<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1995
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)
(812) 424-8031
(Registrant's telephone number, including area code)
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 (or for such shorter period that the
registrant was required to file such reports), 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.
The number of shares outstanding of the registrant's common stock at May 3,
1995 was 2,000,000.
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
AMERICAN GENERAL FINANCE, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Income
(Unaudited)
Three Months Ended
March 31,
1995 1994
(dollars in thousands)
Revenues
Finance charges $358,556 $281,441
Insurance 54,138 39,404
Other 18,054 14,742
Total revenues 430,748 335,587
Expenses
Interest expense 124,795 93,025
Operating expenses 109,391 90,301
Provision for finance
receivable losses 72,388 43,080
Insurance losses and loss
adjustment expenses 28,644 23,163
Total expenses 335,218 249,569
Income before provision for
income taxes 95,530 86,018
Provision for Income Taxes 35,429 32,856
Net Income $ 60,101 $ 53,162
See Notes to Condensed Consolidated Financial Statements.
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AMERICAN GENERAL FINANCE, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Unaudited)
March 31, December 31,
1995 1994
Assets (dollars in thousands)
Finance receivables, net of unearned
finance charges:
Real estate loans $2,800,569 $2,704,929
Non-real estate loans 2,703,399 2,660,523
Retail sales finance 2,179,097 2,075,380
Credit cards 488,914 479,480
Net finance receivables 8,171,979 7,920,312
Allowance for finance receivable
losses (242,226) (226,226)
Net finance receivables, less allowance
for finance receivable losses 7,929,753 7,694,086
Marketable securities 764,185 702,510
Cash and cash equivalents 92,815 52,729
Goodwill 286,748 289,000
Other assets 248,148 242,403
Total assets $9,321,649 $8,980,728
Liabilities and Shareholder's Equity
Long-term debt $4,763,233 $4,312,932
Short-term notes payable:
Commercial paper 2,295,233 2,609,986
Banks and other 196,556 161,477
Investment certificates 6,495 6,601
Insurance claims and policyholder
liabilities 470,664 466,883
Other liabilities 270,272 191,278
Accrued taxes 61,117 19,831
Total liabilities 8,063,570 7,768,988
Shareholder's equity:
Common stock 1,000 1,000
Additional paid-in capital 616,021 616,021
Net unrealized investment losses (1,171) (18,407)
Retained earnings 642,229 613,126
Total shareholder's equity 1,258,079 1,211,740
Total liabilities and shareholder's equity $9,321,649 $8,980,728
See Notes to Condensed Consolidated Financial Statements.
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AMERICAN GENERAL FINANCE, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Three Months Ended
March 31,
1995 1994
(dollars in thousands)
Cash Flows from Operating Activities
Net income $ 60,101 $ 53,162
Reconciling adjustments to net cash
provided by operating activities:
Provision for finance receivable losses 72,388 43,080
Depreciation and amortization 30,031 32,166
Deferral of finance receivable
origination costs (21,081) (20,128)
Deferred federal income tax benefit (5,834) (2,730)
Change in other assets and other liabilities 80,609 19,322
Change in insurance claims and
policyholder liabilities 3,781 7,231
Other, net 43,915 33,986
Net cash provided by operating activities 263,910 166,089
Cash Flows from Investing Activities
Finance receivables originated or purchased (1,520,974) (1,242,967)
Principal collections on finance receivables 1,208,643 1,071,616
Marketable securities purchased (54,117) (52,192)
Marketable securities called, matured and sold 19,628 26,235
Other, net (15,433) (3,897)
Net cash used for investing activities (362,253) (201,205)
Cash Flows from Financing Activities
Proceeds from issuance of long-term debt 733,427 64,526
Repayment of long-term debt (282,718) (179,041)
Change in investment certificates (106) (227)
Change in short-term notes payable (281,174) 221,708
Dividends paid (31,000) (81,400)
Net cash provided by financing activities 138,429 25,566
Increase (decrease) in cash and cash equivalents 40,086 (9,550)
Cash and cash equivalents at beginning of period 52,729 48,374
Cash and cash equivalents at end of period $ 92,815 $ 38,824
Supplemental Disclosure of Cash Flow Information
Income taxes paid $ 572 $ 19,342
Interest paid $112,594 $ 97,168
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, 1995
Note 1. Principles of Consolidation
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles
for interim periods. 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, 1995 and December 31, 1994, the consolidated results
of operations for the three months ended March 31, 1995 and 1994, and the
consolidated cash flows for the three months ended March 31, 1995 and 1994.
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, 1994.
To conform with the 1995 presentation, certain items in the prior period
have been reclassified.
Note 3. Accounting Changes
On March 31, 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of," which establishes accounting standards for the impairment of long-
lived assets, certain identifiable intangibles, and goodwill related to
assets to be held and used and for long-lived assets and certain
identifiable intangibles to be disposed of. This statement is effective for
fiscal years beginning after December 15, 1995, with earlier application
encouraged. The Company has not yet determined the timing of adoption;
however, this standard is not expected to have a material impact on the
Company's consolidated results of operations and consolidated financial
position.
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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 and
operational requirements.
Operating Activities
The Condensed Consolidated Statements of Cash Flows included in Item 1.
herein indicate the adjustments for non-cash items which reconcile net
income to net cash from operating activities. Such non-cash items include
provision for finance receivable losses, depreciation and amortization of
assets, deferral of finance receivable origination costs, deferred federal
income tax benefit, change in other assets and other liabilities, and
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, 1995, when compared to the same period in
1994, reflects increases in average finance receivables net of unearned
finance charges (ANR) and finance charges annualized as a percentage of ANR
(yield). The increase in interest expense for the three months ended March
31, 1995, when compared to the same period in 1994, reflects increases in
average borrowings and short-term borrowing cost partially offset by a
decrease in long-term borrowing cost. The increase in operating expenses
for the three months ended March 31, 1995, when compared to the same period
in 1994, was primarily due to an increase in salaries expense. The
increase in salaries expense was primarily due to operational staffing
increases to support the Company's growth.
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,
1995, when compared to the same period in 1994, primarily due to business
development efforts. Principal collections on finance receivables
increased for the three months ended March 31, 1995, when compared to the
same period in 1994, 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.
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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 for the three
months ended March 31, 1995 reflect the funding of asset growth, maturing
issues of long-term interest obligations, and the decrease in short-term
notes payable.
The Company's principal borrowing subsidiary is American General Finance
Corporation (AGFC), a direct, wholly-owned subsidiary of AGFI. AGFC
obtains funds through the issuance of a combination of fixed-rate debt,
principally long-term, and floating-rate or short-term debt, principally
commercial paper. The Company's mix of fixed-rate and floating-rate debt
is a management decision based in part on the nature of the assets being
supported. The Company limits its exposure to market interest rate
increases by fixing interest rates that it pays for term periods. The
primary means by which the Company accomplishes this is through the
issuance of fixed-rate debt. To supplement fixed-rate debt issuances, AGFC
also uses interest conversion agreements and has used options on interest
conversion agreements to synthetically create fixed-rate debt by altering
the nature of floating-rate debt, thereby limiting its exposure to interest
rate movements. The amount of dividends AGFC may pay is limited by
restrictions contained in certain financing agreements.
The Company currently manages capital on the basis of maintaining its ratio
of debt to tangible equity at approximately 7.5:1. Tangible equity is
calculated as shareholder's equity less goodwill and net unrealized
investment gains or losses on fixed-maturity marketable securities. The
debt to equity ratio at March 31, 1995 increased when compared to March 31,
1994 primarily due to asset growth, net unrealized investment losses on
fixed-maturity marketable securities, and goodwill amortization.
Credit Facilities
Credit facilities are maintained to support the issuance of commercial
paper and as an additional source of funds for operating requirements. At
March 31, 1995, the Company had a committed credit facility of $500.0
million and was an eligible borrower under $3.8 billion of committed credit
facilities extended to American General and certain of its subsidiaries.
The annual commitment fees for all committed facilities ranged from .07% to
.125%. At March 31, 1995, the Company also had $597.0 million of
uncommitted credit facilities and was an eligible borrower under $185.0
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, 1995, Company
borrowings outstanding under all credit facilities were $335.5 million with
remaining availability to the Company of $4.3 billion in committed
facilities and $446.5 million in uncommitted facilities.
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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:
At or for the
Three Months Ended
March 31,
1995 1994
(dollars in thousands)
Average finance receivables
net of unearned finance
charges (ANR) $8,055,220 $6,616,849
Average borrowings $7,176,198 $5,878,901
Finance charges (annualized)
as a percentage of ANR
(yield) 17.95% 17.15%
Interest expense (annualized)
as a percentage of average
borrowings (borrowing cost) 6.98% 6.34%
Spread between yield and
borrowing cost 10.97% 10.81%
Insurance revenues (annualized)
as a percentage of ANR 2.69% 2.38%
Operating expenses (annualized)
as a percentage of ANR 5.43% 5.46%
Return on average assets
(annualized) 2.62% 2.76%
Return on average equity
(annualized) 19.34% 18.90%
Net charge-offs (annualized)
as a percentage of ANR
(charge-off ratio) 2.81% 2.21%
Allowance for finance receivable
losses as a percentage of net
finance receivables 2.96% 2.84%
Ratio of earnings to fixed
charges (refer to Exhibit 12
herein for calculations) 1.75 1.90
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Selected Financial Statistics (Continued)
At March 31,
1995 1994
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) 2.91% 2.38%
Debt to shareholder's equity less
goodwill and net unrealized investment
gains or losses on fixed-maturity
marketable securities (Debt to
tangible equity ratio) 7.47 7.44
Debt to equity ratio 5.77 5.38
ANALYSIS OF OPERATING RESULTS
Net income was $60.1 million for the three months ended March 31, 1995,
compared to $53.2 million for the same 1994 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, 1995 increased when
compared to the same period in 1994. 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, 1995 increased when compared to the same period in 1994
primarily due to the increased proportion of higher-rate, non-real estate
loans in the loan portfolio and higher yield on retail sales finance and
credit cards.
Insurance Revenues
Insurance revenues increased for the three months ended March 31, 1995,
when compared to the same period in 1994, primarily due to an increase in
earned premiums. Earned premiums increased primarily due to increased
written premiums in prior periods. Written premiums increased primarily
due to increased loan activity and insurance product introductions.
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Other Revenues
Other revenues for the three months ended March 31, 1995 increased when
compared to the same period in 1994 primarily due to an increase in
investment revenue. The increase in investment revenue was primarily due to
an increase in invested assets, partially offset by a decline in investment
portfolio yields. 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 ended March 31, 1995 increased when compared to the same period in
1994 primarily to fund asset growth. The borrowing cost for the three
months ended March 31, 1995 increased when compared to the same period in
1994 due to an increase in short-term borrowing cost, partially offset by a
decrease in long-term borrowing cost. The increase in borrowing cost
resulted in a decrease in the ratio of earnings to fixed charges for the
three months ended March 31, 1995 when compared to the same period in 1994.
Operating Expenses
Operating expenses for the three months ended March 31, 1995 increased when
compared to the same period in 1994 primarily due to an increase in
salaries expense. The increase in salaries expense was primarily due to
operational staffing increases to support the Company's growth.
Provision for Finance Receivable Losses
Provision for finance receivable losses for the three months ended March
31, 1995 increased when compared to the same period in 1994, due to
increases in net charge-offs and amounts provided for the allowance for
finance receivable losses. Net charge-offs increased due to the increases
in charge-off ratios and ANR. The charge-off ratio on loans increased
primarily due to the increase in charge-off ratio on non-real estate loans
and the increased proportion of such 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 ratios and
corresponding higher yields. However, the proportion of non-real estate
loans in the loan portfolio at March 31, 1995 decreased when compared to
December 31, 1994. The allowance for finance receivable losses increased
primarily to bring the balance to appropriate levels based upon the balance
of finance receivables, the portfolio mix, and the trends in 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, 1995 increased when compared to the same period in 1994 primarily
due to an increase in claims and reserves, resulting from the increase in
premiums written due to increased loan activity, partially offset by
improved loss ratios.
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Provision for Income Taxes
Provision for income taxes for the three months ended March 31, 1995
increased when compared to the same period in 1994, due to higher taxable
income.
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<PAGE> 12
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
Other than the lawsuits or proceedings disclosed previously, the Company is
a defendant in various other lawsuits and proceedings arising in the normal
course of business. Some of these lawsuits and proceedings arise in
jurisdictions such as Alabama that permit punitive damages disproportionate
to the actual damages alleged. Although no assurances can be given and no
determination can be made at this time as to the outcome of any particular
lawsuit or proceeding, the Company believes that there are meritorious
defenses for all of these claims and is defending them vigorously. The
Company also believes that the total amounts that would ultimately be paid,
if any, arising from these claims would have no material effect on the
Company's consolidated results of operations and consolidated financial
position.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
(12) Computation of ratio of earnings to fixed charges.
(27) Financial Data Schedule.
(b) Reports on Form 8-K.
No Current Reports on Form 8-K were filed during the first quarter of
1995.
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Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMERICAN GENERAL FINANCE, INC.
(Registrant)
Date: May 3, 1995 By /s/ Philip M. Hanley
Philip M. Hanley
Senior Vice President and Chief
Financial Officer
(Duly Authorized Officer and Principal
Financial Officer)
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<PAGE> 14
Exhibit Index
Exhibits Page
(12) Computation of ratio of earnings to fixed charges. 15
(27) Financial Data Schedule. 16
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<PAGE> 15
Exhibit 12
AMERICAN GENERAL FINANCE, INC. AND SUBSIDIARIES
Computation of Ratio of Earnings to Fixed Charges
(Unaudited)
Three Months Ended
March 31,
1995 1994
(dollars in thousands)
Earnings:
Income before provision for income
taxes $ 95,530 $ 86,018
Interest expense 124,795 93,025
Implicit interest in rents 3,070 2,751
Total earnings $223,395 $181,794
Fixed charges:
Interest expense $124,795 $ 93,025
Implicit interest in rents 3,070 2,751
Total fixed charges $127,865 $ 95,776
Ratio of earnings to fixed charges 1.75 1.90
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<TABLE> <S> <C>
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<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<CASH> 92,815
<SECURITIES> 764,185
<RECEIVABLES> 8,171,979<F1>
<ALLOWANCES> 242,226<F2>
<INVENTORY> 0<F3>
<CURRENT-ASSETS> 0<F4>
<PP&E> 0<F4>
<DEPRECIATION> 0<F4>
<TOTAL-ASSETS> 9,321,649
<CURRENT-LIABILITIES> 0<F4>
<BONDS> 4,763,233<F5>
<COMMON> 1,000
0<F3>
0<F3>
<OTHER-SE> 1,257,079<F6>
<TOTAL-LIABILITY-AND-EQUITY> 9,321,649
<SALES> 0<F3>
<TOTAL-REVENUES> 430,748<F7>
<CGS> 0<F3>
<TOTAL-COSTS> 0<F4>
<OTHER-EXPENSES> 138,035<F8>
<LOSS-PROVISION> 72,388<F9>
<INTEREST-EXPENSE> 124,795<F10>
<INCOME-PRETAX> 95,530
<INCOME-TAX> 35,429
<INCOME-CONTINUING> 60,101
<DISCONTINUED> 0<F3>
<EXTRAORDINARY> 0<F3>
<CHANGES> 0<F3>
<NET-INCOME> 60,101
<EPS-PRIMARY> 0<F3>
<EPS-DILUTED> 0<F3>
<PAGE>
<FN>
<F1>RECEIVABLES IN THIS EXHIBIT REPRESENTS NET FINANCE RECEIVABLES REPORTED
IN THE COMPANY'S CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
<F2>ALLOWANCES IN THIS EXHIBIT REPRESENTS ALLOWANCE FOR FINANCE RECEIVABLE
LOSSES REPORTED IN THE COMPANY'S CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS.
<F3>NOT APPLICABLE.
<F4>NOT REPORTED SEPARATELY (OR NOT REPORTED SEPARATELY AS DEFINED BY
ARTICLE 5 OF REGULATION S-X) IN DOCUMENT FILED.
<F5>BONDS IN THIS EXHIBIT REPRESENTS LONG-TERM DEBT REPORTED IN THE COMPANY'S
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS WHICH INCLUDES OTHER LONG-TERM
DEBT.
<F6>OTHER STOCKHOLDER'S EQUITY IN THIS EXHIBIT REPRESENTS ADDITIONAL PAID-IN-
CAPITAL, NET UNREALIZED INVESTMENT GAINS (LOSSES), AND RETAINED EARNINGS
REPORTED IN THE COMPANY'S CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
<F7>TOTAL REVENUES IN THIS EXHIBIT REPRESENTS TOTAL REVENUES REPORTED IN THE
COMPANY'S CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
<F8>OTHER EXPENSES IN THIS EXHIBIT REPRESENTS OPERATING EXPENSES AND
INSURANCE LOSSES AND LOSS ADJUSTMENT EXPENSES REPORTED IN THE COMPANY'S
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
<F9>LOSS PROVISION IN THIS EXHIBIT REPRESENTS PROVISION FOR FINANCE
RECEIVABLE LOSSES REPORTED IN THE COMPANY'S CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
<F10>INTEREST EXPENSE IN THIS EXHIBIT REPRESENTS INTEREST EXPENSE REPORTED
IN THE COMPANY'S CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
</FN>
</TABLE>
