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UNITED STATES
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 March 31, 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 May 2, 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
March 31, December 31,
1994 1993
Assets (dollars in thousands)
Finance receivables, net of unearned
finance charges:
Loans:
Real estate loans $2,623,239 $2,641,879
Non-real estate loans 2,350,052 2,318,102
Retail sales contracts 959,639 922,856
Credit cards 765,845 691,151
Net finance receivables 6,698,775 6,573,988
Deduct allowance for finance
receivable losses 190,456 183,756
Net finance receivables, less allowance
for finance receivable losses 6,508,319 6,390,232
Marketable securities 688,708 699,697
Cash and cash equivalents 38,824 48,374
Goodwill 297,369 299,653
Other assets 212,306 220,819
Total assets $7,745,526 $7,658,775
Liabilities and Shareholder's Equity
Long-term debt $3,905,364 $4,018,797
Short-term notes payable:
Commercial paper 1,853,889 1,643,961
Banks and other 182,780 171,000
Investment certificates 9,179 9,406
Insurance claims and
policyholder liabilities 422,719 415,488
Other liabilities 194,487 231,737
Accrued taxes 71,155 57,686
Total liabilities 6,639,573 6,548,075
Shareholder's equity:
Common stock 1,000 1,000
Additional paid-in capital 616,021 616,021
Net unrealized investment gains 9,031 33,740
Retained earnings 479,901 459,939
Total shareholder's equity 1,105,953 1,110,700
Total liabilities and shareholder's equity $7,745,526 $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
March 31,
1994 1993
(dollars in thousands)
Revenues
Finance charges $281,441 $263,482
Insurance 39,404 32,924
Other 14,742 14,509
Total revenues 335,587 310,915
Expenses
Interest expense 93,025 95,650
Operating expenses 90,301 86,584
Provision for finance
receivable losses 43,080 32,828
Insurance losses and loss
adjustment expenses 23,163 18,536
Total expenses 249,569 233,598
Income before provision for
income taxes and cumulative
effect of accounting changes 86,018 77,317
Provision for Income Taxes 32,856 28,904
Income before cumulative
effect of accounting changes 53,162 48,413
Cumulative Effect of
Accounting Changes - 12,652
Net Income $ 53,162 $ 35,761
See Notes to Condensed Consolidated Financial Statements.
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American General Finance, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
Three Months Ended
March 31,
1994 1993
(dollars in thousands)
Cash Flows from Operating Activities
Net income $ 53,162 $ 35,761
Reconciling adjustments to net cash
provided by operating activities:
Provision for finance receivable losses 43,080 32,828
Depreciation and amortization 32,166 25,650
Deferral of finance receivable
origination costs (20,128) (14,529)
Deferred federal income tax benefit (2,730) (978)
Change in other assets and other liabilities 19,322 19,190
Change in insurance claims and
policyholder liabilities 7,231 26,756
Other, net 33,986 27,762
Net cash provided by operating activities 166,089 152,440
Cash Flows from Investing Activities
Finance receivables originated or purchased (1,242,967) (1,059,035)
Principal collections on finance receivables 1,071,616 920,106
Marketable securities purchased (52,192) (70,225)
Marketable securities called, matured and sold 26,235 34,901
Other, net (3,897) (8,204)
Net cash used for investing activities (201,205) (182,457)
Cash Flows from Financing Activities
Proceeds from issuance of long-term debt 64,526 404,849
Repayment of long-term debt (179,041) (279,092)
Change in investment certificates (227) (2,699)
Change in short-term notes payable 221,708 (54,753)
Dividends paid (81,400) (41,600)
Net cash provided by financing activities 25,566 26,705
Decrease in cash and cash equivalents (9,550) (3,312)
Cash and cash equivalents at beginning of period 48,374 43,584
Cash and cash equivalents at end of period $ 38,824 $ 40,272
Supplemental Disclosure of Cash Flow Information
Income taxes paid $ 19,342 $ 8,417
Interest paid $ 97,168 $111,156
See Notes to Condensed Consolidated Financial Statements.
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American General Finance, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
March 31, 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 March 31, 1994 and December 31, 1993, the consolidated results
of operations for the three months ended March 31, 1994 and 1993, and the
consolidated cash flows for the three months ended March 31, 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 first quarter Form
10-Q have been restated for the adoption of Statement of Financial
Accounting Standards 112, "Employers' Accounting for Postemployment
Benefits", which was implemented 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 three months ended March 31, 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 decline in interest expense for the three
months ended March 31, 1994, when compared to the same period in 1993,
reflects a decline in both short-term and long-term borrowing cost which
more than offset the increase in average borrowings. The increase in
operating expenses for the three months ended March 31, 1994, when compared
to the same period in 1993, reflects an increase in data processing and
salaries 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 three months ended
March 31, 1994, when compared to the same period in 1993, primarily due to
business development efforts. Principal collections on finance receivables
increased for the three months ended March 31, 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 three months
ended March 31, 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 March 31, 1994, the Company had committed
credit facilities of $390.0 million and was an eligible borrower under a
$2.1 billion committed credit facility extended to American General and
certain of its subsidiaries. The annual commitment fees for all committed
facilities range from .075% to .1875%. At March 31, 1994, the Company also
had $526.0 million of uncommitted credit facilities and was an eligible
borrower under $240.0 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
March 31, 1994, Company borrowings outstanding under all credit facilities
were $308.5 million with remaining availability to the Company of $2.4
billion in committed facilities and $502.5 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
March 31,
1994 1993
(dollars in thousands)
Average finance receivables
net of unearned finance
charges (ANR) $6,616,849 $6,250,980
Average borrowings $5,878,901 $5,605,678
Finance charges (annualized)
as a percentage of ANR
(yield) 17.15% 16.89%
Interest expense (annualized)
as a percentage of average
borrowings (borrowing cost) 6.34% 6.85%
Spread between yield and
borrowing cost 10.81% 10.04%
Insurance revenues (annualized)
as a percentage of ANR 2.38% 2.11%
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Selected Financial Statistics Continued
Three Months Ended
March 31,
1994 1993
Operating expenses (annualized)
as a percentage of ANR 5.46% 5.54%
Return on average assets
(annualized) 2.76% 1.96%
Return on average assets
before deducting cumulative
effect of accounting changes
(annualized) 2.76% 2.66%
Return on average equity
(annualized) 18.90% 13.50%
Return on average equity
before deducting cumulative
effect of accounting changes
(annualized) 18.90% 18.26%
Net charge-offs (annualized)
as a percentage of ANR
(charge-off ratio) 2.21% 1.92%
Ratio of earnings to fixed
charges (refer to Exhibit 12
in Item 6. herein for
calculations) 1.90 1.79
At March 31,
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) 2.38% 2.11%
Allowance for finance receivable
losses as a percentage of net
finance receivables 2.84% 2.61%
Debt to equity ratio 5.38 5.29
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Analysis of Operating Results
Net income was $53.2 million for the three months ended March 31, 1994,
compared to $35.8 million for the same 1993 period. Income before
cumulative effect of accounting changes was $53.2 million for the three
months ended March 31, 1994, compared to $48.4 million for the same 1993
period.
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 ended March 31, 1994
increased when compared to the same period 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 ended March 31, 1994 also increased when compared to the same period
in 1993 primarily due to increased emphasis on higher-rate non-real estate
secured loans.
Insurance Revenues. Insurance revenues increased for the three months
ended March 31, 1994, when compared to the same period 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 ended March 31, 1994
increased when compared to the same period in 1993 primarily due to a
decrease in writedowns on real estate foreclosures partially offset by a
slight decrease in investment revenue. The slight decrease in investment
revenue resulted from a decline in investment yields partially offset by an
increase in invested assets. Investment yields declined primarily due to
the low interest rate environment which caused some higher-yielding
investments to be called. The proceeds of the called investments were
reinvested at then current rates.
Interest Expense. Changes in interest expense are a function of period to
period changes in borrowing cost and average borrowings. The borrowing
cost for the three months ended March 31, 1994 decreased when compared to
the same period in 1993 due to lower short-term interest rates and the
issuance of long-term debt at rates lower than the rates on fixed-rate
obligations maturing, redeemed or that remain outstanding. Average
borrowings for the three months ended March 31, 1994 increased when
compared to the same period in 1993 primarily to fund asset growth.
Operating Expenses. Operating expenses for the three months ended March
31, 1994 increased when compared to the same period in 1993. The increase
was primarily due to increases in data processing and salaries expense.
The increase in data processing expense was primarily due to equipment
expenses resulting from a branch office automation program. The increase
in salaries expense was primarily due to merit increases and an increase in
staffing. Staffing increased to support the Company's growth. 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 ended March 31, 1994 increased when compared to
the same period in 1993, due to an increase in net charge-offs and amounts
provided for the allowance for finance receivable losses. Net charge-offs
increased primarily due to the increased proportion of non-real estate
loans in the direct loan portfolio and the increase in ANR. Non-real
estate loans are higher-yielding but generally have higher charge-off
rates. The allowance for finance receivable losses increased primarily to
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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 ended March 31, 1994 increased
when compared to the same period 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 ended March 31, 1994 increased when compared to the same period 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 have not had a material effect on net income and are not expected
to have a material impact in the future.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
On March 22, 1994, a subsidiary of AGFI and a subsidiary of AGFC were named
as defendants in The People of the State of California ("California") v.
Luis Ochoa, Skeeters Automotive, Morris Plan, Creditway of America, Inc.,
and American General Finance, filed in the Superior Court of California,
County of San Joaquin, Case No. 271130. California seeks injunctive
relief, a civil penalty of not less than $5,000 per day or not less than
$250,000 for violation of its Health and Safety Code in connection with the
failure to register and remove underground storage tanks on property
acquired through a foreclosure proceeding by a subsidiary of AGFI, and a
civil penalty of $2,500 for each act of unfair competition prohibited by
its Business and Professions Code, but not less than $250,000, plus costs.
The subsidiaries have not yet been served with process and are in the
initial stages of analyzing the claims.
The Company is a defendant in various other lawsuits arising in the normal
course of business. The Company believes it has valid defenses to these
lawsuits and is defending them vigorously. The Company also believes that
the total amounts that would ultimately have to be paid, if any, arising
from these lawsuits would have no material effect on its consolidated
financial position or its consolidated results of operations.
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 first 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: May 2, 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
Three Months Ended
March 31,
1994 1993
(dollars in thousands)
Earnings:
Income before provision for income
taxes and cumulative effect of
accounting changes $ 86,018 $ 77,317
Interest expense 93,025 95,650
Implicit interest in rents 2,751 2,530
Total earnings $181,794 $175,497
Fixed charges:
Interest expense $ 93,025 $ 95,650
Implicit interest in rents 2,751 2,530
Total fixed charges $ 95,776 $ 98,180
Ratio of earnings to fixed charges 1.90 1.79
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