<PAGE> 1
UNITED STATES
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, 1996
----------------------------------------
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
(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 with the reduced
disclosure format.)
Commission file number 0-6119
-------------------------------------------------------
AVCO FINANCIAL SERVICES, INC.
- --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
DELAWARE 13-2530491
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
600 Anton Blvd., P.O. Box 5011, Costa Mesa, California 92628-5011
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (714) 435-1200
-----------------------------
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
--- ---
At March 31, 1996, the Registrant had 500,000 shares of common stock ($1 par
value per share) outstanding, all of which are owned by Textron Inc.
<PAGE> 2
AVCO FINANCIAL SERVICES, INC.
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
- ------------------------------ ----
<S> <C>
Item 1. Consolidated Financial Statements
Consolidated Balance Sheet at March 31, 1996
and December 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . 1
Consolidated Statement of Income for the three months ended
March 31, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . 2
Consolidated Statement of Cash Flows for the three months ended
March 31, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . 3
Note to Consolidated Financial Statements . . . . . . . . . . . . . . . . 4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . 5
PART II. OTHER INFORMATION
- --------------------------
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Item 2. Changes in Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Item 3. Defaults Upon Senior Securities . . . . . . . . . . . . . . . . . . . . . . 6
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . 6
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . 7
SIGNATURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
---------------------
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
AVCO FINANCIAL SERVICES, INC.
CONSOLIDATED BALANCE SHEET
MARCH 31, 1996 AND DECEMBER 31, 1995
<TABLE>
<CAPTION>
1996 1995
---------- ----------
(Thousands of dollars)
<S> <C> <C>
ASSETS
Finance receivables . . . . . . . . . . . . . . . . . $6,859,586 $6,933,526
Allowance for losses . . . . . . . . . . . . . . . (196,875) (195,413)
Insurance reserves and claims . . . . . . . . . . . (259,211) (261,499)
---------- ----------
6,403,500 6,476,614
Investments . . . . . . . . . . . . . . . . . . . . . 878,184 852,450
Property and equipment . . . . . . . . . . . . . . . 71,789 72,159
Insurance policy acquisition costs . . . . . . . . . 55,281 54,716
Goodwill . . . . . . . . . . . . . . . . . . . . . . 21,862 21,388
Cash . . . . . . . . . . . . . . . . . . . . . . . . 12,147 25,454
Other . . . . . . . . . . . . . . . . . . . . . . . . 276,441 288,167
---------- ----------
TOTAL ASSETS . . . . . . . . . . . . . . . . . . $7,719,204 $7,790,948
========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
Senior debt
Commercial paper . . . . . . . . . . . . . . . . . $2,164,920 $2,067,722
Banks . . . . . . . . . . . . . . . . . . . . . . 380,556 345,879
Savings deposits . . . . . . . . . . . . . . . . . 4,655 5,184
Notes . . . . . . . . . . . . . . . . . . . . . . . 3,516,576 3,742,752
---------- ----------
6,066,707 6,161,537
Senior subordinated debt . . . . . . . . . . . . . . 3,900 3,900
---------- ----------
Total debt . . . . . . . . . . . . . . . . . . . 6,070,607 6,165,437
Accounts payable and accrued liabilities . . . . . . 257,478 285,909
Insurance reserves and claims
Unearned insurance premiums . . . . . . . . . . . . 196,780 196,591
Losses and adjustment expenses . . . . . . . . . . 64,153 61,557
Income taxes . . . . . . . . . . . . . . . . . . . . 72,359 53,224
---------- ----------
Total liabilities . . . . . . . . . . . . . . . 6,661,377 6,762,718
---------- ----------
Stockholder's equity
Common stock ($1 par value, 1,000,000 shares
authorized; 500,000 shares outstanding) . . . . . . 500 500
Additional paid-in capital . . . . . . . . . . . . . 137,588 137,588
Retained earnings . . . . . . . . . . . . . . . . . . 969,645 949,436
Securities valuation adjustment . . . . . . . . . . . 57,421 56,309
Currency translation adjustment . . . . . . . . . . . (107,327) (115,603)
---------- ----------
Total stockholder's equity . . . . . . . . . . . 1,057,827 1,028,230
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY . . . $7,719,204 $7,790,948
========== ==========
</TABLE>
See accompanying note.
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<PAGE> 4
AVCO FINANCIAL SERVICES, INC.
CONSOLIDATED STATEMENT OF INCOME
THREE MONTHS ENDED MARCH 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
-------- --------
(Thousands of dollars)
<S> <C> <C>
REVENUES
Interest, discount and service charges . . . . . . . . . . . . . $316,521 $300,573
Credit life, credit disability and casualty
insurance premiums . . . . . . . . . . . . . . . . . . . . . . 99,382 80,831
Investment and other income (including net
realized investment gains and losses) . . . . . . . . . . . . 16,346 16,191
-------- --------
Total revenues . . . . . . . . . . . . . . . . . . . . . . 432,249 397,595
-------- --------
EXPENSES
Interest and debt expense . . . . . . . . . . . . . . . . . . . . 107,139 112,572
Provision for losses on collection of finance receivables . . . . 45,731 34,769
Credit life, credit disability and casualty insurance
losses and adjustment expenses, less recoveries . . . . . . . . 47,327 33,080
Amortization of insurance policy acquisition costs . . . . . . . 23,255 18,321
Other operating expenses . . . . . . . . . . . . . . . . . . . . 136,583 129,175
-------- --------
Total expenses . . . . . . . . . . . . . . . . . . . . . . 360,035 327,917
-------- --------
Income before income taxes . . . . . . . . . . . . . . . . . . . . 72,214 69,678
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . 27,005 26,349
-------- --------
NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 45,209 $ 43,329
======== ========
</TABLE>
See accompanying note.
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<PAGE> 5
AVCO FINANCIAL SERVICES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
---------- ----------
(Thousands of dollars)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 45,209 $ 43,329
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for losses on collection of finance receivables . . . . 45,731 34,769
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . 4,650 4,329
Gain on sales of investments . . . . . . . . . . . . . . . . . . (1,032) (1,784)
Increase in unamortized insurance policy
acquisition costs . . . . . . . . . . . . . . . . . . . . . . . (537) (2,034)
Increase (decrease) in unearned insurance premiums and
reserves for insurance losses and adjustment expenses . . . . . (1,228) 6,194
Decrease in accounts payable and accrued
liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . (30,617) (42,516)
Increase (decrease) in income taxes . . . . . . . . . . . . . . . 18,478 (53)
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,675 11,247
---------- ----------
Net cash provided by operating activities . . . . . . . . . . . 93,329 53,481
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Finance receivables originated or purchased . . . . . . . . . . . . (946,514) (1,072,615)
Finance receivables repaid or sold . . . . . . . . . . . . . . . . 1,019,008 898,169
Purchases of investments available for sale . . . . . . . . . . . . (34,334) (38,578)
Proceeds from sales of investments available for sale . . . . . . . 7,536 9,913
Proceeds from maturities and calls of investments
available for sale . . . . . . . . . . . . . . . . . . . . . . . 9,943 9,717
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . (3,870) (3,308)
Cash used in acquisition of HFCA, net of cash acquired . . . . . . (39,808)
---------- ---------
Net cash provided (used) by investing activities . . . . . . . 51,769 (236,510)
---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in short-term debt . . . . . . . . . . . . . . 109,793 (68,753)
Proceeds from issuance of notes . . . . . . . . . . . . . . . . . . 7,998 606,571
Principal payments on notes . . . . . . . . . . . . . . . . . . . (250,566) (342,338)
Decrease (increase) in savings deposits . . . . . . . . . . . . . . (630) 1,547
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . (25,000) (23,050)
---------- ----------
Net cash provided (used) by financing activities . . . . . . . (158,405) 173,977
---------- ----------
Net decrease in cash . . . . . . . . . . . . . . . . . . . . . . . . (13,307) (9,052)
Cash at beginning of period . . . . . . . . . . . . . . . . . . . . . 25,454 21,817
---------- ----------
Cash at end of period . . . . . . . . . . . . . . . . . . . . . . . . $ 12,147 $ 12,765
========== ==========
</TABLE>
See accompanying note.
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<PAGE> 6
AVCO FINANCIAL SERVICES, INC.
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS
GENERAL
The consolidated financial statements are unaudited and reflect all adjustments
(consisting only of normal recurring accruals) which are, in the opinion of
management, necessary for a fair presentation of the results for the interim
periods. Certain reclassifications have been made to prior year amounts to
conform with current year presentation.
The results of operations for interim periods are not necessarily indicative of
the results to be expected for a full year.
The consolidated financial statements should be read in conjunction with the
consolidated financial statements included in the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1995.
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<PAGE> 7
PART I. FINANCIAL INFORMATION (CONTINUED)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS - FOR THE THREE MONTHS ENDED MARCH 31, 1996 COMPARED TO
THE THREE MONTHS ENDED MARCH 31, 1995.
Income before income taxes for the three months ended March 31, 1996 was $72.2
million compared to $69.7 million for the three months ended March 31, 1995, an
increase of $2.5 million (3.6%). This increase resulted primarily from: (i)
an increase in yields on finance receivables (interest income as a percent of
average finance receivables) to 18.56% for the first three months in 1996
compared to 17.72% for the like period in 1995 and (ii) a decrease in the cost
of borrowed funds to 7.01% for the first three months in 1996 compared to 7.38%
for the like period in 1995. Partially offsetting these increases were: (i)
an increase in the ratio of net credit losses to average finance receivables to
2.61% for the first three months in 1996 from 1.81% for the like period in 1995
and (ii) an increase in the ratio of insurance losses to earned premiums in
both the finance related and independent insurance operations.
Revenues for the three months ended March 31, 1996 were $432.2 million compared
to $397.6 million for the three months ended March 31, 1995, an increase of
$34.6 million (8.7%). This increase resulted primarily from an increase in
yields on finance receivables and an increase in earned premiums in the
independent insurance operations.
During the second half of 1995, the economic slowdown in the countries in which
the Registrant operates resulted in an increase in delinquency and credit
losses. These economic conditions have continued throughout the first quarter
of 1996. Accordingly, net credit losses and delinquency have remained higher
than historical levels and receivable volume has slowed. There has, however,
been recent improvement in delinquency and the registrant anticipates an
improvement in net credit losses by the end of the second quarter of 1996.
- 5 -
<PAGE> 8
PART I. FINANCIAL INFORMATION (CONTINUED)
FINANCIAL CONDITION
The Registrant utilizes a broad base of financial sources for its liquidity and
capital requirements. Cash is provided from both operations and several
different sources of borrowings, including unsecured borrowings under bank
lines of credit, the issuance of commercial paper and sales of medium- and
long-term debt in the U.S. and foreign financial markets.
Under certain interest rate exchange agreements, the Registrant makes periodic
fixed payments in exchange for periodic variable payments. The Registrant
enters into such agreements to mitigate its exposure to increases in interest
rates on a portion of its variable rate debt. During the first three months of
1996, the Registrant had $129 million of these agreements go into effect.
These agreements have a weighted average original term of 1 year and expire
through 1998.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Because the business of the Registrant involves the collection of
numerous accounts, the validity of liens, accident and other
damage or loss claims under many types of insurance, and
compliance with state and federal consumer laws, the Registrant
and its subsidiaries are plaintiffs and defendants in numerous
legal proceedings, including individual and class action
proceedings which seek compensatory, treble or punitive damages in
substantial amounts. It is the opinion of the Registrant's
management, based upon the advice of its counsel, that the
aggregate liability from pending or threatened litigation will not
have a material effect on the Registrant's net income or financial
condition.
ITEM 2. CHANGES IN SECURITIES
Omitted in accordance with General Instruction H(2)(b).
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Omitted in accordance with General Instruction H(2)(b).
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Omitted in accordance with General Instruction H(2)(b).
- 6 -
<PAGE> 9
PART II. OTHER INFORMATION (CONTINUED)
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
*(12) Statement of Computation of Number of Times Fixed
Charges Earned.
*(27) Financial Data Schedule.
_____________
*Filed herewith.
(b) Reports on Form 8-K
No Report on Form 8-K has been filed during the quarter for
which this report is filed.
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.
AVCO FINANCIAL SERVICES, INC.
(Registrant)
Date May 13, 1996 By GARY L. FITE
---------------- -------------------------------------
GARY L. FITE
Executive Vice President & Controller
(Chief Accounting Officer)
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<PAGE> 1
EXHIBIT 12
AVCO FINANCIAL SERVICES, INC.
STATEMENT OF COMPUTATION OF NUMBER OF TIMES
FIXED CHARGES EARNED
THREE MONTHS ENDED MARCH 31, 1996
(Thousands of dollars)
<TABLE>
<S> <C>
Income
Income before income taxes . . . . . . . . . . . . . . . . $ 72,214
--------
Fixed charges to be added back to income -
Interest and debt expense . . . . . . . . . . . . . . . 107,139
Rentals (one-third of all rent and related costs
charged to income) . . . . . . . . . . . . . . . . . 3,625
--------
Total fixed charges . . . . . . . . . . . . . . . . 110,764
--------
Income before income taxes and fixed charges . . . . . . . . $182,978
========
Ratio
Number of times fixed charges covered by income
before income taxes and fixed charges . . . . . . . . . . 1.7
===
</TABLE>
S-1
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM AFS'
CONSOLIDATED BALANCE SHEET AT MARCH 31, 1996 AND CONSOLIDATED STATEMENT OF
INCOME FOR THE THREE MONTHS ENDED MARCH 31, 1996 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-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 12,147
<SECURITIES> 0
<RECEIVABLES> 6,859,586
<ALLOWANCES> 196,875
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 71,789
<DEPRECIATION> 0
<TOTAL-ASSETS> 7,719,204
<CURRENT-LIABILITIES> 0
<BONDS> 3,525,131
0
0
<COMMON> 500
<OTHER-SE> 1,057,327
<TOTAL-LIABILITY-AND-EQUITY> 1,057,827
<SALES> 0
<TOTAL-REVENUES> 432,249
<CGS> 0
<TOTAL-COSTS> 70,582
<OTHER-EXPENSES> 136,583
<LOSS-PROVISION> 45,731
<INTEREST-EXPENSE> 107,139
<INCOME-PRETAX> 72,214
<INCOME-TAX> 27,005
<INCOME-CONTINUING> 45,209
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 45,209
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
