-offs, and the economic climate.
Insurance Losses and Loss Adjustment Expenses. Insurance losses and loss
adjustment expenses for the three months and six months ended June 30, 1994
increased when compared to the same periods in 1993 primarily due to
increased claims and reserves resulting from the increase in premiums
written due to increased loan activity and reinsurance assumptions.
Provision for Income Taxes. Provision for income taxes for the three
months and six months ended June 30, 1994 increased when compared to the
same periods in 1993, primarily due to higher taxable income and the 1%
corporate tax rate increase enacted August 10, 1993.
Cumulative Effect of Accounting Changes. The adoption of three new
accounting standards resulted in a cumulative adjustment effective January
1, 1993 consisting of a one-time charge to earnings of $12.7 million.
Other than the cumulative effect, adoption of these new accounting
standards has not had a material effect on net income and is not expected
to have a material impact in the future.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
AGFI and certain of its subsidiaries are defendants in various lawsuits
arising in the normal course of business. AGFI and its subsidiaries
believe they have valid defenses in these pending lawsuits and are
defending these cases vigorously. AGFI also believes that the total
amounts that would ultimately be paid, if any, arising from these lawsuits
would have no material effect on the consolidated financial statements.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
(12) Computation of ratio of earnings to fixed charges.
(b) Reports on Form 8-K.
No Current Reports on Form 8-K were filed during the second
quarter of 1994.
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Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMERICAN GENERAL FINANCE, INC.
(Registrant)
Date: August 3, 1994 By /s/ Philip M. Hanley
Philip M. Hanley*
Senior Vice President and Chief
Financial Officer
* Signing as duly authorized officer and principal financial officer.
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Exhibit Index
Exhibits Page
(12) Computation of ratio of earnings to fixed charges. 15
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Exhibit 12
American General Finance, Inc. and Subsidiaries
Ratio of Earnings to Fixed Charges
Six Months Ended
June 30,
1994 1993
(dollars in thousands)
Earnings:
Income before provision for income
taxes and cumulative effect of
accounting changes $184,194 $167,110
Interest expense 192,807 190,796
Implicit interest in rents 5,236 5,417
Total earnings $382,237 $363,323
Fixed charges:
Interest expense $192,807 $190,796
Implicit interest in rents 5,236 5,417
Total fixed charges $198,043 $196,213
Ratio of earnings to fixed charges 1.93 1.85
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