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 June 30, 2004
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 1-6155
AMERICAN GENERAL FINANCE CORPORATION
(Exact name of registrant as specified in its charter)
Indiana 35-0416090
(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
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Securities Exchange Act of 1934).
Yes No X
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 August 3, 2004, there were 10,160,012 shares of the registrant's
common stock, $.50 par value, outstanding.
2
TABLE OF CONTENTS
Item Page
Part I - Financial Information
1. Financial Statements . . . . . . . . . . . . . . . . . . . . . 3
2. Management's Discussion and Analysis of Financial Condition
and Results of Operations. . . . . . . . . . . . . . . . . . 13
4. Controls and Procedures . . . . . . . . . . . . . . . . . . . 28
Part II - Other Information
1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . 29
6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . 29
AVAILABLE INFORMATION
American General Finance Corporation (AGFC) files annual, quarterly,
and current reports and other information with the Securities and
Exchange Commission (the SEC). The SEC maintains a website that
contains annual, quarterly, and current reports and other information
that issuers (including AGFC) file electronically with the SEC. The
SEC's website is www.sec.gov.
The following reports are available free of charge on our Internet
website www.agfinance.com as soon as reasonably practicable after they
are filed with or furnished to the SEC:
* our 2004 Current Reports on Form 8-K, if any;
* our 2004 Quarterly Reports on Form 10-Q; and
* our Annual Report on Form 10-K for the year ended December 31,
2003.
The information on our website is not incorporated by reference into
this report. The website addresses listed above are provided for the
information of the reader and are not intended to be active links.
3
Part I - FINANCIAL INFORMATION
Item 1. Financial Statements
AMERICAN GENERAL FINANCE CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Income
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
2004 2003 2004 2003
(dollars in thousands)
Revenues
Finance charges $468,482 $423,435 $ 916,580 $ 854,097
Insurance 43,679 42,672 89,380 88,380
Other:
Service fee income from
a non-subsidiary
affiliate 40,716 491 76,333 1,059
Miscellaneous 34,161 88,083 67,589 132,701
Total revenues 587,038 554,681 1,149,882 1,076,237
Expenses
Interest expense 144,797 134,615 280,353 276,444
Operating expenses:
Salaries and benefits 124,517 100,290 242,782 197,624
Other operating expenses 70,929 69,553 140,728 132,673
Provision for finance
receivable losses 64,089 74,655 122,266 144,106
Insurance losses and loss
adjustment expenses 18,000 15,160 39,127 35,549
Total expenses 422,332 394,273 825,256 786,396
Income before provision for
income taxes 164,706 160,408 324,626 289,841
Provision for Income Taxes 59,931 57,983 117,984 103,579
Net Income $104,775 $102,425 $ 206,642 $ 186,262
See Notes to Condensed Consolidated Financial Statements.
4
AMERICAN GENERAL FINANCE CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
June 30, December 31,
2004 2003
(Unaudited)
(dollars in thousands)
Assets
Net finance receivables:
Real estate loans $13,335,820 $10,657,742
Non-real estate loans 2,921,876 2,877,825
Retail sales finance 1,230,563 1,302,922
Net finance receivables 17,488,259 14,838,489
Allowance for finance receivable losses (445,679) (455,402)
Net finance receivables, less allowance
for finance receivable losses 17,042,580 14,383,087
Investment securities 1,296,774 1,307,472
Cash and cash equivalents 197,869 136,223
Notes receivable from parent 297,517 276,666
Other assets 662,135 667,693
Total assets $19,496,875 $16,771,141
Liabilities and Shareholder's Equity
Long-term debt $12,883,794 $10,686,887
Short-term debt 3,297,039 3,184,529
Insurance claims and policyholder
liabilities 428,350 438,362
Other liabilities 443,978 372,416
Accrued taxes 76,491 37,518
Total liabilities 17,129,652 14,719,712
Shareholder's equity:
Common stock 5,080 5,080
Additional paid-in capital 1,054,175 951,175
Accumulated other comprehensive loss (8,793) (14,947)
Retained earnings 1,316,761 1,110,121
Total shareholder's equity 2,367,223 2,051,429
Total liabilities and shareholder's equity $19,496,875 $16,771,141
See Notes to Condensed Consolidated Financial Statements.
5
AMERICAN GENERAL FINANCE CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Six Months Ended
June 30,
2004 2003
(dollars in thousands)
Cash Flows from Operating Activities
Net income $ 206,642 $ 186,262
Reconciling adjustments:
Provision for finance receivable losses 122,266 144,106
Depreciation and amortization 84,945 94,247
Deferral of finance receivable origination
costs (39,490) (31,597)
Deferred income tax charge 2,420 285
Origination of real estate loans held for sale (60,261) (1,417,697)
Sales and principal collections of real estate
loans held for sale 74,407 1,280,593
Net gain on sale of finance receivables to
AGFI subsidiary for securitization - (20,661)
Change in other assets and other liabilities 129,838 (6,009)
Change in insurance claims and policyholder
liabilities (10,012) (22,497)
Change in taxes receivable and payable 2,452 4,567
Other, net (4,273) 8,648
Net cash provided by operating activities 508,934 220,247
Cash Flows from Investing Activities
Finance receivables originated or purchased (6,355,450) (3,760,694)
Principal collections on finance receivables 3,569,182 3,359,436
Sale of finance receivables to AGFI subsidiary
for securitization - 284,731
Acquisition of Wilmington Finance, Inc. - (93,189)
Investment securities purchased (357,506) (294,558)
Investment securities called and sold 326,050 244,236
Investment securities matured 6,100 13,800
Change in notes receivable from parent (20,851) 2,895
Change in premiums on finance receivables
purchased and deferred charges (11,878) 6,852
Other, net (6,951) (7,158)
Net cash used for investing activities (2,851,304) (243,649)
Cash Flows from Financing Activities
Proceeds from issuance of long-term debt 2,871,508 918,995
Repayment of long-term debt (683,002) (1,175,650)
Change in short-term debt 112,510 518,231
Capital contribution from parent 103,000 -
Dividends paid - (119,676)
Net cash provided by financing activities 2,404,016 141,900
Increase in cash and cash equivalents 61,646 118,498
Cash and cash equivalents at beginning of period 136,223 144,565
Cash and cash equivalents at end of period $ 197,869 $ 263,063
See Notes to Condensed Consolidated Financial Statements.
6
AMERICAN GENERAL FINANCE CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
2004 2003 2004 2003
(dollars in thousands)
Net income $104,775 $102,425 $206,642 $186,262
Other comprehensive (loss) gain:
Net unrealized (losses) gains:
Investment securities (52,972) 26,617 (37,285) 30,928
Interest rate swaps 23,569 (13,328) 15,776 (21,609)
Income tax effect:
Investment securities 18,541 (9,315) 13,050 (10,814)
Interest rate swaps (8,249) 4,663 (5,521) 7,562
Net unrealized (losses) gains,
net of tax (19,111) 8,637 (13,980) 6,067
Reclassification adjustments
for realized losses (gains)
included in net income:
Investment securities 932 (554) 163 2,298
Interest rate swaps 15,224 20,288 30,813 42,118
Income tax effect:
Investment securities (326) 194 (57) (804)
Interest rate swaps (5,329) (7,100) (10,785) (14,741)
Realized losses included in
net income, net of tax 10,501 12,828 20,134 28,871
Other comprehensive (loss) gain,
net of tax (8,610) 21,465 6,154 34,938
Comprehensive income $ 96,165 $123,890 $212,796 $221,200
See Notes to Condensed Consolidated Financial Statements.
7
AMERICAN GENERAL FINANCE CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
June 30, 2004
Note 1. Basis of Presentation
American General Finance Corporation will be referred to as "AGFC" or
collectively with its subsidiaries, whether directly or indirectly
owned, as the "Company" or "we". We prepared our condensed
consolidated financial statements using accounting principles
generally accepted in the United States for interim periods. The
statements include the accounts of AGFC and its subsidiaries, all of
which are wholly owned. We eliminated all intercompany items. AGFC
is a wholly owned subsidiary of American General Finance, Inc. (AGFI).
AGFI is an indirect wholly owned subsidiary of American International
Group, Inc. (AIG).
We made all adjustments, consisting only of normal recurring
adjustments, that we considered necessary for a fair presentation of
the Company's condensed consolidated financial statements. These
statements should be read in conjunction with the consolidated
financial statements and related notes included in our Annual Report
on Form 10-K for the year ended December 31, 2003. To conform to the
2004 presentation, we reclassified certain items in the prior period.
Note 2. Acquisition
Effective January 1, 2003, we acquired 100% of the common stock of
Wilmington Finance, Inc. (WFI), a majority owned subsidiary of WSFS
Financial Corporation, in a purchase business combination. The
purchase price was $120.8 million, consisting of $25.8 million for net
assets and $95.0 million for intangibles. The majority of the
tangible assets acquired were real estate loans held for sale. We
included the results of WFI's operations in our financial statements
beginning January 1, 2003, the effective date of the acquisition. We
finalized an independent valuation of the intangibles in second
quarter 2003 and recorded $54.2 million as goodwill and $40.8 million
as other intangibles. Goodwill and other intangibles are both
included in other assets. Other intangibles primarily consisted of
broker relationships and non-compete agreements and had an initial
weighted-average amortization period of 9 years. WFI originates non-
conforming residential real estate loans, primarily through broker
relationships and, to a lesser extent, directly to consumers, and
sells its originated loans to investors with servicing released to the
purchaser. Effective July 1, 2003, WFI and AIG Federal Savings Bank,
a non-subsidiary affiliate, entered into an agreement whereby for a
fee, WFI provides marketing, certain origination processing services,
loan servicing, and related services for the affiliate's origination
and sale of non-conforming residential real estate loans. These WFI
service activities have supplanted much of WFI's origination and sales
activity and are anticipated to do so going forward. WFI provides the
Company with other sources of revenue through its servicing fees and
net gain on sales of real estate loans held for sale. We report any
real estate loans we purchase from AIG Federal Savings Bank that were
generated using WFI's services as originations, rather than as
portfolio acquisitions, because AGFI and AIG Federal Savings Bank
share a common parent.
8
Note 3. Accounting Change
In December 2003, the Accounting Standards Executive Committee (AcSEC)
issued Statement of Position No. 03-3 (SOP 03-3) "Accounting for
Certain Loans or Debt Securities Acquired in a Transfer". SOP 03-3
addresses accounting for differences between contractual cash flows
and cash flows expected to be collected from an investor's initial
investment in loans acquired in a transfer if those differences are
attributable, at least in part, to credit quality. SOP 03-3 limits
the yield that may be accreted (accretable yield) to the excess of the
investor's estimate of undiscounted expected principal, interest, and
other cash flows (cash flows expected at acquisition to be collected)
over the investor's initial investment in the loan. SOP 03-3 requires
that the excess of contractual cash flows over cash flows expected to
be collected (nonaccretable difference) not be recognized as an
adjustment of yield, loss accrual, or valuation allowance. Subsequent
increases in cash flows expected to be collected generally should be
recognized prospectively through adjustment of the loan's yield over
its remaining life. Decreases in cash flows expected to be collected
should be recognized as impairment. SOP 03-3 is effective for loans
acquired in fiscal years beginning after December 15, 2004. In
addition, SOP 03-3 should be applied prospectively for fiscal years
beginning after December 15, 2004 for decreases in cash flows expected
to be collected on loans acquired in fiscal years beginning on or
before December 15, 2004. The AcSEC has encouraged early adoption of
SOP 03-3 by affected companies. We are currently in the process of
determining our date of adoption and the effect it will have on our
results of operations and financial position in future periods.
9
Note 4. Finance Receivables
Components of net finance receivables by type were as follows:
June 30, 2004
Real Non-real Retail
Estate Estate Sales
Loans Loans Finance Total
(dollars in thousands)
Gross receivables $13,271,691 $3,232,925 $1,349,716 $17,854,332
Unearned finance charges
and points and fees (127,375) (379,084) (130,802) (637,261)
Accrued finance charges 87,480 36,863 11,727 136,070
Deferred origination costs 26,130 27,387 - 53,517
Premiums, net of discounts 77,894 3,785 (78) 81,601
Total $13,335,820 $2,921,876 $1,230,563 $17,488,259
December 31, 2003
Real Non-real Retail
Estate Estate Sales
Loans Loans Finance Total
(dollars in thousands)
Gross receivables $10,598,133 $3,191,045 $1,436,756 $15,225,934
Unearned finance charges
and points and fees (131,037) (387,049) (145,056) (663,142)
Accrued finance charges 80,111 39,806 11,664 131,581
Deferred origination costs 19,424 28,244 - 47,668
Premiums, net of discounts 91,111 5,779 (442) 96,448
Total $10,657,742 $2,877,825 $1,302,922 $14,838,489
Note 5. Allowance for Finance Receivable Losses
Changes in the allowance for finance receivable losses were as
follows:
Three Months Ended Six Months Ended
June 30, June 30,
2004 2003 2004 2003
(dollars in thousands)
Balance at beginning of period $445,613 $450,668 $455,402 $453,668
Provision for finance
receivable losses 64,089 74,655 122,266 144,106
Allowance related to sale of
finance receivables to AGFI
subsidiary for securitization - (2,705) - (2,705)
Charge-offs (75,315) (82,347) (155,098) (164,955)
Recoveries 11,292 9,692 23,109 19,849
Balance at end of period $445,679 $449,963 $445,679 $449,963
10
Note 6. Derivative Financial Instruments
AGFC uses derivative financial instruments in managing the cost of its
debt and is neither a dealer nor a trader in derivative financial
instruments. AGFC has generally limited its use of derivative
financial instruments to interest rate swap agreements and foreign
currency swap agreements. These interest rate swap agreements and
foreign currency swap agreements are designated and qualify as cash
flow hedges or fair value hedges.
AGFC uses interest rate swap agreements to limit our exposure to
market interest rate risk in the funding of our operations. Most of
these swaps synthetically convert certain short-term or floating-rate
debt to a long-term fixed-rate. The synthetic long-term fixed rates
achieved through interest rate swap agreements are slightly lower than
the rates that could have been achieved by issuing comparable fixed-
rate, long-term debt. Additionally, AGFC has swapped fixed-rate,
long-term debt to floating-rate, long-term debt.
AGFC uses foreign currency swap agreements to limit our exposure to
foreign currency risk in the funding of our operations. These swaps
synthetically convert debt denominated in a foreign currency to U.S.
dollars.
As an alternative to funding without these derivative financial
instruments, we would have structured our debt issuances to limit our
exposure to market interest rate risk and foreign currency risk.
These debt issuances structured without derivative financial
instruments would have resulted in an immaterial difference in net
income when compared to funding with such instruments. Accordingly,
AGFC's interest rate swap agreements and foreign currency swap
agreements did not have a material effect on the Company's net income
during the six months ended June 30, 2004 or 2003.
Note 7. Accumulated Other Comprehensive Loss
Components of accumulated other comprehensive loss were as follows:
June 30, December 31,
2004 2003
(dollars in thousands)
Net unrealized losses on interest
rate swaps $(25,303) $(55,586)
Net unrealized gains on investment
securities 16,510 40,639
Total $ (8,793) $(14,947)
11
Note 8. Segment Information
We have two business segments: consumer finance and insurance. Our
segments are defined by the type of financial service product offered.
The consumer finance segment makes home equity loans, originates
secured and unsecured consumer loans, extends lines of credit, and
purchases retail sales contracts from, and provides revolving retail
services for, retail merchants. We also purchase, from AIG Federal
Savings Bank, a non-subsidiary affiliate, private label receivables
under a participation agreement and real estate loans under purchase
agreements. To supplement our lending and retail sales financing
activities, we purchase portfolios of real estate loans, non-real
estate loans, and retail sales finance receivables. We also provide
for a fee, marketing, certain origination processing services, and
loan servicing for AIG Federal Savings Bank and originate real estate
loans through brokers for sale to investors. We offer credit and non-
credit insurance products to our eligible consumer finance customers.
The insurance segment writes and reinsures credit and non-credit
insurance through products that are offered principally by the
consumer finance segment.
The following tables display information about the Company's segments
as well as a reconciliation of total segment pretax income to the
condensed consolidated financial statement amounts.
For the three months ended June 30, 2004:
Consumer Total
Finance Insurance Segments
(dollars in thousands)
Revenues:
External:
Finance charges $494,570 $ - $494,570
Insurance 188 43,491 43,679
Other 41,376 25,440 66,816
Intercompany 19,522 (17,641) 1,881
Pretax income 150,910 25,415 176,325
For the three months ended June 30, 2003:
Consumer Total
Finance Insurance Segments
(dollars in thousands)
Revenues:
External:
Finance charges $454,131 $ - $454,131
Insurance 219 42,453 42,672
Other 33,231 20,436 53,667
Intercompany 22,477 (16,832) 5,645
Pretax income 133,126 20,996 154,122
12
For the six months ended June 30, 2004:
Consumer Total
Finance Insurance Segments
(dollars in thousands)
Revenues:
External:
Finance charges $974,916 $ - $974,916
Insurance 391 88,989 89,380
Other 75,433 49,699 125,132
Intercompany 40,241 (35,737) 4,504
Pretax income 302,282 47,563 349,845
For the six months ended June 30, 2003:
Consumer Total
Finance Insurance Segments
(dollars in thousands)
Revenues:
External:
Finance charges $912,774 $ - $912,774
Insurance 445 87,935 88,380
Other 50,828 42,926 93,754
Intercompany 43,931 (34,881) 9,050
Pretax income 265,829 42,376 308,205
Reconciliations of total segment pretax income to the condensed
consolidated financial statement amounts were as follows:
Three Months Ended Six Months Ended
June 30, June 30,
2004 2003 2004 2003
(dollars in thousands)
Pretax income:
Segments $176,325 $154,122 $349,845 $308,205
Corporate (9,938) 5,909 (23,792) (9,330)
Adjustments (1,681) 377 (1,427) (9,034)
Consolidated pretax
income $164,706 $160,408 $324,626 $289,841
Adjustments for pretax income include realized gains (losses) and
certain other investment revenue, interest expense due to releveraging
of debt, and provision for finance receivable losses due to
redistribution of amounts provided for the allowance for finance
receivable losses. Adjustments for pretax income in 2003 also
included pension expense.
Note 9. Legal Contingencies
AGFC and certain of its subsidiaries are parties to various lawsuits
and proceedings, including certain purported class action claims,
arising in the ordinary course of business. In addition, many of
these proceedings are pending in jurisdictions that permit damage
awards disproportionate to the actual economic damages alleged to have
been incurred. Based upon information presently available, we believe
that the total amounts, if any, that will ultimately be paid arising
from these lawsuits and proceedings will not have a material adverse
13
effect on our consolidated results of operations or financial
position. However, the continued occurrences of large damage awards
in general in the United States, including large punitive damage
awards that bear little or no relation to actual economic damages
incurred by plaintiffs in some jurisdictions, create the potential for
an unpredictable judgment in any given suit.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
REPORT OF MANAGEMENT'S RESPONSIBILITY
The Company's management is responsible for the integrity and fair
presentation of our condensed consolidated financial statements and
all other financial information presented in this report. We prepared
our condensed consolidated financial statements using accounting
principles generally accepted in the United States (GAAP) for interim
periods. We made estimates and assumptions that affect amounts
recorded in the financial statements and disclosures of contingent
assets and liabilities.
The Company's management is responsible for establishing and
maintaining an internal control structure and procedures for financial
reporting. These systems are designed to provide reasonable assurance
that assets are safeguarded from loss or unauthorized use, that
transactions are recorded according to GAAP under management's
direction and that financial records are reliable to prepare financial
statements. We support the internal control structure with careful
selection, training and development of qualified personnel. The
Company's employees are subject to AIG's Code of Conduct designed to
assure that all employees perform their duties with honesty and
integrity. In second quarter 2004, AIG adopted the AIG Director,
Executive Officer, and Senior Financial Officer Code of Business
Conduct and Ethics, which covers such directors and officers of AIG
and its subsidiaries. We do not allow loans to executive officers.
The aforementioned systems include a documented organizational
structure and policies and procedures that we communicate throughout
the Company. Our internal auditors report directly to AIG to
strengthen independence. They continually monitor the operation of
our internal controls and report their findings to the Company's
management, AIG's management, and AIG's internal audit department. We
take prompt action to correct control deficiencies and address
opportunities to improve the systems. The Company's management
assesses any changes to our internal control structure quarterly.
Based on these assessments, management has concluded that the internal
control structure and the procedures for financial reporting have
functioned effectively and that the condensed consolidated financial
statements fairly present our consolidated financial position and the
results of our operations for the periods presented.
14
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q and our other publicly available
documents may include, and the Company's officers and representatives
may from time to time make, statements which may constitute "forward-
looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. These statements are not historical
facts but instead represent only our belief regarding future events,
many of which are inherently uncertain and outside of our control.
These statements may address, among other things, the Company's
strategy for growth, product development, regulatory approvals, market
position, financial results and reserves. The Company's actual
results and financial condition may differ, possibly materially, from
the anticipated results and financial condition indicated in these
forward-looking statements. The important factors, many of which are
outside of our control, which could cause the Company's actual results
to differ, possibly materially, include, but are not limited to, the
following:
* changes in general economic conditions, including the interest
rate environment in which we conduct business and the
financial markets through which we access capital and invest
cash flows from the insurance business segment;
* changes in the competitive environment in which we operate,
including the demand for our products, customer responsiveness
to our distribution channels and the formation of business
combinations among our competitors;
* the effectiveness of our credit risk scoring models in
assessing the risk of customer unwillingness or inability to
repay;
* shifts in collateral values, contractual delinquencies, and
credit losses;
* levels of unemployment and personal bankruptcies;
* our ability to access capital markets and maintain our credit
rating position;
* changes in laws or regulations that affect our ability to
conduct business or the manner in which we conduct business,
such as licensing requirements, pricing limitations or
restrictions on the method of offering products;
* the costs and effects of any litigation or governmental
inquiries or investigations that are determined adversely to
the Company;
* changes in accounting standards or tax policies and practices
and the application of such new policies and practices to the
manner in which we conduct business;
* our ability to integrate the operations of our acquisitions
into our businesses;
* changes in our ability to attract and retain employees or key
executives to support our businesses; and
* natural or accidental events such as fires or floods affecting
our branches or other operating facilities.
Readers are also directed to other risks and uncertainties discussed
in other documents we file with the SEC. We are under no obligation
to (and expressly disclaim any such obligation to) update or alter any
forward-looking statement, whether written or oral, that may be made
from time to time, whether as a result of new information, future
events or otherwise.
15
CRITICAL ACCOUNTING POLICIES
Our Credit Strategy and Policy Committee evaluates our finance
receivable portfolio monthly. The Credit Strategy and Policy
Committee exercises its judgment, based on quantitative analyses,
qualitative factors, and each committee member's experience in the
consumer finance industry, when determining the amount of the
allowance for finance receivable losses. If its review concludes that
an adjustment is necessary, we charge or credit this adjustment to
expense through the provision for finance receivable losses. We
consider this estimate to be a critical accounting estimate that
affects the net income of the Company in total and the pretax
operating income of our consumer finance business segment. We
document the adequacy of the allowance for finance receivable losses,
the analysis of the trends in credit quality, and the current economic
conditions considered by the Credit Strategy and Policy Committee to
support its conclusions. See Provision for Finance Receivable Losses
for further information on the allowance for finance receivable
losses.
OFF-BALANCE SHEET ARRANGEMENTS
We do not have any material off-balance sheet arrangements as defined
by SEC rules.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity
Our sources of funds include operations, issuances of long-term debt,
short-term borrowings in the commercial paper market, borrowings from
banks under credit facilities, and sales of finance receivables for
securitizations. AGFC has also received capital contributions from
its parent to support finance receivable growth and maintain targeted
leverage.
In second quarter 2004, AGFC issued its first foreign currency
denominated debt to further diversify its funding sources. The two
concurrent issues totaled 1.0 billion Euros ($1.2 billion) in
principal amount sold to European investors. We executed financial
derivative transactions to effectively convert the related foreign
currency exposure into U.S. dollars.
16
Principal sources and uses of cash were as follows:
Six Months Ended
June 30,
2004 2003
(dollars in millions)
Principal sources of cash:
Net issuances of debt $2,301.0 $261.6
Operations 508.9 220.2
Capital contribution 103.0 -
Sale of finance receivables to
AGFI subsidiary for securitization - 284.7
Total $2,912.9 $766.5
Principal uses of cash:
Net originations and purchases
of finance receivables $2,786.3 $401.3
Dividends paid - 119.7
Total $2,786.3 $521.0
Net originations and purchases of finance receivables and net
issuances of debt increased for the six months ended June 30, 2004
when compared to the same period in 2003 primarily due to increases in
WFI-related real estate loan production.
We believe that our overall sources of liquidity will continue to be
sufficient to satisfy our foreseeable operational requirements and
financial obligations. The principal factors that could decrease our
sources of liquidity are delinquent payments from our customers and an
inability to access capital markets. The principal factors that could
increase our cash needs are significant increases in net originations
and purchases of finance receivables. We intend to mitigate liquidity
risk by continuing to operate the Company by utilizing the following
existing strategies:
* maintain a finance receivable portfolio comprised mostly of
real estate loans, which generally represent a lower risk of
customer non-payment;
* originate and monitor finance receivables with our proprietary
credit risk management system;
* maintain an investment securities portfolio of predominantly
investment grade, liquid securities; and
* maintain a capital structure appropriate to our asset base.
Consistent execution of our business strategies should result in
continued profitability, strong credit ratings, and investor
confidence. These results should allow continued access to capital
markets for issuances of our commercial paper and long-term debt in a
cost efficient manner. At June 30, 2004, to access the domestic
capital markets we had $7.4 billion of long-term debt securities
registered under the Securities Act of 1933 that had not yet been
issued. Additionally, we believe that we have access to international
capital markets, as demonstrated by the Euro offering described above.
We also maintain committed bank credit facilities and have the ability
to sell a portion of our finance receivables for securitization to
provide additional sources of liquidity for needs potentially not met
through other funding sources.
17
Capital Resources
June 30,
2004 2003
Amount Percent Amount Percent
(dollars in millions)
Long-term debt $12,883.8 69% $ 9,331.8 63%
Short-term debt 3,297.0 18 3,579.4 24
Total debt 16,180.8 87 12,911.2 87
Equity 2,367.3 13 1,911.5 13
Total capital $18,548.1 100% $14,822.7 100%
Net finance receivables $17,488.3 $13,520.0
Debt to equity ratio 6.84x 6.75x
Debt to tangible equity ratio 7.51x 7.45x
Debt to tangible equity is a standard measure of financial risk in the
consumer finance industry. Reconciliations of equity to tangible
equity were as follows:
June 30,
2004 2003
(dollars in millions)
Equity $2,367.3 $1,911.5
Goodwill (220.5) (211.8)
Accumulated other comprehensive loss 8.8 34.0
Tangible equity $2,155.6 $1,733.7
Our capital varies primarily with the level of net finance
receivables. The capital mix of debt and equity is based primarily
upon maintaining leverage that supports cost-effective funding. AGFC
has historically paid dividends to (or received capital contributions
from) its parent to manage our leverage of debt to tangible equity to
a targeted amount. During second quarter 2004, AGFC received a $103.0
million capital contribution to maintain its leverage due to the
significant finance receivable growth during the quarter. Certain
AGFC financing agreements effectively limit the amount of dividends
AGFC may pay. These agreements have not prevented AGFC from managing
its capital to currently targeted leverage of 7.5 to 1.
We issue a combination of fixed-rate debt, principally long-term, and
floating-rate debt, principally short-term. AGFC obtains our fixed-
rate funding through public issuances of long-term debt with
maturities generally ranging from three to ten years. Most floating-
rate funding is through AGFC sales and refinancing of commercial paper
and through AGFC issuances of long-term, floating-rate debt.
Commercial paper, with maturities ranging from 1 to 270 days, is sold
to banks, insurance companies, corporations, and other accredited
investors. At June 30, 2004, short-term debt included $2.8 billion of
commercial paper. AGFC also sells extendible commercial notes with
initial maturities of up to 90 days, which may be extended by AGFC to
390 days. At June 30, 2004, short-term debt included $499.9 million
of extendible commercial notes.
18
Liquidity Facilities
We maintain credit facilities to support the issuance of commercial
paper and to provide an additional source of funds for operating
requirements. At June 30, 2004, AGFC had committed credit facilities
totaling $3.0 billion, including a facility under which AGFI is an
eligible borrower for up to $300 million. On July 15, 2004, $1.5
billion of AGFC's committed credit facilities expiring on that date
were resyndicated, and the amount was increased to $1.8 billion,
including an increase of AGFI's total eligible borrowing capacity up
to $400 million. The annual commitment fees for the facilities are
based upon AGFC's long-term credit ratings and averaged 0.07% at June
30, 2004.
At June 30, 2004, AGFC and certain of its subsidiaries also had an
uncommitted credit facility totaling $50.0 million which was shared
with AGFI and could be increased depending upon lender ability to
participate its loans under the facility.
There were no amounts outstanding under any facility at June 30, 2004
or June 30, 2003. AGFC does not guarantee any borrowings of AGFI.
ANALYSIS OF OPERATING RESULTS AND FINANCIAL CONDITION
Net Income
Three Months Ended Six Months Ended
June 30, June 30,
2004 2003 2004 2003
(dollars in millions)
Net income $104.8 $102.4 $206.6 $186.3
Amount change $ 2.4 $ 23.1 $ 20.3 $ 29.1
Percent change 2% 29% 11% 18%
Return on average
assets 2.24% 2.59% 2.30% 2.37%
Return on average
equity 18.82% 21.12% 19.05% 19.66%
Ratio of earnings to
fixed charges 2.12x 2.01x
See Note 8. of the Notes to Condensed Consolidated Financial
Statements for information on the results of the Company's business
segments.
19
Factors that specifically affected the Company's operating results
were as follows:
Finance Charges
Three Months Ended Six Months Ended
June 30, June 30,
2004 2003 2004 2003
(dollars in millions)
Finance charges $ 468.5 $ 423.4 $ 916.6 $ 854.1
Amount change $ 45.1 $ 10.4 $ 62.5 $ 27.4
Percent change 11% 3% 7% 3%
Average net receivables $16,740.6 $13,457.6 $15,982.2 $13,505.7
Yield 11.24% 12.61% 11.52% 12.73%
Finance charges increased due to the following:
Three Months Ended Six Months Ended
June 30, June 30,
2004 2003 2004 2003
(dollars in millions)
Increase in average
net receivables $ 91.7 $ 54.6 $135.4 $114.0
Decrease in yield (46.6) (44.2) (77.0) (86.6)
Increase in number of
days - - 4.1 -
Total $ 45.1 $ 10.4 $ 62.5 $ 27.4
Average net receivables by type and growth in average net receivables
when compared to the same periods for the previous year were as
follows:
Three Months Ended June 30,
2004 2003
Amount Growth Amount Growth
(dollars in millions)
Real estate loans $12,623.3 $3,238.8 $ 9,384.5 $1,782.4
Non-real estate loans 2,894.1 83.3 2,810.8 53.1
Retail sales finance 1,223.2 (39.1) 1,262.3 (54.9)
Total $16,740.6 $3,283.0 $13,457.6 $1,780.6
Percent change 24% 15%
20
Six Months Ended June 30,
2004 2003
Amount Growth Amount Growth
(dollars in millions)
Real estate loans $11,853.9 $2,473.3 $ 9,380.6 $1,840.3
Non-real estate loans 2,880.7 49.6 2,831.1 49.9
Retail sales finance 1,247.6 (46.4) 1,294.0 (56.2)
Total $15,982.2 $2,476.5 $13,505.7 $1,834.0
Percent change 18% 16%
The historically low interest rate environment contributed to the
increases in both originations and liquidations of our real estate
loans. Real estate loan production arising from WFI origination
services also increased real estate loan originations by $3.9 billion
during the last twelve months. Real estate loan acquisitions declined
during the last twelve months primarily due to an extremely
competitive pricing environment.
Yield by type and changes in yield in basis points (bp) when compared
to the same periods for the previous year were as follows:
Three Months Ended June 30,
2004 2003
Yield Change Yield Change
Real estate loans 8.65% (105) bp 9.70% (163) bp
Non-real estate loans 21.15 (19) 21.34 (41)
Retail sales finance 14.60 (22) 14.82 6
Total 11.24 (137) 12.61 (157)
Six Months Ended June 30,
2004 2003
Yield Change Yield Change
Real estate loans 8.82% (101) bp 9.83% (152) bp
Non-real estate loans 21.33 (8) 21.41 (43)
Retail sales finance 14.49 (25) 14.74 (10)
Total 11.52 (121) 12.73 (153)
Yield decreased for the three and six months ended June 30, 2004 when
compared to the same periods in 2003 primarily due to a lower real
estate loan yield resulting from the low interest rate environment and
a higher proportion of average net receivables that are real estate
loans.
21
Insurance Revenues
Insurance revenues were as follows:
Three Months Ended Six Months Ended
June 30, June 30,
2004 2003 2004 2003
(dollars in millions)
Earned premiums $44.2 $42.1 $88.9 $87.2
Commissions (0.5) 0.6 0.5 1.2
Total $43.7 $42.7 $89.4 $88.4
Amount change $ 1.0 $(5.4) $ 1.0 $(5.2)
Percent change 2% (11)% 1% (6)%
In second quarter 2004, we reclassified $.7 million of commissions on
non-insurance ancillary products from insurance revenues to other
revenues.
Other Revenues
Other revenues were as follows:
Three Months Ended Six Months Ended
June 30, June 30,
2004 2003 2004 2003
(dollars in millions)
Service fee income from a
non-subsidiary affiliate $ 40.7 $ 0.5 $ 76.3 $ 1.1
Miscellaneous:
Investment revenue 22.9 21.2 48.3 40.9
Net gain on sales of real
estate loans held for
sale 4.5 33.7 8.0 52.9
Interest revenue - notes
receivable from AGFI 3.8 3.5 7.6 6.7
Writedowns on real estate
owned (2.4) (1.7) (4.7) (3.9)
Net recovery on sales of
real estate owned 0.8 0.9 1.1 1.2
Net interest income on
real estate loans held
for sale 0.2 6.1 0.5 9.3
Net gain on sale of
finance receivables to
AGFI subsidiary for
securitization - 20.7 - 20.7
Other 4.4 3.7 6.8 4.9
Total $ 74.9 $88.6 $143.9 $133.8
Amount change $(13.7) $60.7 $ 10.1 $ 75.7
Percent change (15)% 217% 8% 130%
Other revenues increased for the six months ended June 30, 2004 when
compared to the same period in 2003 primarily due to higher service
fee income from a non-subsidiary affiliate and investment revenue,
partially offset by lower net gain on sales of real estate loans held
22
for sale, net gain on sale of finance receivables to a subsidiary of
AGFI for securitization in 2003, and lower net interest income on real
estate loans held for sale. Other revenues decreased for the three
months ended June 30, 2004 when compared to the same period in 2003
primarily due to net gain on sale of finance receivables to a
subsidiary of AGFI for securitization in 2003, lower net gain on sales
of real estate loans held for sale, and lower net interest income on
real estate loans held for sale, partially offset by higher service
fee income from a non-subsidiary affiliate and investment revenue.
Effective July 1, 2003, WFI and AIG Federal Savings Bank, a non-
subsidiary affiliate, entered into an agreement whereby for a fee, WFI
provides marketing, certain origination processing services, loan
servicing, and related services for the affiliate's origination and
sale of non-conforming residential real estate loans. These WFI
service activities have supplanted much of WFI's origination and sales
activity.
Investment revenue was affected by the following:
Three Months Ended Six Months Ended
June 30, June 30,
2004 2003 2004 2003
(dollars in millions)
Average invested assets $1,347.1 $1,298.0 $1,344.0 $1,294.9
Adjusted portfolio yield 6.84% 5.94% 7.00% 6.32%
Net realized (losses)
gains on investments $ (0.9) $ 0.6 $ (0.2) $ (2.3)
Interest Expense
The impact of using interest rate swap agreements to fix floating-rate
debt or float fixed-rate debt is included in interest expense and the
related borrowing statistics below.
Three Months Ended Six Months Ended
June 30, June 30,
2004 2003 2004 2003
(dollars in millions)
Interest expense $ 144.8 $ 134.6 $ 280.4 $ 276.4
Amount change $ 10.2 $ (2.5) $ 4.0 $ 3.3
Percent change 8% (2)% 1% 1%
Average borrowings $15,422.7 $12,798.7 $14,730.4 $12,759.8
Borrowing cost 3.75% 4.21% 3.81% 4.34%
Interest expense increased (decreased) due to the following:
Three Months Ended Six Months Ended
June 30, June 30,
2004 2003 2004 2003
(dollars in millions)
Increase in average
borrowings $ 28.1 $ 26.0 $ 42.8 $ 50.9
Decrease in borrowing
cost (17.9) (28.5) (38.8) (47.6)
Total $ 10.2 $ (2.5) $ 4.0 $ 3.3
23
Average borrowings by type and changes in average borrowings when
compared to the same periods for the previous year were as follows:
Three Months Ended June 30,
2004 2003
Amount Change Amount Change
(dollars in millions)
Long-term debt $11,614.4 $2,394.3 $ 9,220.1 $2,294.0
Short-term debt 3,808.3 229.7 3,578.6 (251.1)
Total $15,422.7 $2,624.0 $12,798.7 $2,042.9
Percent change 21% 19%
Six Months Ended June 30,
2004 2003
Amount Change Amount Change
(dollars in millions)
Long-term debt $11,049.6 $1,793.2 $ 9,256.4 $2,539.2
Short-term debt 3,680.8 177.4 3,503.4 (533.5)
Total $14,730.4 $1,970.6 $12,759.8 $2,005.7
Percent change 15% 19%
AGFC issued $4.6 billion of long-term debt during the last twelve
months. The proceeds of these long-term debt issuances were used to
support finance receivable growth and to refinance maturing debt.
Borrowing cost by type and changes in borrowing cost in basis points
when compared to the same periods for the previous year were as
follows:
Three Months Ended June 30,
2004 2003
Rate Change Rate Change
Long-term debt 4.15% (63) bp 4.78% (141) bp
Short-term debt 2.54 (22) 2.76 (38)
Total 3.75 (46) 4.21 (89)
Six Months Ended June 30,
2004 2003
Rate Change Rate Change
Long-term debt 4.21% (71) bp 4.92% (130) bp
Short-term debt 2.59 (24) 2.83 (35)
Total 3.81 (53) 4.34 (74)
Federal Reserve actions from 2001 through June 2003 created the lowest
interest rate environment since the 1950s and resulted in lower long-
term debt rates as new issuances were at substantially lower rates
than long-term debt being refinanced. In June 2004, the Federal
Reserve raised the federal funds rate 25 basis points.
24
Operating Expenses
Operating expenses were as follows:
Three Months Ended Six Months Ended
June 30, June 30,
2004 2003 2004 2003
(dollars in millions)
Salaries and benefits $124.5 $100.3 $242.8 $197.6
Other 70.9 69.5 140.7 132.7
Total $195.4 $169.8 $383.5 $330.3
Amount change $ 25.6 $ 32.0 $ 53.2 $ 51.7
Percent change 15% 23% 16% 19%
Operating expenses as a
percentage of average
net receivables 4.67% 5.05% 4.80% 4.89%
Operating expenses increased for the three and six months ended June
30, 2004 when compared to the same periods in 2003 primarily due to
growth in WFI operations and higher salaries and benefits and
advertising expenses. The increase in salaries and benefits reflected
approximately 520 WFI employees hired during the last twelve months.
The decrease in operating expenses as a percentage of average net
receivables for the three and six months ended June 30, 2004 when
compared to the same periods in 2003 reflected continued emphasis on
controlling operating expenses, partially offset by growth in WFI
operations. Approximately $35.9 million of the Company's operating
expenses for the three months ended June 30, 2004 and $65.6 million of
such expenses for the six months ended June 30, 2004 were directly
related to WFI operations, compared to $19.0 million for the three
months ended June 30, 2003 and $33.2 million for the six months ended
June 30, 2003.
Provision for Finance Receivable Losses
At or for the
Three Months Ended Six Months Ended
June 30, June 30,
2004 2003 2004 2003
(dollars in millions)
Provision for finance
receivable losses $ 64.1 $74.7 $122.3 $144.1
Amount change $(10.6) $ 3.6 $(21.8) $ 3.4
Percent change (14)% 5% (15)% 2%
Net charge-offs $ 64.0 $72.7 $132.0 $145.1
Charge-off ratio 1.56% 2.16% 1.67% 2.15%
Charge-off coverage 1.74x 1.55x 1.69x 1.55x
60 day+ delinquency $451.4 $517.6
Delinquency ratio 2.53% 3.73%
Allowance for finance
receivable losses $445.7 $450.0
Allowance ratio 2.55% 3.33%
25
Net charge-offs by type and changes in net charge-offs when compared
to the same periods for the previous year were as follows:
Three Months Ended June 30,
2004 2003
Amount Change Amount Change
(dollars in millions)
Real estate loans $13.9 $(0.7) $14.6 $ 2.3
Non-real estate loans 41.0 (5.9) 46.9 (1.0)
Retail sales finance 9.1 (2.1) 11.2 0.3
Total $64.0 $(8.7) $72.7 $ 1.6
Six Months Ended June 30,
2004 2003
Amount Change Amount Change
(dollars in millions)
Real estate loans $ 28.5 $ 1.6 $ 26.9 $ 2.5
Non-real estate loans 84.4 (11.1) 95.5 1.0
Retail sales finance 19.1 (3.6) 22.7 1.1
Total $132.0 $(13.1) $145.1 $ 4.6
The decrease in net charge-offs for the three and six months ended
June 30, 2004 when compared to the same periods in 2003 reflected
lower non-real estate loan and retail sales finance net charge-offs
primarily due to the improving economy. Real estate loan net charge-
offs increased for the six months ended June 30, 2004 when compared to
the same period in 2003 primarily due to an increase in real estate
loan average net receivables of $2.5 billion, or 26%.
Charge-off ratios by type and changes in charge-off ratios in basis
points when compared to the same periods for the previous year were as
follows:
Three Months Ended June 30,
2004 2003
Ratio Change Ratio Change
Real estate loans 0.45% (17) bp 0.62% (3) bp
Non-real estate loans 5.69 (99) 6.68 (28)
Retail sales finance 2.96 (57) 3.53 22
Total 1.56 (60) 2.16 (28)
Six Months Ended June 30,
2004 2003
Ratio Change Ratio Change
Real estate loans 0.49% (8) bp 0.57% (8) bp
Non-real estate loans 5.86 (87) 6.73 (4)
Retail sales finance 3.05 (44) 3.49 31
Total 1.67 (48) 2.15 (26)
26
The improvement in the charge-off ratios for the three and six months
ended June 30, 2004 when compared to the same periods in 2003 was
primarily due to the improving economy and a higher proportion of
average net receivables that were real estate loans.
Delinquency by type and changes in delinquency when compared to the
same period for the previous year were as follows:
June 30,
2004 2003
Amount Change Amount Change
(dollars in millions)
Real estate loans $276.5 $(40.6) $317.1 $65.9
Non-real estate loans 143.9 (19.6) 163.5 6.0
Retail sales finance 31.0 (6.0) 37.0 (0.4)
Total $451.4 $(66.2) $517.6 $71.5
Delinquency at June 30, 2004 was favorably impacted by the improving
economy.
Delinquency ratios by type and changes in delinquency ratios in basis
points when compared to the same period for the previous year were as
follows:
June 30,
2004 2003
Ratio Change Ratio Change
Real estate loans 2.08% (130) bp 3.38% 11 bp
Non-real estate loans 4.45 (78) 5.23 14
Retail sales finance 2.30 (35) 2.65 10
Total 2.53 (120) 3.73 9
The delinquency ratio at June 30, 2004 decreased when compared to June
30, 2003 primarily due to the improving economy and a higher
proportion of net finance receivables that were real estate loans.
Our Credit Strategy and Policy Committee evaluates our finance
receivable portfolio monthly to determine the appropriate level of the
allowance for finance receivable losses. We believe the amount of the
allowance for finance receivable losses is the most significant
estimate we make. In our opinion, the allowance is adequate to absorb
losses inherent in our existing portfolio. The decrease in the
allowance for finance receivable losses at June 30, 2004 when compared
to June 30, 2003 was due to net decreases to the allowance for finance
receivable losses through the provision for finance receivable losses
during the period totaling $4.3 million. These decreases were in
response to our lower levels of delinquency.
The allowance as a percentage of net finance receivables at June 30,
2004 decreased primarily due to improved net charge-off and
delinquency statistics caused by the improving economy and a higher
proportion of net finance receivables that were real estate loans.
Charge-off coverage, which compares the allowance for finance
receivable losses to net charge-offs (annualized), improved for the
three and six months ended June 30, 2004 when compared to the same
periods in 2003 due to lower net charge-offs.
27
Insurance Losses and Loss Adjustment Expenses
Insurance losses and loss adjustment expenses were as follows:
Three Months Ended Six Months Ended
June 30, June 30,
2004 2003 2004 2003
(dollars in millions)
Claims incurred $19.0 $19.4 $41.4 $42.0
Change in benefit
reserves (1.0) (4.2) (2.3) (6.5)
Total $18.0 $15.2 $39.1 $35.5
Amount change $ 2.8 $(4.6) $ 3.6 $(6.3)
Percent change 19% (23)% 10% (15)%
The change in benefit reserves for the three and six months ended June
30, 2003 reflected the release of benefit reserves resulting from the
termination of a reinsurance agreement. In April 2003, we terminated
a reinsurance agreement with a non-subsidiary affiliate and reversed
$3.6 million of annuity reserve expense and annuity premiums that we
previously recorded.
Provision for Income Taxes
Three Months Ended Six Months Ended
June 30, June 30,
2004 2003 2004 2003
(dollars in millions)
Provision for income
taxes $ 59.9 $ 58.0 $118.0 $103.6
Amount change $ 1.9 $ 14.2 $ 14.4 $ 16.7
Percent change 3% 32% 14% 19%
Pretax income $164.7 $160.4 $324.6 $289.8
Effective income
tax rate 36.39% 36.15% 36.34% 35.74%
Provision for income taxes increased for the three and six months
ended June 30, 2004 when compared to the same periods in 2003
primarily due to higher taxable income.
Asset/Liability Management
In an effort to reduce the risk associated with unfavorable changes in
interest rates not met by favorable changes in finance charge yields
of our finance receivables, we monitor the anticipated cash flows of
our assets and liabilities, principally our finance receivables and
debt. We fund finance receivables with a combination of fixed-rate
and floating-rate debt and equity. Management determines the mix of
fixed-rate and floating-rate debt based, in part, on the nature of the
finance receivables being supported.
28
We limit our exposure to market interest rate increases by fixing
interest rates that we pay for term periods. The primary means by
which we accomplish this is by issuing fixed-rate, long-term debt. To
supplement fixed-rate debt issuances, AGFC also alters the nature of
certain floating-rate funding by using interest rate swap agreements
to create synthetic fixed-rate, long-term debt, thereby limiting our
exposure to market interest rate increases. Additionally, AGFC has
swapped fixed-rate, long-term debt to floating-rate, long-term debt.
Including the impact of interest rate swap agreements that effectively
fix floating-rate debt or float fixed-rate debt, our floating-rate
debt represented 36% of our borrowings at June 30, 2004 compared to
42% at June 30, 2003. Adjustable-rate net finance receivables
represented 23% of our net finance receivables at June 30, 2004
compared to 25% at June 30, 2003.
Item 4. Controls and Procedures.
(a) Evaluation of disclosure controls and procedures
The conclusions of our principal executive officer and principal
financial officer about the effectiveness of the Company's
disclosure controls and procedures based on their evaluation of
these controls and procedures as of June 30, 2004 are as follows:
The Company's disclosure controls and procedures are designed to
ensure that information required to be disclosed by the Company
is recorded, processed, summarized and reported within required
timeframes. The Company's disclosure controls and procedures
include controls and procedures designed to ensure that
information required to be disclosed is accumulated and
communicated to the Company's management, including its principal
executive officer and principal financial officer, as appropriate
to allow timely decisions regarding required disclosure.
The Company's management, including its principal executive
officer and principal financial officer, evaluates the
effectiveness of our disclosure controls and procedures as of the
end of each quarter. Based on an evaluation of the disclosure
controls and procedures as of June 30, 2004, the Company's
principal executive officer and principal financial officer have
concluded that the disclosure controls and procedures have
functioned effectively and that the condensed consolidated
financial statements fairly present our consolidated financial
position and the results of our operations for the periods
presented.
(b) Changes in internal control over financial reporting
There was no change in the Company's internal control over
financial reporting during the three months ended June 30, 2004,
that has materially affected, or is reasonably likely to
materially affect, the Company's internal control over financial
reporting.
29
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
See Note 9. of the Notes to Condensed Consolidated Financial
Statements in Part I of this Form 10-Q.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
Exhibits are listed in the Exhibit Index beginning on page 31
herein.
(b) Reports on Form 8-K.
No Current Reports on Form 8-K were filed during the second
quarter of 2004.
30
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 CORPORATION
(Registrant)
Date: August 3, 2004 By /s/ Donald R. Breivogel, Jr.
Donald R. Breivogel, Jr.
Senior Vice President and Chief
Financial Officer
(Duly Authorized Officer and
Principal Financial Officer)
31
Exhibit Index
Exhibit
(12) Computation of Ratio of Earnings to Fixed Charges
(31.1) Rule 13a-14(a)/15d-14(a) Certifications
(31.2) Rule 13a-14(a)/15d-14(a) Certifications
(32) Section 1350 Certifications