<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to _____________
Commission file number 1-7422
AMERICAN GENERAL FINANCE, INC.
(Exact name of registrant as specified in its charter)
Indiana 35-1313922
(State of Incorporation) (I.R.S. Employer
Identification No.)
601 N.W. Second Street, Evansville, IN 47708
(Address of principal executive offices) (Zip Code)
(812) 424-8031
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
The registrant meets the conditions set forth in General Instruction
H(1)(a) and (b) of Form 10-Q and is therefore filing this Form 10-Q with
the reduced disclosure format.
At May 14, 1997, there were 2,000,000 shares of the registrant's common
stock, $.50 par value, outstanding.
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
AMERICAN GENERAL FINANCE, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Income
(Unaudited)
<CAPTION>
Three Months Ended
March 31,
1997 1996
(dollars in thousands)
<S> <C> <C>
Revenues
Finance charges $319,799 $371,400
Insurance 47,529 51,187
Other 17,420 16,371
Total revenues 384,748 438,958
Expenses
Interest expense 112,831 125,980
Operating expenses 118,669 131,394
Provision for finance
receivable losses 67,547 108,801
Insurance losses and loss
adjustment expenses 24,004 28,548
Total expenses 323,051 394,723
Income before provision for
income taxes 61,697 44,235
Provision for Income Taxes 22,903 16,047
Net Income $ 38,794 $ 28,188
<FN>
<F1>
See Notes to Condensed Consolidated Financial Statements.
</FN>
</TABLE>
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<TABLE>
AMERICAN GENERAL FINANCE, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Unaudited)
<CAPTION>
March 31, December 31,
1997 1996
(dollars in thousands)
<S> <C> <C>
Assets
Finance receivables, net of unearned
finance charges:
Real estate loans $3,799,064 $3,734,195
Non-real estate loans 2,362,566 2,516,009
Retail sales contracts 947,592 998,441
Private label 345,370 376,580
Net finance receivables 7,454,592 7,625,225
Allowance for finance receivable
losses (390,154) (395,153)
Net finance receivables, less allowance
for finance receivable losses 7,064,438 7,230,072
Investment securities 866,465 880,033
Cash and cash equivalents 107,275 105,493
Goodwill 268,739 270,989
Assets held for sale 633,987 667,007
Other assets 415,621 410,102
Total assets $9,356,525 $9,563,696
Liabilities and Shareholder's Equity
Long-term debt $4,293,304 $4,498,530
Short-term notes payable:
Commercial paper 2,943,705 3,015,920
Banks and other 90,000 111,000
Investment certificates 3,391 3,778
Insurance claims and policyholder
liabilities 439,547 456,430
Other liabilities 279,719 260,284
Accrued taxes 40,417 17,273
Total liabilities 8,090,083 8,363,215
Shareholder's equity:
Common stock 1,000 1,000
Additional paid-in capital 736,230 696,230
Net unrealized gains on investment
securities 8,620 21,454
Retained earnings 520,592 481,797
Total shareholder's equity 1,266,442 1,200,481
Total liabilities and shareholder's equity $9,356,525 $9,563,696
<FN>
<F1>
See Notes to Condensed Consolidated Financial Statements.
</FN>
</TABLE>
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<TABLE>
AMERICAN GENERAL FINANCE, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<CAPTION>
Three Months Ended
March 31,
1997 1996
(dollars in thousands)
<S> <C> <C>
Cash Flows from Operating Activities
Net income $ 38,794 $ 28,188
Reconciling adjustments to net cash
provided by operating activities:
Provision for finance receivable losses 67,547 108,801
Depreciation and amortization 21,374 24,712
Deferral of finance receivable
origination costs (9,896) (13,701)
Deferred federal income tax charge 1,913 1,377
Change in other assets and other liabilities 13,524 22,841
Change in insurance claims and
policyholder liabilities (16,883) (15,304)
Change in accrued taxes 23,144 1,716
Operations related to assets held for sale 20,108 -
Other, net 9,533 14,770
Net cash provided by operating activities 169,158 173,400
Cash Flows from Investing Activities
Finance receivables originated or purchased (1,016,540) (1,009,626)
Principal collections on finance receivables 1,081,779 1,269,692
Net collections on assets held for sale 35,337 -
Investment securities purchased (43,313) (57,670)
Investment securities called, matured and sold 37,858 42,526
Other, net (2,736) (6,230)
Net cash provided by investing activities 92,385 238,692
Cash Flows from Financing Activities
Proceeds from issuance of long-term debt 1,608 29,715
Repayment of long-term debt (207,767) (151,489)
Change in investment certificates (387) (204)
Change in short-term notes payable (93,215) (268,180)
Capital contribution from parent 40,000 -
Dividends paid - (27,000)
Net cash used for financing activities (259,761) (417,158)
Increase (decrease) in cash and cash equivalents 1,782 (5,066)
Cash and cash equivalents at beginning of period 105,493 103,238
Cash and cash equivalents at end of period $107,275 $ 98,172
Supplemental Disclosure of Cash Flow Information
Income taxes (received) paid $ (3,952) $ 5,022
Interest paid $129,748 $121,351
<FN>
<F1>
See Notes to Condensed Consolidated Financial Statements.
</FN>
</TABLE>
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AMERICAN GENERAL FINANCE, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 31, 1997
Note 1. Principles of Consolidation
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles
for interim periods and include the accounts of American General Finance,
Inc. and its subsidiaries. American General Finance, Inc. will be referred
to in these Notes to Condensed Consolidated Financial Statements as "AGFI"
or collectively, with its subsidiaries, whether directly or indirectly
owned, as the "Company". The subsidiaries are wholly-owned, and all
intercompany items have been eliminated. Per share information is not
included because AGFI is a wholly-owned subsidiary of American General
Corporation (American General).
Note 2. Adjustments and Reclassifications
These condensed consolidated financial statements include all adjustments,
consisting only of normal recurring adjustments, considered necessary by
management for a fair presentation of the Company's consolidated financial
position at March 31, 1997 and December 31, 1996, its consolidated results
of operations for the three months ended March 31, 1997 and 1996, and its
consolidated cash flows for the three months ended March 31, 1997 and 1996.
These condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and related notes
included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1996.
To conform with the 1997 presentation, certain items in the prior period
have been reclassified.
Note 3. Derivative Financial Instruments
The Company's principal borrowing subsidiary is American General Finance
Corporation (AGFC), a wholly-owned subsidiary of AGFI. AGFC makes limited
use of derivative financial instruments to manage the cost of its debt.
AGFC uses interest conversion agreements to reduce its exposure to future
fluctuations in interest expense rates by effectively converting short-term
and certain long-term floating-rate debt to a fixed-rate basis. At March
31, 1997, outstanding interest conversion agreements in which AGFC
contracted to pay interest at fixed rates and receive floating rates
totaled $515.0 million of notional amount, with an average fixed pay rate
of 8.09% and an average floating receive rate of 5.50%. On April 14, 1997,
AGFC entered into interest conversion agreements with a total notional
amount of $200.0 million. AGFC's use of interest conversion agreements did
not have a material effect on the Company's weighted-average interest rate
or reported interest expense in the first three months of 1997 or 1996.
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Note 4. Assets Held For Sale
During fourth quarter 1996, the Company decided to offer for sale $874.8
million of non-strategic, underperforming credit card and private label
finance receivable portfolios. These assets held for sale are carried at
net realizable value, after considering related expenses. The carrying
amount at March 31, 1997 was $634.0 million, compared to $667.0 million at
December 31, 1996. The decrease in assets held for sale during first
quarter 1997 was due to the net activity of the associated finance
receivables and their related results of operations.
In April 1997, the Company repurchased $100.0 million of private label and
credit card receivables that previously had been sold through
securitization. No gain or loss resulted from this transaction. These
repurchased credit card receivables are being offered for sale along with
the Company's other credit card receivables, which increased the carrying
amount of assets held for sale by approximately $70.0 million in April
1997.
Discussions with potential purchasers are continuing; however, no
definitive sale agreement has been reached to date.
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Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
LIQUIDITY AND CAPITAL RESOURCES
Overview
The Company's sources of funds include operations, issuances of fixed-rate
and floating-rate debt, and borrowings under credit facilities. Management
believes that the overall sources of liquidity available to the Company
will continue to be sufficient to satisfy its foreseeable financial
obligations and operational requirements.
Liquidity
Operating cash flow, which includes net income adjusted for non-cash
revenues and expenses, totaled $169.2 million for the three months ended
March 31, 1997 compared to $173.4 million for the same period in 1996.
Operating cash flow combined with the net collections of finance
receivables and assets held for sale and a 1997 capital contribution of
$40.0 million from American General generated cash flow of $309.7 million
for the three months ended March 31, 1997 compared to $433.5 million for
the same period in 1996. These cash flows were used principally to fund
the net repayments of debt of $299.8 million and $390.2 million for the
three months ended March 31, 1997 and 1996, respectively, and to pay
dividends to American General of $27.0 million for the three months ended
March 31, 1996.
Dividends paid are typically managed to maintain the Company's targeted
leverage of 7.5 to 1 of debt to tangible equity (equity less goodwill and
net unrealized gains or losses on fixed-maturity investment securities).
The Company exceeded targeted leverage at December 31, 1996 due to the loss
associated with the fourth quarter 1996 decision to offer for sale certain
non-strategic, underperforming finance receivables. The debt to tangible
equity ratio at March 31, 1997 was 7.41 to 1. The Company's return to its
targeted leverage in first quarter 1997 was partially attributable to a
$40.0 million capital contribution from American General. AGFI's ability
to pay dividends is substantially dependent on the receipt of dividends or
other funds from its subsidiaries, primarily AGFC. Certain AGFI and AGFC
financing agreements effectively limit the amount of dividends the entity
may pay; however, management does not expect those limits to affect the
Company's ability to pay the amount of dividends necessary to maintain
targeted leverage.
Capital Resources
The Company's capital requirements vary directly with the level of net
finance receivables. The targeted mix of capital between debt and equity
is based primarily upon maintaining leverage that supports cost-effective
funding. At March 31, 1997, the Company's capital totaled $8.6 billion,
consisting of $7.3 billion of debt and $1.3 billion of equity, compared to
$8.4 billion at March 31, 1996, consisting of $7.1 billion of debt and $1.3
billion of equity.
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The Company issues a combination of fixed-rate debt, principally long-term,
and floating-rate debt, principally short-term. The Company's principal
borrowing subsidiary, AGFC, and one of its subsidiaries sell commercial
paper notes with maturities ranging from 1 to 270 days directly to banks,
insurance companies, corporations, and other institutional investors. AGFC
may also offer medium-term notes with original maturities of nine months or
longer to certain institutional investors. AGFC obtains the remainder of
its funds primarily through underwritten public debt offerings with
maturities generally ranging from three to ten years.
The Company manages anticipated cash flows of its assets and liabilities 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
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 to synthetically create fixed-rate
debt by altering the nature of floating-rate funding, thereby limiting its
exposure to interest rate movements.
Credit Facilities
The Company maintains credit facilities to support the issuance of
commercial paper and to provide an additional source of funds for operating
requirements. At March 31, 1997, the Company had committed credit
facilities of $700.0 million and was an eligible borrower under $2.8
billion of committed credit facilities extended to American General and
certain of its subsidiaries (the "shared committed facilities"). The
annual commitment fees for all committed facilities ranged from .05% to
.09%. The Company pays only an allocated portion of the commitment fees
for the shared committed facilities. At March 31, 1997, the Company also
had $576.0 million of uncommitted credit facilities and was an eligible
borrower under $165.0 million of uncommitted credit facilities extended to
American General and certain of its subsidiaries. Available borrowings
under all facilities are reduced by any outstanding borrowings. At March
31, 1997, Company borrowings outstanding under uncommitted credit
facilities totaled $99.0 million, and there were no borrowings under
committed credit facilities.
Securitization
The Company securitized a portion of its portfolio of private label and
credit card finance receivables to establish additional sources of funding
and liquidity. During 1995, the Company sold $100.0 million of securitized
finance receivables with limited recourse. At March 31, 1997, securitized
finance receivables sold remained at $100.0 million. On April 1, 1997, the
Company repurchased all of the receivables that had been sold through
securitization to facilitate the anticipated sale of the credit card
portfolio included in assets held for sale. No gain or loss resulted from
this transaction. Of the $100.0 million repurchased, approximately $70.0
million was classified as assets held for sale in April 1997.
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SELECTED FINANCIAL INFORMATION
The following table shows certain selected financial information of the
Company for the periods indicated:
At or for the
Three Months Ended
March 31,
1997 1996
(dollars in thousands)
Average finance receivables,
net of unearned finance
charges (average net
receivables) $7,549,511 $8,218,649
Average borrowings $7,508,575 $7,276,613
Yield - finance charges
(annualized) as a
percentage of average
net receivables 17.09% 18.14%
Borrowing cost - interest
expense (annualized) as
a percentage of average
borrowings 6.71% 6.93%
Interest spread - yield
less borrowing cost 10.38% 11.21%
Insurance revenues
(annualized) as a
percentage of average
net receivables 2.52% 2.49%
Operating expenses
(annualized) as a
percentage of average
net receivables 6.29% 6.39%
Return on average assets
(annualized) 1.64% 1.20%
Return on average equity
(annualized) 12.71% 8.51%
Charge-off ratio -
net charge-offs
(annualized) as a
percentage of average
net receivables 3.83% 5.50%
Allowance ratio -
allowance for finance
receivable losses as a
percentage of net
finance receivables 5.23% 6.07%
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Selected Financial Information (Continued)
At or for the
Three Months Ended
March 31,
1997 1996
Ratio of earnings to fixed charges (refer to
Exhibit 12 for calculations) 1.48 1.34
Delinquency ratio - finance receivables any
portion of which was 60 days or more past
due as a percentage of related receivables
(including unearned finance charges and
excluding deferred origination costs, a
fair value adjustment on finance receivables,
and accrued interest) 3.76% 4.03%
Debt to tangible equity ratio - debt to
equity less goodwill and net unrealized
gains or losses on fixed-maturity
investment securities 7.41 7.03
Debt to equity ratio 5.79 5.43
ANALYSIS OF OPERATING RESULTS
Net income increased $10.6 million, or 38%, for the three months ended
March 31, 1997 when compared to the same period in 1996. The increase
primarily relates to an improvement in credit quality during first quarter
1997.
Net income has fluctuated over the past two years due to the decline in
credit quality of the Company's finance receivables beginning in 1995 and
management's related actions to address credit quality. The Company's
strategy in prior years of emphasizing higher-yielding finance receivables,
which are characterized by higher credit risk, resulted in delinquencies
and net charge-offs increasing to higher than anticipated levels beginning
in the third quarter of 1995. Due to these increases in delinquencies and
net charge-offs, management initiated a comprehensive review of the Company
in the fourth quarter of 1995. This review consisted of extensive internal
analysis, together with finance receivable loss development projections
supplied by outside credit consultants. The results of the analysis
indicated a need for an increase in the allowance for finance receivable
losses. Accordingly, the Company recorded a $216.0 million increase in the
allowance for finance receivable losses in fourth quarter 1995.
In addition, the Company adopted an action program for improving credit
quality that included raising underwriting standards, expanding the use of
credit scoring, slowing branch expansion, stressing collections, improving
branch office training, and rebalancing the finance receivable portfolio
credit risk. Strategies for rebalancing the portfolio credit risk included
slowing growth, de-emphasizing some higher risk portfolios, and increasing
the proportion of real estate secured receivables.
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To increase its focus on core operations, the Company decided in the fourth
quarter of 1996 to offer for sale $874.8 million of non-strategic,
underperforming finance receivable portfolios, consisting of $520.3 million
of credit card and $354.5 million of private label finance receivables.
The Company reclassified these finance receivables and an associated
allowance for finance receivable losses of $70.0 million to assets held for
sale on December 31, 1996. The Company hired an outside advisor to market
the portfolios. Based on negotiations with prospective purchasers
subsequent to year end, the Company determined that an aftertax charge to
operations of $93.5 million was necessary to reduce the carrying amount of
the assets held for sale to net realizable value.
During first quarter 1997, the Company re-evaluated the adequacy of the
carrying amount of the assets held for sale and determined that the
carrying amounts approximate net realizable value. Discussions with
potential purchasers are continuing; however, no definitive sale agreement
has been reached to date.
Net finance receivables totaled $7.5 billion at March 31, 1997, a decrease
of $565.6 million from March 31, 1996 primarily due to a reclassification
of credit card and certain private label finance receivables to assets held
for sale on December 31, 1996 and to the substantial liquidation of
underperforming receivables, partially offset by purchases of real estate
loan portfolios during the last three quarters of 1996. At March 31, 1997,
real estate secured finance receivables accounted for 51% of total net
finance receivables compared to 36% at March 31, 1996.
Results of the action program to improve credit quality in the core U.S.
branch operations (including benefits from the increased proportion of
finance receivables that are secured by real estate and the
reclassification of the underperforming finance receivables to assets held
for sale) became evident in the first quarter of 1997. Although yield was
105 basis points less than the prior year, this was more than offset by a
167 basis point improvement in the charge-off ratio. The delinquency ratio
also improved to 3.76% at March 31, 1997 from 4.03% a year earlier. The
Company is also realizing operating efficiencies as evidenced by a 10 basis
point improvement in the operating expense ratio reflecting both fewer
branches and fewer employees.
The Company plans to implement additional programs during 1997 to further
address credit quality, finance receivable originations, and expense
reduction. In addition to the increased use of industry credit scoring
models, custom scoring models will be implemented during 1997.
Factors which specifically affected the Company's operating results are as
follows:
Finance Charges
Finance charge revenues decreased $51.6 million, or 14%, for the three
months ended March 31, 1997 when compared to the same period in 1996 due to
decreases in average net receivables, yield, and an additional day in 1996.
Average net receivables decreased $669.1 million, or 8%, for the three
months ended March 31, 1997 when compared to the same period in 1996
primarily due to the action program for improving credit quality which
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<PAGE> 12
included the reclassification of certain finance receivables to assets held
for sale on December 31, 1996 (which resulted in excluding $39.8 million of
first quarter 1997 finance charge revenue related to the assets held for
sale) and the liquidation of underperforming receivables. Yield decreased
105 basis points for the three months ended March 31, 1997 when compared to
the same period in 1996 primarily due to the action program to improve
credit quality, including increasing the proportion of finance receivables
that are real estate loans, which generally have lower yields, partially
offset by the decreased proportion of non-accrual delinquent finance
receivables during 1997.
Insurance Revenues
Insurance revenues decreased $3.7 million, or 7%, for the three months
ended March 31, 1997 when compared to the same period in 1996 primarily due
to a decrease in earned premiums. Earned premiums decreased primarily due
to a decrease in net written premiums which reflected the decrease in non-
real estate loan volume resulting from the action program to improve credit
quality.
Other Revenues
Other revenues increased $1.0 million, or 6%, for the three months ended
March 31, 1997 when compared to the same period in 1996 primarily due to
increases in investment revenue and revenue on foreclosed real estate. The
increase in investment revenue for the three months ended March 31, 1997
when compared to the same period in 1996 was primarily due to growth in
average invested assets for the insurance operations of $41.9 million and
realized gains on investments of $.1 million for the three months ended
March 31, 1997 compared to realized losses of $.1 million for the same
period in 1996, partially offset by a decrease in adjusted portfolio yield
of 33 basis points.
Interest Expense
Interest expense decreased $13.1 million, or 10%, for the three months
ended March 31, 1997 when compared to the same period in 1996 due to the
exclusion of $12.4 million of interest expense related to the assets held
for sale and a decrease in borrowing cost, partially offset by an increase
in average borrowings. The borrowing cost for the three months ended March
31, 1997 decreased 22 basis points when compared to the same period in 1996
due to a decrease in short-term borrowing cost, with long-term borrowing
cost remaining relatively flat. Average borrowings for the three months
ended March 31, 1997 increased $232.0 million, or 3%, when compared to the
same period in 1996 primarily to fund the purchases of real estate loan
portfolios that occurred in the last three quarters of 1996.
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Operating Expenses
Operating expenses decreased $12.7 million, or 10%, for the three months
ended March 31, 1997 when compared to the same period in 1996 primarily due
to the exclusion of $8.3 million of expenses to service the portfolios held
for sale and to the action program to improve credit quality and reduce
expenses, partially offset by a decrease in deferral of finance receivable
origination costs. The action program implemented in fourth quarter 1995
(which included emphasizing real estate loan growth) contributed to a
workforce reduction of approximately 1,150 positions and a net decrease of
47 branch offices since March 31, 1996.
Provision for Finance Receivable Losses
Provision for finance receivable losses decreased $41.3 million, or 38%,
for the three months ended March 31, 1997 when compared to the same period
in 1996 primarily due to the exclusion of $30.1 million of net charge-offs
related to the assets held for sale and a decrease in net charge-offs.
Net charge-offs from finance receivables for the three months ended March
31, 1997 decreased to $72.5 million from $113.9 million for the same period
in 1996. Net charge-offs for the three months ended December 31, 1996 were
$116.2 million. The charge-off ratio for first quarter 1997 was 3.83%
compared to 5.69% for fourth quarter 1996 and 5.50% for first quarter 1996.
Excluding the portfolios held for sale, the charge-off ratio was 5.03% for
fourth quarter 1996 and 4.62% for first quarter 1996.
At March 31, 1997, delinquencies were $304.2 million (excluding $68.8
million related to assets held for sale) compared to $316.7 million at
December 31, 1996 (excluding $68.0 million related to assets held for sale)
and $353.9 million at March 31, 1996. The delinquency ratio at March 31,
1997 decreased to 3.76% from 3.83% at December 31, 1996 (compared to 4.03%
at March 31, 1996). Excluding the portfolios held for sale, the
delinquency ratio at March 31, 1996 was 3.76%.
During first quarter 1997, management reduced the allowance for finance
receivable losses by $5.0 million from the balance at December 31, 1996
based on the improved credit quality of the finance receivable portfolio.
The allowance for finance receivable losses decreased $96.8 million from
$487.0 million at March 31, 1996 due to the reclassification of $70.0
million of allowance for finance receivable losses to assets held for sale
and reductions in the allowance for finance receivable losses based on the
results of the action program for improving credit quality, including the
increased proportion of real estate loans. The allowance ratio at March
31, 1997 was 5.23% compared to 5.18% at December 31, 1996 and 6.07% at
March 31, 1996. Based upon an analysis of the finance receivable
portfolio, management believes that the allowance for finance receivable
losses is adequate given the current level of delinquencies and net charge-
offs.
Management believes that the anticipated sale of the non-strategic,
underperforming finance receivable portfolios combined with the ongoing
action program will address the overall credit quality issues. However,
adverse changes in credit fundamentals within the consumer finance market,
including the current high level of personal bankruptcies, could negatively
impact expected results.
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<PAGE> 14
Insurance Losses and Loss Adjustment Expenses
Insurance losses and loss adjustment expenses decreased $4.5 million, or
16%, for the three months ended March 31, 1997 when compared to the same
period in 1996 due to decreases in provision for future benefits and in
claims paid. Provision for future benefits decreased $2.7 million for the
three month period due to reduced sales of non-credit insurance products.
Claims for the three month period decreased $1.8 million primarily due to
favorable loss experience on credit insurance.
Provision for Income Taxes
The provision for income taxes increased $6.9 million, or 43%, for the
three months ended March 31, 1997 when compared to the same period in 1996
primarily due to higher taxable income.
Forward-looking Statements
The statements contained in this filing on Form 10-Q that are not
historical facts are forward-looking statements within the meaning of the
Private Securities Litigation Reform Act. Actual results may differ
materially from those included in the forward-looking statements. These
forward-looking statements involve risks and uncertainties including, but
not limited to, the following: changes in general economic conditions,
including the performance of financial markets, interest rates, and the
level of personal bankruptcies; competitive, regulatory, or tax changes
that affect the cost of or demand for the Company's products; adverse
litigation results; and failure to achieve the Company's anticipated levels
of expense savings from cost-saving initiatives. The Company's future
results also could be adversely affected if finance receivable
delinquencies and net charge-offs increase or fail to achieve levels
anticipated by management, despite the Company's initiatives to improve
credit quality. Failure to dispose of assets held for sale for carrying
value could also adversely affect the Company's future results. Readers
are also directed to other risks and uncertainties discussed in documents
filed by the Company with the Securities and Exchange Commission.
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<PAGE> 15
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
In addition to those lawsuits or proceedings disclosed in the Company's
1996 Form 10-K, AGFI and certain of its subsidiaries are parties to various
other lawsuits and proceedings arising in the ordinary course of business.
Many of these lawsuits and proceedings arise in jurisdictions, such as
Alabama, that permit damage awards disproportionate to the actual economic
damages incurred. Based upon information presently available, the Company
believes that the total amounts that will ultimately be paid, if any,
arising from these lawsuits and proceedings will have no material adverse
effect on the Company's consolidated results of operations and financial
position. However, it should be noted that the frequency of large damage
awards, including large punitive damage awards, that bear little or no
relation to actual economic damages incurred by plaintiffs in jurisdictions
like Alabama continues to increase and creates the potential for an
unpredictable judgment in any given suit.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
(12) Computation of Ratio of Earnings to Fixed Charges.
(27) Financial Data Schedule.
(b) Reports on Form 8-K.
No Current Reports on Form 8-K were filed during the first quarter of
1997.
<PAGE>
<PAGE> 16
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMERICAN GENERAL FINANCE, INC.
(Registrant)
Date: May 14, 1997 By /s/ John S. Poelker
John S. Poelker
Senior Vice President and Chief
Financial Officer
(Duly Authorized Officer and Principal
Financial Officer)
<PAGE>
<PAGE> 17
Exhibit Index
Exhibits Page
(12) Computation of Ratio of Earnings to Fixed Charges. 18
(27) Financial Data Schedule. 19
<PAGE>
<PAGE>
<PAGE> 18
Exhibit 12
<TABLE>
AMERICAN GENERAL FINANCE, INC. AND SUBSIDIARIES
Computation of Ratio of Earnings to Fixed Charges
(Unaudited)
<CAPTION>
Three Months Ended
March 31,
1997 1996
(dollars in thousands)
<S> <C> <C>
Earnings:
Income before provision for income
taxes $ 61,697 $ 44,235
Interest expense (including $12,447
for 1997 to fund assets held for
sale) 125,278 125,980
Implicit interest in rents 2,822 3,092
Total earnings $189,797 $173,307
Fixed charges:
Interest expense (including $12,447
for 1997 to fund assets held for
sale) $125,278 $125,980
Implicit interest in rents 2,822 3,092
Total fixed charges $128,100 $129,072
Ratio of earnings to fixed charges 1.48 1.34
</TABLE>
<PAGE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 107,275
<SECURITIES> 866,465
<RECEIVABLES> 7,454,592<F1>
<ALLOWANCES> 390,154<F2>
<INVENTORY> 0<F3>
<CURRENT-ASSETS> 0<F4>
<PP&E> 0<F4>
<DEPRECIATION> 0<F4>
<TOTAL-ASSETS> 9,356,525
<CURRENT-LIABILITIES> 0<F4>
<BONDS> 4,293,304<F5>
0<F3>
0<F3>
<COMMON> 1,000
<OTHER-SE> 1,265,442<F6>
<TOTAL-LIABILITY-AND-EQUITY> 9,356,525
<SALES> 0<F3>
<TOTAL-REVENUES> 384,748<F7>
<CGS> 0<F3>
<TOTAL-COSTS> 0<F4>
<OTHER-EXPENSES> 142,673<F8>
<LOSS-PROVISION> 67,547<F9>
<INTEREST-EXPENSE> 112,831<F10>
<INCOME-PRETAX> 61,697
<INCOME-TAX> 22,903
<INCOME-CONTINUING> 38,794
<DISCONTINUED> 0<F3>
<EXTRAORDINARY> 0<F3>
<CHANGES> 0<F3>
<NET-INCOME> 38,794
<EPS-PRIMARY> 0<F3>
<EPS-DILUTED> 0<F3>
<PAGE>
<FN>
<F1>RECEIVABLES IN THIS EXHIBIT REPRESENTS NET FINANCE RECEIVABLES REPORTED
IN THE COMPANY'S CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
<F2>ALLOWANCES IN THIS EXHIBIT REPRESENTS ALLOWANCE FOR FINANCE RECEIVABLE
LOSSES REPORTED IN THE COMPANY'S CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS.
<F3>NOT APPLICABLE.
<F4>NOT REPORTED SEPARATELY (OR NOT REPORTED SEPARATELY AS DEFINED BY
ARTICLE 5 OF REGULATION S-X) IN DOCUMENT FILED.
<F5>BONDS IN THIS EXHIBIT REPRESENTS LONG-TERM DEBT REPORTED IN THE COMPANY'S
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS WHICH INCLUDES OTHER LONG-TERM
DEBT.
<F6>OTHER STOCKHOLDER'S EQUITY IN THIS EXHIBIT REPRESENTS ADDITIONAL PAID-IN-
CAPITAL, NET UNREALIZED GAINS (LOSSES) ON INVESTMENT SECURITIES, AND
RETAINED EARNINGS REPORTED IN THE COMPANY'S CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
<F7>TOTAL REVENUES IN THIS EXHIBIT REPRESENTS TOTAL REVENUES REPORTED IN THE
COMPANY'S CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
<F8>OTHER EXPENSES IN THIS EXHIBIT REPRESENTS OPERATING EXPENSES AND
INSURANCE LOSSES AND LOSS ADJUSTMENT EXPENSES REPORTED IN THE COMPANY'S
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
<F9>LOSS PROVISION IN THIS EXHIBIT REPRESENTS PROVISION FOR FINANCE
RECEIVABLE LOSSES REPORTED IN THE COMPANY'S CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
<F10>INTEREST EXPENSE IN THIS EXHIBIT REPRESENTS INTEREST EXPENSE REPORTED
IN THE COMPANY'S CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
</FN>
</TABLE>
