<PAGE>
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, 1995
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to ________.
Commission File Number 1-7422
American General Finance, Inc.
(Exact name of registrant as specified in its charter)
Indiana 35-1313922
(State of incorporation) (I.R.S. Employer Identification No.)
601 N. W. Second Street, Evansville, IN 47708
(Address of principal executive offices) (Zip code)
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.
At March 20, 1996, no voting stock of the registrant was held by a
non-affiliate.
At March 20, 1996, 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 . . . . . . . . . . . . . . . . . . . . . . 14
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 . . . . . . . . . . . . . . . . 15
6. Selected Financial Data . . . . . . . . . . . . . . . 16
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . . . . 16
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.<PAGE>
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PART I
Item 1. Business.
GENERAL
American General Finance, Inc. (hereinafter referenced as "AGFI" or
collectively, with its subsidiaries, whether directly or indirectly owned,
as the "Company") 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 company of one of the
nation's largest diversified financial services organizations.
Headquartered in Houston, Texas, American General's operating subsidiaries
are leading providers of retirement annuities, consumer loans, and life
insurance. American General, a Texas corporation, is the successor to
American General Insurance Company, an insurance company incorporated in
Texas in 1926.
AGFI is a financial services holding company whose principal subsidiaries
are AGFC and American General Financial Center (AGFC-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), which are both subsidiaries of AGFC, as a
part of the Company's consumer finance business. AGFC-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.
At December 31, 1995, the Company had 1,411 offices in 41 states, Puerto
Rico, and the U.S. Virgin Islands and approximately 10,100 employees. The
Company's executive offices are located in Evansville, Indiana.
Selected Financial Information
The following table sets forth certain selected financial information of
the Company for the years indicated:
1995 1994 1993
(dollars in thousands)
Average finance receivables net
of unearned finance charges
(average net receivables) $8,283,485 $7,096,011 $6,387,044
Average borrowings $7,381,504 $6,308,901 $5,693,080
Yield - finance charges as a
percentage of average net
receivables 18.02% 17.58% 16.95%
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Item 1. Continued
1995 1994 1993
Borrowing cost - interest
expense as a percentage of
average borrowings 7.01% 6.60% 6.67%
Spread between yield and
borrowing cost 11.01% 10.98% 10.28%
Insurance revenues as a
percentage of average
net receivables 2.68% 2.55% 2.24%
Operating expenses as a
percentage of average
net receivables 5.64% 5.23% 5.17%
Allowance ratio - allowance for
finance receivable losses as
a percentage of net finance
receivables 5.85% 2.86% 2.80%
Charge-off ratio (defined in
"Consumer Finance Operations -
Finance Receivable Loss and
Delinquency Experience" in
Item 1. herein.) 3.77% 2.45% 2.21%
Delinquency ratio - 60 days or more
(defined in "Consumer Finance
Operations - Finance Receivable
Loss and Delinquency Experience"
in Item 1. herein.) 4.13% 2.89% 2.51%
Return on average assets .90% 3.00% 2.64%
Return on average assets before
deducting cumulative effect
of accounting changes .90% 3.00% 2.81%
Return on average equity 6.59% 21.27% 18.08%
Return on average equity before
deducting cumulative effect
of accounting changes 6.59% 21.27% 19.04%
Ratio of earnings to fixed charges
(refer to Exhibit 12 herein
for calculations) 1.22 1.92 1.86
Debt to tangible equity ratio -
debt to equity less goodwill
and net unrealized gains or
losses on fixed-maturity
investment securities 7.44 7.53 7.51
Debt to equity ratio 5.65 5.85 5.26
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Item 1. Continued
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, 1995, 90% were secured by such property. At
December 31, 1995, mortgage loans (generally second mortgages) accounted
for 51% of the aggregate dollar amount of loans outstanding and 10% of the
total number of loans outstanding; compared to 50% and 10%, respectively,
at December 31, 1994. 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
The table on the following page sets forth certain information concerning
finance receivables of the Company. 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
Years Ended December 31,
1995 1994 1993
Originated, renewed, and purchased:
Amount (in thousands):
Real estate loans $1,266,725 $1,173,386 $ 939,769
Non-real estate loans 2,953,054 2,983,418 2,499,113
Retail sales finance 2,119,115 2,283,561 1,422,851
Credit cards 567,090 537,738 546,611
Total originated and renewed 6,905,984 6,978,103 5,408,344
Net purchased (a) 23,495 60,533 31,501
Total originated, renewed,
and purchased $6,929,479 $7,038,636 $5,439,845
(a) Includes purchase of finance receivables from affiliate of $29.3
million for 1995.
Number:
Real estate loans 72,940 70,823 58,163
Non-real estate loans 1,445,451 1,511,166 1,280,639
Retail sales finance 1,675,702 1,862,342 1,175,447
Average size (to nearest dollar):
Real estate loans $17,367 $16,568 $16,158
Non-real estate loans 2,043 1,974 1,951
Retail sales finance 1,265 1,226 1,210
Balance at end of period:
Amount (in thousands):
Real estate loans $2,904,016 $2,704,929 $2,641,879
Non-real estate loans 2,765,361 2,660,523 2,318,102
Retail sales finance 2,183,414 2,075,380 1,218,016
Credit cards 557,603 479,480 395,991
Total $8,410,394 $7,920,312 $6,573,988
Number:
Real estate loans 169,956 162,315 153,562
Non-real estate loans 1,460,714 1,432,054 1,270,167
Retail sales finance 1,680,349 1,524,072 993,058
Credit cards 449,591 403,262 336,837
Total 3,760,610 3,521,703 2,753,624
Average size (to nearest dollar):
Real estate loans $17,087 $16,665 $17,204
Non-real estate loans 1,893 1,858 1,825
Retail sales finance 1,299 1,362 1,227
Credit cards 1,240 1,189 1,176
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Item 1. Continued
Average Net Receivables
The following table details average net receivables by type of finance
receivable for the years indicated:
1995 1994 1993
(dollars in thousands)
Loans $5,594,506 $5,099,942 $4,942,508
Retail sales finance 2,182,374 1,578,521 1,076,550
Credit cards 506,605 417,548 367,986
Total $8,283,485 $7,096,011 $6,387,044
Yield
The following table details yield for the years indicated:
1995 1994 1993
Loans 18.37% 17.70% 17.05%
Retail sales finance 16.36% 16.20% 15.48%
Credit cards 21.28% 21.39% 19.91%
Total 18.02% 17.58% 16.95%
Geographic Distribution
See Note 5. 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. See Management's Discussion and Analysis in Item 7.
herein and Note 6. of the Notes to Consolidated Financial Statements in
Item 8. herein for further information on finance receivable loss and
delinquency experience and the related allowance.
Years Ended December 31,
1995 1994 1993
(dollars in thousands)
Real estate loans:
Net charge-offs $ 23,245 $ 15,408 $ 20,325
Charge-off ratio .82% .58% .74%
Non-real estate loans:
Net charge-offs $165,413 $ 93,790 $ 79,016
Charge-off ratio 6.11% 3.92% 3.74%
Total loans:
Net charge-offs $188,658 $109,198 $ 99,341
Charge-off ratio 3.38% 2.15% 2.01%
Retail sales finance:
Net charge-offs $ 86,594 $ 38,404 $ 18,651
Charge-off ratio 3.98% 2.49% 1.75%
Credit cards:
Net charge-offs $ 36,206 $ 24,885 $ 22,756
Charge-off ratio 7.19% 6.01% 6.20%
Total:
Net charge-offs $311,458 $172,487 $140,748
Charge-off ratio 3.77% 2.45% 2.21%
Allowance for finance
receivable losses (b) $492,124 $226,226 $183,756
Allowance ratio (b) 5.85% 2.86% 2.80%
(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 periodic evaluation of the finance receivable portfolio and reflects an
amount that, in management's opinion, is adequate to absorb anticipated
losses in the existing portfolio. In evaluating the portfolio, numerous
factors are taken into consideration, including current economic
conditions, prior finance receivable loss and delinquency experience, the
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Item 1. Continued
composition of the finance receivable portfolio, and an estimate of
anticipated finance receivable losses.
AGFI's 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 six
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 fair value, and any loan value in excess of that amount is
charged off. The charge-off period is occasionally extended for individual
accounts 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,
1995 1994 1993
(dollars in thousands)
Real estate loans $ 60,585 $ 46,746 $ 48,426
% of related receivables 1.99% 1.64% 1.75%
Non-real estate loans $203,191 $140,615 $102,855
% of related receivables 6.37% 4.54% 3.83%
Total loans $263,776 $187,361 $151,281
% of related receivables 4.23% 3.15% 2.77%
Retail sales finance $ 93,473 $ 49,259 $ 17,746
% of related receivables 3.73% 2.13% 1.27%
Credit cards $ 28,520 $ 15,454 $ 12,537
% of related receivables 4.85% 3.25% 3.19%
Total $385,769 $252,074 $181,564
% of related receivables 4.13% 2.89% 2.51%
(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
The Company 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 on finance receivables 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 consumer finance operations.
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Item 1. Continued
Average Borrowings
The following table details average borrowings by type of debt for the
years indicated:
1995 1994 1993
(dollars in thousands)
Long-term debt $4,885,203 $4,162,229 $3,856,328
Short-term debt 2,490,039 2,138,324 1,781,165
Investment certificates 6,262 8,348 55,587
Total $7,381,504 $6,308,901 $5,693,080
Borrowing Cost
The following table details interest expense as a percentage of average
borrowings by type of debt for the years indicated:
1995 1994 1993
Long-term debt 7.26% 7.33% 7.88%
Short-term debt 6.51% 5.18% 4.11%
Investment certificates 6.48% 5.68% 4.74%
Total 7.01% 6.60% 6.67%
Contractual Maturities
Contractual maturities of finance receivables and debt at December 31, 1995
were as follows:
Net Finance
Receivables Debt
(dollars in thousands)
Due in:
1996 $3,205,549 $3,098,418
1997 1,547,179 1,218,661
1998 947,168 810,740
1999 503,796 535,114
2000 299,838 936,898
2001 and thereafter 1,906,864 870,120
Total $8,410,394 $7,469,951
See Note 5. 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 non-credit insurance
coverages.
Yosemite is a property and casualty insurance company domiciled in
California and licensed in 43 states and 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 disability due to
illness or injury. The credit-related property and casualty insurance is
written to protect property pledged as security for the obligation and to
provide for the payment of the installments on the insured's obligation to
the lender coming due during a period of unemployment. 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. The non-credit
insurance policies are primarily ordinary life level term coverage. The
purchase of this coverage is voluntary. 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 other American General subsidiaries,
for assumptions of various shares of annuities and non-credit, 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, 1995, life reserves on
the books of Merit attributable to these reinsurance agreements totaled
$72.6 million.
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Item 1. Continued
The following tables set forth information concerning the insurance
operations:
Life Insurance in Force December 31,
1995 1994 1993
(dollars in thousands)
Credit life $3,053,300 $2,899,124 $2,547,784
Non-credit life 3,564,214 2,773,928 2,373,685
Total $6,617,514 $5,673,052 $4,921,469
Premiums Earned Years Ended December 31,
1995 1994 1993
(dollars in thousands)
Insurance premiums earned in
connection with affiliated
finance and loan activities:
Credit life $ 44,682 $ 39,398 $ 35,711
Credit accident and health 59,442 51,983 42,978
Property 51,438 37,847 25,686
Other insurance premiums earned:
Non-credit life 50,116 26,685 20,823
Premiums assumed under
coinsurance agreements 11,006 18,599 12,318
Total $216,684 $174,512 $137,516
Premiums Written Years Ended December 31,
1995 1994 1993
(dollars in thousands)
Insurance premiums written in
connection with affiliated
finance and loan activities:
Credit life $ 44,086 $ 47,864 $ 41,036
Credit accident and health 56,175 64,395 56,839
Property 65,059 55,086 47,358
Other insurance premiums written:
Non-credit life 50,116 26,685 20,823
Premiums assumed under
coinsurance agreements 11,006 18,599 12,318
Total $226,442 $212,629 $178,374
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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,
1995 1994 1993
(dollars in thousands)
Net investment revenue (a) $ 62,880 $ 56,795 $ 55,654
Average invested assets $829,786 $722,117 $666,982
Return on invested assets (a) 7.58% 7.87% 8.34%
Net realized gains (losses)
on investments (b) $ 876 $ (141) $ 7,101
(a) Net investment revenue and return on invested assets are after
deduction of investment expense but before net realized gains or
losses on investments and provision for income taxes.
(b) Includes net realized gains or losses on investment securities and
other invested assets before provision for income taxes.
See Note 7. of the Notes to Consolidated Financial Statements in Item 8.
herein for information regarding investment 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 and the Truth In
Lending Act (governing disclosure of applicable charges and other loan
terms), 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. AGFC-Utah, which engages in the consumer 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.
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Item 1. Continued
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 industry 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 operations are primarily supplementary to the
consumer finance operations. As such, competition for the insurance
operations is relatively limited.
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.
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Item 3. Legal Proceedings.
California v. Ochoa
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 financial position.
Other
AGFI and certain of its subsidiaries are defendants in various other
lawsuits and proceedings arising in the normal course of business. Some of
these lawsuits and proceedings arise in jurisdictions such as Alabama that
permit punitive damages disproportionate to the actual damages alleged.
In light of the uncertainties inherent in any litigation, no assurances can
be given as to the ultimate outcome of these lawsuits and proceedings.
However, AGFI and its subsidiaries believe that there are meritorious
defenses for all of these claims and are defending them vigorously.
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 1995 1994
(dollars in thousands)
March 31 $ 31,000 $33,201
June 30 39,200 22,800
September 30 42,340 21,600
December 31 - 14,200
$112,540 $91,801
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Item 5. Continued
See Management's Discussion and Analysis in Item 7. herein, as well as Note
15. 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.
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 and related notes,
Management's Discussion and Analysis in Item 7. herein, and other financial
information included herein.
Years Ended December 31,
1995 1994 1993(a) 1992 1991
(dollars in thousands)
Total revenues $1,791,494 $1,491,239 $1,288,777 $1,170,371 $1,141,662
Net income (b) 85,655 244,988 195,741 161,908 135,020
December 31,
1995 1994 1993(a) 1992 1991
(dollars in thousands)
Total assets $9,561,350 $8,980,728 $7,658,775 $7,210,763 $6,906,025
Long-term debt 4,979,883 4,312,932 4,018,797 3,604,371 2,819,045
(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.
(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'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
<PAGE>
<PAGE> 17
Item 7. Continued
the overall sources of cash and 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 $657.9 million in 1995 compared to $511.5
million in 1994 and $478.8 million in 1993. Operating cash flow combined
with the net proceeds of increased debt, the proceeds from the 1995 sale of
finance receivables through securitization, and a 1995 capital contribution
from AGFI's parent, generated cash flow of $1.2 billion in 1995 compared to
$1.8 billion in 1994 and $780.8 million in 1993. These cash flows were
used to fund the net increases in net finance receivables of $490.1 million
in 1995, $1.3 billion in 1994, and $374.3 million in 1993 and to pay
dividends to the Company's parent of $112.5 million in 1995, $140.0 million
in 1994, and $162.6 million in 1993.
Dividends are adjusted 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). During the
second half of 1995, the unusually large provision for finance receivable
losses would have caused this ratio to exceed 7.5 to 1. See "Analysis of
Operating Results - Provision for Finance Receivable Losses" herein.
AGFI's parent demonstrated its support by contributing $80.0 million of
capital in the fourth quarter of 1995 to maintain this leverage ratio. 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
certain subsidiaries may pay is effectively limited by restrictions
contained in certain financing agreements. See Note 15. of the Notes to
Consolidated Financial Statements in Item 8. herein for information on
dividend restrictions.
Capital Resources
The Company's requirement for capital varies directly with net finance
receivables. The mix of capital between debt and equity is based primarily
upon maintaining leverage that supports cost-effective funding. At year-
end 1995, the Company's capital was $8.8 billion, consisting of $7.5
billion of debt and $1.3 billion of equity, compared to $8.3 billion at
year-end 1994, consisting of $7.1 billion of debt and $1.2 billion of
equity.
The Company's principal borrowing subsidiary is AGFC, a wholly-owned
subsidiary of AGFI. AGFC obtains funds through the issuance of a
combination of fixed-rate debt, principally long-term, and floating-rate
debt, principally short-term. AGFC sells 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 capital is
obtained primarily through underwritten public debt offerings with
maturities generally ranging from three to ten years.
<PAGE>
<PAGE> 18
Item 7. Continued
Credit Ratings
Access to the money and capital markets results from AGFC's strong debt and
commercial paper ratings. The current ratings are as follows:
Long-term Debt Commercial Paper
Moody's A1 (Strong) P-1 (Highest)
Standard & Poor's A+ (Strong) A-1+ (Highest)
Duff & Phelps A+ (Strong) D-1+ (Highest)
Fitch - F-1+ (Highest)
Credit Facilities
Credit facilities are maintained to support the issuance of commercial
paper by AGFC and as an additional source of funds for operating
requirements. At year-end 1995, credit facilities, including facilities
shared with American General and certain of its subsidiaries, were $4.0
billion, with remaining availability to the Company of $3.6 billion. See
Note 10. of the Notes to Consolidated Financial Statements in Item 8.
herein for additional information on credit facilities.
Securitization
During 1995, the Company securitized 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
December 31, 1995, securitized finance receivables sold remained at $100
million.
ANALYSIS OF OPERATING RESULTS
See Selected Financial Information 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 decreased $159.3 million, or 65%, for 1995 and increased $49.2
million, or 25%, for 1994 when compared to the respective previous year.
The decrease in net income for 1995 when compared to 1994 was primarily due
to the increase in the provision for finance receivable losses.
<PAGE>
<PAGE> 19
Item 7. Continued
Factors which specifically affected the Company's operating results are as
follows:
Finance Charges
Finance charge revenues increased $244.7 million, or 20%, for 1995 and
$165.1 million, or 15%, for 1994 when compared to the respective previous
year due to increases in both average net receivables and yields. Average
net receivables increased $1.2 billion, or 17%, during 1995 and $709.0
million, or 11%, during 1994 when compared to the respective previous year
primarily due to growth in the retail sales finance and loan portfolios
resulting from business development efforts. The yield increased 44 basis
points during 1995 and 63 basis points during 1994 when compared to the
respective previous year primarily due to higher yield on loans and retail
sales finance. The increase in yield for 1994 also reflected higher yield
on credit cards. The loan yield for 1995 increased when compared to 1994
primarily due to higher yield on real estate loans, resulting from the
higher interest rate environment and rate management. The increase in loan
yield for 1994 when compared to 1993 was primarily due to the increased
proportion of higher-rate, non-real estate loans in the loan portfolio.
The increase in loan yield for 1995 and 1994 when compared to the
respective previous year also reflected the change in the amortization of
premiums on certain purchased finance receivables which were fully
amortized in the second quarter of 1994. The retail sales finance yield
for 1995 increased when compared to 1994 due to higher yield on retail
sales contracts reflecting improved pricing strategies and market
conditions.
Insurance Revenues
Insurance revenues increased $41.4 million, or 23%, for 1995 and $38.1
million, or 27%, for 1994 when compared to the respective previous year
primarily due to the increase in earned premiums. Earned premiums
increased primarily due to increased credit premiums written in prior
periods due to higher credit insurance sales on increased loan volume and
increased non-credit premiums written in 1995. Non-credit premiums written
increased during 1995 primarily due to the introduction of a new non-credit
insurance product. The new non-credit insurance product is ordinary life
level term.
Other Revenues
Other revenues increased $14.2 million, or 23%, for 1995 and decreased $.7
million, or 1%, for 1994 when compared to the respective previous year
primarily due to the respective increase and decrease in investment
revenue. The increase in investment revenue for 1995 when compared to 1994
was primarily due to growth in average invested assets for the insurance
operations of $107.7 million, or 15%, partially offset by a decrease in
return on invested assets of 29 basis points. The decrease in investment
revenue for 1994 when compared to 1993 resulted from realized losses on
<PAGE>
<PAGE> 20
Item 7. Continued
investments of $.1 million in 1994 compared to $7.1 million of realized
gains on investments in 1993 and a decrease in return on invested assets of
47 basis points, partially offset by an increase in average invested assets
of $55.1 million, or 8%. The increase in other revenues for 1995 when
compared to 1994 also reflected the gain on finance receivables sold
through securitization.
Interest Expense
Interest expense increased $101.2 million, or 24%, for 1995 and $36.5
million, or 10%, for 1994 when compared to the respective previous year due
to increases in average borrowings of $1.1 billion, or 17%, during 1995 and
$615.8 million, or 11%, during 1994 and an increase in borrowing cost of 41
basis points during 1995. Average borrowings for 1995 and 1994 increased
when compared to the respective previous year to fund asset growth. The
borrowing cost for 1995 increased when compared to 1994 due to an increase
in short-term borrowing cost, partially offset by a decrease in long-term
borrowing cost. The increase in borrowing cost, as well as the reduction
in pretax income, contributed to a decrease in the ratio of earnings to
fixed charges for 1995 when compared to 1994. The borrowing cost for 1994
decreased 7 basis points when compared to 1993 due to lower long-term
borrowing cost, partially offset by an increase in short-term borrowing
cost.
Operating Expenses
Operating expenses increased $96.4 million, or 26%, for 1995 and $41.0
million, or 12%, for 1994 when compared to the respective previous year
primarily due to growth in the business, including growth that occurred in
the respective prior year, which resulted in operational staffing increases
and increases in other growth-related expenses. The increase in operating
expenses for 1995 when compared to 1994 also reflected collection efforts
on the increased level of delinquent finance receivables. In 1995, the
Company increased its finance receivable portfolio by over 230,000
accounts, increased net receivables by $490.1 million, and opened over 100
new consumer finance offices. During 1995, the Company added 1,350
employees, including 1,100 branch employees and 250 employees to process
the private label and credit card finance receivables. The increase in
operating expenses for 1994 when compared to 1993 also reflected equipment
expenses resulting from a branch office automation program. The increase
in operating expenses for 1994 when compared to 1993 was partially offset
by the increase in deferral of finance receivable origination costs.
Provision for Finance Receivable Losses
In recent years, the Company's operational strategy has 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. Since 1991, the number of customer accounts serviced
increased by 1.8 million, net finance receivables increased $2.5 billion,
<PAGE>
<PAGE> 21
Item 7. Continued
yield increased to 18.02% for 1995 from 16.55% for 1991, and insurance
revenues as a percentage of average net receivables increased to 2.68% for
1995 from 1.86% for 1991. As expected, this strategy adversely influenced
credit quality. However, the delinquency ratios and the charge-off ratios
experienced by the Company sharply increased to unanticipated levels
beginning in the third quarter of 1995. Several financial services
companies that have not adopted strategies of accepting higher credit risks
have also recently reported increased levels of delinquency and net charge-
offs, suggesting that systemic economic conditions are partly the cause of
the Company's higher-than-anticipated delinquency ratios and charge-off
ratios.
Provision for finance receivable losses increased $360.2 million, or 168%,
for 1995 and $51.1 million, or 31%, for 1994 when compared to the
respective previous year due to increases in amounts provided for the
allowance for finance receivable losses and net charge-offs. The 1995
increase included the effects of the unexpected rise in delinquencies and
net charge-offs.
Net charge-offs for 1995 increased to $311.5 million from $172.5 million
for 1994 and $140.7 million for 1993. The charge-off ratio for 1995
increased to 3.77% from 2.45% for 1994 and 2.21% for 1993. The delinquency
ratio at year-end 1995 increased to 4.13% compared to 2.89% at 1994 and
2.51% at 1993.
Due to the unexpected increases in delinquencies and net charge-offs
beginning in the third quarter of 1995, a comprehensive review of the
Company was initiated in the fourth quarter. 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. In response, a $216.0 million increase in
the allowance for finance receivable losses was recorded in the fourth
quarter. This additional reserving increased the allowance ratio to 5.85%
at December 31, 1995 compared to 2.86% at December 31, 1994. The allowance
for finance receivable losses increased $265.9 million during 1995.
The Company anticipates future increases in net charge-offs due to lower
credit quality associated with the substantial growth in finance
receivables in 1994 and early 1995. Delinquencies are expected to decline
from the current levels but will remain above historical levels in the near
term. In response to all of the foregoing, the Company has adopted an
action program for improving credit quality that includes raising
underwriting standards, expanding the use of credit scoring, and slowing
branch expansion and receivable growth (other than real estate loan
growth), while stressing collections and improving branch office training.
This action program will be accomplished primarily by redirecting Company
resources rather than employing additional resources. Management believes
that the impact of these corrective actions should contribute to
improvements in earnings during 1996. A significant deterioration in the
U.S. economic climate, which is not currently anticipated, could delay this
corrective program's results.
<PAGE>
<PAGE> 22
Item 7. Continued
Insurance Losses and Loss Adjustment Expenses
Insurance losses and loss adjustment expenses increased $18.9 million, or
19%, for 1995 and $18.7 million, or 24%, for 1994 when compared to the
respective previous year due to an increase in claims and reserves. The
increase in claims of $11.8 million for 1995 when compared to 1994 resulted
from higher credit insurance sales. The increase in benefit reserves of
$7.1 million for 1995 when compared to 1994 related to a new non-credit
insurance product sold in 1995. The increase in claims and reserves for
1994 when compared to 1993 resulted from the increase in premiums written
due to increased loan activity and reinsurance assumptions.
Provision for Income Taxes
The provision for income taxes decreased $117.1 million, or 80%, for 1995
and increased $18.6 million, or 14%, for 1994 when compared to the
respective previous year. The decrease in the provision for income taxes
for 1995 when compared to 1994 is primarily due to lower taxable income and
a non-recurring state income tax adjustment recorded in the third quarter
of 1995. During 1995, the Company recognized state net operating loss
(NOL) carryforwards resulting from the state's audit of a return and the
state's acceptance of an amended return. The Company has recognized a net
reduction of $16.6 million in 1995 state income tax expense primarily
related to these carryforwards. At December 31, 1995, the state NOL
carryforwards remaining were $650.9 million which expire in the years 2005
and 2006. The increase in the provision for income taxes for 1994 when
compared to 1993 is primarily due to higher taxable income.
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 1995,
1994, or 1993 net income and is not expected to have a material impact in
the future.
ANALYSIS OF FINANCIAL CONDITION
At December 31, 1995, the Company's assets are distributed as follows:
82.82% in finance receivables, 9.25% in investment securities, 3.92% in
other assets, 2.93% in acquisition-related goodwill, and 1.08% in cash and
cash equivalents.
<PAGE>
<PAGE> 23
Item 7. Continued
Asset Quality
The Company believes that its geographic diversification reduces the risk
associated with a recession in any one region. In addition, 93% of the
loans and retail sales finance outstanding at December 31, 1995 are secured
by real property or personal property.
During 1995, the Company increased the allowance ratio due to the higher-
than-anticipated increase in delinquencies and net charge-offs in 1995.
See "Analysis of Operating Results - Provision for Finance Receivable
Losses" herein for further information on allowance for finance receivable
losses, delinquency ratio, and charge-off ratio. 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 to absorb anticipated losses in the existing portfolio.
Investment 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.
The largest intangible asset is acquisition-related goodwill which is
charged to expense in equal amounts over 20 to 40 years. See Note 2. 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 1996.
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
determined by management based, in part, on the nature of the assets being
<PAGE>
<PAGE> 24
Item 7. Continued
supported. The Company limits its exposure to market interest rate
increases by fixing interest rates that it pays for term periods. The
primary means by which the Company accomplishes this is through the
issuance of fixed-rate debt. To supplement fixed-rate debt issuances, AGFC
also uses interest conversion agreements and has used options on interest
conversion agreements to synthetically create fixed-rate debt by altering
the nature of floating-rate funding, 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.
Interest Rates. The Company's finance receivables, investment securities,
long-term debt, and short-term debt react over varying periods of time to
movements in interest rates. During 1995 and 1994, interest rates in the
United States generally increased from the recent historically low levels
experienced during 1993.
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 in 1995, 1994, and 1993 and
decreases in borrowing cost in 1994 and 1993 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. Lower interest rates during 1993 resulted in a
decrease in the amount of real estate loans outstanding 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. Increases in interest rates since 1993 facilitated the
increase in yield for 1995 and 1994. The amount of real estate loans
outstanding increased during 1995 and 1994. The 1995 increase in yield was
partially offset by the Company's action program to improve credit quality
which included slowing receivable growth (other than real estate loan
growth).
The movement in interest rates also contributed to a decrease in the
Company's borrowing cost during 1994 and 1993 and an increase during 1995.
Rates on short-term debt, principally commercial paper, decreased during
1993, but increased during 1995 and 1994. In each successive year from
1993 to 1995, new issuances of long-term debt have been at rates lower than
those on matured or redeemed issues or on debt that remained outstanding.
<PAGE>
<PAGE> 25
Item 7. Continued
The Company's insurance subsidiaries' investment 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 gains on
investments for the Company in 1993. 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 (particularly short-term rates) during 1994 and the first
half of 1995.
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 gains or
losses on the Company's investment 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 recent implementation of
more conservative lending policies, its conservative 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.
Recent economic statistics suggest that the U. S. economy remains in a four
year expansion and that employment is improving in both absolute and
relative terms. However, other data suggest consumers may be becoming
overextended in their ability to repay obligations as evidenced by
increased consumer debt outstanding and increased frequency of personal
bankruptcies. The Company believes that lower economic growth for the
country in general, combined with its more conservative lending policies,
will cause internally generated net finance receivable growth to be minimal
or negative for 1996.
<PAGE>
<PAGE> 26
Item 7. Continued
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.
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, 1995 and 1994, 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, 1995.
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,
1995 and 1994, and the consolidated results of their operations and their
cash flows for each of the three years in the period ended December 31,
1995, 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 3. of the Notes to Consolidated Financial Statements,
in 1993 the Company changed certain of its accounting methods as a result
of adopting new, required accounting standards.
ERNST & YOUNG LLP
Indianapolis, Indiana
February 12, 1996
<PAGE>
<PAGE> 28
American General Finance, Inc. and Subsidiaries
Consolidated Balance Sheets
December 31,
Assets 1995 1994
(dollars in thousands)
Finance receivables, net of unearned
finance charges (Note 5.):
Real estate loans $2,904,016 $2,704,929
Non-real estate loans 2,765,361 2,660,523
Retail sales finance 2,183,414 2,075,380
Credit cards 557,603 479,480
Net finance receivables 8,410,394 7,920,312
Allowance for finance receivable
losses (Note 6.) (492,124) (226,226)
Net finance receivables, less allowance
for finance receivable losses 7,918,270 7,694,086
Investment securities (Note 7.) 884,775 702,510
Cash and cash equivalents 103,238 52,729
Goodwill (Note 8.) 279,995 289,000
Other assets (Note 8.) 375,072 242,403
Total assets $9,561,350 $8,980,728
Liabilities and Shareholder's Equity
Long-term debt (Note 9.) $4,979,883 $4,312,932
Short-term notes payable:
Commercial paper (Notes 10. and 11.) 2,194,771 2,609,986
Banks and other (Notes 10. and 12.) 289,100 161,477
Investment certificates 6,197 6,601
Insurance claims and policyholder
liabilities 483,971 466,883
Other liabilities 273,485 191,278
Accrued taxes 12,162 19,831
Total liabilities 8,239,569 7,768,988
Shareholder's equity:
Common stock (Note 14.) 1,000 1,000
Additional paid-in capital 696,128 616,021
Net unrealized gains (losses) on
investment securities (Note 7.) 38,412 (18,407)
Retained earnings (Note 15.) 586,241 613,126
Total shareholder's equity 1,321,781 1,211,740
Total liabilities and shareholder's equity $9,561,350 $8,980,728
See Notes to Consolidated Financial Statements.
<PAGE>
<PAGE> 29
American General Finance, Inc. and Subsidiaries
Consolidated Statements of Income
Years Ended December 31,
1995 1994 1993
(dollars in thousands)
Revenues
Finance charges $1,492,467 $1,247,727 $1,082,660
Insurance 222,264 180,913 142,856
Other 76,763 62,599 63,261
Total revenues 1,791,494 1,491,239 1,288,777
Expenses
Interest expense 517,475 416,233 379,764
Operating expenses 467,475 371,125 330,122
Provision for finance receivable
losses 574,166 213,987 162,847
Insurance losses and loss
adjustment expenses 116,829 97,893 79,214
Total expenses 1,675,945 1,099,238 951,947
Income before provision for income
taxes and cumulative effect of
accounting changes 115,549 392,001 336,830
Provision for Income Taxes
(Note 13.) 29,894 147,013 128,437
Income before cumulative effect
of accounting changes 85,655 244,988 208,393
Cumulative Effect of Accounting
Changes (Note 3.) - - (12,652)
Net Income $ 85,655 $ 244,988 $ 195,741
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,
1995 1994 1993
(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 616,021 616,021 615,874
Capital contribution from parent
and other 80,107 - 147
Balance at end of year 696,128 616,021 616,021
Net Unrealized Gains (Losses)
on Investment Securities
Balance at beginning of year (18,407) 33,740 617
Change during year 56,819 (52,147) (318)
Effect of accounting change - - 33,441
Balance at end of year 38,412 (18,407) 33,740
Retained Earnings
Balance at beginning of year 613,126 459,939 433,396
Net income 85,655 244,988 195,741
Common stock dividends (112,540) (91,801) (169,198)
Balance at end of year 586,241 613,126 459,939
Total Shareholder's Equity $1,321,781 $1,211,740 $1,110,700
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,
1995 1994 1993
(dollars in thousands)
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net Income $ 85,655 $ 244,988 $ 195,741
Reconciling adjustments to net cash
provided by operating activities:
Provision for finance receivable losses 574,166 213,987 162,847
Depreciation and amortization 114,789 124,287 112,555
Deferral of finance receivable
origination costs (73,829) (91,420) (71,113)
Deferred federal income tax benefit (69,572) (17,020) (7,617)
Deferred state income tax benefit (16,550) - -
Change in other assets and other
liabilities 49,800 13,817 38,863
Change in insurance claims and
policyholder liabilities 17,088 51,395 52,314
Gain on finance receivables sold
through securitization (4,552) - -
Other, net (19,136) (28,576) (4,768)
Net cash provided by operating activities 657,859 511,458 478,822
Cash Flows from Investing Activities
Finance receivables originated or purchased (5,785,976) (5,826,776) (4,319,581)
Principal collections on finance receivables 4,926,756 4,322,592 3,796,839
Securitized finance receivables sold 100,000 - -
Investment securities purchased (200,112) (161,239) (193,386)
Investment securities called, matured and sold 108,701 81,221 141,429
Purchase of assets from affiliate (29,291) - -
Other, net (69,513) (26,338) (38,708)
Net cash used for investing activities (949,435) (1,610,540) (613,407)
Cash Flows from Financing Activities
Proceeds from issuance of long-term debt 1,576,530 1,136,208 1,004,823
Repayment of long-term debt (913,909) (846,468) (594,848)
Change in investment certificates (404) (2,805) (64,122)
Change in short-term notes payable (287,592) 956,502 (43,878)
Capital contribution from parent 80,000 - -
Dividends paid (112,540) (140,000) (162,600)
Net cash provided by financing activities 342,085 1,103,437 139,375
Increase in cash and cash equivalents 50,509 4,355 4,790
Cash and cash equivalents at beginning of year 52,729 48,374 43,584
Cash and cash equivalents at end of year $ 103,238 $ 52,729 $ 48,374
Supplemental Disclosure of Cash Flow Information
Income taxes paid $ 153,137 $ 169,543 $ 133,678
Interest paid $ 501,830 $ 407,647 $ 384,855
<FN>
<F1>
See Notes to Consolidated Financial Statements.
</FN>
</TABLE>
<PAGE>
<PAGE> 32
American General Finance, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1995
Note 1. Nature of Operations
American General Finance, Inc. (hereinafter referenced as "AGFI" or
collectively, with its subsidiaries, whether directly or indirectly owned,
as the "Company", including American General Finance Corporation (AGFC) and
American General Financial Center (AGFC-Utah)) is a financial services
holding company with subsidiaries that are engaged primarily in the
consumer finance and credit insurance business. In this business, the
Company makes loans directly to individuals, purchases retail sales
contract obligations of individuals, offers credit card services and
markets insurance products through the consumer finance network. At
December 31, 1995, the Company had 1,411 offices in 41 states, Puerto Rico
and the U.S. Virgin Islands and approximately 10,100 employees.
In its lending operations, the Company makes loans directly to individuals
and generally takes a security interest in real property and/or personal
property of the borrower. In its retail operations, the Company purchases
retail sales contracts arising from the retail sale of consumer goods and
services by approximately 20,000 retail merchants and issues private label
credit cards for approximately 150 retail merchants. Retail sales
contracts are secured by the real property or personal property giving rise
to the contract. Private label are secured by a purchase money security
interest in the goods purchased. 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.
In its insurance operations, the Company writes or assumes credit life,
credit accident and health, non-credit insurance coverages and credit-
related property and casualty insurance to its consumer finance customers.
The Company funds its 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. AGFC's debt
ratings are among the strongest in the consumer finance industry.
At December 31, 1995, the Company had $8.4 billion of net finance
receivables due from approximately 3.8 million customer accounts and $6.6
billion of credit and non-credit life insurance in force covering
approximately 1.6 million customer accounts.
Note 2. Summary of Significant Accounting Policies
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles and include the accounts of AGFI
and its subsidiaries. The subsidiaries are all wholly-owned and all
<PAGE>
<PAGE> 33
Notes to Consolidated Financial Statements, Continued
intercompany items have been eliminated. AGFI is a wholly-owned subsidiary
of American General Corporation (American General).
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 as revenue on
the accrual basis using the interest method over the lesser of the
contractual term or the estimated life based upon prepayment
experience. 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.
Origination Costs
The Company defers costs associated with the origination of certain finance
receivables. Deferred origination costs are included in finance
receivables and are amortized to revenue on the accrual basis using the
interest method over the lesser of the contractual term or the estimated
life based upon prepayment experience. If a finance receivable liquidates
before amortization is completed, any unamortized costs are charged to
revenue at the date of liquidation.
Allowance For Finance Receivable Losses
The allowance for finance receivable losses is maintained at a level based
on periodic evaluation of the finance receivable portfolio and reflects an
amount that, in management's opinion, is adequate to absorb anticipated
losses in the existing portfolio. In evaluating the portfolio, numerous
factors are taken into consideration, including current economic
conditions, prior finance receivable loss and delinquency experience, the
composition of the finance receivable portfolio, and an estimate of
anticipated finance receivable losses.
<PAGE>
<PAGE> 34
Notes to Consolidated Financial Statements, Continued
AGFI's 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 six
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 fair value, and any loan value in excess of that amount is
charged off. The charge-off period is occasionally extended for individual
accounts 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, non-credit 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. Non-credit life
insurance premiums are recognized 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.
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 non-credit 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 for property and casualty insurance are
based upon estimates of claims reported plus estimates of incurred but not
reported claims. Non-credit 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.
<PAGE>
<PAGE> 35
Notes to Consolidated Financial Statements, Continued
Reinsurance
The Company's insurance subsidiaries enter into reinsurance agreements
among themselves and other insurers, including insurance subsidiaries of
American General. The annuity reserves attributable to this business with
the subsidiaries of American General were $61.0 million and $61.6 million
at December 31, 1995 and 1994, respectively. The Company's insurance
subsidiaries assumed from other insurers $59.9 million, $51.4 million, and
$42.5 million of reinsurance premiums during 1995, 1994, and 1993,
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; non-credit 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; certain
intangible assets resulting from a purchase and the related amortization
are not reflected in statutory financial statements; investments in fixed-
maturity 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 practices with those determined under generally
accepted accounting principles:
Net Income Shareholder's Equity
Years Ended December 31, December 31,
1995 1994 1993 1995 1994
(dollars in thousands)
Statutory accounting
practices $42,006 $35,466 $31,080 $319,413 $279,231
Generally accepted
accounting principles 58,245 46,903 39,363 496,640 381,577
INVESTMENT SECURITIES
Valuation
All investment securities are currently classified as available-for-sale
and recorded at fair value. After adjusting related balance sheet accounts
as if the unrealized gains and losses on investment securities had been
realized, the net adjustment is recorded in net unrealized gains or losses
on investment securities within shareholder's equity. If the fair value of
an investment security classified as available-for-sale declines below its
cost and this decline is considered to be other than temporary, the
investment security is reduced to its fair value, and the reduction is
recorded as a realized loss.
<PAGE>
<PAGE> 36
Notes to Consolidated Financial Statements, Continued
Realized Gains and Losses on Investments
Realized gains and losses on investments are recognized using the specific
identification method and include declines in fair value of investments
below cost that are considered other than temporary. Realized gains and
losses on investments 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.
Goodwill
Acquisition-related goodwill is charged to expense in equal amounts over 20
to 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, 1995, the reported value and the remaining life of
acquisition-related goodwill are considered appropriate.
Income Taxes
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 investment securities is
included in net unrealized gains or losses on investment securities in
shareholder's equity.
<PAGE>
<PAGE> 37
Notes to Consolidated Financial Statements, Continued
Interest Conversion Agreements
The interest differential to be paid or received on interest conversion
agreements is recorded on the accrual basis 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.
The fair values of interest conversion agreements are not recognized in the
consolidated balance sheet, which is consistent with the treatment of the
related funding that is hedged.
Any gain or loss from early termination of an interest conversion agreement
is deferred and amortized into income over the remaining term of the
related funding. If the underlying funding is extinguished, any related
gain or loss on interest conversion agreements is recognized in income.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect (1) the reported amounts of assets and liabilities,
(2) disclosures of contingent assets and liabilities and (3) the reported
amounts of revenues and expenses during the reporting periods. Ultimate
results could differ from those estimates.
Fair Value of Financial Instruments
The fair values disclosed in Note 19. are based on estimates using
discounted cash flows when quoted market prices are not available. The
valuation techniques employed 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 3. Accounting Changes
During 1995, the Company adopted Statement of Financial Accounting
Standards (SFAS) 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of." SFAS 121 establishes
accounting standards for (1) the impairment of long-lived assets, certain
identifiable intangibles, and goodwill related to those assets to be held
and used in the business, and (2) long-lived assets and certain
identifiable intangibles to be disposed of. Adoption of this standard did
not have a material impact on the consolidated financial statements.
<PAGE>
<PAGE> 38
Notes to Consolidated Financial Statements, Continued
During 1994, 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. Adoption of these standards did not impact the consolidated
financial statements.
Effective January 1, 1993, the Company adopted the following accounting
standards:
SFAS 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions," resulted 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.
SFAS 109, "Accounting for Income Taxes," resulted 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.
SFAS 112, "Employers' Accounting for Postemployment Benefits," resulted 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.
SFAS 113, "Accounting and Reporting for Reinsurance of Short-Duration and
Long-Duration Contracts," requires that reinsurance receivables and prepaid
reinsurance premiums be reported as assets, rather than netted against the
related insurance liabilities. Adoption of this standard did not have a
material impact on the consolidated financial statements.
SFAS 114, "Accounting by Creditors for Impairment of a Loan," 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. Adoption of this standard did not have a material
impact on the consolidated financial statements.
At December 31, 1993, the Company adopted SFAS 115, "Accounting for Certain
Investments in Debt and Equity Securities." 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.
Upon adoption, the Company reported all investment securities at fair value
and recorded net unrealized gains on investment securities of $33.4 million
in shareholder's equity.
Note 4. Purchase of Assets from Affiliate
During 1995, a subsidiary of AGFC purchased finance receivables from a
subsidiary of American General for $29.3 million.
<PAGE>
<PAGE> 39
Notes to Consolidated Financial Statements, Continued
Note 5. 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, 1995, 93% were secured by the real or personal
property of the borrower. At December 31, 1995, mortgage loans (generally
second mortgages) accounted for 51% of the aggregate dollar amount of loans
outstanding and 10% of the total number of loans outstanding.
Contractual maturities of finance receivables were as follows:
December 31, 1995
Net Receivables Percent of
Amount Net Receivables
(dollars in thousands)
1996 $3,205,549 38.11%
1997 1,547,179 18.40
1998 947,168 11.26
1999 503,796 5.99
2000 299,838 3.57
2001 and thereafter 1,906,864 22.67
Total $8,410,394 100.00%
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 receivables
were as follows:
1995 1994
(dollars in thousands)
Loans:
Principal cash collections $2,587,659 $2,436,747
Percent of average net receivables 46.25% 47.78%
Retail sales finance:
Principal cash collections $1,884,972 $1,454,419
Percent of average net receivables 86.37% 92.14%
Credit cards:
Principal cash collections $ 454,125 $ 431,426
Percent of average net receivables 89.64% 103.32%
<PAGE>
<PAGE> 40
Notes to Consolidated Financial Statements, Continued
Unused credit limits on private label extended by the Company to its
customers were $3.5 billion and $2.4 billion at December 31, 1995 and 1994,
respectively. Unused credit limits on credit cards extended by the Company
to its customers were $2.0 billion and $1.7 billion at December 31, 1995
and 1994, respectively. Unused credit limits on loan and other retail
sales finance revolving lines of credit extended by the Company to its
customers were $266.4 million and $260.2 million at December 31, 1995 and
1994, respectively. All unused credit limits, 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.
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, 1995 December 31, 1994
Location Amount Percent Amount Percent
(dollars in thousands) (dollars in thousands)
California $ 886,974 10.55% $ 810,562 10.23%
N. Carolina 737,630 8.77 638,942 8.07
Florida 626,519 7.45 574,229 7.25
Illinois 489,840 5.82 458,170 5.78
Indiana 454,892 5.41 410,265 5.18
Ohio 439,522 5.23 400,643 5.06
Virginia 392,146 4.66 355,094 4.48
Georgia 372,963 4.43 347,321 4.39
Other 4,009,908 47.68 3,925,086 49.56
$8,410,394 100.00% $7,920,312 100.00%
During 1995, the Company securitized its portfolio of private label and
credit card finance receivables to establish additional sources of funding
and liquidity. On May 17, 1995, the Company sold $100.0 million of
securitized finance receivables with limited recourse. At December 31,
1995, the amount of securitized finance receivables sold remained at $100.0
million. Although the Company continues to service these finance
receivables and maintains the customer relationships, the securitized
finance receivables sold were treated as a sale with an immaterial gain for
financial reporting purposes. Accordingly, the securitized finance
receivables sold are not reflected on the Company's balance sheet. In
addition, the sale of securitized finance receivables results in
effectively recording finance charge revenues and provision for finance
receivable losses on such finance receivables sold in other revenues.
<PAGE>
<PAGE> 41
Notes to Consolidated Financial Statements, Continued
Note 6. Allowance for Finance Receivable Losses
The changes in the allowance for finance receivable losses are detailed
below. See Management's Discussion and Analysis in Item 7. herein for
discussion of activity.
1995 1994 1993
(dollars in thousands)
Balance at beginning of year $226,226 $183,756 $161,678
Provision for finance receivable
losses 574,166 213,987 162,847
Allowance related to net acquired
receivables and other 3,190 970 (21)
Charge-offs:
Finance receivables charged off (351,876) (209,340) (169,758)
Recoveries 40,418 36,853 29,010
Net charge-offs (311,458) (172,487) (140,748)
Balance at end of year $492,124 $226,226 $183,756
Management believes the adequacy of the allowance for finance receivable
losses is a material estimate and that it is reasonably possible a material
change to such estimate could occur in the near term due to changes in the
economy and other conditions that influence net charge-offs. See Note 2.
for information on the determination of the allowance for finance
receivable losses.
Note 7. Investment Securities
At December 31, 1995 and 1994, all investment securities were classified as
available-for-sale and reported at fair value. Investment securities were
as follows at December 31:
Fair Value Amortized Cost
1995 1994 1995 1994
(dollars in thousands)
Fixed-maturity investment
securities:
Bonds:
Corporate securities $438,527 $324,706 $409,898 $338,624
Mortgage-backed securities 234,148 206,120 223,951 222,788
States and political
subdivisions 157,068 123,116 149,240 124,701
Other 47,186 38,561 35,242 34,297
Redeemable preferred stocks 6,956 8,782 6,764 9,334
Total 883,885 701,285 825,095 729,744
Non-redeemable preferred
stocks 890 1,225 584 1,084
Total investment securities $884,775 $702,510 $825,679 $730,828
<PAGE>
<PAGE> 42
Notes to Consolidated Financial Statements, Continued
At December 31, the gross unrealized gains and losses on investment
securities were as follows:
Gross Gross
Unrealized Gains Unrealized Losses
1995 1994 1995 1994
(dollars in thousands)
Fixed-maturity investment
securities:
Bonds:
Corporate securities $30,050 $ 3,701 $ 1,421 $17,619
Mortgage-backed securities 10,356 781 159 17,449
State and political
subdivisions 7,895 2,534 67 4,119
Other 11,944 4,539 - 275
Redeemable preferred stocks 270 - 78 552
Total 60,515 11,555 1,725 40,014
Non-redeemable preferred
stocks 306 215 - 74
Total investment securities $60,821 $11,770 $ 1,725 $40,088
During the years ended December 31, 1995, 1994, and 1993, investment
securities with a fair value of $108.7 million, $81.2 million, and $141.4
million, respectively, were sold or redeemed. The gross realized gains on
such investment securities sales or redemptions totaled $1.3 million, $.3
million, and $7.4 million, respectively. The gross realized losses on
investments totaled $.6 million, $.6 million and $.1 million, respectively.
The contractual maturities of fixed-maturity securities at December 31,
1995 were as follows:
Fair Amortized
Value Cost
(dollars in thousands)
Fixed maturities, excluding
mortgage-backed securities:
Due in 1 year or less $ 10,022 $ 9,906
Due after 1 year through 5 years 81,197 76,573
Due after 5 years through 10 years 389,231 364,096
Due after 10 years 169,287 150,569
Mortgage-backed securities 234,148 223,951
Total $883,885 $825,095
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 $8.2 million and $7.5 million at
December 31, 1995 and 1994, respectively.
<PAGE>
<PAGE> 43
Notes to Consolidated Financial Statements, Continued
Note 8. 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, totaled $280.0 million and $289.0 million at December 31, 1995
and 1994, respectively. Accumulated amortization totaled $68.8 million and
$59.8 million at December 31, 1995 and 1994, respectively.
Included in other assets is a customer base valuation of $28.6 million and
$21.6 million at December 31, 1995 and 1994, respectively, which is being
amortized to operating expenses on a straight-line basis over 5 to 25
years.
Note 9. Long-term Debt
Maturities of long-term debt at December 31, 1995 were as follows:
Maturity Carrying Value
(dollars in thousands)
1996 $ 608,350
1997 1,218,661
1998 810,740
1999 535,114
2000 936,898
2001-2005 572,118
2006-2009 298,002
Total $4,979,883
Two 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 amounts
above would increase $148.9 million in 1996 and $149.1 million in 1999 and
would decrease $298.0 million in 2009.
Carrying Value Fair Value
Type of Debt 1995 1994 1995 1994
(dollars in thousands)
Senior $4,979,883 $4,162,978 $5,225,034 $4,058,247
Senior subordinated - 149,954 - 149,922
Total $4,979,883 $4,312,932 $5,225,034 $4,208,169
<PAGE>
<PAGE> 44
Notes to Consolidated Financial Statements, Continued
The weighted average interest rates on long-term debt by type were as
follows:
Years Ended December 31, December 31,
1995 1994 1995 1994
Senior 7.26% 7.28% 7.26% 7.20%
Senior subordinated 6.44 7.46 - 6.46
Total 7.26 7.33 7.26 7.17
Certain debt agreements contain restrictions on consolidated retained
earnings for certain purposes (see Note 15.).
Note 10. Short-term Notes Payable and Credit Facilities
AGFC and one of its subsidiaries issue 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:
1995 1994 1993
(dollars in thousands)
Maximum borrowings at any month end $2,764,804 $2,770,886 $1,886,426
Average borrowings $2,489,880 $2,138,124 $1,780,732
Weighted average interest rate,
giving effect to interest
conversion agreements and
commitment fees 6.52% 5.18% 4.11%
Weighted average interest rate,
at December 31, 5.74% 5.85% 3.30%
Credit facilities are maintained to support the issuance of commercial
paper and to provide an additional source of funds for operating
requirements. At December 31, 1995 and 1994, the Company had committed
credit facilities of $800.0 million and $500.0 million, respectively, and
was an eligible borrower under $2.4 billion and $2.5 billion, respectively,
of committed credit facilities extended to American General and certain of
its subsidiaries. The annual commitment fees for all committed facilities
ranged from .06% to .11%. The Company pays commitment fees for the shared
committed facilities only on its allocated portion which at December 31,
1995 was $1.6 billion. At December 31, 1995 and 1994, the Company also had
$621.0 million and $611.0 million, respectively, of uncommitted credit
facilities and was an eligible borrower under $185.0 million and $195.0
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, 1995 and 1994, Company short-term borrowings outstanding
under all credit facilities were $289.1 million and $160.9 million,
respectively, and Company long-term borrowings outstanding under all credit
facilities were $68.4 million and $168.1 million, respectively, with
remaining availability to the Company of $3.2 billion and $3.0 billion,
<PAGE>
<PAGE> 45
Notes to Consolidated Financial Statements, Continued
respectively, in committed facilities and $448.5 million and $477.0
million, respectively, in uncommitted facilities.
Note 11. Derivative Financial Instruments
The Company is neither a dealer nor a trader in derivative financial
instruments. The Company uses interest conversion agreements and has used
options on interest conversion agreements to manage the Company's exposure
to market interest rate risk associated with funding activities.
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 funding to fixed rates. Such
floating-rate obligations in the Company's consolidated financial
statements are carried at amortized cost (as opposed to fair value).
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, 1995.
Interest conversion agreements in which the Company contracted to pay
interest at fixed rates and receive interest at floating rates were $590.0
million, $390.0 million, and $290.0 million in notional amounts at December
31, 1995, 1994, and 1993, respectively. The weighted average interest rate
paid was 8.28%, 8.77%, and 8.69% for the year ended December 31, 1995,
1994, and 1993, respectively. The weighted average interest rate received
was 6.10%, 4.64%, and 3.35% for the year ended December 31, 1995, 1994, and
1993, respectively. See Note 19. for the fair value of the interest
conversion agreements. These agreements mature at various dates and have
the respective fixed rates at December 31, 1995 as shown in the table
below:
Notional Weighted Average
Maturity Amount Interest Rate
(dollars in
thousands)
1996 $ 50,000 8.38%
1997 25,000 7.17
1998 265,000 7.08
1999 50,000 9.39
2000 200,000 9.10
$590,000 8.07%
<PAGE>
<PAGE> 46
Notes to Consolidated Financial Statements, Continued
The rollforward of notional amounts for interest conversion agreements was
as follows:
Notional Amounts
1995 1994 1993
(dollars in thousands)
Balance at beginning of year $ 390,000 $ 290,000 $ 415,000
New contracts (a) 200,000 200,000 50,000
Expired contracts - (100,000) (175,000)
Balance at end of year $ 590,000 $ 390,000 $ 290,000
(a) 1994 and 1993 reflect options exercised.
Options on interest conversion agreements at December 31, 1993, in
aggregate notional amounts, were $200.0 million. There were no such
agreements outstanding as of December 31, 1995 and 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 credit exposure on interest conversion agreements is limited
to the fair value of interest conversion agreements that are favorable to
the Company. 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 results of operations and financial position.
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 funding to which they relate.
Note 12. 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, 1995, 1994 and 1993, AGFI
had no borrowings outstanding with American General.
<PAGE>
<PAGE> 47
Notes to Consolidated Financial Statements, Continued
Information concerning such borrowings is as follows:
1995 1994 1993
(dollars in thousands)
Maximum borrowings at any month end $ - $ - $ 178
Average borrowings $ 159 $ 200 $ 433
Weighted average interest rate (total
interest expense divided by average
borrowings) 6.05% 4.35% 3.22%
Note 13. 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.
Provision for income taxes is summarized as follows:
Years Ended December 31,
1995 1994 1993
(dollars in thousands)
Federal
Current $118,171 $152,968 $124,295
Deferred (69,572) (17,020) (7,617)
Total federal 48,599 135,948 116,678
State (18,705) 11,065 11,759
Total $ 29,894 $147,013 $128,437
The U.S. statutory federal income tax rate differs from the effective
income tax rate as follows:
Years Ended December 31,
1995 1994 1993
Statutory federal income tax rate 35.00% 35.00% 35.00%
Benefit of state net operating
loss (NOL) carryforwards (9.90) - -
Amortization of goodwill 2.85 1.13 1.17
Nontaxable investment income (2.10) (.55) (.56)
State income taxes (.62) 1.83 2.26
Other, net .64 .09 .26
Effective income tax rate 25.87% 37.50% 38.13%
<PAGE>
<PAGE> 48
Notes to Consolidated Financial Statements, Continued
During 1995, the Company recognized state NOL carryforwards resulting from
the state's audit of a return and the state's acceptance of an amended
return. The Company has recognized a net reduction of $16.6 million in
1995 state income tax expense primarily related to these carryforwards. At
December 31, 1995, the state NOL carryforwards remaining were $650.9
million which expire in the years 2005 and 2006.
The net deferred tax asset at December 31, 1995 of $69.8 million was net of
deferred tax liabilities totaling $141.9 million. The net deferred tax
asset at December 31, 1994 of $13.6 million was net of deferred tax
liabilities totaling $97.8 million. The most significant deferred tax
assets relate to the provision for finance receivable losses, the benefit
of the state NOL carryforwards, and insurance premiums recorded for
financial reporting purposes. A valuation allowance of $39.5 million
($25.7 million aftertax) was recognized at December 31, 1995 related to the
state NOL carryforwards. No valuation allowance was considered necessary
at December 31, 1994.
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 $2.2 million was included in provision for income taxes for the
quarter ended September 30, 1993.
Note 14. Capital Stock
AGFI has two classes of capital stock: special shares (without par value,
25 million shares authorized) which may be issued in series with such
dividend, liquidation, redemption, conversion, voting and other rights as
the board of directors may determine prior to issuance; and common shares
($.50 par value, 25 million shares authorized). Issued shares were as
follows:
Special Shares - At December 31, 1995 and 1994, there were no shares issued
and outstanding.
Common Shares - At December 31, 1995 and 1994, there were 2 million shares
issued and outstanding.
Note 15. 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. At December
<PAGE>
<PAGE> 49
Notes to Consolidated Financial Statements, Continued
31, 1995, the maximum amount of dividends which can be paid by the
Company's insurance subsidiaries in 1996 without prior approval is $41.9
million. At December 31, 1995, the Company's insurance subsidiaries had
statutory capital and surplus of $319.4 million. Merit had $52.7 million
of accumulated earnings at December 31, 1995 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, 1995, the federal income tax would approximate $18.4
million.
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, $432.6 million of the consolidated retained
earnings of AGFC at December 31, 1995, was free from such restrictions. At
that same date, $9.6 million of the retained earnings of AGFI's industrial
loan company subsidiaries was unrestricted as to the payment of dividends.
Note 16. 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.
Equity and fixed-maturity securities were 63% and 35%, respectively, of the
plans' assets at the plans' most recent balance sheet dates. The pension
plans have purchased annuity contracts from American General subsidiaries
to provide benefits to certain retirees. These annuity contracts provided
$2.2 million, $2.3 million, and $2.3 million for benefits to the Company's
retirees for the years ended December 31, 1995, 1994, and 1993.
<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,
1995 1994 1993
(dollars in thousands)
Accumulated benefit obligation (a) $46,406 $31,591 $35,868
Projected benefit obligation $56,395 $38,778 $43,212
Plan assets at fair value 60,968 50,247 49,767
Plan assets in excess of projected
benefit obligation 4,573 11,469 6,555
Unrecognized prior service cost (357) (480) (659)
Unrecognized net loss (gain) 3,851 (2,656) 3,485
Unrecognized net asset at
January 1, net of amortization (600) (1,528) (2,747)
Prepaid pension expense $ 7,467 $ 6,805 $ 6,634
(a) Accumulated benefit obligation is over 85% vested.
Net pension expense included the following components for the years ended
December 31:
1995 1994 1993
(dollars in thousands)
Service cost (benefits earned) $ 2,241 $ 2,960 $ 2,375
Interest cost 3,624 3,084 2,791
Actual return on plan assets (11,283) (237) (6,112)
Amortization of prior service costs (118) (154) (157)
Amortization of unrecognized net
asset existing at date of
initial application (1,176) (1,190) (1,190)
Deferral of net asset gain (loss) 6,527 (4,179) 2,224
Total pension (income) expense $ (185) $ 284 $ (69)
Additional assumptions concerning the determination of net pension costs is
as follows:
1995 1994 1993
Weighted average discount rate 7.25% 8.50% 7.25%
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 4.00
<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. 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:
December 31,
1995 1994
(dollars in thousands)
Actuarial present value of benefit
obligation:
Retirees $1,545 $1,847
Fully eligible active plan participants 713 610
Other active plan participants 4,226 3,616
Accumulated postretirement benefit
obligation 6,484 6,073
Plan assets at fair value 89 110
Accumulated postretirement benefit
obligation in excess of plan assets
at fair value 6,395 5,963
Unrecognized net loss 247 373
Accrued postretirement benefit cost $6,642 $6,336
Postretirement benefit expense included the following components for the
year ended December 31:
1995 1994
(dollars in thousands)
Service cost (benefits earned) $ 216 $ 271
Interest cost 463 470
Actual return on plan assets (21) (2)
Deferral of net asset (loss) gain (11) 2
Postretirement benefit expense $ 647 $ 741
<PAGE>
<PAGE> 52
Notes to Consolidated Financial Statements, Continued
The weighted-average discount rate used in determining the accumulated
postretirement benefit obligation for the years ended December 31, 1995 and
1994 was 7.25% and 8.50%, respectively. For measurement purposes, an 11.5%
annual rate of increase in the per capita cost of covered health care
benefits was assumed in 1996; the rate was assumed to decrease gradually to
6% in 2007 and remain at that level. A 1% increase in this assumed rate
results in an immaterial increase in the accumulated postretirement benefit
obligation and postretirement benefit expense.
Note 17. 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: 1996, $28.8 million; 1997, $23.7 million; 1998, $17.7 million;
1999, $12.3 million; 2000, $6.6 million; and subsequent to 2000, $14.8
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
1995. Rental expense incurred for the years ended December 31, 1995, 1994,
and 1993, was $38.5 million, $32.2 million, and $31.4 million,
respectively.
AGFI and certain of its subsidiaries are defendants 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. In light
of the uncertainties inherent in any litigation, no assurances can be given
as to the ultimate outcome of these lawsuits and proceedings. However,
AGFI and its subsidiaries believe that there are meritorious defenses for
all of these claims and are defending them vigorously.
<PAGE>
<PAGE> 53
Notes to Consolidated Financial Statements, Continued
Note 18. Interim Financial Information (Unaudited)
Unaudited interim information for 1995 and 1994 is summarized below:
Total Revenues
Three Months Ended 1995 1994
(dollars in thousands)
March 31 $ 430,748 $ 335,587
June 30 449,149 360,413
September 30 459,380 386,928
December 31 452,217 408,311
Total $1,791,494 $1,491,239
Income Before Provision
for Income Taxes
Three Months Ended 1995 1994
(dollars in thousands)
March 31 $ 95,530 $ 86,018
June 30 99,559 98,176
September 30 60,380 101,271
December 31 (139,920) (a) 106,536
Total $ 115,549 $ 392,001
Net Income
Three Months Ended 1995 1994
(dollars in thousands)
March 31 $ 60,101 $ 53,162
June 30 62,405 61,145
September 30 54,956 63,580
December 31 (91,807) (a) 67,101
Total $ 85,655 $ 244,988
(a) Includes increase in allowance for finance receivable losses of $216.0
million ($140.2 million aftertax).
<PAGE>
<PAGE> 54
Notes to Consolidated Financial Statements, Continued
Note 19. Fair Value of Financial Instruments
The carrying values and estimated fair values of certain of the Company's
financial instruments are presented below. 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 of the Company's assets
and liabilities.
December 31, 1995 December 31, 1994
Carrying Fair Carrying Fair
Value Value Value Value
Assets (dollars in thousands)
Net finance receivables,
less allowance for finance
receivable losses $7,918,270 $7,918,270 $7,694,086 $7,694,086
Investment securities 884,775 884,775 702,510 702,510
Cash and cash equivalents 103,238 103,238 52,729 52,729
Liabilities
Long-term debt (4,979,883) (5,225,034) (4,312,932) (4,208,169)
Short-term notes payable (2,483,871) (2,483,871) (2,771,463) (2,771,463)
Investment certificates (6,197) (6,264) (6,601) (6,648)
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 - (50,232) - (13,407)
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 projected
cash flows, computed by category of finance receivable, discounted at the
weighted-average interest rates currently being offered for similar finance
receivables. Cash flows were based on contractual payment terms adjusted
<PAGE>
<PAGE> 55
Notes to Consolidated Financial Statements, Continued
for delinquencies and finance receivable losses. The fair value estimate
does not reflect the value of the underlying customer relationships or the
related distribution system.
Investment Securities
Fair values of investment securities are based on quoted market prices,
where available. For investment securities not actively traded, fair
values were estimated using values obtained from independent pricing
services or, in the case of some 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
cash flows discounted at current borrowing rates.
Short-term Notes Payable
The carrying value of short-term notes payable approximates the fair value.
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.
<PAGE>
<PAGE> 56
Notes to Consolidated Financial Statements, Continued
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 at the balance sheet date.
<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, 1995 and 1994
Consolidated Statements of Income, years ended December 31, 1995,
1994, and 1993
Consolidated Statements of Shareholder's Equity, years ended
December 31, 1995, 1994, and 1993
Consolidated Statements of Cash Flows, years ended December 31,
1995, 1994, and 1993
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
Current Report on Form 8-K dated November 8, 1995, with respect to the
election of Frederick W. Geissinger as Chairman and Chief Executive
Officer of AGFC and the Company.
Current Report on Form 8-K dated January 10, 1996, with respect to the
issuance of a News Release announcing an increase in the allowance for
finance receivable losses of $216 million in the fourth quarter of 1995
and a capital contribution from American General of $80 million in
December, 1995.
(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,
1995 1994
(dollars in thousands)
Assets
Cash $ 441 $ 151
Investments in subsidiaries 1,470,410 1,348,916
Notes receivable from subsidiaries 187,038 3,299
Other assets 49,332 49,145
Total assets $1,707,221 $1,401,511
Liabilities and Shareholder's Equity
Senior long-term debt, 5.0% - 12.5%,
due 1996-2000 $ 43,989 $ 47,706
Notes payable to banks 153,400 141,000
Notes payable to subsidiaries 187,038 -
Other liabilities 1,013 1,065
Total liabilities 385,440 189,771
Shareholder's equity:
Common stock 1,000 1,000
Additional paid-in capital 696,128 616,021
Other equity 38,412 (18,407)
Retained earnings 586,241 613,126
Total shareholder's equity 1,321,781 1,211,740
Total liabilities and shareholder's equity $1,707,221 $1,401,511
See Notes to Condensed Financial Statements.
<PAGE>
<PAGE> 59
Schedule I, Continued
American General Finance, Inc.
Condensed Statements of Income
Years Ended December 31,
1995 1994 1993
(dollars in thousands)
Revenues
Dividends received from subsidiaries $108,633 $119,145 $152,555
Finance charges - 151,246 84,367
Interest and other 6,703 13,816 3,517
Total revenues 115,336 284,207 240,439
Expenses
Interest expense 12,639 83,070 40,122
Operating expenses 8,386 41,638 24,967
Provision for finance
receivable losses - 51,492 24,429
Total expenses 21,025 176,200 89,518
Income before income taxes, equity
in undistributed net income of
subsidiaries, and cumulative
effect of accounting changes 94,311 108,007 150,921
Income Tax Credit 5,026 3,925 584
Income before equity in undistributed
net income of subsidiaries and
cumulative effect of accounting
changes 99,337 111,932 151,505
Equity in Undistributed Net Income
of Subsidiaries (13,682) 133,056 56,888
Income before cumulative effect of
accounting changes 85,655 244,988 208,393
Cumulative Effect of Accounting Changes
Parent company - - 65
Subsidiaries - - (12,717)
Net Income $ 85,655 $244,988 $195,741
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,
1995 1994 1993
(dollars in thousands)
Cash Flows from Operating Activities
Net Income $ 85,655 $244,988 $195,741
Reconciling adjustments to net cash
provided by operating activities:
Equity in undistributed net income
of subsidiaries 13,682 (133,056) (44,171)
Provision for finance receivable
losses - 51,492 24,429
Change in dividends receivable - 32,512 (11,239)
Change in other assets and other
liabilities 16,685 6,653 9,326
Other, net 7,801 (5,546) 1,290
Net cash provided by operating activities 123,823 197,043 175,376
Cash Flows from Investing Activities
Capital contribution to subsidiaries (80,228) (6,667) (4,577)
Return of capital from subsidiary - 7,435 -
Participation in finance receivables - (1,246,417) (677,847)
Cash collections on participated
finance receivables - 548,384 487,200
Sale of participated finance receivables - 1,205,945 -
Transfer of subsidiary 1,871 - -
Net additions to fixed assets (14,615) (7,955) (18,249)
Other, net (9,168) 4,175 209
Net cash (used for) provided by
investing activities (102,140) 504,900 (213,264)
Cash Flows from Financing Activities
Proceeds from issuance of
long-term debt 8,597 5,664 17,320
Repayment of long-term debt (13,149) (12,118) (11,448)
Change in notes receivable or payable
with parent and subsidiaries 3,299 (576,555) 194,585
Change in notes payable to banks 12,400 21,000 -
Capital contribution from parent 80,000 - -
Common stock dividends paid (112,540) (140,000) (162,600)
Net cash (used for) provided by
financing activities (21,393) (702,009) 37,857
Increase (decrease) in cash 290 (66) (31)
Cash at beginning of year 151 217 248
Cash at end of year $ 441 $ 151 $ 217
See Notes to Condensed Financial Statements.
<PAGE>
<PAGE> 61
Schedule I, Continued
American General Finance, Inc.
Notes to Condensed Financial Statements
December 31, 1995
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, 1995, are as follows: 1996, $8.5 million;
1997, $15.3 million; 1998, $11.8 million; 1999, $4.8 million; and 2000,
$3.6 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
recorded by AGFI for the participation transaction for the years ended
December 31, 1994 and 1993 was $30.1 million and $18.2 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
20, 1996.
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 20, 1996.
/s/ Frederick W. Geissinger /s/ Harold S. Hook
Frederick W. Geissinger Harold S. Hook
(Chairman, President, and Chief (Director)
Executive Officer and Director -
Principal Executive Officer)
/s/ James R. Jerwers
James R. Jerwers
/s/ Philip M. Hanley (Director)
Philip M. Hanley
(Senior Vice President and Chief
Financial Officer and Director - /s/ Larry R. Klaholz
Principal Financial Officer) Larry R. Klaholz
(Director)
/s/ George W. Schmidt
George W. Schmidt /s/ Jon P. Newton
(Controller and Assistant Secretary - Jon P. Newton
Principal Accounting Officer) (Director)
/s/ Wayne D. Baker /s/ David C. Seeley
Wayne D. Baker David C. Seeley
(Director) (Director)
/s/ Robert M. Devlin /s/ Austin P. Young
Robert M. Devlin Austin P. Young
(Director) (Director)
/s/ Bennie D. Hendrix
Bennie D. Hendrix
(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), (2) and (3) 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 notes, 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 notes, 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 notes, 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 notes, 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 notes, 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 notes, 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 notes, 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 notes, 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 notes, 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
a 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 notes, 7 3/8%
due November 15, 1996. Incorporated by reference to
Exhibits 4(c) and 4(d) filed as a 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 notes, 7.15%
due May 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 May 13, 1992 (File No. 1-6155).
<PAGE>
<PAGE> 66
Exhibit Index, Continued
Exhibits Page
(c) Resolutions and form of note for senior notes, 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 notes, 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).
(e) 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).
(f) Resolutions and form of note for senior notes, 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).
(g) 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).
(3) Indenture dated as of October 1, 1994 from American General
Finance Corporation to The Chase Manhattan Bank (National
Association). 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-
55803).
(a) Resolutions and form of note for senior notes, 8% due
February 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 February 3, 1995 (File No. 1-6155).
(b) Resolutions and forms of notes for (senior) Medium-
Term Notes, Series D. 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 February 13, 1995 (File No. 1-6155).
<PAGE>
<PAGE> 67
Exhibit Index, Continued
Exhibits Page
(c) Resolutions and form of note for senior notes, 7 1/4%
due March 1, 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 February 27, 1995 (File No. 1-6155).
(d) Resolutions and form of note for senior notes, 7 1/4%
due April 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 April 11, 1995 (File No. 1-6155).
(e) Resolutions and form of note for senior notes, 7 1/4%
due May 15, 2005. 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 5, 1995 (File No. 1-6155).
(f) Resolutions for (senior) Medium-Term Notes, Series D.
Incorporated by reference to Exhibit 4 filed as a part
of American General Finance Corporation's Current
Report on Form 8-K dated November 16, 1995 (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 and
outstanding 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. 68
(23) Consent of Ernst & Young LLP, Independent Auditors 69
(27) Financial Data Schedule 70
<PAGE>
<PAGE>
<PAGE> 68
Exhibit 12
American General Finance, Inc. and Subsidiaries
Computation of Ratio of Earnings to Fixed Charges
Years Ended December 31,
1995 1994 1993 1992 1991
(dollars in thousands)
Earnings:
Income before provision
for income taxes and
cumulative effect of
accounting changes $115,549 $392,001 $336,830 $262,716 $218,500
Interest expense 517,475 416,233 379,764 398,168 440,086
Implicit interest in rents 12,817 10,741 10,462 8,641 8,731
Total earnings $645,841 $818,975 $727,056 $669,525 $667,317
Fixed Charges:
Interest expense $517,475 $416,233 $379,764 $398,168 $440,086
Implicit interest in rents 12,817 10,741 10,462 8,641 8,731
Total fixed charges $530,292 $426,974 $390,226 $406,809 $448,817
Ratio of earnings to
fixed charges 1.22 1.92 1.86 1.65 1.49
<PAGE>
<PAGE>
<PAGE> 69
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 12, 1996, 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, 1995.
ERNST & YOUNG LLP
Indianapolis, Indiana
March 20, 1996
<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-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 103,238
<SECURITIES> 884,775
<RECEIVABLES> 8,410,394<F1>
<ALLOWANCES> 492,124<F2>
<INVENTORY> 0<F3>
<CURRENT-ASSETS> 0<F4>
<PP&E> 0<F4>
<DEPRECIATION> 0<F4>
<TOTAL-ASSETS> 9,561,350
<CURRENT-LIABILITIES> 0<F4>
<BONDS> 4,979,883<F5>
0<F3>
0<F3>
<COMMON> 1,000
<OTHER-SE> 1,320,781<F6>
<TOTAL-LIABILITY-AND-EQUITY> 9,561,350
<SALES> 0<F3>
<TOTAL-REVENUES> 1,791,494<F7>
<CGS> 0<F3>
<TOTAL-COSTS> 0<F4>
<OTHER-EXPENSES> 584,304<F8>
<LOSS-PROVISION> 574,166<F9>
<INTEREST-EXPENSE> 517,475<F10>
<INCOME-PRETAX> 115,549
<INCOME-TAX> 29,894
<INCOME-CONTINUING> 85,655
<DISCONTINUED> 0<F3>
<EXTRAORDINARY> 0<F3>
<CHANGES> 0<F3>
<NET-INCOME> 85,655
<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>
