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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 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
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
None
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
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K [ ]. Not applicable.
The registrant meets the conditions set forth in General Instructions
J(1)(a) and (b) of Form 10-K and is therefore filing this Form 10-K with
the reduced disclosure format.
As of March 15, 1995, no voting stock of the registrant was held by a
non-affiliate.
As of March 15, 1995, there were 2,000,000 shares of the registrant's
common stock, $.50 par value, outstanding.
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TABLE OF CONTENTS
Item Page
Part I 1. Business . . . . . . . . . . . . . . . . . . . . . . . 3
2. Properties . . . . . . . . . . . . . . . . . . . . . . 15
3. Legal Proceedings . . . . . . . . . . . . . . . . . . 15
4. Submission of Matters to a Vote of Security Holders. . *
Part II 5. Market for Registrant's Common Equity and Related
Stockholder Matters . . . . . . . . . . . . . . . . 16
6. Selected Financial Data . . . . . . . . . . . . . . . 17
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . . . . 17
8. Financial Statements and Supplementary Data . . . . . 26
9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure . . . . . . . **
Part III 10. Directors and Executive Officers of the Registrant . . *
11. Executive Compensation . . . . . . . . . . . . . . . . *
12. Security Ownership of Certain Beneficial Owners
and Management . . . . . . . . . . . . . . . . . . . *
13. Certain Relationships and Related Transactions . . . . *
Part IV 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K . . . . . . . . . . . . . . . . . . . . 57
* Items 4, 10, 11, 12, and 13 are not included, as per conditions
met by Registrant set forth in General Instructions J(1)(a) and
(b) of Form 10-K.
** Item 9 is not included, as no information was required by Item
304 of Regulation S-K.
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PART I
Item 1. Business.
GENERAL
American General Finance, Inc. (AGFI) was incorporated under the laws of
the State of Indiana in 1974 to become the parent holding company of
American General Finance Corporation (AGFC). AGFC was incorporated under
the laws of the State of Indiana in 1927 as successor to a business started
in 1920. Since 1982, AGFI has been a direct or indirect wholly-owned
subsidiary of American General Corporation (American General), the parent
of one of the nation's largest consumer financial services organizations.
American General was incorporated in the State of Texas in 1980 as the
successor to American General Insurance Company, a Texas insurance company
incorporated in 1926.
AGFI is a financial services holding company whose principal subsidiaries
are AGFC and American General Financial Center (AGF-Utah). AGFC is also a
holding company with subsidiaries that are engaged primarily in the
consumer finance and credit insurance business. The credit insurance
operations are conducted by Merit Life Insurance Co. (Merit) and Yosemite
Insurance Company (Yosemite) as a part of the Company's consumer finance
business. AGF-Utah is an industrial loan company engaged primarily in the
consumer finance business with funding for its operations including public
deposits insured by the Federal Deposit Insurance Corporation. Unless the
context otherwise indicates, references to the Company relate to AGFI and
its subsidiaries, whether directly or indirectly owned.
At December 31, 1994, the Company had 1,305 offices in 41 states, Puerto
Rico, and the U.S. Virgin Islands and employed approximately 8,800 persons.
The Company's executive offices are located in Evansville, Indiana.
Certain amounts in the 1993 and 1992 information presented herein have been
reclassified to conform to the 1994 presentation.
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Item 1. Continued
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 years indicated:
1994 1993 1992
(dollars in thousands)
Average finance receivables
net of unearned finance
charges (ANR) $7,096,011 $6,387,044 $5,939,417
Average borrowings $6,308,901 $5,693,080 $5,317,836
Finance charges as a
percentage of ANR (yield) 17.58% 16.95% 16.74%
Interest expense as a
percentage of average
borrowings (borrowing cost) 6.60% 6.67% 7.49%
Spread between yield and
borrowing cost 10.98% 10.28% 9.25%
Insurance revenues as a
percentage of ANR 2.55% 2.24% 2.01%
Operating expenses as a
percentage of ANR 5.23% 5.17% 5.18%
Allowance for finance receivable
losses as a percentage of net
finance receivables 2.86% 2.80% 2.61%
Charge-off ratio (defined in
"Consumer Finance Operations -
Finance Receivable Loss and
Delinquency Experience" in
Item 1. herein.) 2.45% 2.21% 2.18%
Delinquency ratio - 60 days or more
(defined in "Consumer Finance
Operations - Finance Receivable
Loss and Delinquency Experience"
in Item 1. herein.) 2.89% 2.51% 2.24%
Debt to equity ratio 5.85 5.26 5.27
Return on average assets 3.00% 2.64% 2.34%
Return on average assets before
deducting cumulative effect
of accounting changes 3.00% 2.81% 2.34%
Return on average equity 21.27% 18.08% 15.68%
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Item 1. Continued
1994 1993 1992
Return on average equity before
deducting cumulative effect
of accounting changes 21.27% 19.04% 15.68%
Ratio of earnings to fixed charges
(refer to Exhibit 12 herein
for calculations) 1.92 1.86 1.65
CONSUMER FINANCE OPERATIONS
Through its subsidiaries, the Company makes loans directly to individuals,
purchases retail sales contract obligations of individuals, and offers
credit card services.
In its lending operations, the Company generally takes a security interest
in real property and/or personal property of the borrower. Of the loans
outstanding at December 31, 1994, 89% were secured by such property. At
December 31, 1994, mortgage loans (generally second mortgages) accounted
for 50% of the aggregate dollar amount of loans outstanding and 10% of the
total number of loans outstanding; compared to 53% and 11%, respectively,
at December 31, 1993. Loans secured by real property generally have
maximum original terms of 180 months. Loans secured by personal property
or that are unsecured generally have maximum original terms of 60 months.
In its retail operations, the Company purchases retail sales contracts
arising from the retail sale of consumer goods and services, and issues
private label credit cards for various business entities. Retail sales
contracts are primarily closed-end accounts which consist of a single
purchase. Private label are open-end revolving accounts that can be used
for repeated purchases. Retail sales contracts are secured by the real
property or personal property giving rise to the contract and generally
have a maximum original term of 60 months. Private label are secured by a
purchase money security interest in the goods purchased and generally
require minimum monthly payments based on current balances.
In its credit card operations, the Company issues MasterCard and Visa
credit cards to individuals through branch and direct mail solicitation
programs. Credit cards are unsecured and require minimum monthly payments
based on current balances.
Finance Receivables
All finance receivable data in this report (except as otherwise indicated)
are calculated on a net basis -- that is, after deduction of unearned
finance charges but before deduction of an allowance for finance receivable
losses.
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Item 1. Continued
The following table sets forth certain information concerning finance
receivables of the Company:
Years Ended December 31,
1994 1993 1992
Originated, renewed, and purchased:
Amount (in thousands):
Real estate loans $1,173,386 $ 939,769 $ 841,898
Non-real estate loans 2,983,418 2,499,113 1,969,564
Retail sales finance 2,283,561 1,422,851 1,044,549
Credit cards 537,738 546,611 506,176
Total originated and renewed 6,978,103 5,408,344 4,362,187
Purchased (net of sales) 60,533 31,501 259,492
Total originated, renewed,
and purchased $7,038,636 $5,439,845 $4,621,679
Number:
Real estate loans 70,823 58,163 48,778
Non-real estate loans 1,511,166 1,280,639 915,311
Retail sales finance 1,862,342 1,175,447 846,420
Average size (to nearest dollar):
Real estate loans $16,568 $16,158 $17,260
Non-real estate loans 1,974 1,951 2,152
Retail sales finance 1,226 1,210 1,234
Balance at end of period:
Amount (in thousands):
Real estate loans $2,704,929 $2,641,879 $2,782,297
Non-real estate loans 2,660,523 2,318,102 2,054,380
Retail sales finance 2,075,380 1,218,016 986,008
Credit cards 479,480 395,991 377,001
Total $7,920,312 $6,573,988 $6,199,686
Number:
Real estate loans 162,315 153,562 153,621
Non-real estate loans 1,432,054 1,270,167 1,074,511
Retail sales finance 1,524,072 993,058 784,067
Credit cards 403,262 336,837 333,616
Total 3,521,703 2,753,624 2,345,815
Average size (to nearest dollar):
Real estate loans $16,665 $17,204 $18,111
Non-real estate loans 1,858 1,825 1,912
Retail sales finance 1,362 1,227 1,258
Credit cards 1,189 1,176 1,130
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Item 1. Continued
ANR
The following table details ANR by type of finance receivable for the years
indicated:
1994 1993 1992
(dollars in thousands)
Loans $5,099,942 $4,942,508 $4,736,611
Retail sales finance 1,578,521 1,076,550 847,558
Credit cards 417,548 367,986 355,248
Total $7,096,011 $6,387,044 $5,939,417
Yield
The following table details yield for the years indicated:
1994 1993 1992
Loans 17.70% 17.05% 16.63%
Retail sales finance 16.20% 15.48% 15.87%
Credit cards 21.39% 19.91% 20.30%
Total 17.58% 16.95% 16.74%
Geographic Distribution
See Note 3. of the Notes to Consolidated Financial Statements in Item 8.
herein for information on geographic distribution of finance receivables.
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Item 1. Continued
Finance Receivable Loss and Delinquency Experience
The finance receivable loss experience for the Company, for the periods
indicated, is set forth in the net charge-offs and charge-off ratio(a)
information below:
Years Ended December 31,
1994 1993 1992
(dollars in thousands)
Real estate loans:
Net charge-offs $ 15,408 $ 20,325 $ 21,403
Charge-off ratio .58% .74% .76%
Non-real estate loans:
Net charge-offs $ 93,790 $ 79,016 $ 71,052
Charge-off ratio 3.92% 3.74% 4.00%
Total loans:
Net charge-offs $109,198 $ 99,341 $ 92,455
Charge-off ratio 2.15% 2.01% 1.95%
Retail sales finance:
Net charge-offs $ 38,404 $ 18,651 $ 12,166
Charge-off ratio 2.49% 1.75% 1.45%
Credit cards:
Net charge-offs $ 24,885 $ 22,756 $ 24,459
Charge-off ratio 6.01% 6.20% 6.90%
Total:
Net charge-offs $172,487 $140,748 $129,080
Charge-off ratio 2.45% 2.21% 2.18%
Allowance for finance
receivable losses (b) $226,226 $183,756 $161,678
Allowance ratio (b) 2.86% 2.80% 2.61%
(a) The charge-off ratio represents charge-offs net of recoveries as a
percentage of the average of the amount of net finance receivables at
the beginning of each month during the period.
(b) Allowance for finance receivable losses represents the balance at the
end of the period. The allowance ratio represents the allowance for
finance receivable losses at the end of the period as a percentage of
net finance receivables.
The allowance for finance receivable losses is maintained at a level based
on management's periodic evaluation of the finance receivable portfolio and
reflects an amount that, in management's opinion, is adequate to absorb
losses in the existing portfolio. In evaluating the portfolio, management
takes into consideration numerous factors, including current economic
conditions, prior finance receivable loss and delinquency experience, the
composition of the finance receivable portfolio, and management's estimate
of anticipated finance receivable losses.
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Item 1. Continued
AGFI's basic policy is to charge off each month loan accounts, except those
secured by real estate, on which little or no collections were made in the
prior six-month period. Retail sales contracts are charged off when four
installments are past due. Private label and credit card accounts are
charged off when 180 days past due. In the case of loans secured by real
estate, foreclosure proceedings are instituted when four monthly
installments are past due. When foreclosure is completed and the Company
has obtained title to the property, the real estate is established as an
asset valued at market value, and any loan value in excess of that amount
is charged off. Exceptions are made to the charge-off policies when, in
the opinion of management, such treatment is warranted.
Based upon contract terms in effect at the respective dates, delinquency(a)
was as follows:
December 31,
1994 1993 1992
(dollars in thousands)
Real estate loans $ 46,746 $ 48,426 $ 53,046
% of related receivables 1.64% 1.75% 1.83%
Non-real estate loans $140,615 $102,855 $ 75,449
% of related receivables 4.54% 3.83% 3.18%
Total loans $187,361 $151,281 $128,495
% of related receivables 3.15% 2.77% 2.44%
Retail sales finance $ 49,259 $ 17,746 $ 11,670
% of related receivables 2.13% 1.27% 1.01%
Credit cards $ 15,454 $ 12,537 $ 12,373
% of related receivables 3.25% 3.19% 3.31%
Total $252,074 $181,564 $152,538
% of related receivables 2.89% 2.51% 2.24%
(a) Finance receivables any portion of which was 60 days or more past due
(including unearned finance charges and excluding deferred origination
costs, a fair value adjustment on finance receivables, and accrued
interest).
Sources of Funds
AGFI funds its consumer finance operations principally through net cash
flows from operating activities, issuances of long-term debt, short-term
borrowings in the commercial paper market, and borrowings from banks. The
spread between the rates charged in consumer finance operations and the
cost of borrowed funds is one of the major factors determining the
Company's earnings. The Company is limited by statute in most states to a
maximum rate which it may charge in its lending operations.
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Item 1. Continued
Average Borrowings
The following table details average borrowings by type of debt for the
years indicated:
1994 1993 1992
(dollars in thousands)
Long-term debt $4,162,229 $3,856,328 $3,181,509
Short-term debt 2,138,324 1,781,165 1,889,874
Investment certificates 8,348 55,587 246,453
Total $6,308,901 $5,693,080 $5,317,836
Borrowing Cost
The following table details interest expense as a percentage of average
borrowings by type of debt for the years indicated:
1994 1993 1992
Long-term debt 7.33% 7.88% 8.68%
Short-term debt 5.18% 4.11% 5.64%
Investment certificates 5.68% 4.74% 6.31%
Total 6.60% 6.67% 7.49%
Contractual Maturities
Contractual maturities of finance receivables and debt as of December 31,
1994 were as follows:
Net Finance
Receivables Debt
(dollars in thousands)
Due in:
1995 $3,152,603 $3,681,094
1996 1,468,445 590,897
1997 900,143 1,132,176
1998 455,543 242,492
1999 275,705 533,694
2000 and thereafter 1,667,873 910,643
Total $7,920,312 $7,090,996
See Note 3. of the Notes to Consolidated Financial Statements in Item 8.
herein for further information on principal cash collections of finance
receivables.
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Item 1. Continued
INSURANCE OPERATIONS
Merit is a life and health insurance company domiciled in Indiana and
currently licensed in 43 states and the District of Columbia. Merit writes
or assumes (through affiliated and non-affiliated insurance companies)
credit life, credit accident and health, and ordinary insurance coverages.
Yosemite is a property and casualty insurance company domiciled in
California and licensed in 42 states which principally underwrites credit-
related property and casualty coverages.
Both Merit and Yosemite market their products through the consumer finance
network of the Company. The credit life insurance policies typically cover
the life of the borrower in an amount equal to the unpaid balance of the
obligation and provide for payment in full to the lender of the insured's
obligation in the event of death. The credit accident and health insurance
policies provide for the payment of the installments on the insured's
obligation to the lender coming due during a period of unemployment or
disability due to illness or injury. The credit-related property and
casualty insurance is written to protect property pledged as security for
the obligation. The purchase by the borrower of credit life, credit
accident and health, and credit property and casualty insurance is
voluntary with the exception of property damage coverage for automobiles,
dwellings, and commercial real estate pledged as collateral. In these
instances, property damage coverage is provided under the terms of the
lending agreement if the borrower does not provide evidence of coverage
with another insurance carrier. Premiums for insurance products are
financed as part of the insured's obligation to the lender.
Merit has from time to time entered into reinsurance agreements with other
insurance companies, including certain American General subsidiaries, for
assumptions of various shares of annuities and ordinary, group, and credit
life insurance on a coinsurance basis. The reserves attributable to this
business fluctuate over time and in certain instances are subject to
recapture by the ceding company. At December 31, 1994, life reserves on
the books of Merit attributable to these reinsurance agreements amounted to
$75.9 million.
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Item 1. Continued
The following tables set forth information concerning the insurance
operations:
Life Insurance in Force December 31,
1994 1993 1992
(dollars in thousands)
Credit life $2,899,124 $2,547,784 $2,221,940
Ordinary life 2,773,928 2,373,685 2,208,685
Total $5,673,052 $4,921,469 $4,430,625
Premiums Earned Years Ended December 31,
1994 1993 1992
(dollars in thousands)
Insurance premiums earned in
connection with affiliated
finance and loan activities:
Credit life $ 39,398 $ 35,711 $ 30,324
Credit accident and health 51,983 42,978 34,222
Property 37,847 25,686 18,594
Other insurance premiums earned:
Ordinary life 26,685 20,823 19,344
Premiums assumed under
coinsurance agreements 18,599 12,318 6,984
Total $174,512 $137,516 $109,468
Premiums Written Years Ended December 31,
1994 1993 1992
(dollars in thousands)
Insurance premiums written in
connection with affiliated
finance and loan activities:
Credit life $ 47,864 $ 41,036 $ 36,605
Credit accident and health 64,395 56,839 44,029
Property 55,086 47,358 19,344
Other insurance premiums written:
Ordinary life 26,685 20,823 23,968
Premiums assumed under
coinsurance agreements 18,599 12,318 6,984
Total $212,629 $178,374 $130,930
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Item 1. Continued
Investments and Investment Results
The following table summarizes the investment results of the Company's
insurance subsidiaries for the periods indicated:
Years Ended December 31,
1994 1993 1992
(dollars in thousands)
Net investment revenue (a) $ 56,795 $ 55,654 $ 54,134
Average invested assets $722,117 $666,982 $597,631
Return on invested assets (a) 7.87% 8.34% 9.06%
Net realized investment (losses)
gains (b) $ (141) $ 7,101 $ 1,937
(a) Net investment revenue and return on invested assets are after
deduction of investment expense but before net realized investment
(losses) gains and provision for income taxes.
(b) Includes net realized investment (losses) gains on marketable
securities and other invested assets before provision for income
taxes.
See Note 5. of the Notes to Consolidated Financial Statements in Item 8.
herein for information regarding investments in marketable securities for
all operations of the Company.
REGULATION
Consumer Finance
The Company operates under various state laws which regulate the consumer
lending and retail sales financing businesses. The degree and nature of
such regulation varies from state to state. In general, the laws under
which a substantial amount of the Company's business is conducted provide
for state licensing of lenders; impose maximum term, amount, interest rate,
and other charge limitations; and enumerate whether and under what
circumstances insurance and other ancillary products may be sold in
connection with a lending transaction. In addition, certain of these laws
prohibit the taking of liens on real estate except liens resulting from
judgments.
The Company also is subject to various types of federal regulation,
including the Federal Consumer Credit Protection Act (governing disclosure
of applicable charges), the Equal Credit Opportunity Act (prohibiting
discrimination against credit worthy applicants), the Fair Credit Reporting
Act (governing the accuracy and use of credit bureau reports), and certain
Federal Trade Commission rules. AGF-Utah, which engages in the consumer
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Item 1. Continued
finance business and accepts insured deposits, is subject to regulation by
and reporting requirements of the Federal Deposit Insurance Corporation and
is subject to regulatory codes in the state of Utah.
Insurance
The operations of the Company's insurance subsidiaries are subject to
regulation and supervision by state authorities. The extent of such
regulation varies but relates primarily to conduct of business, types of
products offered, standards of solvency, payment of dividends, licensing,
nature of and limitations on investments, deposits of securities for the
benefit of policyholders, the approval of policy forms and premium rates,
periodic examination of the affairs of insurers, form and content of
required financial reports and establishment of reserves required to be
maintained for unearned premiums, losses, and other purposes.
Substantially all of the states in which the Company operates regulate the
rates of premiums charged for credit life and credit accident and health
insurance.
The investment portfolio of the Company's insurance subsidiaries is subject
to state insurance laws and regulations which prescribe the nature, quality
and percentage of various types of investments which may be made by
insurance companies.
COMPETITION
Consumer Finance
The consumer finance business is highly competitive. The Company competes
with other consumer finance companies, industrial banks, industrial loan
companies, commercial banks, sales finance companies, savings and loan
associations, credit unions, mutual or cooperative agencies, and others.
See Competitive Factors in Item 7. herein for more information.
Insurance
The Company's insurance business primarily operates as a supplementary
business to the consumer lending operations. As such, the competition for
this business is relatively limited.
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Item 2. Properties.
Due to the nature of the Company's business, its investment in real estate
and tangible property is not significant in relation to its total assets.
AGFI and certain of its subsidiaries own real estate on which AGFI and
other affiliates conduct business. Branch office operations are generally
conducted in leased premises. Leases ordinarily have terms from three to
five years.
The Company's exposure to environmental regulation arises from its
ownership of such properties and properties obtained through foreclosure.
The properties are monitored for compliance with federal and local
environmental guidelines. Potential costs related to environmental clean-
up are estimated to be immaterial.
Item 3. Legal Proceedings.
The Company is a defendant in various lawsuits and proceedings arising in
the normal course of business that are not discussed below. 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.
Environmental
In March 1994, a subsidiary of AGFI and a subsidiary of AGFC were named as
defendants in a lawsuit, 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 is
seeking 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 Company believes that the total amounts that
would ultimately be paid, if any, arising from this environmental claim
would have no material effect on the Company's consolidated results of
operations and consolidated financial position.
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PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters.
There is no trading market for AGFI's common stock, all of which is owned
by American General. The frequency and amount of cash dividends declared
on AGFI's common stock for the years indicated were as follows:
Quarter Ended 1994 1993
(dollars in thousands)
March 31 $ 33,201 $ 26,000
June 30 22,800 42,100
September 30 21,600 52,900
December 31 14,200 48,198
$ 91,801 $169,198
See Management's Discussion and Analysis of Financial Condition and Results
of Operations in Item 7. herein, as well as Note 13. of Notes to
Consolidated Financial Statements in Item 8. herein, with respect to
limitations on the ability of AGFI and its subsidiaries to pay dividends.
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Item 6. Selected Financial Data.
The following selected financial data are derived from the consolidated
financial statements of the Company. The data should be read in
conjunction with the consolidated financial statements, related notes, and
other financial information included herein.
Years Ended December 31,
1994 1993(a) 1992 1991 1990
(dollars in thousands)
Total revenues $1,491,239 $1,288,777 $1,170,371 $1,141,662 $1,114,068
Net income (b) 244,988 195,741 161,908 135,020 121,925
December 31,
1994 1993(a) 1992 1991 1990
(dollars in thousands)
Total assets $8,980,728 $7,658,775 $7,210,763 $6,906,025 $6,802,524
Long-term debt 4,312,932 4,018,797 3,604,371 2,819,045 2,239,448
(a) The Company adopted three new accounting standards through cumulative
adjustments as of January 1, 1993, resulting in a one-time reduction
of net income of $12.7 million. See Note 2. of the Notes to
Consolidated Financial Statements in Item 8. herein for information
on the adoption of new accounting standards.
(b) Per share information is not included because all of the common stock
of AGFI is owned by American General.
Item 7. 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.
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Item 7. Continued
Operating Activities
The Consolidated Statements of Cash Flows included in Item 8. 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, change in insurance
claims and policyholder liabilities, and change in other assets and other
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
1994 and 1993 when compared to the respective previous year reflects an
increase in ANR and yield. The increase in interest expense for 1994 when
compared to 1993 reflects an increase in average borrowings and short-term
borrowing cost partially offset by a decline in long-term borrowing cost.
The decline in interest expense for 1993 when compared to 1992 reflects a
decline in both short-term and long-term borrowing cost which more than
offset the increase in average borrowings. Operating expenses increased
for 1994 when compared to 1993 primarily due to increases in salaries and
data processing expense. Operating expenses increased for 1993 when
compared to 1992 primarily due to increases in salaries, benefits, and
occupancy costs. The increase in salaries expense for 1994 and 1993 was
primarily due to increased staffing.
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 1994 and 1993 when compared to the
respective previous year primarily due to business development efforts.
Principal collections on finance receivables increased for 1994 and 1993
when compared to the respective previous year 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.
<PAGE>
<PAGE> 19
Item 7. Continued
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 amount of dividends AGFC may pay is limited by
restrictions contained in certain financing agreements. See Note 13. of
the Notes to Consolidated Financial Statements in Item 8. herein for
information on dividend restrictions. The Company's issuances of long-term
debt and the increase in short-term notes payable for the year ended 1994
reflect the funding of asset growth and maturing issues of long-term
interest obligations. The Company's decrease in investment certificates
for 1994 and 1993 when compared to the respective previous year reflects
the Company's decision to reduce its usage of this source of funds.
The Company's principal borrowing subsidiary is 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-tem 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 it pays for term
periods. The primary means by which the Company accomplishes this is
through the issuance of fixed-rate debt. On infrequent occasions, AGFC has
also used interest conversion agreements and 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.
Credit Ratings
During 1994, Standard & Poor's Corporation (S&P) placed the ratings of
American General and its rated subsidiaries, including AGFC, on rating
watch with negative implications as a result of American General's $2.6
billion merger offer to acquire Unitrin, Inc. (Unitrin). Subsequent to the
expiration of the offer to acquire Unitrin on February 7, 1995, S&P
confirmed the ratings of AGFC with no change.
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. See Note 8. of the Notes to Consolidated Financial
Statements in Item 8. herein for additional information on credit
facilities.
<PAGE>
<PAGE> 20
Item 7. Continued
ANALYSIS OF OPERATING RESULTS
See Selected Financial Statistics in Item 1. herein, for information on
important aspects of the Company's business and as a frame of reference for
the discussion following.
Net income for the years ended December 31, 1994, 1993, and 1992, was
$245.0 million, $195.7 million, and $161.9 million, respectively.
Factors which specifically affected the Company's operating results are as
follows:
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 1994 and 1993 increased when compared to the respective
previous year. Finance receivables increased primarily due to receivables
originated or renewed by the Company due to business development efforts.
The yield for 1994 and 1993 increased when compared to the respective
previous year primarily due to the increased proportion of higher-rate,
non-real estate loans in the loan portfolio during 1994 and 1993 and higher
yield on retail sales finance and credit cards for 1994.
Insurance Revenues
Insurance revenues increased for 1994 and 1993 when compared to the
respective previous year primarily due to the increase in earned premiums.
Earned premiums increased primarily due to increased written premiums in
prior periods and reinsurance assumptions. Written premiums increased
primarily due to increased loan activity and insurance product
introductions.
Other Revenues
Other revenues decreased slightly for 1994 and increased for 1993 when
compared to the respective previous year primarily due to the respective
decrease and increase in investment revenue. The decrease in investment
revenue for 1994 when compared to 1993 resulted from realized investment
losses and a decrease in investment portfolio yields, partially offset by
an increase in invested assets. The increase in investment revenue for
1993 when compared to 1992 resulted from an increase in invested assets and
realized investment gains, partially offset by a decline in investment
portfolio yields. Investment portfolio yields declined for 1994 and 1993
when compared to the respective previous year primarily due to prepayments
of higher yielding investments and lower reinvestment rates in recent
years.
<PAGE>
<PAGE> 21
Item 7. Continued
Interest Expense
Changes in interest expense are a function of period to period changes in
average borrowings and borrowing cost. Average borrowings for 1994 and
1993 increased when compared to the respective previous year primarily to
fund asset growth. The borrowing cost for 1994 decreased when compared to
1993 due to lower long-term borrowing cost, partially offset by an increase
in short-term borrowing cost. The borrowing cost for 1993 decreased when
compared to 1992 due to lower short-term and long-term borrowing costs.
Operating Expenses
Operating expenses increased for 1994 when compared to 1993 primarily due
to increases in salaries and data processing expense. The increase in
salaries expense was primarily due to operational staffing increases, to
support the Company's growth (including over 100 new consumer finance
offices), and merit salary increases. The increase in data processing
expense was primarily due to equipment expenses resulting from a branch
office automation program and an increase in processor fees due to higher
private label and credit card activity. Operating expenses increased for
1993 when compared to 1992 primarily due to increases in salaries,
benefits, and occupancy costs. These expenses increased in 1993 as a
result of the 1992 third quarter increase in the number of consumer finance
offices and the additional employees required to operate such offices.
Operating expenses also increased for 1993 when compared to 1992 due to the
branch office automation program. The increase in operating expenses for
1994 and 1993 when compared to the respective previous year was partially
offset by the increase in deferral of finance receivable origination costs.
Provision for Finance Receivable Losses
Provision for finance receivable losses for 1994 and 1993 increased when
compared to the respective previous year due to an increase in net charge-
offs and amounts provided for the allowance for finance receivable losses.
Net charge-offs for 1994 increased when compared to 1993 due to the
increase in charge-off ratios and ANR. Charge-off ratios increased for
1994 when compared to 1993 due to the increase in the charge-off ratio on
retail sales finance and loans partially offset by a decrease in the
charge-off ratio for credit cards. The charge-off ratio on loans increased
primarily due to the increased proportion of non-real estate loans in the
loan portfolio and the increase in the charge-off ratio on such loans. 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. Net charge-offs for 1993 increased when
compared to 1992 primarily due to the increase in ANR. The allowance for
finance receivable losses for 1994 and 1993 increased when compared to the
respective previous year 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.
<PAGE>
<PAGE> 22
Item 7. Continued
Insurance Losses and Loss Adjustment Expenses
Insurance losses and loss adjustment expenses for 1994 and 1993 increased
when compared to the respective previous year primarily due to an increase
in claims and reserves resulting from the increase in premiums written due
to increased loan activity and reinsurance assumptions.
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 did not have a material effect on 1994 or
1993 net income and is not expected to have a material impact in the
future.
ANALYSIS OF FINANCIAL CONDITION
At December 31, 1994, the Company's assets are distributed primarily as
follows: 85.67% in finance receivables, 7.82% in marketable securities,
3.22% in acquisition-related goodwill, 2.70% in other assets, and .59% in
cash and cash equivalents.
Asset Quality
The Company believes that its geographic diversification reduces the risk
associated with a recession in any one region. An additional indication of
asset quality is that of the loans and retail sales finance outstanding at
December 31, 1994, 92% are secured by real property or personal property.
The delinquency ratio increased for 1994 when compared to 1993 reflecting
the increase in the delinquency ratio of loans, primarily due to the
increase in the delinquency ratio on non-real estate loans and the
increased proportion of such loans in the loan portfolio, and the increase
in the delinquency ratio on retail sales finance and credit cards. The
charge-off ratio for 1994 increased when compared to 1993 reflecting an
increase in the charge-off ratio of retail sales finance and loans
partially offset by a decrease in the charge-off ratio of credit cards.
The charge-off ratio on loans increased primarily due to the increased
proportion of non-real estate loans in the loan portfolio and the increase
in the charge-off ratio on such loans. While finance receivables have some
exposure to further economic uncertainty, the Company believes that in the
present environment, the allowance for finance receivable losses is
adequate.
Marketable securities principally represent the investment portfolio of the
Company's insurance operations. The investment strategy is to optimize
after-tax returns on invested assets, subject to the constraints of safety,
liquidity, diversification, and regulation.
<PAGE>
<PAGE> 23
Item 7. Continued
The largest intangible asset is acquisition-related goodwill which is
charged to expense in equal amounts, generally over 20 or 40 years. See
Note 1. of the Notes to Consolidated Financial Statements in Item 8. herein
for information on goodwill.
Operating Requirements
The Company's principal operating requirements for cash are: funding
finance receivables, payment of interest, payment of operating expenses and
income taxes, and contractual obligations to policyholders. The principal
sources of cash are collections of finance receivables and finance charges,
and proceeds from the issuance of debt. The overall sources of cash
available to the Company are expected to be more than sufficient to satisfy
operating requirements in 1995.
Capital Requirements
Long-term debt repayments and maturities plus normal refinancing of short-
term debt and any funds required to support growth in finance receivables
are expected to be financed through the issuance of long-term and short-
term debt and surplus operating cash.
Asset/Liability Management
Anticipated cash flows of the Company's assets and liabilities are managed
in an effort to reduce the risk associated with unfavorable changes in
interest rates. 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 it pays for term periods. The primary
means by which the Company accomplishes this is through the issuance of
fixed-rate debt. On infrequent occasions, the Company has also used
interest conversion agreements and 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.
BUSINESS ENVIRONMENT FACTORS
The Company operates in a business environment in which effective and
efficient managerial performance, and a prudent lending and investment
strategy are essential. The three most relevant environmental factors
affecting the Company are economic, regulatory, and competitive.
Economic Factors
The three key economic factors that affect the results of the Company are
interest rates, inflation, and recession/recovery.
<PAGE>
<PAGE> 24
Item 7. Continued
Interest Rates. The Company's finance receivables, marketable securities,
long-term debt, and short-term debt react over varying periods of time to
movements in interest rates. During 1994, interest rates in the United
States generally increased from the recent historically low levels
experienced during 1993 and 1992.
The Company pursues opportunities created by market conditions regarding
both finance receivable mix and funding alternatives to manage interest
spreads. Growth in higher yielding receivables and decreases in borrowing
cost caused the Company's interest spread to increase in each of the last
three years.
The Company achieved an increase in its finance receivable yield in each of
the last three years. The amount of real estate loans outstanding
decreased during 1993 and 1992 as customers refinanced their loans
elsewhere at rates below those the Company was willing to offer. The
Company took advantage of other market opportunities to originate non-real
estate loans and retail sales finance receivables with higher yields.
The Company's borrowing cost decreased during each of the last three years.
New issuances of long-term debt were at rates lower than those on matured
or redeemed issues or on debt that remained outstanding. Rates on short-
term debt, principally commercial paper, decreased during 1993 and 1992,
but increased during 1994.
The Company's insurance subsidiaries' marketable securities and net
investment revenue increased in each of the last three years. In addition,
the generally lower interest rates in recent years caused security issuers
to call their higher yielding debt, generating net realized investment
gains for the Company in 1993 and 1992. Since the proceeds were reinvested
in lower yielding securities, return on invested assets has declined in
each of the last three years. The Company intends to continue using a
conservative investment policy.
The Company believes that it is difficult to assess or predict the overall
effects of any given change in interest rates due to the following
uncertainties: 1) whether such a movement results in a convergence,
divergence, or tandem movement in the long-term/short-term yield curves, 2)
market opportunities that may or may not exist at the time such a movement
occurs for both investment and funding alternatives, and 3) the level of
interest rates relative to the finance receivable portfolio yield, the
return on invested assets, and the borrowing cost when such a movement in
interest rates occurs.
Inflation. Inflation and inflationary expectations are factors that to
some extent affect the Company's revenue and expenses and are factors
implicit in interest rates. During each of the last three years, the
Company operated in a low inflation environment. However, market
expectations of inflation apparently contributed to significant increases
in interest rates during 1994, particularly short-term rates.
<PAGE>
<PAGE> 25
Item 7. Continued
Revenue generated from interest rates charged on most of the Company's
finance receivables is relatively insensitive to movements in interest rate
levels caused by inflation. Net investment revenue and realized investment
gains or losses on the Company's marketable securities, and borrowing cost
on the Company's long-term and short-term debt, are relatively sensitive
over varying periods of time to movements in general interest rate levels
caused by inflation. The Company's operating expenses are no more or less
sensitive to the effects of inflation than would be experienced by
businesses in general.
Recession/Recovery. The Company believes that its conservative lending,
underwriting, and investment policies and its geographic diversification
mitigate the potential impact of defaults on finance receivables and
investments in any downturn of the U.S. economic cycle. If the steady
economic growth that occurred during 1994 continues into 1995, continued
growth in both employment and consumer credit may result, which may create
growth opportunities for the Company.
Regulatory Factors
The regulatory environment of the consumer finance and insurance industries
is described in Item 1. herein. Taxation is another regulatory factor
affecting the Company. A risk to any business is that changes in state and
federal tax laws or regulations may affect the way that the business
operates. Since tax laws affect not only the way that the Company is taxed
but also the design of many of its products, these laws and regulations and
the way they are interpreted are of concern to the Company. The Company
monitors federal and state tax legislation and responds with appropriate
tax planning in order to minimize the impact of taxation.
Competitive Factors
Consumer finance companies compete with other types of financial
institutions which offer similar products and services. Competition in
financial services markets also continues to intensify due to an increase
in the number and sophistication of financial products, technological
improvement, and more rapid communication.
The Company has positioned itself to meet the continuing challenge of
competition in three primary ways:
Customer Focus. The Company focuses on selling financial service products
to low- to middle-income consumers.
Customer Service. The Company concentrates on delivering quality service
to its customers. This is done primarily through one of the industry's
largest domestic branch networks and secondarily through the national
distribution provided by credit card services.
Productivity. The Company continuously monitors performance of its
branches and products. Organizational and procedural changes are made as
necessary to manage marketing and cost effectiveness.
<PAGE>
<PAGE> 26
Item 8. Financial Statements and Supplementary Data.
The Report of Independent Auditors and the related consolidated financial
statements are presented on the following pages.
<PAGE>
<PAGE> 27
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
American General Finance, Inc.
We have audited the accompanying consolidated balance sheets of American
General Finance, Inc. (a wholly-owned subsidiary of American General
Corporation) and subsidiaries as of December 31, 1994 and 1993, and the
related consolidated statements of income, shareholder's equity and cash
flows for each of the three years in the period ended December 31, 1994.
Our audit also included the financial statement schedule listed in the
Index at Item 14(a). These financial statements and schedule are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and schedule based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial
position of American General Finance, Inc. and subsidiaries at December 31,
1994 and 1993, and the consolidated results of their operations and their
cash flows for each of the three years in the period ended December 31,
1994, in conformity with generally accepted accounting principles. Also,
in our opinion, the related financial statement schedule, when considered
in relation to the basic financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.
As discussed in Note 2. of the Notes to Consolidated Financial Statements,
in 1993 the Company changed its method of accounting for postretirement
benefits other than pensions, income taxes, postemployment benefits,
reinsurance, loan impairments, and certain investments in debt and equity
securities, as a result of adopting promulgated accounting standards
governing the accounting treatment for these items.
ERNST & YOUNG LLP
Nashville, Tennessee
February 14, 1995
<PAGE>
<PAGE> 28
American General Finance, Inc. and Subsidiaries
Consolidated Balance Sheets
December 31,
Assets 1994 1993
(dollars in thousands)
Finance receivables, net of unearned
finance charges (Note 3.):
Real estate loans $2,704,929 $2,641,879
Non-real estate loans 2,660,523 2,318,102
Retail sales finance 2,075,380 1,218,016
Credit cards 479,480 395,991
Net finance receivables 7,920,312 6,573,988
Allowance for finance receivable
losses (Note 4.) (226,226) (183,756)
Net finance receivables, less allowance
for finance receivable losses 7,694,086 6,390,232
Marketable securities (Note 5.) 702,510 699,697
Cash and cash equivalents 52,729 48,374
Goodwill (Note 6.) 289,000 299,653
Other assets (Note 6.) 242,403 220,819
Total assets $8,980,728 $7,658,775
Liabilities and Shareholder's Equity
Long-term debt (Note 7.) $4,312,932 $4,018,797
Short-term notes payable:
Commercial paper (Notes 8. and 9.) 2,609,986 1,643,961
Banks and other (Notes 8. and 10) 161,477 171,000
Investment certificates 6,601 9,406
Insurance claims and policyholder
liabilities 466,883 415,488
Other liabilities 191,278 231,737
Accrued taxes 19,831 57,686
Total liabilities 7,768,988 6,548,075
Shareholder's equity
Common stock (Note 12.) 1,000 1,000
Additional paid-in capital 616,021 616,021
Net unrealized investment (losses)
gains (Note 5.) (18,407) 33,740
Retained earnings (Note 13.) 613,126 459,939
Total shareholder's equity 1,211,740 1,110,700
Total liabilities and shareholder's equity $8,980,728 $7,658,775
See Notes to Consolidated Financial Statements.
<PAGE>
<PAGE> 29
American General Finance, Inc. and Subsidiaries
Consolidated Statements of Income
Years Ended December 31,
1994 1993 1992
(dollars in thousands)
Revenues
Finance charges $1,247,727 $1,082,660 $ 994,296
Insurance 180,913 142,856 119,272
Other 62,599 63,261 56,803
Total revenues 1,491,239 1,288,777 1,170,371
Expenses
Interest expense 416,233 379,764 398,168
Operating expenses 371,125 330,122 307,782
Provision for finance receivable
losses 213,987 162,847 135,102
Insurance losses and loss
adjustment expenses 97,893 79,214 66,603
Total expenses 1,099,238 951,947 907,655
Income before provision for income
taxes and cumulative effect of
accounting changes 392,001 336,830 262,716
Provision for Income Taxes
(Note 11.) 147,013 128,437 100,808
Income before cumulative effect
of accounting changes 244,988 208,393 161,908
Cumulative Effect of Accounting
Changes (Note 2.) - (12,652) -
Net Income $ 244,988 $ 195,741 $ 161,908
See Notes to Consolidated Financial Statements.
<PAGE>
<PAGE> 30
American General Finance, Inc. and Subsidiaries
Consolidated Statements of Shareholder's Equity
Years Ended December 31,
1994 1993 1992
(dollars in thousands)
Common Stock
Balance at beginning of year $ 1,000 $ 1,000 $ 1,000
Balance at end of year 1,000 1,000 1,000
Additional Paid-in Capital
Balance at beginning of year 616,021 615,874 615,874
Capital contribution from parent
and other - 147 -
Balance at end of year 616,021 616,021 615,874
Net Unrealized Investment (Losses)
Gains
Balance at beginning of year 33,740 617 655
Change during year (52,147) (318) (38)
Effect of accounting change - 33,441 -
Balance at end of year (18,407) 33,740 617
Retained Earnings
Balance at beginning of year 459,939 433,396 404,328
Net income 244,988 195,741 161,908
Common stock dividends (91,801) (169,198) (132,840)
Balance at end of year 613,126 459,939 433,396
Total Shareholder's Equity $1,211,740 $1,110,700 $1,050,887
See Notes to Consolidated Financial Statements.
<PAGE>
<PAGE> 31
<TABLE>
American General Finance, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
<CAPTION>
Years Ended December 31,
1994 1993 1992
(dollars in thousands)
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net Income $ 244,988 $ 195,741 $ 161,908
Reconciling adjustments to net cash
provided by operating activities:
Provision for finance receivable losses 213,987 162,847 135,102
Depreciation and amortization 124,287 112,555 91,738
Deferral of finance receivable
origination costs (91,420) (71,113) (51,057)
Deferred federal income tax (benefit) charge (17,020) (7,617) 759
Change in other assets and other
liabilities 13,817 38,863 (10,093)
Change in insurance claims and
policyholder liabilities 51,395 52,314 16,117
Other, net (28,576) (4,768) 7,365
Net cash provided by operating activities 511,458 478,822 351,839
Cash Flows from Investing Activities
Finance receivables originated or purchased (5,826,776) (4,319,581) (3,681,888)
Principal collections on finance receivables 4,322,592 3,796,839 3,292,077
Marketable securities purchased (161,239) (193,386) (179,702)
Marketable securities called, matured and sold 81,221 141,429 127,871
Other, net (26,338) (38,708) (28,814)
Net cash used for investing activities (1,610,540) (613,407) (470,456)
Cash Flows from Financing Activities
Proceeds from issuance of long-term debt 1,136,208 1,004,823 1,033,894
Repayment of long-term debt (846,468) (594,848) (267,783)
Change in investment certificates (2,805) (64,122) (370,560)
Change in short-term notes payable 956,502 (43,878) (156,231)
Dividends paid (140,000) (162,600) (136,818)
Net cash provided by financing activities 1,103,437 139,375 102,502
Increase (decrease) in cash and cash equivalents 4,355 4,790 (16,115)
Cash and cash equivalents at beginning of year 48,374 43,584 59,699
Cash and cash equivalents at end of year $ 52,729 $ 48,374 $ 43,584
Supplemental Disclosure of Cash Flow Information
Income taxes paid $ 195,440 $ 112,156 $ 88,470
Interest paid $ 407,647 $ 384,855 $ 391,645
<FN>
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<PAGE> 32
American General Finance, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1994
Note 1. Summary of Significant Accounting Policies
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of American
General Finance, Inc. (AGFI) and all of its subsidiaries (the Company)
including American General Finance Corporation (AGFC) and American General
Financial Center (AGF-Utah). The subsidiaries are all wholly-owned and all
intercompany items have been eliminated. AGFI is a wholly-owned subsidiary
of American General Corporation (American General).
Certain amounts in the 1993 and 1992 financial statements have been
reclassified to conform to the 1994 presentation.
FINANCE OPERATIONS
Revenue Recognition
Revenue on finance receivables is accounted for as follows:
(1) Finance charges on discounted finance receivables and interest on
interest-bearing finance receivables are recognized as revenue on the
accrual basis using the interest method. The accrual of revenue is
suspended when the fourth contractual payment becomes past due for
loans and retail sales contracts (which are included in retail sales
finance) and when the sixth contractual payment becomes past due for
private label (which are also included in retail sales finance) and
credit cards.
(2) Extension fees and late charges are recognized as revenue when
received.
(3) Nonrefundable points and fees on loans are recognized on the accrual
basis using the interest method over the lesser of the contractual
term or the estimated life based upon prepayment experience (50 months
for real estate loans and 19 months for non-real estate loans). If a
loan liquidates before amortization is completed, any unamortized fees
are recognized as revenue at the date of liquidation. Nonrefundable
points and fees on retail sales finance and deferred annual fees on
credit cards are not material.
<PAGE>
<PAGE> 33
Notes to Consolidated Financial Statements, Continued
Origination Costs
The Company defers costs associated with the origination of loans, private
label, and credit card receivables. Deferred loan origination costs are
included in finance receivables and are amortized to finance charges using
the interest method over the contractual term or the estimated economic
life of the loans (50 months for real estate loans and 19 months for non-
real estate loans). If a loan liquidates before amortization is completed,
any unamortized costs are charged to revenue at the date of liquidation.
Deferred costs for the origination of private label and credit cards are
not material.
Allowance For Finance Receivable Losses
The allowance for finance receivable losses is maintained at a level based
on management's periodic evaluation of the finance receivable portfolio and
reflects an amount that, in management's opinion, is adequate to absorb
losses in the existing portfolio. In evaluating the portfolio, management
takes into consideration numerous factors, including current economic
conditions, prior finance receivable loss and delinquency experience, the
composition of the finance receivable portfolio, and management's estimate
of anticipated finance receivable losses.
AGFI's basic policy is to charge off each month loan accounts, except those
secured by real estate, on which little or no collections were made in the
prior six-month period. Retail sales contracts are charged off when four
installments are past due. Private label and credit card accounts are
charged off when 180 days past due. In the case of loans secured by real
estate, foreclosure proceedings are instituted when four monthly
installments are past due. When foreclosure is completed and the Company
has obtained title to the property, the real estate is established as an
asset valued at market value, and any loan value in excess of that amount
is charged off. Exceptions are made to the charge-off policies when, in
the opinion of management, such treatment is warranted.
INSURANCE OPERATIONS
Revenue Recognition
The Company's insurance subsidiaries are engaged in writing credit life and
credit accident and health insurance, ordinary life insurance, and property
and casualty insurance. Premiums on credit life insurance are recognized
as revenue using the sum-of-the-digits or actuarial methods, except in the
case of level-term contracts, which are recognized as revenue using the
straight-line method over the lives of the policies. Premiums on credit
accident and health insurance are recognized as revenue using an average of
the sum-of-the-digits and the straight-line methods. Ordinary life
insurance premiums are reported as earned when collected but not before
their due dates. Premiums on property and casualty insurance are
recognized as revenue using the straight-line method over the terms of the
policies or appropriate shorter periods.
<PAGE>
<PAGE> 34
Notes to Consolidated Financial Statements, Continued
Policy Reserves
Policy reserves for credit life and credit accident and health insurance
are equal to related unearned premiums, and claim reserves are based on
company experience. Liabilities for future life insurance policy benefits
associated with ordinary life contracts are accrued when premium revenue is
recognized and are computed on the basis of assumptions as to investment
yields, mortality, and withdrawals. Annuity reserves are computed on the
basis of assumptions as to investment yields and mortality. Reserves for
losses and loss adjustment expenses of the property and casualty insurance
company are based upon estimates of claims reported plus estimates of
incurred but not reported claims. Ordinary life, group annuity, and
accident and health insurance reserves assumed under coinsurance agreements
are established on the bases of various tabular and unearned premium
methods.
Acquisition Costs
Insurance acquisition costs, principally commissions, reinsurance fees, and
premium taxes, are deferred and charged to expense over the terms of the
related policies or reinsurance agreements.
Reinsurance
The Company's insurance subsidiaries enter into reinsurance agreements
among themselves and other insurers, including insurance subsidiaries of
American General. The life reserves attributable to this business with the
subsidiaries of American General were $61.6 million and $62.6 million at
December 31, 1994 and 1993, respectively. The Company's insurance
subsidiaries assumed from other insurers $51.4 million, $42.5 million, and
$30.3 million of reinsurance premiums during 1994, 1993, and 1992,
respectively. The Company's ceded reinsurance activities were not
significant during the last three years.
GAAP vs. Statutory Accounting
Statutory accounting practices differ from generally accepted accounting
principles, primarily in the following respects: credit life insurance
reserves are maintained on the basis of mortality tables; ordinary life and
group annuity insurance reserves are based on statutory requirements;
insurance acquisition costs are expensed when incurred rather than expensed
over the related contract period; deferred income taxes are not recorded
on temporary differences in the recognition of revenue and expense for tax
versus statutory reporting purposes; certain intangible assets resulting
from a purchase and the related amortization are not reflected in statutory
financial statements; investments in fixed-maturity marketable securities
are carried at amortized cost; and an asset valuation reserve and interest
maintenance reserve are required for Merit Life Insurance Co. (Merit),
which is a wholly-owned subsidiary of AGFC. The following compares net
income and shareholder's equity determined under statutory accounting
<PAGE>
<PAGE> 35
Notes to Consolidated Financial Statements, Continued
practices with those determined under generally accepted accounting
principles:
Net Income Shareholder's Equity
Years Ended December 31, December 31,
1994 1993 1992 1994 1993
(dollars in thousands)
Statutory accounting
practices $35,466 $31,080 $32,128 $279,231 $245,175
Generally accepted
accounting principles 46,903 39,363 38,164 381,577 386,821
MARKETABLE SECURITIES
Valuation
Effective with the adoption of Statement of Financial Accounting Standards
(SFAS) 115 (see Note 2.), management determines the appropriate
classification of marketable securities at the time of purchase and re-
evaluates such designation at each balance sheet date. All marketable
securities are currently classified as available-for-sale and recorded at
fair value. After adjusting related balance sheet accounts as if the
unrealized investment gains or losses had been realized, the net adjustment
is recorded in net unrealized investment gains or losses within
shareholder's equity. If the fair value of a marketable security
classified as available-for-sale declines below its cost and this decline
is considered to be other than temporary, the marketable security is
reduced to its net realizable value, and the reduction is recorded as a
realized loss.
Realized Gains or Losses
Realized gains or losses are recognized using the specific identification
method and include declines in fair value of marketable securities below
cost that are considered other than temporary. Realized gains or losses
are included in other revenues.
OTHER
Cash Equivalents
The Company considers all short-term investments with a maturity at date of
purchase of three months or less to be cash equivalents.
<PAGE>
<PAGE> 36
Notes to Consolidated Financial Statements, Continued
Goodwill
Acquisition-related goodwill is charged to expense in equal amounts,
generally over 20 or 40 years. The carrying value of goodwill is regularly
reviewed for indicators of impairment in value, which in the view of
management are other than temporary, including unexpected or adverse
changes in the following: 1) the economic or competitive environments in
which the Company operates, 2) profitability analyses, and 3) cash flow
analyses. If facts and circumstances suggest that goodwill is impaired,
the Company assesses the fair value of the underlying business and reduces
goodwill to an amount that results in the book value of the Company
approximating fair value. The Company determines the fair value based on
an independent appraisal.
At December 31, 1994, the reported value and the remaining life of
acquisition-related goodwill are considered appropriate.
Income Taxes
Beginning in 1993, income taxes have been provided in accordance with SFAS
109 (see Note 2.). Under this standard, deferred tax assets and
liabilities are established for temporary differences between the financial
reporting basis and the tax basis of assets and liabilities, at the enacted
tax rates expected to be in effect when the temporary differences reverse.
The effect of a tax rate change is recognized in income in the period of
enactment.
A valuation allowance for deferred tax assets is provided if all or some
portion of the deferred tax asset may not be realized. An increase or
decrease in a valuation allowance that results from a change in
circumstances that causes a change in judgement about the realizability of
the related deferred tax asset is included in income. A change related to
fluctuations in fair value of available-for-sale marketable securities is
included in unrealized investment gains or losses in shareholder's equity.
Before 1993, the Company recognized deferred taxes on timing differences
between financial reporting income and taxable income. Deferred taxes were
not adjusted for tax rate changes.
Interest Conversion Agreements
The interest differential to be paid or received on interest conversion
agreements is accrued as interest rates change and is recognized over the
life of the agreements as an adjustment to interest expense. The related
amount payable to or receivable from counterparties is included in other
liabilities or other assets.
<PAGE>
<PAGE> 37
Notes to Consolidated Financial Statements, Continued
Fair Value of Financial Instruments
The fair values disclosed in Note 17. are based on estimates using
discounted cash flows when quoted market prices are not available. Those
techniques are significantly affected by the assumptions used, including
the discount rate and estimates of future cash flows. In that regard, the
derived fair value estimates cannot be substantiated by comparison to
independent markets and, in many cases, could not be realized in immediate
settlement of the instrument. The fair value amounts presented can be
misinterpreted, and care should be exercised in drawing conclusions from
such data.
Note 2. Accounting Changes
During 1994, the Company adopted two SFAS's issued by the Financial
Accounting Standards Board.
The Company adopted SFAS 118, "Accounting by Creditors for Impairment of a
Loan - Income Recognition and Disclosures," and SFAS 119, "Disclosure about
Derivative Financial Instruments and Fair Value of Financial Instruments."
SFAS 118 requires disclosures about the recorded investment in certain
impaired loans and the recognition of related interest income. SFAS 119
requires additional disclosures about derivative financial instruments and
amends existing fair value disclosure requirements. These standards do not
impact the Company's consolidated financial statements.
During 1993, the Company adopted six SFAS's issued by the Financial
Accounting Standards Board.
The Company adopted SFAS 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions," through a cumulative adjustment, effective
January 1, 1993, resulting in a one-time reduction of net income of $2.9
million ($4.4 million pretax). This standard requires accrual of a
liability for postretirement benefits other than pensions.
The Company adopted SFAS 109, "Accounting for Income Taxes," through a
cumulative adjustment, effective January 1, 1993, resulting in a one-time
reduction of net income of $8.6 million. This standard changes the way
income tax expense is determined for financial reporting purposes.
The Company adopted SFAS 112, "Employers' Accounting for Postemployment
Benefits," through a cumulative adjustment, effective January 1, 1993,
resulting in a one-time reduction of net income of $1.2 million ($1.8
million pretax). This standard requires the accrual of a liability for
benefits provided to employees after employment but before retirement.
<PAGE>
<PAGE> 38
Notes to Consolidated Financial Statements, Continued
The Company adopted SFAS 113, "Accounting and Reporting for Reinsurance of
Short-Duration and Long-Duration Contracts," effective January 1, 1993.
This standard, which does not have a material impact on the consolidated
financial statements, requires that reinsurance receivables and prepaid
reinsurance premiums be reported as assets, rather than netted against the
related insurance liabilities.
The Company adopted SFAS 114, "Accounting by Creditors for Impairment of a
Loan," effective January 1, 1993. This standard requires that certain
impaired loans be reported at the present value of expected future cash
flows, the loan's observable market price, or the fair value of underlying
collateral. This standard does not have a material impact on the
consolidated financial statements.
The Company adopted SFAS 115, "Accounting for Certain Investments in Debt
and Equity Securities," at December 31, 1993. This standard requires that
debt and equity securities be carried at fair value unless the Company has
the positive intent and ability to hold these investments to maturity.
Marketable securities must be classified into one of three categories: 1)
held-to-maturity, 2) available-for-sale, or 3) trading securities. At
December 31, 1993, the Company classified all marketable securities as
available-for-sale and recorded net unrealized investment gains of $33.4
million to shareholder's equity. Rising interest rates during 1994 caused
a decrease in the fair value of the Company's available-for-sale marketable
securities. As a result, shareholder's equity included net unrealized
investment losses on marketable securities affected by SFAS 115 of $18.5
million at December 31, 1994.
Note 3. Finance Receivables
Loans collateralized by security interests in real estate generally have
maximum original terms of 180 months. Loans collateralized by consumer
goods, automobiles or other chattel security, and loans that are unsecured,
generally have maximum original terms of 60 months. Retail sales contracts
are collateralized principally by consumer goods and automobiles, and
generally have maximum original terms of 60 months. Private label are
secured by a purchase money security interest in the goods purchased and
generally require minimum monthly payments based upon current balances.
Credit card receivables are unsecured and require minimum monthly payments
based upon current balances. Of the loans and retail sales finance
outstanding at December 31, 1994, 92% were secured by the real or personal
property of the borrower. At December 31, 1994, mortgage loans (generally
second mortgages) accounted for 50% of the aggregate dollar amount of loans
outstanding and 10% of the total number of loans outstanding.
<PAGE>
<PAGE> 39
Notes to Consolidated Financial Statements, Continued
Contractual maturities of finance receivables were as follows:
December 31, 1994
Net Receivables Percent of
Amount Net Receivables
(dollars in thousands)
1995 $3,152,603 39.80%
1996 1,468,445 18.54
1997 900,143 11.37
1998 455,543 5.75
1999 275,705 3.48
2000 and thereafter 1,667,873 21.06
Total $7,920,312 100.00%
Experience of the Company has shown that a substantial portion of finance
receivables will be renewed, converted, or paid in full prior to maturity.
Accordingly, the preceding information as to contractual maturities should
not be considered as a forecast of future cash collections. Principal cash
collections and such collections as a percentage of average net finance
receivables were as follows:
1994 1993
(dollars in thousands)
Loans:
Principal cash collections $2,436,747 $2,100,565
Percent of average net finance receivables 47.78% 42.50%
Retail sales finance:
Principal cash collections $1,454,419 $1,191,745
Percent of average net finance receivables 92.14% 110.70%
Credit cards:
Principal cash collections $ 431,426 $ 504,529
Percent of average net finance receivables 103.32% 137.11%
Unused credit limits on private label extended by the Company to its
customers were $2.4 billion and $595.0 million at December 31, 1994 and
1993, respectively. Unused credit limits on credit cards extended by the
Company to its customers were $1.7 billion and $1.3 billion at December 31,
1994 and 1993, respectively. Unused credit limits on loan and other retail
sales finance revolving lines of credit extended by the Company to its
customers were $260.2 million and $176.5 million at December 31, 1994 and
1993, respectively. These amounts, in part or in total, can be cancelled
at the discretion of the Company, and are not indicative of the amounts
expected to be funded.
<PAGE>
<PAGE> 40
Notes to Consolidated Financial Statements, Continued
Geographic diversification of finance receivables reduces the concentration
of credit risk associated with a recession in any one region. The largest
concentrations of finance receivables, net of unearned finance charges, are
as follows:
December 31, 1994 December 31, 1993
Location Amount Percent Amount Percent
(dollars in thousands) (dollars in thousands)
California $ 810,562 10.23% $ 750,772 11.42%
N. Carolina 638,942 8.07 581,754 8.85
Florida 574,229 7.25 502,977 7.65
Illinois 458,170 5.78 409,032 6.22
Indiana 410,265 5.18 364,706 5.55
Ohio 400,643 5.06 341,179 5.19
Virginia 355,094 4.48 353,397 5.38
Georgia 347,321 4.39 264,260 4.02
Other 3,925,086 49.56 3,005,911 45.72
$7,920,312 100.00% $6,573,988 100.00%
Note 4. Allowance for Finance Receivable Losses
The changes in the allowance for finance receivable losses are detailed
below:
1994 1993 1992
(dollars in thousands)
Balance at beginning of year $183,756 $161,678 $151,091
Provision for finance receivable
losses 213,987 162,847 135,102
Allowance related to net acquired
receivables and other 970 (21) 4,565
Charge-offs:
Finance receivables charged off (209,340) (169,758) (158,781)
Recoveries 36,853 29,010 29,701
Net charge-offs (172,487) (140,748) (129,080)
Balance at end of year $226,226 $183,756 $161,678
<PAGE>
<PAGE> 41
Notes to Consolidated Financial Statements, Continued
Note 5. Marketable Securities
At December 31, 1994 and 1993, all marketable securities were classified as
available-for-sale and reported at fair value. Marketable securities were
as follows at December 31:
Fair Value Amortized Cost
1994 1993 1994 1993
(dollars in thousands)
Fixed-maturity marketable
securities:
Bonds:
Corporate securities $324,706 $313,174 $338,624 $290,153
Mortgage-backed securities 206,120 234,062 222,788 223,868
States and political
subdivisions 123,116 102,438 124,701 94,540
Other 38,561 40,766 34,297 30,736
Redeemable preferred stocks 8,782 7,486 9,334 7,180
Total 701,285 697,926 729,744 646,477
Non-redeemable preferred
stocks 1,225 1,771 1,084 1,313
Total marketable securities $702,510 $699,697 $730,828 $647,790
At December 31, the gross unrealized investment gains and losses were as
follows:
Gross Gross
Unrealized Gains Unrealized Losses
1994 1993 1994 1993
(dollars in thousands)
Fixed-maturity marketable
securities:
Bonds:
Corporate securities $ 3,701 $23,836 $17,619 $ 815
Mortgage-backed securities 781 11,681 17,449 1,487
State and political
subdivisions 2,534 8,031 4,119 133
Other 4,539 10,032 275 2
Redeemable preferred stocks - 315 552 9
Total 11,555 53,895 40,014 2,446
Non-redeemable preferred
stocks 215 458 74 -
Total marketable securities $11,770 $54,353 $40,088 $ 2,446
<PAGE>
<PAGE> 42
Notes to Consolidated Financial Statements, Continued
During the years ended December 31, 1994, 1993, and 1992, marketable
securities with a fair value of $81.2 million, $141.4 million, and $127.9
million, respectively, were sold or redeemed. The gross realized
investment gains on such sales or redemptions totaled $.3 million, $7.4
million, and $3.1 million, respectively. The gross realized investment
losses totaled $.6 million, $.1 million and $.5 million, respectively.
The contractual maturities of fixed-maturity securities at December 31,
1994 were as follows:
Fair Amortized
Value Cost
(dollars in thousands)
Fixed maturities, excluding
mortgage-backed securities:
Due in 1 year or less $ 8,732 $ 8,632
Due after 1 year through 5 years 82,417 81,144
Due after 5 years through 10 years 276,186 288,561
Due after 10 years 127,830 128,619
495,165 506,956
Mortgage-backed securities 206,120 222,788
Total $701,285 $729,744
Actual maturities may differ from contractual maturities since borrowers
may have the right to call or prepay obligations. Company requirements and
investment strategies may result in the sale of investments before
maturity.
Certain of the bonds were on deposit with regulatory authorities. The
carrying values of such bonds were $7.5 million and $18.6 million at
December 31, 1994 and 1993, respectively.
Note 6. Costs In Excess of Net Assets Acquired
Goodwill, resulting from the excess of the purchase price paid over the
fair value of separately identified tangible and intangible net assets
acquired, amounted to $289.0 million and $299.7 million at December 31,
1994 and 1993, respectively. Accumulated amortization amounted to $59.0
million and $48.4 million at December 31, 1994 and 1993, respectively.
Included in other assets is a customer base valuation of $21.6 million and
$23.2 million at December 31, 1994 and 1993, respectively, which is being
amortized to operating expenses on a straight-line basis over a 25 year
period.
<PAGE>
<PAGE> 43
Notes to Consolidated Financial Statements, Continued
Note 7. Long-term Debt
Long-term debt outstanding at December 31, is summarized as follows:
Senior
Maturity Senior Subordinated Total
(dollars in thousands)
1995 $ 753,076 $149,954 $ 903,030
1996 590,897 - 590,897
1997 1,132,176 - 1,132,176
1998 242,492 - 242,492
1999 533,694 - 533,694
2000-2004 612,787 - 612,787
2005-2009 297,856 - 297,856
Total $4,162,978 $149,954 $4,312,932
Certain debt issues of the Company are redeemable prior to maturity at par,
at the option of the holders. If these issues were so redeemed, the senior
amounts above would increase $148.9 million in 1996 and $149.0 million in
1999 and would decrease $297.9 million in 2009.
Carrying Value Fair Value
Type of Debt 1994 1993 1994 1993
(dollars in thousands)
Senior $4,162,978 $3,547,244 $4,058,247 $3,776,820
Senior subordinated 149,954 471,553 149,922 486,806
Total $4,312,932 $4,018,797 $4,208,169 $4,263,626
The weighted average interest rates on long-term debt outstanding by type
were as follows:
Years Ended December 31, December 31,
1994 1993 1994 1993
Senior 7.28% 7.63% 7.11% 7.37%
Senior subordinated 7.46 8.71 6.34 7.07
Total 7.33 7.88 7.08 7.33
Certain debt agreements contain restrictions on consolidated retained
earnings for certain purposes (see Note 13.).
<PAGE>
<PAGE> 44
Notes to Consolidated Financial Statements, Continued
Note 8. Short-term Notes Payable and Credit Facilities
AGFC issues commercial paper with terms ranging from 1 to 270 days.
Information concerning short-term notes payable for commercial paper and to
banks was as follows:
1994 1993 1992
(dollars in thousands)
Maximum borrowings at any month end $2,770,886 $1,886,426 $2,096,961
Average borrowings $2,138,124 $1,780,732 $1,887,408
Weighted average interest rate,
giving effect to interest
conversion agreements and
commitment fees 5.18% 4.11% 5.64%
Weighted average interest rate, at
December 31, 5.85% 3.30% 3.53%
Credit facilities are maintained to support the issuance of commercial
paper and as an additional source of funds for operating requirements. At
December 31, 1994 and 1993, the Company had committed credit facilities of
$500.0 million and $390.0 million, respectively, and was an eligible
borrower under $2.5 billion and $2.1 billion of committed credit
facilities, respectively, extended to American General and certain of its
subsidiaries. On January 31, 1995, the $2.5 billion of committed credit
facilities extended to American General and certain of its subsidiaries
were increased by $1.3 billion. The annual commitment fees for all
committed facilities range from .070% to .125%. At December 31, 1994 and
1993, the Company also had $611.0 million and $496.0 million, respectively,
of uncommitted credit facilities and was an eligible borrower under $195.0
million and $240.0 million, respectively, 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 December 31, 1994 and 1993, Company short-term borrowings
outstanding under all credit facilities were $160.9 million and $171.0
million, respectively, and Company long-term borrowings outstanding under
all credit facilities were $168.1 million and $147.0 million, respectively,
with remaining availability to the Company of $3.0 billion and $2.4
billion, respectively, in committed facilities and $477.0 million and
$461.0 million, respectively, in uncommitted facilities.
<PAGE>
<PAGE> 45
Notes to Consolidated Financial Statements, Continued
Note 9. Derivative Financial Instruments
The Company is neither a dealer nor a trader in derivative financial
instruments. On infrequent occasions, the Company has used interest
conversion agreements and options on interest conversion agreements to
manage the Company's exposure to market interest rate risk associated with
debt. Interest rate conversion agreements involve the receipt of floating-
rate amounts in exchange for fixed-rate interest payments, or vice versa,
over the life of the agreement without an exchange of the underlying
principal (or notional) amount.
The Company's objective for using interest conversion agreements and
options on interest conversion agreements is to synthetically modify a
portion of the Company's floating-rate borrowings to fixed rates. Such
floating-rate obligations are carried at amortized cost (as opposed to fair
value) in the Company's consolidated financial statements.
Fixed interest rates contracted to be paid on interest conversion
agreements and options on interest conversion agreements approximated the
rates on fixed-rate term debt with maturities similar to the derivative
financial instruments at the date of contract. Accordingly, the Company's
use of interest conversion agreements and options on interest conversion
agreements did not have a material effect on the weighted-average interest
rate or reported interest expense in any of the three years ended December
31, 1994.
Interest conversion agreements in which the Company contracted to pay
interest at fixed rates and receive interest at floating rates were $390.0
million, $290.0 million, and $415.0 million in notional amounts at December
31, 1994, 1993, and 1992, respectively. The weighted average interest rate
paid was 8.77%, 8.69%, and 8.71% for the year ended December 31, 1994,
1993, and 1992, respectively. The weighted average interest rate received
was 4.64%, 3.35%, and 3.91% for the year ended December 31, 1994, 1993, and
1992, respectively. These agreements mature at various dates and have the
respective fixed rates at December 31, 1994 as shown in the table below:
Notional Weighted Average
Maturity Amount Interest Rate
(dollars in
thousands)
1996 $ 50,000 8.38%
1998 90,000 9.06
1999 50,000 9.39
2000 200,000 9.10
$390,000 9.03%
<PAGE>
<PAGE> 46
Notes to Consolidated Financial Statements, Continued
The rollforward of notional amounts for interest conversion agreements was
as follows:
Notional Amounts
1994 1993 1992
(dollars in thousands)
Balance at beginning of year $ 290,000 $ 415,000 $ 765,000
New contracts (a) 200,000 50,000 100,000
Expired contracts (100,000) (175,000) (450,000)
Balance at end of year $ 390,000 $ 290,000 $ 415,000
(a) Reflects options exercised.
Options on interest conversion agreements at December 31, 1993 and 1992, in
aggregate notional amounts, were $200.0 million and $250.0 million,
respectively. There were no such agreements outstanding as of December 31,
1994. All such option agreements, when exercised by the counterparty,
committed the Company to pay interest at fixed rates in exchange for
receiving floating-rate interest payments. The related option fees
received are being amortized as a reduction of interest expense over the
aggregate of the option period and interest conversion period.
The Company is exposed to credit risk in the event of non-performance by
counterparties to interest conversion agreements. The Company limits its
exposure to credit risk by entering into interest conversion agreements
with counterparties having high credit ratings and by basing the amount and
term of an agreement on these credit ratings. Furthermore, the Company
regularly monitors counterparty credit ratings throughout the term of the
agreements.
The Company's current credit exposure on interest conversion agreements is
limited to the fair value of interest conversion agreements that are
favorable to the Company. At December 31, 1994, 1993, and 1992, the
Company was in a payable position on all outstanding interest conversion
agreements. The Company does not expect any counterparty to fail to meet
its obligation; however, non-performance would not have a material impact
on the consolidated financial statements.
The Company's exposure to market risk is mitigated by the offsetting
effects of changes in the value of interest conversion agreements and of
the underlying liabilities to which they relate.
<PAGE>
<PAGE> 47
Notes to Consolidated Financial Statements, Continued
Note 10. Short-term Notes Payable - Parent
Borrowings from American General primarily provide overnight operating
liquidity when American General is in a surplus cash position. All such
borrowings are made on a due on demand basis at short-term rates based on
overnight bank investment rates. At December 31, 1994, 1993 and 1992, AGFI
had no borrowings outstanding with American General. Information
concerning such borrowings is as follows:
1994 1993 1992
(dollars in thousands)
Maximum borrowings at any month end $ - $ 178 $29,200
Average borrowings $ 200 $ 433 $ 2,466
Weighted average interest rate (total
interest expense divided by average
borrowings) 4.35% 3.22% 3.98%
Note 11. Income Taxes
AGFI and all of its subsidiaries file a consolidated federal income tax
return with American General and its subsidiaries. AGFI and its
subsidiaries provide for federal income taxes as if filing a separate tax
return, and pay such amounts to American General in accordance with a tax
sharing agreement.
As a result of the adoption of SFAS 109, income tax disclosures for 1994
and 1993 are not comparable to 1992.
Provision for income taxes is summarized as follows:
Years Ended December 31,
1994 1993 1992
(dollars in thousands)
Federal
Current $152,968 $124,295 $ 86,942
Deferred (17,020) (7,617) 759
Total federal 135,948 116,678 87,701
State 11,065 11,759 13,107
Total $147,013 $128,437 $100,808
<PAGE>
<PAGE> 48
Notes to Consolidated Financial Statements, Continued
The U.S. statutory federal income tax rate differs from the effective
income tax rate as follows:
Years Ended December 31,
1994 1993 1992
Statutory federal income tax rate 35.00% 35.00% 34.00%
State income taxes 1.83 2.26 3.29
Amortization of goodwill 1.13 1.17 1.13
Nontaxable investment income (.55) (.56) (.65)
Other, net .09 .26 .60
Effective income tax rate 37.50% 38.13% 38.37%
The net deferred tax asset at December 31, 1994 of $13.6 million was net of
deferred tax liabilities totalling $97.8 million. The net deferred tax
liability at December 31, 1993 of $25.5 million was net of deferred tax
assets totalling $80.9 million. The most significant deferred tax assets
relate to the provision for finance receivable losses and insurance
premiums recorded for financial reporting purposes. No valuation allowance
was considered necessary at December 31, 1994 and 1993.
On August 10, 1993, the Revenue Reconciliation Act of 1993 was enacted,
which increased the corporate tax rate from 34% to 35%, retroactive to
January 1, 1993. The additional 1% tax on earnings for first and second
quarter 1993 was $1.6 million, and the effect of the 1% increase in the tax
rate used to value existing deferred tax liabilities, as required by SFAS
109, was $.6 million. In accordance with SFAS 109, this total one-time
charge of $2.2 million was included in provision for income taxes for the
quarter ended September 30, 1993.
Note 12. Capital Stock
AGFI has two classes of capital stock: special shares (without par value,
25 million shares authorized) which may be issued in series with such
dividend, liquidation, redemption, conversion, voting and other rights as
the board of directors may determine prior to issuance; and common shares
($.50 par value, 25 million shares authorized). Issued shares were as
follows:
Special Shares - As of December 31, 1994 and 1993, there were no shares
issued and outstanding.
Common Shares - As of December 31, 1994 and 1993, there were 2 million
shares issued and outstanding.
<PAGE>
<PAGE> 49
Notes to Consolidated Financial Statements, Continued
Note 13. Consolidated Retained Earnings
The ability of AGFI to pay dividends is substantially dependent on the
receipt of dividends or other funds from its subsidiaries. The Company's
insurance subsidiaries are restricted by state laws as to the amounts they
may pay as dividends without prior notice to, or in some cases prior
approval from, their respective state insurance departments. The maximum
amount of dividends which can be paid by the Company's insurance
subsidiaries in 1995 without prior approval is $35.5 million. The
Company's insurance subsidiaries had statutory capital and surplus of
$279.2 million at December 31, 1994. The amount of dividends which may be
paid by AGFC is limited by provisions of certain of its financing
agreements. Under the most restrictive provisions of such agreements,
$407.9 million of the consolidated retained earnings of AGFC at December
31, 1994, was free from such restrictions. At that same date, $6.6 million
of the retained earnings of AGFI's industrial loan company subsidiaries was
unrestricted as to the payment of dividends.
At December 31, 1994, Merit had $52.7 million of accumulated earnings for
which no federal income tax provisions have been required. Federal income
taxes will become payable only to the extent such earnings are distributed
as dividends or exceed limits prescribed by tax laws. No distributions are
presently contemplated from these earnings. If such earnings were to
become taxable at December 31, 1994, the federal income tax would
approximate $18.4 million.
Note 14. Benefit Plans
RETIREMENT INCOME PLANS
The Company participates in the American General Retirement Plans (AGRP),
which are noncontributory defined benefit pension plans covering most
employees. Pension benefits are based on the participant's average monthly
compensation and length of credited service. American General's funding
policy is to contribute annually no more than the maximum amount that can
be deducted for federal income tax purposes. American General uses the
projected unit credit method to compute pension expense.
The plans' assets include primarily readily marketable securities.
Prior to 1994, the pension plans purchased annuity contracts from American
General subsidiaries that provide benefits to certain retirees. These
annuity contracts provided $2.3 million, $2.3 million, and $2.0 million for
benefits to the Company's retirees for the years ended December 31, 1994,
1993, and 1992.
<PAGE>
<PAGE> 50
Notes to Consolidated Financial Statements, Continued
AGFI's participation in the AGRP is accounted for as if AGFI had its own
plan. The following table sets forth AGFI's portion of the plans' funded
status:
December 31,
1994 1993 1992
(dollars in thousands)
Actuarial present value of benefit
obligation:
Accumulated benefit obligation $31,591 $35,868 $22,400
Vested benefits (included in
accumulated benefit obligation) $30,748 $35,639 $21,985
Projected benefit obligation $38,778 $43,212 $29,278
Plan assets at fair value 50,247 49,767 44,678
Plan assets in excess of projected
benefit obligation 11,469 6,555 15,400
Unrecognized prior service cost (480) (659) (821)
Unrecognized net (gain) loss (2,656) 3,485 (4,320)
Unrecognized net asset at
January 1, net of amortization (1,528) (2,747) (3,925)
Prepaid pension expense $ 6,805 $ 6,634 $ 6,334
Net pension expense included the following components for the years ended
December 31:
1994 1993 1992
(dollars in thousands)
Service cost $ 2,960 $ 2,375 $ 1,881
Interest on projected benefit obligation 3,084 2,791 3,687
Actual return on plan assets (237) (6,112) (5,000)
Amortization of prior service costs (154) (157) (163)
Amortization of unrecognized net
asset existing at date of
initial application (1,190) (1,190) (1,193)
Deferral of net asset (loss) gain (4,179) 2,224 (631)
Total pension expense (income) $ 284 $ (69) $(1,419)
Additional assumptions concerning the determination of net pension costs is
as follows:
1994 1993 1992
Weighted average discount rate 8.50% 7.25% 8.00%
Expected long-term rate of
return on plan assets 10.00 10.00 10.00
Rate of increase in
compensation levels 4.00 4.00 5.00
<PAGE>
<PAGE> 51
Notes to Consolidated Financial Statements, Continued
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Company participates in American General's life, medical, supplemental
major medical, and dental plans for certain retired employees. Most plans
are contributory, with retiree contributions adjusted annually to limit
employer contributions to predetermined amounts. For individuals retiring
after December 31, 1992, the cost of the supplemental major medical plan is
borne entirely by retirees. American General and its subsidiaries have
reserved the right to change or eliminate these benefits at any time.
American General's life plans are fully insured. A portion of the retiree
medical and dental plans are funded through a voluntary employees'
beneficiary association (VEBA) established in 1994; the remainder is
unfunded and self-insured. All of the retiree medical and dental plans'
assets held in the VEBA were invested in readily marketable securities at
the plans' most recent balance sheet date.
AGFI's participation in the plans is accounted for as if AGFI had its own
plans. The following table sets forth AGFI's portion of the plans'
combined funded status and the accrued postretirement benefit cost included
in other liabilities in the Company's Consolidated Balance Sheet:
December 31,
1994 1993
(dollars in thousands)
Retirees $1,847 $2,223
Fully eligible active plan participants 1,728 1,804
Other active plan participants 2,498 2,341
Accumulated postretirement benefit
obligation 6,073 6,368
Plan assets at fair value (110) -
Accumulated postretirement benefit
obligation in excess of plan assets
at fair value 5,963 6,368
Unrecognized net loss (gain) 373 (226)
Accrued postretirement benefit cost $6,336 $6,142
<PAGE>
<PAGE> 52
Notes to Consolidated Financial Statements, Continued
Postretirement benefit expense included the following components for the
year ended December 31:
1994 1993
(dollars in thousands)
Service cost-benefits attributed to
service during the period $ 271 $ 184
Interest cost on accumulated
postretirement benefit obligation 470 403
Actual return on plan assets (2) -
Deferral of net asset gain 2 -
Postretirement benefit expense $ 741 $ 587
The weighted-average discount rate used in determining the accumulated
postretirement benefit obligation for the years ended December 31, 1994 and
1993 was 8.50% and 7.25%, respectively. For measurement purposes, a 12%
annual rate of increase in the per capita cost of covered health care
benefits was assumed in 1995; the rate was assumed to decrease gradually to
6% in 2007 and remain at that level. A 1% increase in the assumed annual
rate of increase in per capita cost of health care benefits results in an
immaterial increase in the accumulated postretirement benefit obligation
and postretirement benefit expense.
Note 15. Lease Commitments, Rent Expense and Contingent Liabilities
The approximate annual rental commitments for leased office space,
automobiles and data processing and related equipment accounted for as
operating leases, excluding leases on a month-to-month basis, are as
follows: 1995, $24.6 million; 1996, $19.8 million; 1997, $14.7 million;
1998, $9.3 million; 1999, $5.0 million; and subsequent to 1999, $11.3
million.
Taxes, insurance and maintenance expenses are obligations of the Company
under certain leases. It is expected that, in the normal course of
business, leases that expire will be renewed or replaced by leases on other
properties; therefore, it is believed that future minimum annual rental
commitments will not be less than the amount of rental expense incurred in
1994. Rental expense incurred for the years ended December 31, 1994, 1993,
and 1992, was $32.2 million, $31.4 million, and $25.9 million,
respectively.
The Company is a defendant in various 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
<PAGE>
<PAGE> 53
Notes to Consolidated Financial Statements, Continued
material effect on the Company's consolidated results of operations and
consolidated financial position.
Note 16. Interim Financial Information (Unaudited)
Unaudited interim information for 1994 and 1993 is summarized below:
Total Revenues
Three Months Ended 1994 1993
(dollars in thousands)
March 31 $ 335,587 $ 310,915
June 30 360,413 322,485
September 30 386,928 328,277
December 31 408,311 327,100
Total $1,491,239 $1,288,777
Income Before Provision for
Income Taxes and Cumulative
Effect of Accounting Changes
Three Months Ended 1994 1993
(dollars in thousands)
March 31 $ 86,018 $ 77,317
June 30 98,176 89,793
September 30 101,271 86,797
December 31 106,536 82,923
Total $ 392,001 $ 336,830
Net Income
Three Months Ended 1994 1993
(dollars in thousands)
March 31 $ 53,162 $ 35,761(a)
June 30 61,145 56,391
September 30 63,580 51,642(b)
December 31 67,101 51,947
Total $ 244,988 $ 195,741
(a) Includes cumulative charge of $12.7 million due to adoption of
accounting changes: SFAS 106, SFAS 109, and SFAS 112. Amounts
previously reported in the 1993 first quarter Form 10-Q have been
restated above for SFAS 112.
(b) Includes corporate tax rate increase enacted in the third quarter,
retroactive to January 1, 1993 (see Note 11.).
<PAGE>
<PAGE> 54
Notes to Consolidated Financial Statements, Continued
Note 17. Fair Value of Financial Instruments
SFAS 107, "Disclosures about Fair Value of Financial Instruments," requires
disclosure of the fair value of financial instruments. This standard
excludes certain financial instruments and all nonfinancial instruments
from its disclosure requirements. Care should be exercised in drawing
conclusions based on fair value, since the fair values presented below do
not include the value associated with all the Company's assets and
liabilities.
The carrying values and estimated fair values of the Company's financial
instruments covered by SFAS 107 are as follows:
December 31, 1994 December 31, 1993
Carrying Fair Carrying Fair
Value Value Value Value
(dollars in thousands)
Assets
Net finance receivables,
less allowance for finance
receivable losses $7,694,086 $7,694,086 $6,390,232 $6,390,232
Marketable securities 702,510 702,510 699,697 699,697
Cash and cash equivalents 52,729 52,729 48,374 48,374
Liabilities
Long-term debt (4,312,932) (4,208,169) (4,018,797) (4,263,626)
Short-term notes payable (2,771,463) (2,771,463) (1,814,961) (1,814,961)
Investment certificates (6,601) (6,648) (9,406) (9,652)
Off-Balance Sheet Financial
Instruments
Unused credit limits:
Credit cards - - - -
Private label - - - -
Loan and other retail sales
finance revolving lines
of credit - - - -
Interest conversion agreements - (13,407) - (29,371)
Options on interest conversion
agreements - - - (33,265)
<PAGE>
<PAGE> 55
Notes to Consolidated Financial Statements, Continued
VALUATION METHODOLOGIES AND ASSUMPTIONS
The following methods and assumptions were used in estimating the fair
value of the Company's financial instruments.
Finance Receivables
Fair value of net finance receivables (which approximates carrying amount
less allowance for finance receivable losses) was estimated using
discounted cash flows computed by category of finance receivable. Cash
flows were based on contractual payment terms adjusted for delinquencies
and finance receivable losses, discounted at the weighted-average interest
rates currently being offered for similar finance receivables. The fair
value estimate does not reflect the value of the underlying customer
relationships or the related distribution system.
Marketable Securities
Fair values for marketable securities are based on quoted market prices,
where available. For marketable securities not actively traded, fair
values were estimated using values obtained from independent pricing
services or, in the case of private placements, by discounting expected
future cash flows using a current market rate applicable to yield, credit
quality, and average life of the investments.
Cash and Cash Equivalents
The carrying amounts reported in the Consolidated Balance Sheets for cash
and cash equivalents approximate those assets' fair values.
Long-term Debt
The fair values of the Company's long-term borrowings are estimated using
discounted cash flows based on current borrowing rates.
Short-term Notes Payable
The carrying value of short-term notes payable approximates the fair value.
<PAGE>
<PAGE> 56
Notes to Consolidated Financial Statements, Continued
Investment Certificates
Fair values for fixed-rate time deposits are estimated using a discounted
cash flow calculation that applies interest rates currently being offered
on time deposits to a schedule of aggregated expected monthly maturities on
time deposits. The carrying amounts for variable-rate time deposits
approximate their fair values at the reporting date. The fair values for
demand deposits are, by definition, equal to the amount payable on demand
at the reporting date.
Unused Customer Credit Lines
The unused credit lines available to the Company's customers are considered
to have no fair value. The interest rates charged on these facilities can
either be changed at the Company's discretion, such as for credit cards and
private label, or are adjustable and reprice frequently, such as for loan
and other retail sales finance revolving lines of credit. Furthermore,
these amounts, in part or in total, can be cancelled at the discretion of
the Company.
Interest Conversion Agreements
Fair values for the Company's interest conversion agreements are based on
estimates, obtained from the individual counterparties, of the cost or
benefit of terminating the agreements.
<PAGE>
<PAGE> 57
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) (1) and (2) The following consolidated financial statements of American
General Finance, Inc. and subsidiaries are included in Item 8:
Consolidated Balance Sheets, December 31, 1994 and 1993
Consolidated Statements of Income, years ended December 31, 1994,
1993, and 1992
Consolidated Statements of Shareholder's Equity, years ended
December 31, 1994, 1993, and 1992
Consolidated Statements of Cash Flows, years ended December 31,
1994, 1993, and 1992
Notes to Consolidated Financial Statements
Schedule I--Condensed Financial Information of Registrant is included
in Item 14(d).
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission have
been omitted, because they are inapplicable, or the information
required therein is included in the consolidated financial statements
or notes.
(3) Exhibits:
Exhibits are listed in the Exhibit Index beginning on page 64
herein.
(b) Reports on Form 8-K
No Current Reports on Form 8-K were filed during the last quarter of
1994.
(c) Exhibits
The exhibits required to be included in this portion of Item 14. are
submitted as a separate section of this report.
<PAGE>
<PAGE> 58
Item 14(d).
Schedule I - Condensed Financial Information of Registrant
American General Finance, Inc.
Condensed Balance Sheets
December 31,
1994 1993
Assets (dollars in thousands)
Cash $ 151 $ 217
Finance receivables, net of unearned
finance charges:
Credit cards - 336,476
Retail sales finance - 250,928
Net finance receivables - 587,404
Allowance for finance receivable
losses - (26,143)
Net finance receivables, less allowance
for finance receivables losses - 561,261
Investments in subsidiaries 1,348,916 1,268,775
Notes receivable from subsidiaries 3,299 -
Other assets 49,145 79,534
Total assets $1,401,511 $1,909,787
Liabilities and Shareholder's Equity
Senior long-term debt, 5.0% - 13.0%,
due 1995-2000 $ 47,706 $ 53,025
Notes payable to banks 141,000 120,000
Notes payable to subsidiaries - 573,256
Other liabilities 1,065 52,806
Total liabilities 189,771 799,087
Shareholder's equity:
Common stock 1,000 1,000
Additional paid-in capital 616,021 616,021
Other equity (18,407) 33,740
Retained earnings 613,126 459,939
Total shareholder's equity 1,211,740 1,110,700
Total liabilities and shareholder's equity $1,401,511 $1,909,787
See Notes to Condensed Financial Statements.
<PAGE>
<PAGE> 59
Schedule I, Continued
American General Finance, Inc.
Condensed Statements of Income
Years Ended December 31,
1994 1993 1992
(dollars in thousands)
Revenues
Dividends received from subsidiaries $119,145 $152,555 $171,139
Finance charges 151,246 84,367 25,043
Interest and other 13,816 3,517 3,369
Total revenues 284,207 240,439 199,551
Expenses
Interest expense 83,070 40,122 22,821
Operating expenses 41,638 24,967 6,569
Provision for finance
receivable losses 51,492 24,429 6,868
Total expenses 176,200 89,518 36,258
Income before income taxes, equity
in undistributed net income of
subsidiaries, and cumulative effect
of accounting changes 108,007 150,921 163,293
Income Tax Credit 3,925 584 10,260
Income before equity in undistributed
net income of subsidiaries and
cumulative effect of accounting
changes 111,932 151,505 173,553
Equity in Undistributed Net Income
of Subsidiaries 133,056 56,888 (11,645)
Income before cumulative effect of
accounting changes 244,988 208,393 161,908
Cumulative Effect of Accounting Changes
Parent company - 65 -
Subsidiaries - (12,717) -
Net Income $244,988 $195,741 $161,908
See Notes to Condensed Financial Statements.
<PAGE>
<PAGE> 60
Schedule I, Continued
American General Finance, Inc.
Condensed Statements of Cash Flows
Years ended December 31,
1994 1993 1992
(dollars in thousands)
Cash Flows from Operating Activities
Net Income $244,988 $195,741 $161,908
Reconciling adjustments to net cash
provided by operating activities:
Provision for finance receivable
losses 51,492 24,429 6,868
Change in dividends receivable 32,512 (11,239) 14,842
Equity in undistributed net income
of subsidiaries (133,056) (44,171) 11,645
Other, net 1,107 10,616 (13,107)
Net cash provided by operating activities 197,043 175,376 182,156
Cash Flows from Investing Activities
Participation in finance receivables (1,246,417) (677,847) (586,151)
Cash collections on participated
finance receivables 548,384 487,200 161,853
Sale of participated finance receivables 1,205,945 - -
Return of capital from subsidiary 7,435 - 23,537
Capital contribution to subsidiary (6,667) (4,577) (17,267)
Preferred stock redemption of subsidiary - - 4,000
Other, net (3,780) (18,040) (8,604)
Net cash provided by (used for)
investing activities 504,900 (213,264) (422,632)
Cash Flows from Financing Activities
Proceeds from issuance of
long-term debt 5,664 17,320 16,043
Repayment of long-term debt (12,118) (11,448) (14,108)
Change in notes receivable or payable
with parent and subsidiaries (576,555) 194,585 254,733
Change in notes payable to banks 21,000 - 120,000
Common stock dividends paid (140,000) (162,600) (124,740)
Preferred stock dividends paid - - (12,078)
Net cash (used for) provided by
financing activities (702,009) 37,857 239,850
Decrease in cash (66) (31) (626)
Cash at beginning of year 217 248 874
Cash at end of year $ 151 $ 217 $ 248
See Notes to Condensed Financial Statements.
<PAGE>
<PAGE> 61
Schedule I, Continued
American General Finance, Inc.
Notes to Condensed Financial Statements
December 31, 1994
Note 1. Accounting Policies
In the financial statements of the registrant, AGFI's investments in
subsidiaries are stated at cost plus the equity in undistributed net income
of subsidiaries since the date of the acquisition. The condensed financial
statements of the registrant should be read in conjunction with AGFI's
consolidated financial statements.
Note 2. Long-Term Debt
The aggregate amounts of long-term senior debt maturities for the five
years subsequent to December 31, 1994, are as follows: 1995, $12.6
million; 1996, $8.5 million; 1997, $11.6 million; 1998, $11.0 million;
1999, $3.8 million; and thereafter, $.2 million.
Note 3. Participation Agreement
On May 1, 1992, AGFI entered into a participation agreement whereby AGFI
purchased finance receivables from a subsidiary. The servicing fee expense
for the participation transaction for the years ended December 31, 1994,
1993, and 1992 was $30.1 million, $18.2 million, and $5.1 million,
respectively. On December 31, 1994, the participation agreement was
transferred to a subsidiary of AGFI.
<PAGE>
<PAGE> 62
Signatures
Pursuant to the requirements of Section 13 or 15(d) 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 on March
15, 1995.
AMERICAN GENERAL FINANCE, INC.
By: /s/ Philip M. Hanley
Philip M. Hanley
(Senior Vice President and
Chief Financial Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on March 15, 1995.
/s/ Daniel Leitch III /s/ James R. Jerwers
Daniel Leitch III James R. Jerwers
(Chairman and Chief Executive (Director)
Officer and Director -
Principal Executive Officer)
/s/ Larry R. Klaholz
Larry R. Klaholz
/s/ Philip M. Hanley (Director)
Philip M. Hanley
(Senior Vice President and Chief
Financial Officer and Director - /s/ Jon P. Newton
Principal Financial Officer) Jon P. Newton
(Director)
/s/ George W. Schmidt
George W. Schmidt /s/ David C. Seeley
(Controller and Assistant Secretary - David C. Seeley
Principal Accounting Officer) (Director)
/s/ Wayne D. Baker /s/ James R. Tuerff
Wayne D. Baker James R. Tuerff
(Director) (Director)
/s/ Robert M. Devlin /s/ Peter V. Tuters
Robert M. Devlin Peter V. Tuters
(Director) (Director)
/s/ Bennie D. Hendrix /s/ Robert D. Womack
Bennie D. Hendrix Robert D. Womack
(Director) (Director)
/s/ Harold S. Hook
Harold S. Hook
(Director)
<PAGE>
<PAGE> 63
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO
SECTION 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 BY REGISTRANTS WHICH
HAVE NOT REGISTERED SECURITIES PURSUANT TO SECTION 12 OF THE SECURITIES
EXCHANGE ACT OF 1934.
No annual report to security-holders or proxy material has been sent to
security-holders.
<PAGE>
<PAGE> 64
Exhibit Index
Exhibits Page
(3) a. Restated Articles of Incorporation of American General Finance,
Inc. (formerly Credithrift Financial, Inc.) dated May 27, 1988
and amendments thereto dated September 7, 1988 and March 20,
1989. Incorporated by reference to Exhibit (3)a filed as a part
of the Company's Annual Report on Form 10-K for the year ended
December 31, 1988 (File No. 1-7422).
b. By-laws of American General Finance, Inc. Incorporated by
reference to Exhibit (3)b filed as a part of the Company's Annual
Report on Form 10-K for the year ended December 31, 1992 (File
No. 1-7422).
(4) a. The following instruments are filed pursuant to Item
601(b)(4)(ii) of Regulation S-K, which requires with certain
exceptions that all instruments be filed which define the rights
of holders of long-term debt of the Company and its consolidated
subsidiaries. In the aggregate, the outstanding issuances of
debt under each Indenture referred to under items (1) and (2)
below exceed 10% of the total assets of the Company on a
consolidated basis.
(1) Senior Indenture dated as of February 1, 1993 from American
General Finance Corporation to Citibank, N.A. Incorporated
by reference to Exhibit 4(a) filed as a part of American
General Finance Corporation's Registration Statement on Form
S-3 (Registration No. 33-57910).
(a) Resolutions and form of note for senior note, 6 3/8%
due March 15, 2003. Incorporated by reference to
Exhibits 4(a) and 4(b) filed as a part of American
General Finance Corporation's Current Report on Form
8-K dated March 4, 1993 (File No. 1-6155).
(b) Resolutions and form of note for senior note, 5% due
June 15, 1996. Incorporated by reference to Exhibits
4(a) and 4(b) filed as a part of American General
Finance Corporation's Current Report on Form 8-K
dated June 10, 1993 (File No. 1-6155).
(c) Resolutions and form of note for senior note, 5 7/8%
due July 1, 2000. Incorporated by reference to
Exhibits 4(a) and 4(b) filed as a part of American
General Finance Corporation's Current Report on Form
8-K dated June 29, 1993 (File No. 1-6155).
(d) Resolutions and form of note for senior note, 5.80%
due April 1, 1997. Incorporated by reference to
Exhibits 4(a) and 4(b) filed as a part of American
General Finance Corporation's Current Report on Form
8-K dated March 22, 1994 (File No. 1-6155).
<PAGE>
<PAGE> 65
Exhibit Index, Continued
Exhibits Page
(e) Resolutions and form of note for senior note, 6 5/8%
due June 1, 1997. Incorporated by reference to
Exhibits 4(a) and 4(b) filed as a part of American
General Finance Corporation's Current Report on Form
8-K dated May 17, 1994 (File No. 1-6155).
(f) Resolutions and form of note for senior note, 6 7/8%
due July 1, 1999. Incorporated by reference to
Exhibits 4(a) and 4(b) filed as a part of American
General Finance Corporation's Current Report on Form
8-K dated June 8, 1994 (File No. 1-6155).
(g) Resolutions and form of note for senior note, 7% due
October 1, 1997. Incorporated by reference to
Exhibits 4(a) and 4(b) filed as a part of American
General Finance Corporation's Current Report on Form
8-K dated September 26, 1994 (File No. 1-6155).
(h) Resolutions and form of note for senior note, 7.70%
due November 15, 1997. Incorporated by reference to
Exhibits 4(a) and 4(b) filed as a part of American
General Finance Corporation's Current Report on Form
8-K dated November 10, 1994 (File No. 1-6155).
(i) Resolutions and form of note for senior note, 8 1/4%
due January 15, 1998. Incorporated by reference to
Exhibits 4(a) and 4(b) filed as a part of American
General Finance Corporation's Current Report on Form
8-K dated January 6, 1995 (File No. 1-6155).
(2) Senior Indenture dated as of November 1, 1991 from American
General Finance Corporation to Citibank, N.A., as successor
trustee. Incorporated by reference to Exhibit 4(a) filed as
part of American General Finance Corporation's Current
Report on Form 8-K dated November 6, 1991 (File No. 1-6155).
(a) Resolutions and form of note for senior note, 7 3/8%
due November 15, 1996. Incorporated by reference to
Exhibits 4(c) and 4(d) filed as part of American
General Finance Corporation's Current Report on Form
8-K dated November 6, 1991 (File No. 1-6155).
(b) Resolutions and form of note for senior note, 7.15%
due May 15, 1997. Incorporated by reference to
Exhibits 4(a) and 4(b) filed as part of American
General Finance Corporation's Current Report on Form
8-K dated May 13, 1992 (File No. 1-6155).
<PAGE>
<PAGE> 66
Exhibit Index, Continued
Exhibits Page
(c) Resolutions and form of note for senior note, 7.45%
due July 1, 2002. Incorporated by reference to
Exhibits 4(a) and 4(b) filed as a part of American
General Finance Corporation's Current Report on Form
8-K dated July 2, 1992 (File No. 1-6155).
(d) Resolutions and form of note for senior note, 5% due
September 1, 1995. Incorporated by reference to
Exhibits 4(a) and 4(b) filed as a part of American
General Finance Corporation's Current Report on Form
8-K dated August 20, 1992 (File No. 1-6155).
(e) Resolutions and form of note for senior note, 7 1/8%
due December 1, 1999. Incorporated by reference to
Exhibits 4(a) and 4(b) filed as a part of American
General Finance Corporation's Current Report on Form
8-K dated December 1, 1992 (File No. 1-6155).
(f) Resolutions and forms of notes for (senior) Medium-
Term Notes, Series C. Incorporated by reference to
Exhibits 4(a), 4(b) and 4(c) filed as a part of
American General Finance Corporation's Current Report
on Form 8-K dated December 10, 1992 (File No. 1-6155).
(g) Resolutions and form of note for senior note, 6 7/8%
due January 15, 2000. Incorporated by reference to
Exhibits 4(a) and 4(b) filed as a part of American
General Finance Corporation's Current Report on Form
8-K dated January 11, 1993 (File No. 1-6155).
(h) Resolutions for (senior) Medium-Term Notes, Series C.
Incorporated by reference to Exhibit 4 filed as a part
of American General Finance Corporation's Current
Report on Form 8-K dated April 6, 1994 (File No. 1-
6155).
b. In accordance with Item 601(b)(4)(iii) of Regulation S-K,
certain other instruments defining the rights of holders of
long-term debt of the Company and its subsidiaries have not
been filed as exhibits to this Annual Report on Form 10-K
because the total amount of securities authorized under each
such instrument does not exceed 10% of the total assets of
the Company on a consolidated basis. The Company hereby
agrees to furnish a copy of each such instrument to the
Securities and Exchange Commission upon request therefor.
(12) Computation of ratio of earnings to fixed charges. 67
(23) Consent of Ernst & Young LLP 68
(27) Financial Data Schedule 69
<PAGE>
<PAGE>
<PAGE> 67
Exhibit 12
American General Finance, Inc. and Subsidiaries
Computation of Ratio of Earnings to Fixed Charges
Years Ended December 31,
1994 1993 1992 1991 1990
(dollars in thousands)
Preferred dividends of
subsidiary:
Preferred dividends $ - $ - $ - $ - $ 3,884
Divide by effective
income tax rate
subtracted from
one to gross-up
dividends to a
pre-tax equivalent .62
$ - $ - $ - $ - $ 6,265
Earnings:
Income before provision
for income taxes and
cumulative effect of
accounting changes $392,001 $336,830 $262,716 $218,500 $198,749
Interest expense 416,233 379,764 398,168 440,086 451,613
Implicit interest
in rents 10,741 10,462 8,641 8,731 8,478
Preferred dividends
of subsidiary - - - - 3,884
Total earnings $818,975 $727,056 $669,525 $667,317 $662,724
Fixed charges:
Interest expense $416,233 $379,764 $398,168 $440,086 $451,613
Implicit interest
in rents 10,741 10,462 8,641 8,731 8,478
Preferred dividends
of subsidiary - - - - 6,265
Total fixed charges $426,974 $390,226 $406,809 $448,817 $466,356
Ratio of earnings to
fixed charges 1.92 1.86 1.65 1.49 1.42
<PAGE>
<PAGE>
<PAGE> 68
Exhibit 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement
(Form S-3 Number 33-47865) of American General Finance, Inc. and in the
related Prospectus of our report dated February 14, 1995, with respect to
the consolidated financial statements and schedule of American General
Finance, Inc. and subsidiaries included in this Annual Report (Form 10-K)
for the year ended December 31, 1994.
ERNST & YOUNG LLP
Nashville, Tennessee
March 15, 1995
<PAGE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<CASH> 52,729
<SECURITIES> 702,510
<RECEIVABLES> 7,920,312<F1>
<ALLOWANCES> 226,226<F2>
<INVENTORY> 0<F3>
<CURRENT-ASSETS> 0<F4>
<PP&E> 0<F4>
<DEPRECIATION> 0<F4>
<TOTAL-ASSETS> 8,980,728
<CURRENT-LIABILITIES> 0<F4>
<BONDS> 4,312,932<F5>
<COMMON> 1,000
0<F3>
0<F3>
<OTHER-SE> 1,210,740<F6>
<TOTAL-LIABILITY-AND-EQUITY> 8,980,728
<SALES> 0<F3>
<TOTAL-REVENUES> 1,491,239<F7>
<CGS> 0<F3>
<TOTAL-COSTS> 0<F4>
<OTHER-EXPENSES> 469,018<F8>
<LOSS-PROVISION> 213,987<F9>
<INTEREST-EXPENSE> 416,233<F10>
<INCOME-PRETAX> 392,001
<INCOME-TAX> 147,013
<INCOME-CONTINUING> 244,988
<DISCONTINUED> 0<F3>
<EXTRAORDINARY> 0<F3>
<CHANGES> 0<F3>
<NET-INCOME> 244,988
<EPS-PRIMARY> 0<F3>
<EPS-DILUTED> 0<F3>
<PAGE>
<FN>
<F1>RECEIVABLES IN THIS EXHIBIT REPRESENTS NET FINANCE RECEIVABLES REPORTED
IN THE COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS.
<F2>ALLOWANCES IN THIS EXHIBIT REPRESENTS ALLOWANCE FOR FINANCE RECEIVABLE
LOSSES REPORTED IN THE COMPANY'S 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
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 CONSOLIDATED FINANCIAL STATEMENTS.
<F7>TOTAL REVENUES IN THIS EXHIBIT REPRESENTS TOTAL REVENUES REPORTED IN THE
COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS.
<F8>OTHER EXPENSES IN THIS EXHIBIT REPRESENTS OPERATING EXPENSES AND
INSURANCE LOSSES AND LOSS ADJUSTMENT EXPENSES REPORTED IN THE COMPANY'S
CONSOLIDATED FINANCIAL STATEMENTS.
<F9>LOSS PROVISION IN THIS EXHIBIT REPRESENTS PROVISION FOR FINANCE
RECEIVABLE LOSSES REPORTED IN THE COMPANY'S CONSOLIDATED FINANCIAL
STATEMENTS.
<F10>INTEREST EXPENSE IN THIS EXHIBIT REPRESENTS INTEREST EXPENSE REPORTED
IN THE COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
</FN>
</TABLE>
