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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to _____________
Commission file number 1-7422
AMERICAN GENERAL FINANCE, INC.
(Exact name of registrant as specified in its charter)
Indiana 35-1313922
(State of Incorporation) (I.R.S. Employer
Identification No.)
601 N.W. Second Street, Evansville, IN 47708
(Address of principal executive offices) (Zip Code)
(812) 424-8031
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
The registrant meets the conditions set forth in General Instruction
H(1)(a) and (b) of Form 10-Q and is therefore filing this Form 10-Q with
the reduced disclosure format.
At November 13, 1996, there were 2,000,000 shares of the registrant's
common stock, $.50 par value, outstanding.
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
AMERICAN GENERAL FINANCE, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Income
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
(dollars in thousands)
Revenues
Finance charges $359,223 $384,250 $1,092,884 $1,112,910
Insurance 51,677 55,225 154,950 165,828
Other 18,413 19,905 50,341 60,539
Total revenues 429,313 459,380 1,298,175 1,339,277
Expenses
Interest expense 121,267 131,092 368,518 386,167
Operating expenses 123,499 122,200 387,827 345,290
Provision for finance
receivable losses 90,636 113,667 301,220 260,509
Insurance losses and loss
adjustment expenses 25,787 32,041 80,841 91,842
Total expenses 361,189 399,000 1,138,406 1,083,808
Income before provision for
income taxes 68,124 60,380 159,769 255,469
Provision for Income Taxes 24,513 5,424 58,382 78,007
Net Income $ 43,611 $ 54,956 $ 101,387 $ 177,462
See Notes to Condensed Consolidated Financial Statements.
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AMERICAN GENERAL FINANCE, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Unaudited)
September 30, December 31,
1996 1995
Assets (dollars in thousands)
Finance receivables, net of unearned
finance charges:
Real estate loans $3,420,831 $2,904,016
Non-real estate loans 2,470,803 2,765,361
Retail sales contracts 1,017,684 1,240,708
Private label 784,074 942,706
Credit cards 514,938 557,603
Net finance receivables 8,208,330 8,410,394
Allowance for finance receivable
losses (465,154) (492,124)
Net finance receivables, less allowance
for finance receivable losses 7,743,176 7,918,270
Investment securities 857,629 884,775
Cash and cash equivalents 116,025 103,238
Goodwill 273,242 279,995
Other assets 355,407 375,072
Total assets $9,345,479 $9,561,350
Liabilities and Shareholder's Equity
Long-term debt $4,630,353 $4,979,883
Short-term notes payable:
Commercial paper 2,551,788 2,194,771
Banks and other 145,000 289,100
Investment certificates 4,022 6,197
Insurance claims and policyholder
liabilities 463,386 483,971
Other liabilities 268,595 273,485
Accrued taxes 22,674 12,162
Total liabilities 8,085,818 8,239,569
Shareholder's equity:
Common stock 1,000 1,000
Additional paid-in capital 696,128 696,128
Net unrealized gains on investment
securities 13,496 38,412
Retained earnings 549,037 586,241
Total shareholder's equity 1,259,661 1,321,781
Total liabilities and shareholder's equity $9,345,479 $9,561,350
See Notes to Condensed Consolidated Financial Statements.
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AMERICAN GENERAL FINANCE, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended
September 30,
1996 1995
(dollars in thousands)
Cash Flows from Operating Activities
Net income $101,387 $177,462
Reconciling adjustments to net cash
provided by operating activities:
Provision for finance receivable losses 301,220 260,509
Depreciation and amortization 73,028 86,561
Deferral of finance receivable
origination costs (38,232) (57,795)
Deferred federal income tax charge (benefit) 8,481 (26,981)
Change in other assets and other liabilities (7,626) 100,504
Change in insurance claims and
policyholder liabilities (20,585) 21,616
Gain on finance receivables sold through
securitization - (4,552)
Other, net 59,446 (9,611)
Net cash provided by operating activities 477,119 547,713
Cash Flows from Investing Activities
Finance receivables originated or purchased (3,859,686) (4,482,009)
Principal collections on finance receivables 3,729,716 3,681,067
Securitized finance receivables sold - 100,000
Investment securities purchased (149,261) (145,619)
Investment securities called, matured and sold 138,969 70,862
Other, net (43,669) (55,631)
Net cash used for investing activities (183,931) (831,330)
Cash Flows from Financing Activities
Proceeds from issuance of long-term debt 73,031 1,502,604
Repayment of long-term debt (425,584) (841,695)
Change in investment certificates (2,175) (515)
Change in short-term notes payable 212,917 (186,531)
Dividends paid (138,590) (112,540)
Net cash (used for) provided by financing
activities (280,401) 361,323
Increase in cash and cash equivalents 12,787 77,706
Cash and cash equivalents at beginning of period 103,238 52,729
Cash and cash equivalents at end of period $116,025 $130,435
Supplemental Disclosure of Cash Flow Information
Income taxes paid $ 13,900 $116,686
Interest paid $368,720 $364,973
See Notes to Condensed Consolidated Financial Statements.
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AMERICAN GENERAL FINANCE, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 1996
Note 1. Principles of Consolidation
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles
for interim periods and include the accounts of American General Finance,
Inc. and its subsidiaries. American General Finance, Inc. is hereinafter
referenced as "AGFI" or collectively with its subsidiaries, whether
directly or indirectly owned, as the "Company". The subsidiaries are
wholly-owned, and all intercompany items have been eliminated. Per share
information is not included because AGFI is a wholly-owned subsidiary of
American General Corporation (American General).
Note 2. Adjustments and Reclassifications
These condensed consolidated financial statements include all adjustments,
consisting only of normal recurring adjustments, considered necessary by
management for a fair presentation of the Company's consolidated financial
position at September 30, 1996 and December 31, 1995, its consolidated
results of operations for the three months and nine months ended September
30, 1996 and 1995, and its consolidated cash flows for the nine months
ended September 30, 1996 and 1995. These condensed consolidated financial
statements should be read in conjunction with the consolidated financial
statements and related notes included in the Company's Annual Report on
Form 10-K for the year ended December 31, 1995.
To conform with the 1996 presentation, certain items in the prior period
have been reclassified.
Note 3. Derivative Financial Instruments
The Company's principal borrowing subsidiary is American General Finance
Corporation (AGFC), a wholly-owned subsidiary of AGFI. AGFC makes limited
use of derivative financial instruments to manage the cost of its debt.
AGFC has used interest conversion agreements to reduce its exposure to
future fluctuations in interest expense rates by effectively converting
short-term and medium-term floating-rate debt to a fixed-rate basis. At
September 30, 1996, outstanding interest conversion agreements in which
AGFC contracted to pay interest at fixed rates and receive floating rates
totaled $540 million of notional amount, with an average fixed pay rate of
8.05% and an average floating receive rate of 5.94%. AGFC's use of such
agreements did not have a material effect on the Company's weighted-average
interest rate or reported interest expense in the first nine months of 1996
or 1995.
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Note 4. Accounting Changes
In June 1996, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards 125, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities."
This statement provides accounting standards for determining whether
transfers of financial assets are sales or secured borrowings and when a
liability should be considered extinguished. The statement must be applied
prospectively to all applicable transactions occurring after December 31,
1996; however, application of certain provisions may be delayed for one
year pending approval by the FASB. Earlier or retroactive application is
not permitted. The impact of this statement on the Company's consolidated
results of operations and financial position is not expected to be
material.
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Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
LIQUIDITY AND CAPITAL RESOURCES
Overview
The Company's sources of funds include operations, issuances of fixed-rate
and floating-rate debt, borrowings under credit facilities, and the sale of
finance receivables through securitization. Management believes that the
overall sources of liquidity available to the Company will continue to be
sufficient to satisfy its foreseeable financial obligations and operational
requirements.
Liquidity
Operating cash flow, which includes net income adjusted for non-cash
revenues and expenses, totaled $477.1 million for the nine months ended
September 30, 1996 compared to $547.7 million for the same period in 1995.
This cash flow was used principally to fund the net repayments of debt of
$141.8 million, to pay dividends of $138.6 million to American General, and
to finance the net originations and purchases of finance receivables of
$130.0 million for the nine months ended September 30, 1996. Operating
cash flow combined with the net proceeds of increased debt and the proceeds
of securitized finance receivables sold generated cash flow of $1.1 billion
for the same period in 1995. This cash flow was used principally to fund
the net originations and purchases of finance receivables of $800.9 million
and to pay dividends of $112.5 million to American General for the nine
months ended September 30, 1995.
Dividends paid are typically managed to maintain the Company's targeted
leverage of 7.5 to 1 of debt to tangible equity (equity less goodwill and
net unrealized gains or losses on fixed-maturity investment securities).
The debt to tangible equity ratio at September 30, 1996 was 7.54. The
ability of AGFI to pay dividends is substantially dependent on the receipt
of dividends or other funds from its subsidiaries, primarily AGFC. Certain
of AGFC's financing agreements effectively limit the amount of dividends
AGFC may pay; however, management does not expect those limits to affect
AGFC's ability to pay the amount of dividends necessary to maintain the
Company's targeted leverage.
Capital Resources
The Company's capital requirements vary directly with the level of net
finance receivables. The mix of capital between debt and equity is based
primarily upon maintaining leverage that supports cost-effective funding.
At September 30, 1996, the Company's capital totaled $8.6 billion,
consisting of $7.3 billion of debt and $1.3 billion of equity, compared to
$8.9 billion at September 30, 1995, consisting of $7.6 billion of debt and
$1.3 billion of equity.
The Company obtains funds through the issuance of a combination of fixed-
rate debt, principally long-term, and floating-rate debt, principally
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short-term. The Company's principal borrowing subsidiary, AGFC, and one of
its subsidiaries sell commercial paper notes with maturities ranging from 1
to 270 days directly to banks, insurance companies, corporations, and other
institutional investors. AGFC may also offer medium-term notes with
original maturities of nine months or longer to certain institutional
investors. The remainder of AGFC's funding is obtained primarily through
underwritten public debt offerings with maturities generally ranging from
three to ten years.
The Company's mix of fixed-rate and floating-rate debt is determined by
management based, in part, on the nature of the assets being supported.
The Company limits its exposure to market interest rate increases by fixing
interest rates that it pays for term periods. The primary means by which
the Company accomplishes this is through the issuance of fixed-rate debt.
To supplement fixed-rate debt issuances, AGFC also has used interest
conversion agreements to synthetically create fixed-rate debt by altering
the nature of floating-rate funding, thereby limiting its exposure to
interest rate movements.
Credit Facilities
Credit facilities are maintained to support the issuance of commercial
paper and to provide an additional source of funds for operating
requirements. At September 30, 1996, the Company had committed credit
facilities of $700.0 million and was an eligible borrower under $2.8
billion of committed credit facilities extended to American General and
certain of its subsidiaries (the "shared committed facilities"). The
annual commitment fees for all committed facilities ranged from .05% to
.09%. The Company pays only an allocated portion of the commitment fees
for the shared committed facilities. At September 30, 1996, the Company
also had $601.0 million of uncommitted credit facilities and was an
eligible borrower under $165.0 million of uncommitted credit facilities
extended to American General and certain of its subsidiaries. Available
borrowings under all facilities are reduced by any amounts outstanding
thereunder. At September 30, 1996, Company borrowings outstanding under
all credit facilities totaled $156.5 million with remaining availability to
the Company of $3.5 billion in committed facilities and $609.5 million in
uncommitted facilities.
Securitization
The Company has securitized a portion of its portfolio of private label and
credit card finance receivables to establish additional sources of funding
and liquidity. During the second quarter of 1995, the Company sold $100
million of securitized finance receivables with limited recourse. At
September 30, 1996, securitized finance receivables sold remained at $100
million.
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SELECTED FINANCIAL INFORMATION
The following table sets forth certain selected financial information of
the Company for the periods indicated:
At or for the At or for the
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
(dollars in thousands)
Average finance receivables,
net of unearned finance
charges (average net
receivables) $8,042,491 $8,400,456 $8,094,076 $8,239,478
Average borrowings $7,051,834 $7,473,690 $7,123,268 $7,336,489
Yield - finance charges
(annualized) as a
percentage of average
net receivables 17.80% 18.21% 18.02% 18.04%
Borrowing cost - interest
expense (annualized) as
a percentage of average
borrowings 6.87% 7.01% 6.90% 7.02%
Spread between yield
and borrowing cost 10.93% 11.20% 11.12% 11.02%
Insurance revenues
(annualized) as a
percentage of average
net receivables 2.57% 2.63% 2.55% 2.68%
Operating expenses
(annualized) as a
percentage of average
net receivables 6.14% 5.82% 6.39% 5.59%
Return on average assets
(annualized) 1.91% 2.28% 1.47% 2.51%
Return on average equity
(annualized) 13.44% 16.57% 10.33% 18.36%
Charge-off ratio -
net charge-offs
(annualized) as a
percentage of average
net receivables 5.37% 3.22% 5.40% 2.99%
Allowance ratio -
allowance for finance
receivable losses as a
percentage of net
finance receivables - - 5.67% 3.62%
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Selected Financial Information (Continued)
At or for the
Nine Months Ended
September 30,
1996 1995
Ratio of earnings to fixed charges (refer to
Exhibit 12 herein for calculations) 1.42 1.65
Delinquency ratio - finance receivables any
portion of which was 60 days or more past
due as a percentage of related receivables
(including unearned finance charges and
excluding deferred origination costs, a
fair value adjustment on finance receivables,
and accrued interest) 4.28% 3.75%
Debt to tangible equity ratio - debt to
equity less goodwill and net unrealized
gains or losses on fixed-maturity
investment securities 7.54 7.47
Debt to equity ratio 5.82 5.73
ANALYSIS OF OPERATING RESULTS
Net income decreased $11.3 million, or 21%, for the three months ended
September 30, 1996 and $76.1 million, or 43%, for the nine months ended
September 30, 1996 when compared to the same periods in 1995. The decrease
in net income for the quarter was primarily due to a decrease in finance
charges and an increase in the provision for income taxes, partially offset
by a decrease in the provision for finance receivable losses. The decrease
in net income for the nine month period was primarily due to increases in
the provision for finance receivable losses and operating expenses, as well
as a decrease in finance charges.
Operating results during 1996 have been below Company expectations
primarily due to the decline in credit fundamentals in the consumer finance
market, including the record level of personal bankruptcies. Operations
have, however, begun to benefit from actions taken to stabilize credit
quality, including the elimination of certain underperforming non-branch
marketing programs, the establishment of higher underwriting standards, and
revisions to the field office incentive compensation system. The Company
will introduce additional programs during 1996 and 1997 to address credit
quality, finance receivable originations, and expense reduction.
Finance Charges
Finance charge revenues decreased $25.0 million, or 7%, for the three
months ended September 30, 1996 and $20.0 million, or 2%, for the nine
months ended September 30, 1996 when compared to the same periods in 1995
primarily due to a decrease in average net receivables. The decrease in
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finance charge revenues for the quarter was also due to a decrease in
yields. The decrease in finance charge revenues for the nine month period
was partially offset by an additional day in the 1996 period. Average net
receivables decreased $358.0 million, or 4%, for the three months ended
September 30, 1996 and $145.4 million, or .2%, for the nine months ended
September 30, 1996 when compared to the same periods in 1995 primarily due
to the action program to improve credit quality. (See Provision for
Finance Receivable Losses herein.) Yields decreased 41 basis points for
the three months ended September 30, 1996 and 2 basis points for the nine
months ended September 30, 1996 when compared to the same periods in 1995
primarily due to a larger proportion of the finance receivable portfolio
in real estate secured loans and the increased proportion of finance
receivables 90+ days delinquent and the suspension of accrued finance
charges thereon. The decrease in yield for the nine month period was
partially offset by an increase in yield on real estate loans, resulting
from the higher interest rate environment and rate management.
Insurance Revenues
Insurance revenues decreased $3.5 million, or 6%, for the three months
ended September 30, 1996 and $10.9 million, or 7%, for the nine months
ended September 30, 1996 when compared to the same periods in 1995
primarily due to a decrease in earned premiums. Earned premiums decreased
primarily due to a decrease in net written premiums. The decrease in net
written premiums reflected the decrease in loan volume, which resulted from
the action program to improve credit quality.
Other Revenues
Other revenues decreased $1.5 million, or 7%, for the three months ended
September 30, 1996 and $10.2 million, or 17%, for the nine months ended
September 30, 1996 when compared to the same periods in 1995. The decrease
in other revenues for the nine month period was primarily due to the gain
recorded in the second quarter of 1995 for the securitized finance
receivables sold and a decrease in investment revenue on the invested
assets for the insurance operations. The decrease in investment revenue
was primarily due to realized losses on investments of $1.6 million for the
nine months ended September 30, 1996 compared to $.7 million of realized
gains on investments for the same period in 1995. Investment revenue for
the three months ended September 30, 1996 remained at near the same level
when compared to the same period in 1995. Return on invested assets
decreased 54 basis points for the three months ended September 30, 1996 and
34 basis points for the nine months ended September 30, 1996 when compared
to the same periods in 1995, offset by growth in average invested assets of
$55.1 million, or 7%, for the three months ended September 30, 1996 and
$69.0 million, or 9%, for the nine months ended September 30, 1996 when
compared to the same periods in 1995.
Interest Expense
Interest expense decreased $9.8 million, or 7%, for the three months ended
September 30, 1996 and $17.6 million, or 5%, for the nine months ended
September 30, 1996 when compared to the same periods in 1995 due to
decreases in average borrowings and borrowing cost. Average borrowings
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decreased $421.9 million, or 6%, for the three months ended September 30,
1996 and $213.2 million, or 3%, for the nine months ended September 30,
1996 when compared to the same periods in 1995 primarily due to the
decrease in average net receivables. The borrowing cost decreased 14 basis
points for the three months ended September 30, 1996 and 12 basis points
for the nine months ended September 30, 1996 when compared to the same
periods in 1995 due to a decrease in short-term borrowing cost, with long-
term borrowing cost remaining near the same level.
Operating Expenses
Operating expenses increased $1.3 million, or 1%, for the three months
ended September 30, 1996 and $42.5 million, or 12%, for the nine months
ended September 30, 1996 when compared to the same periods in 1995. The
increase in operating expenses for the quarter was primarily due to the
decrease in deferral of finance receivable origination costs, partially
offset by the action programs to improve credit quality and reduce
expenses. The increase in operating expenses for the nine month period was
primarily due to the decrease in deferral of finance receivable origination
costs, growth in the business that occurred in the first three quarters of
1995 and in 1994, and collection efforts on the increased level of
delinquent finance receivables. The fluctuations in the business
experienced in recent years have resulted in corresponding changes in
operational staffing and other operating expenses.
Since late 1995, certain underperforming marketing initiatives have either
been restructured or discontinued. Certain non-recurring operating
expenses associated with the discontinued initiatives negatively impacted
the financial results during 1996 by $8.5 million. The comprehensive
review of the Company initiated in fourth quarter 1995 and the decrease in
finance receivables during 1996 resulted in a workforce reduction of
approximately 800 positions through third quarter 1996. Management
believes the improvement programs implemented in late 1995 and throughout
1996 will lead to improved operating efficiencies.
Provision for Finance Receivable Losses
In recent years, the Company's operational strategy had been focused on
improving its risk-adjusted returns by extending credit to customers with
risk characteristics somewhat higher than those traditionally serviced by
the Company. As expected, this strategy adversely influenced credit
quality. However, beginning in the third quarter of 1995, the delinquency
ratios and the charge-off ratios experienced by the Company sharply
increased to greater than anticipated levels. Due to these increases in
delinquencies and net charge-offs, a comprehensive review of the Company
was initiated in the fourth quarter of 1995. This review consisted of
extensive internal analysis, together with finance receivable loss
development projections supplied by outside credit consultants. The
results of the analysis indicated a need for an increase in the allowance
for finance receivable losses. Accordingly, a $216.0 million increase in
the allowance for finance receivable losses was recorded in fourth quarter
1995.
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In addition, the Company adopted an action program for improving credit
quality that included raising underwriting standards, expanding the use of
credit scoring, slowing branch expansion, stressing collections, improving
branch office training, and rebalancing the finance receivable portfolio
credit risk. Strategies for rebalancing the portfolio credit risk include
slowing growth, de-emphasizing some higher risk portfolios, and increasing
the proportion of real estate secured receivables.
At September 30, 1996, net finance receivables totaled $8.2 billion, a
decrease of $202.1 million from the balance at December 31, 1995, but an
increase of $155.4 million from the balance at June 30, 1996 primarily due
to an increase in real estate loans. As part of the Company's strategy to
rebalance its finance receivable portfolio, the Company purchased a $200.5
million portfolio and a $276.1 million portfolio of real estate secured
finance receivables in the second and third quarter of 1996, respectively.
At September 30, 1996, real estate secured finance receivables accounted
for 42% of total finance receivables compared to 34% at September 30, 1995.
Provision for finance receivable losses decreased $23.0 million, or 20%,
for the three months ended September 30, 1996 and increased $40.7 million,
or 16%, for the nine months ended September 30, 1996 when compared to the
same periods in 1995. The decrease in provision for finance receivable
losses for the quarter was primarily due to a decrease in the amounts
provided for the allowance for finance receivable losses, partially offset
by an increase in net charge-offs. The increase in provision for finance
receivable losses for the nine month period was primarily due to an
increase in net charge-offs, partially offset by a decrease in the amounts
provided for the allowance for finance receivable losses.
Net charge-offs for the three months ended September 30, 1996 increased to
$107.6 million from $67.4 million for the same period in 1995. Net charge-
offs for the three months ended June 30, 1996 were $106.8 million. The
charge-off ratio for third quarter 1996 was 5.37% compared to 5.33% for
second quarter 1996 and 3.22% for third quarter 1995.
At September 30, 1996, delinquencies were $380.2 million compared to $350.3
million at June 30, 1996 and $351.3 million at September 30, 1995. The
delinquency ratio increased from 3.99% at June 30, 1996 to 4.28% at
September 30, 1996 (compared to 3.75% at September 30, 1995).
The allowance for finance receivable losses decreased $17.0 million from
$482.2 million at June 30, 1996 to $465.2 million at September 30, 1996.
The allowance ratio at September 30, 1996 was 5.67% compared to 5.99% at
June 30, 1996. The current allowance for finance receivable losses
reflects the effects of the higher percentage of real estate secured
finance receivables. Based upon an analysis of the finance receivable
portfolio, management believes that the allowance for finance receivable
losses is adequate given the current level of delinquencies and net charge-
offs.
Management believes the improvement programs implemented in late 1995 and
throughout 1996, which emphasize continued improvements in underwriting,
intensified collections, increased emphasis on real estate secured loans,
and investment in risk management technology, will address the overall
credit quality issues. However, delinquencies have remained at higher than
expected levels, indicating that charge-offs may continue above historical
levels for the near term, rather than moderating during fourth quarter
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1996, as previously expected. In addition, adverse changes in credit
fundamentals within the consumer finance market, including the recent
increase in the level of personal bankruptcies, could negatively impact
expected results.
Insurance Losses and Loss Adjustment Expenses
Insurance losses and loss adjustment expenses decreased $6.3 million, or
20%, for the three months ended September 30, 1996 and $11.0 million, or
12%, for the nine months ended September 30, 1996 when compared to the same
periods in 1995 due to decreases in provision for future benefits and in
claims paid. Provision for future benefits decreased $3.1 million for the
quarter and $10.1 million for the nine month period due to reduced sales of
non-credit insurance products. Claims for the three month and nine month
periods decreased $3.2 million and $.9 million, respectively, primarily due
to a decrease in loss experience on credit insurance.
Provision for Income Taxes
The provision for income taxes increased $19.1 million, or 352%, for the
three months ended September 30, 1996 and decreased $19.6 million, or 25%,
for the nine months ended September 30, 1996 when compared to the same
periods in 1995. The increase in provision for income taxes for the
quarter was primarily due to a state income tax adjustment recorded in the
third quarter of 1995 and higher taxable income. The decrease in provision
for income taxes for the nine month period was primarily due to lower
taxable income, partially offset by the state income tax adjustment
previously discussed.
Forward-looking Statements
The statements contained in this filing on Form 10-Q that are not
historical facts are forward-looking statements within the meaning of the
Private Securities Litigation Reform Act. Actual results may differ
materially from those included in the forward-looking statements. These
forward-looking statements involve risks and uncertainties including, but
not limited to, the following: changes in general economic conditions,
including the performance of financial markets, interest rates, and the
level of personal bankruptcies; competitive, regulatory, or tax changes
that affect the cost of or demand for the Company's products; adverse
litigation results; and failure to achieve the Company's anticipated levels
of expense savings from cost-saving initiatives. The Company's future
results also could be adversely affected if finance receivable volume is
lower than anticipated or if, despite the Company's initiatives to improve
credit quality, finance receivable delinquencies and net charge-offs
increase or remain at current levels for a longer period than anticipated
by management. Investors are also directed to other risks and
uncertainties discussed in documents filed by the Company with the
Securities and Exchange Commission.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
In addition to those lawsuits or proceedings disclosed in the Company's
1995 Form 10-K, AGFI and certain of its subsidiaries are parties to various
other lawsuits and proceedings arising in the ordinary course of business.
Many of these lawsuits and proceedings arise in jurisdictions, such as
Alabama, that permit damage awards disproportionate to the actual economic
damages incurred. Based upon information presently available, the Company
believes that the total amounts that ultimately will be paid, if any,
arising from these lawsuits and proceedings will have no material adverse
effect on the Company's consolidated results of operations and financial
position. However, it should be noted that the frequency of large damage
awards, including large punitive damage awards, that bear little or no
relation to actual economic damages incurred by plaintiffs in jurisdictions
like Alabama continues to increase and creates the potential for an
unpredictable judgment in any given suit.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
(12) Computation of Ratio of Earnings to Fixed Charges.
(27) Financial Data Schedule.
(b) Reports on Form 8-K.
No Current Reports on Form 8-K were filed during the third quarter of
1996.
<PAGE>
<PAGE> 16
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMERICAN GENERAL FINANCE, INC.
(Registrant)
Date: November 13, 1996 By /s/ John S. Poelker
John S. Poelker
Senior Vice President and Chief
Financial Officer
(Duly Authorized Officer and Principal
Financial Officer)
<PAGE>
<PAGE> 17
Exhibit Index
Exhibits Page
(12) Computation of Ratio of Earnings to Fixed Charges. 18
(27) Financial Data Schedule. 19
<PAGE>
<PAGE>
<PAGE> 18
Exhibit 12
AMERICAN GENERAL FINANCE, INC. AND SUBSIDIARIES
Computation of Ratio of Earnings to Fixed Charges
(Unaudited)
Nine Months Ended
September 30,
1996 1995
(dollars in thousands)
Earnings:
Income before provision for income
taxes $159,769 $255,469
Interest expense 368,518 386,167
Implicit interest in rents 9,141 9,695
Total earnings $537,428 $651,331
Fixed charges:
Interest expense $368,518 $386,167
Implicit interest in rents 9,141 9,695
Total fixed charges $377,659 $395,862
Ratio of earnings to fixed charges 1.42 1.65
<PAGE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 116,025
<SECURITIES> 857,629
<RECEIVABLES> 8,208,330<F1>
<ALLOWANCES> 465,154<F2>
<INVENTORY> 0<F3>
<CURRENT-ASSETS> 0<F4>
<PP&E> 0<F4>
<DEPRECIATION> 0<F4>
<TOTAL-ASSETS> 9,345,479
<CURRENT-LIABILITIES> 0<F4>
<BONDS> 4,630,353<F5>
0<F3>
0<F3>
<COMMON> 1,000
<OTHER-SE> 1,258,661<F6>
<TOTAL-LIABILITY-AND-EQUITY> 9,345,479
<SALES> 0<F3>
<TOTAL-REVENUES> 1,298,175<F7>
<CGS> 0<F3>
<TOTAL-COSTS> 0<F4>
<OTHER-EXPENSES> 468,668<F8>
<LOSS-PROVISION> 301,220<F9>
<INTEREST-EXPENSE> 368,518<F10>
<INCOME-PRETAX> 159,769
<INCOME-TAX> 58,382
<INCOME-CONTINUING> 101,387
<DISCONTINUED> 0<F3>
<EXTRAORDINARY> 0<F3>
<CHANGES> 0<F3>
<NET-INCOME> 101,387
<EPS-PRIMARY> 0<F3>
<EPS-DILUTED> 0<F3>
<PAGE>
<FN>
<F1>RECEIVABLES IN THIS EXHIBIT REPRESENTS NET FINANCE RECEIVABLES REPORTED
IN THE COMPANY'S CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
<F2>ALLOWANCES IN THIS EXHIBIT REPRESENTS ALLOWANCE FOR FINANCE RECEIVABLE
LOSSES REPORTED IN THE COMPANY'S CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS.
<F3>NOT APPLICABLE.
<F4>NOT REPORTED SEPARATELY (OR NOT REPORTED SEPARATELY AS DEFINED BY
ARTICLE 5 OF REGULATION S-X) IN DOCUMENT FILED.
<F5>BONDS IN THIS EXHIBIT REPRESENTS LONG-TERM DEBT REPORTED IN THE COMPANY'S
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS WHICH INCLUDES OTHER LONG-TERM
DEBT.
<F6>OTHER STOCKHOLDER'S EQUITY IN THIS EXHIBIT REPRESENTS ADDITIONAL PAID-IN-
CAPITAL, NET UNREALIZED GAINS (LOSSES) ON INVESTMENT SECURITIES, AND
RETAINED EARNINGS REPORTED IN THE COMPANY'S CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
<F7>TOTAL REVENUES IN THIS EXHIBIT REPRESENTS TOTAL REVENUES REPORTED IN THE
COMPANY'S CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
<F8>OTHER EXPENSES IN THIS EXHIBIT REPRESENTS OPERATING EXPENSES AND
INSURANCE LOSSES AND LOSS ADJUSTMENT EXPENSES REPORTED IN THE COMPANY'S
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
<F9>LOSS PROVISION IN THIS EXHIBIT REPRESENTS PROVISION FOR FINANCE
RECEIVABLE LOSSES REPORTED IN THE COMPANY'S CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
<F10>INTEREST EXPENSE IN THIS EXHIBIT REPRESENTS INTEREST EXPENSE REPORTED
IN THE COMPANY'S CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
</FN>
</TABLE>
