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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1993
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to _________.
Commission File Number: 1-7422
American General Finance, Inc.
(Exact name of registrant as specified in its charter)
Indiana 35-1313922
(State of incorporation) (I.R.S. Employer Identification No.)
601 N. W. Second Street, Evansville, IN 47708
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (812) 424-8031
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months, and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K [ ]. Not applicable.
The registrant meets the conditions set forth in General Instructions
J(1)(a) and (b) of Form 10-K and is therefore filing this Form 10-K with
the reduced disclosure format.
As of March 23, 1994, no voting stock of registrant was held by a
non-affiliate.
As of March 23, 1994, there were 2,000,000 shares of the registrant's
common stock, $.50 par value, outstanding.
2
TABLE OF CONTENTS
Item Page
Part I 1. Business . . . . . . . . . . . . . . . . . . . . . . . 3
2. Properties . . . . . . . . . . . . . . . . . . . . . . 14
3. Legal Proceedings . . . . . . . . . . . . . . . . . . 15
4. Submission of Matters to a Vote of Security-Holders. . *
Part II 5. Market for Registrant's Common Equity and Related
Stockholder Matters . . . . . . . . . . . . . . . . 16
6. Selected Financial Data . . . . . . . . . . . . . . . 16
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . . . . 17
8. Financial Statements and Supplementary Data . . . . . 23
9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure . . . . . . . **
Part III 10. Directors and Executive Officers of the Registrant . . *
11. Executive Compensation . . . . . . . . . . . . . . . . *
12. Security Ownership of Certain Beneficial Owners
and Management . . . . . . . . . . . . . . . . . . . *
13. Certain Relationships and Related Transactions . . . . *
Part IV 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K . . . . . . . . . . . . . . . . . . . . 51
* Items 4, 10, 11, 12, and 13 are not included, as per conditions
met by Registrant set forth in General Instructions J(1)(a) and
(b) of Form 10-K.
** Item 9 is not included, as no information was required by Item
304 of Regulation S-K.
3
PART I
Item 1. Business.
GENERAL
American General Finance, Inc. (AGFI) is a financial services holding
company whose principal subsidiaries are American General Finance
Corporation (AGFC) and American General Financial Center (AGF-Utah). AGFC
is also a holding company with subsidiaries that are engaged primarily in
the consumer finance and credit insurance business. The credit insurance
operations are conducted by Merit Life Insurance Co. (Merit) and Yosemite
Insurance Company (Yosemite) as a part of the Company's consumer finance
business. AGF-Utah is an industrial loan company engaged primarily in the
consumer finance business with funding for its operations including public
deposits insured by the Federal Deposit Insurance Corporation. Unless the
context otherwise indicates, references to the Company relate to AGFI and
its subsidiaries, whether directly or indirectly owned.
At December 31, 1993, the Company had 1,204 offices in 39 states, Puerto
Rico, and the Virgin Islands. In January 1994, a purchasing office was
opened in Texas increasing the total number of states in which the Company
operates to 40. Total finance receivables net of unearned finance charges
as of December 31, 1993, were $6.6 billion. At December 31, 1993, the
Company employed approximately 7,300 persons. The Company's executive
offices are located in Evansville, Indiana.
AGFI was incorporated under the laws of the State of Indiana in 1974 to
become the parent holding company of AGFC. AGFC was incorporated under the
laws of the State of Indiana in 1927 as successor to a business started in
1920. Since 1982, AGFI has been a direct or indirect wholly-owned
subsidiary of American General Corporation (American General), a consumer
financial services organization incorporated in the State of Texas in 1980
as the successor to American General Insurance Company, a Texas insurance
company incorporated in 1926.
Certain amounts in the 1992 and 1991 information presented herein have been
reclassified to conform to the 1993 presentation.
4
Item 1. Continued
Selected Financial Statistics
The following table sets forth certain selected financial information and
ratios of the Company and illustrates certain aspects of the Company's
business for the years indicated:
1993 1992 1991
(dollars in thousands)
Average finance receivables
net of unearned finance
charges (ANR) $6,387,044 $5,939,417 $5,904,893
Average borrowings $5,693,080 $5,317,836 $5,261,270
Finance charges as a
percentage of ANR (yield) 16.9% 16.7% 16.6%
Interest expense as a
percentage of average
borrowings (borrowing cost) 6.7% 7.5% 8.4%
Spread between yield and
borrowing cost 10.2% 9.2% 8.2%
Insurance revenues as a
percentage of ANR 2.2% 2.0% 1.9%
Operating expenses as a
percentage of ANR 5.2% 5.2% 4.9%
Allowance for finance receivable
losses as a percentage of net
finance receivables 2.8% 2.6% 2.5%
Net charge-offs as a percentage
of ANR (charge-off ratio) 2.2% 2.2% 2.3%
Delinquency ratio - 60 days or more
(defined in Finance Receivable
Loss and Delinquency Experience
in Item 1. herein.) 2.5% 2.2% 2.6%
Debt to equity ratio 5.3 5.3 5.2
Return on average assets 2.6% 2.3% 2.0%
Return on average assets before
deducting cumulative effect
of accounting changes 2.8% 2.3% 2.0%
5
Item 1. Continued
1993 1992 1991
Return on average equity 18.1% 15.7% 12.8%
Return on average equity before
deducting cumulative effect
of accounting changes 19.2% 15.7% 12.8%
Ratio of earnings to fixed charges
(refer to Exhibit 12 in Item 14.
herein for calculations) 1.9 1.6 1.5
CONSUMER FINANCE OPERATIONS
Through its subsidiaries, the Company makes loans directly to individuals,
purchases retail sales contract obligations of individuals, and offers
credit card services.
In its lending operations, the Company generally takes a security interest
in real property and/or personal property of the borrower. Of the loans
outstanding at December 31, 1993, 89% were secured by such property. At
December 31, 1993, mortgage loans (generally second mortgages) accounted
for 11% of the total number of loans outstanding and 53% of the aggregate
dollar amount of loans outstanding; compared to 13% and 58%, respectively,
at December 31, 1992. Loans secured by real property generally have
maximum original terms of 180 months. Loans secured by personal property
or that are unsecured generally have maximum original terms of 60 months.
The Company purchases retail sales contracts arising from the retail sale
of consumer goods and services. Retail sales contracts are secured by the
real property or personal property giving rise to the contract. Retail
sales contracts generally have a maximum original term of 60 months.
Through AGF-Utah, the Company provides various credit card services,
including the issuance of MasterCard and Visa credit cards to individuals
through branch and direct mail solicitation programs, and manages private
label credit card programs for various business entities. Credit card
receivables are all unsecured and require minimum monthly payments based on
current balances.
Finance Receivables
All data in this report on finance receivables (except as otherwise
indicated) are calculated on a net basis -- that is, after deduction of
unearned finance charges but before deduction of an allowance for finance
receivable losses.
6
Item 1. Continued
The following table sets forth certain information concerning finance
receivables of the Company:
Years Ended December 31,
1993 1992 1991
Originated, renewed and purchased:
Amount (in thousands):
Real estate loans $ 939,769 $ 841,898 $ 825,067
Non-real estate loans 2,499,113 1,969,564 1,647,277
Retail sales contracts 1,172,089 917,108 711,206
Credit cards 797,373 633,617 471,325
Total originated and renewed 5,408,344 4,362,187 3,654,875
Purchased (net of sales) 31,501 259,492 213,925
Total originated, renewed,
and purchased $5,439,845 $4,621,679 $3,868,800
Number:
Real estate loans 58,163 48,778 45,425
Non-real estate loans 1,280,639 915,311 742,728
Retail sales contracts 1,037,858 810,088 568,383
Average size (to nearest dollar):
Real estate loans $16,158 $17,260 $18,163
Non-real estate loans 1,951 2,152 2,218
Retail sales contracts 1,129 1,132 1,251
Balance at end of period:
Amount (in thousands):
Real estate loans $2,641,879 $2,782,297 $2,953,272
Non-real estate loans 2,318,102 2,054,380 1,817,076
Retail sales contracts 922,856 871,503 791,003
Credit cards 691,151 491,506 383,541
Total $6,573,988 $6,199,686 $5,944,892
Number:
Real estate loans 153,562 153,621 154,430
Non-real estate loans 1,270,167 1,074,511 914,468
Retail sales contracts 888,632 756,887 582,173
Credit cards 441,263 360,796 293,216
Total 2,753,624 2,345,815 1,944,287
Average size (to nearest dollar):
Real estate loans $17,204 $18,111 $19,124
Non-real estate loans 1,825 1,912 1,987
Retail sales contracts 1,039 1,151 1,359
Credit cards 1,566 1,362 1,308
7
Item 1. Continued
ANR
The following table details ANR by type of finance receivable for the years
indicated:
1993 1992 1991
(dollars in thousands)
Loans $4,942,508 $4,736,611 $4,755,033
Retail sales contracts 895,288 781,701 793,401
Credit cards 549,248 421,105 356,459
Total $6,387,044 $5,939,417 $5,904,893
Yield
The following table details yield for the years indicated:
1993 1992 1991
Loans 17.0% 16.6% 16.4%
Retail sales contracts 15.7% 16.0% 15.5%
Credit cards 18.0% 19.3% 21.5%
Total 16.9% 16.7% 16.6%
Geographic Distribution
See Note 4. of the Notes to Consolidated Financial Statements in Item 8.
herein for information on geographic distribution of finance receivables.
8
Item 1. Continued
Finance Receivable Loss and Delinquency Experience
The finance receivable loss experience for the Company for the periods
indicated is set forth in the net charge-off and charge-off ratio(a)
information below:
Years Ended December 31,
1993 1992 1991
(dollars in thousands)
Real estate loans:
Net charge-offs $ 20,325 $ 21,403 $ 19,087
Charge-off ratio .7% .8% .6%
Non-real estate loans:
Net charge-offs $ 79,016 $ 71,052 $ 72,341
Charge-off ratio 3.7% 4.0% 4.4%
Total loans:
Net charge-offs $ 99,341 $ 92,455 $ 91,428
Charge-off ratio 2.0% 2.0% 1.9%
Retail sales contracts:
Net charge-offs $ 17,049 $ 11,887 $ 14,220
Charge-off ratio 1.9% 1.5% 1.8%
Credit cards:
Net charge-offs $ 24,358 $ 24,738 $ 28,236
Charge-off ratio 4.5% 5.9% 8.0%
Total:
Net charge-offs $140,748 $129,080 $133,884
Charge-off ratio 2.2% 2.2% 2.3%
Allowance for finance
receivable losses (b) $183,756 $161,678 $151,091
Allowance ratio (b) 2.8% 2.6% 2.5%
(a) The charge-off ratio represents charge-offs net of recoveries as a
percentage of the average of the amount of net finance receivables at
the beginning of each month during the period.
(b) The amount shown for allowance for finance receivable losses represents
the balance at the end of the period. The allowance ratio represents
the allowance for finance receivable losses at the end of the period as
a percentage of net finance receivables.
The allowance for finance receivable losses is maintained at a level based
on management's periodic evaluation of the finance receivable portfolio and
reflects an amount that, in management's opinion, is adequate to absorb
losses in the existing portfolio. In evaluating the portfolio, management
takes into consideration numerous factors, including current economic
conditions, prior finance receivable loss and delinquency experience, the
composition of the finance receivable portfolio, and management's estimate
of anticipated finance receivable losses.
9
Item 1. Continued
AGFI's basic policy is to charge off each month loan accounts, except those
secured by real estate, on which little or no collections were made in the
prior six-month period. Retail sales contracts are charged off when four
installments are past due. Credit card accounts are charged off when 180
days past due. In the case of loans secured by real estate, foreclosure
proceedings are instituted when four monthly installments are past due.
When foreclosure is completed and the Company has obtained title to the
property, the real estate is established as an asset valued at market
value, and any loan value in excess of that amount is charged off.
Exceptions are made to the charge-off policies when, in the opinion of
management, such treatment is warranted.
Based upon contract terms in effect at the respective dates, delinquency(a)
was as follows:
December 31,
1993 1992 1991
(dollars in thousands)
Real estate loans $ 48,426 $ 53,046 $ 64,064
% of related receivables 1.8% 1.8% 2.1%
Non-real estate loans $102,855 $ 75,449 $ 75,731
% of related receivables 3.8% 3.2% 3.6%
Total loans $151,281 $128,495 $139,795
% of related receivables 2.8% 2.4% 2.7%
Retail sales contracts $ 14,887 $ 10,770 $ 11,672
% of related receivables 1.4% 1.0% 1.2%
Credit cards $ 15,396 $ 13,273 $ 14,822
% of related receivables 2.2% 2.7% 3.9%
Total $181,564 $152,538 $166,289
% of related receivables 2.5% 2.2% 2.6%
(a) Finance receivables any portion of which was 60 days or more past due
(including unearned finance charges and excluding deferred origination
costs, a fair value adjustment on finance receivables and accrued
interest).
Sources of Funds
AGFI funds its consumer finance operations principally through net cash
flows from operating activities, issuances of long-term debt, short-term
borrowings in the commercial paper market, and borrowings from banks. The
spread between the rates charged in consumer finance operations and the
cost of borrowed funds is one of the major factors determining the
Company's earnings. The Company is limited by statute in most states to
a maximum rate which it may charge in its lending operations. A
relatively high ratio of borrowings to invested capital is customary in the
consumer finance industry and is an important element in profitable
operations.
10
Item 1. Continued
Average Borrowings
The following table details average borrowings by type of debt for the
years indicated:
1993 1992 1991
(dollars in thousands)
Long-term debt $3,856,328 $3,181,509 $2,566,305
Short-term debt 1,781,165 1,889,874 1,923,684
Investment certificates 55,587 246,453 771,281
Total $5,693,080 $5,317,836 $5,261,270
Borrowing Cost
The following table details interest expense as a percentage of average
borrowings by type of debt for the years indicated:
1993 1992 1991
Long-term debt 7.9% 8.7% 9.2%
Short-term debt 4.1% 5.6% 7.5%
Investment certificates 4.7% 6.3% 7.8%
Total 6.7% 7.5% 8.4%
Contractual Maturities
Contractual maturities of loans and retail sales contracts, and debt as of
December 31, 1993 were as follows:
Loans and Retail
Sales Contracts Debt
(dollars in thousands)
Due in:
1994 $2,079,612 $2,489,678
1995 1,219,180 938,565
1996 758,336 562,853
1997 375,914 352,361
1998 224,437 243,130
1999 and thereafter 1,225,358 1,256,577
Total $5,882,837 $5,843,164
See Note 4. of the Notes to Consolidated Financial Statements in Item 8.
herein for further information on principal cash collections of finance
receivables.
11
Item 1. Continued
INSURANCE OPERATIONS
Merit is a life and health insurance company domiciled in Indiana and
currently licensed in 43 states and the District of Columbia. Merit writes
or assumes (through affiliated and non-affiliated insurance companies)
credit life, credit accident and health, and ordinary insurance coverages.
Yosemite is a property and casualty insurance company domiciled in
California and licensed in 41 states which principally underwrites credit-
related property and casualty coverages.
Both Merit and Yosemite market their products through the consumer finance
network of the Company. The credit life insurance policies typically cover
the life of the borrower in an amount equal to the unpaid balance of the
obligation and provide for payment in full to the lender of the insured's
obligation in the event of death. The credit accident and health insurance
policies provide for the payment of the installments on the insured's
obligation to the lender coming due during a period of unemployment or
disability due to illness or injury. The credit-related property and
casualty insurance is written to protect property pledged as security for
the obligation. The purchase by the borrower of credit life, credit
accident and health, and credit property and casualty insurance is
voluntary with the exception of property damage coverage for automobiles,
dwellings, and commercial real estate pledged as collateral. In these
instances, property damage coverage is provided under the terms of the
lending agreement if the borrower does not provide evidence of coverage
with another insurance carrier. Premiums for insurance products are
financed as part of the insured's obligation to the lender.
Merit has from time to time entered into reinsurance agreements with other
insurance companies, including certain American General subsidiaries, for
assumptions of various shares of annuities and ordinary, group, and credit
life insurance on a coinsurance basis. The reserves attributable to this
business fluctuate over time and in certain instances are subject to
recapture by the ceding company. At December 31, 1993, life reserves on
the books of Merit attributable to this business amounted to $74.2 million.
The following tables set forth information concerning the insurance
operations:
Life Insurance in Force December 31,
1993 1992 1991
(dollars in thousands)
Credit life $2,547,784 $2,221,940 $1,955,560
Ordinary life 2,373,685 2,208,685 2,189,817
Total $4,921,469 $4,430,625 $4,145,377
12
Item 1. Continued
Premiums Earned Years Ended December 31,
1993 1992 1991
(dollars in thousands)
Insurance premiums earned in
connection with affiliated
finance and loan activities:
Credit life $ 35,711 $ 30,324 $ 28,794
Credit accident and health 42,978 34,222 29,968
Property 25,686 18,594 15,370
Other insurance premiums earned:
Ordinary life 20,823 19,344 22,177
Premiums assumed under
coinsurance agreements 12,318 6,984 5,783
Total $137,516 $109,468 $102,092
Premiums Written Years Ended December 31,
1993 1992 1991
(dollars in thousands)
Insurance premiums written in
connection with affiliated
finance and loan activities:
Credit life $ 41,036 $ 36,605 $ 27,975
Credit accident and health 56,839 44,029 36,695
Property 47,358 19,344 18,250
Other insurance premiums written:
Ordinary life 20,823 23,968 20,233
Premiums assumed under
coinsurance agreements 12,318 6,984 5,035
Total $178,374 $130,930 $108,188
Investments and Investment Results
The investment portfolio of the Company's insurance subsidiaries is subject
to state insurance laws and regulations which prescribe the nature, quality
and percentage of various types of investments which may be made by
insurance companies.
13
Item 1. Continued
The following table summarizes the investment results of the Company's
insurance subsidiaries for the periods indicated:
Years Ended December 31,
1993 1992 1991
(dollars in thousands)
Net investment revenue (a) $ 55,654 $ 54,134 $ 51,023
Average invested assets $666,982 $597,631 $549,359
Return on invested assets (a) 8.3% 9.1% 9.3%
Net realized investment gains
(losses) (b) $ 7,101 $ 1,937 $ (1,694)
(a) Net investment revenue and return on invested assets are after
deduction of investment expense but before net realized investment
gains (losses) and provision for income taxes.
(b) Includes net realized investment gains (losses) on marketable
securities and other invested assets before provision for income taxes.
REGULATION
Consumer Finance
The Company operates under various state laws which regulate the consumer
lending and retail sales financing businesses. The degree and nature of
such regulation varies from state to state. In general, the laws under
which a substantial amount of the Company's business is conducted provide
for state licensing of lenders, impose maximum term, amount, interest rate
and other charge limitations, and enumerate whether and under what
circumstances insurance and other ancillary products may be sold in
connection with a lending transaction. In addition, certain of these laws
prohibit the taking of liens on real estate except liens resulting from
judgments.
The Company also is subject to various types of federal regulation,
including the Federal Consumer Credit Protection Act, the Equal Credit
Opportunity Act, the Fair Credit Reporting Act, and certain Federal Trade
Commission rules. AGF-Utah, which engages in the consumer finance business
and accepts insured deposits, is subject to regulation by and reporting
requirements of the Federal Deposit Insurance Corporation and is subject to
regulatory codes in the state of Utah.
It is difficult for the Company to predict to what extent its business will
be affected by changes in economic, competitive, political and
international conditions, state and federal laws and regulations, judicial
or administrative interpretations, and taxation.
14
Item 1. Continued
Insurance
The operations of the Company's insurance subsidiaries are subject to
regulation and supervision by state authorities. The extent of such
regulation varies but relates primarily to conduct of business, types of
products offered, standards of solvency, payment of dividends, licensing,
nature of and limitations on investments, deposits of securities for the
benefit of policyholders, the approval of policy forms and premium rates,
periodic examination of the affairs of insurers, form and content of
required financial reports and establishment of reserves required to be
maintained for unearned premiums, losses and other purposes. Substantially
all of the states in which the Company operates regulate the rates of
premiums charged for credit life and credit accident and health insurance
issued with respect to all credit transactions by the Company in those
states.
COMPETITION
Consumer Finance
The consumer finance business in which the Company engages is highly
competitive. The Company competes with other consumer finance companies,
industrial banks, industrial loan companies, commercial banks, sales
finance companies, savings and loan associations, credit unions, mutual or
cooperative agencies and others. See Competitive Factors in Item 7. herein
for more information.
Insurance
The Company's insurance business generally operates as an ancillary
business to the consumer lending operations. As such, the competition for
this business is relatively limited.
Item 2. Properties.
Due to the nature of the Company's business, its investment in real estate
and tangible property is not significant in relation to its total assets.
AGFI and certain of its subsidiaries own real estate on which AGFI and
other affiliates conduct business. Branch office operations are generally
conducted in leased premises. Leases are ordinarily entered into for
three- to five-year terms.
The Company's exposure to environmental regulation arises from its
ownership of such properties. The properties are monitored for compliance
with federal and local guidelines. Potential costs related to
environmental clean-up are estimated to be immaterial.
15
Item 3. Legal Proceedings.
The Company is a defendant in various lawsuits arising in the normal course
of business. The Company believes it has valid defenses in these lawsuits
and is defending them vigorously. The Company also believes that the total
amounts that would ultimately have to be paid, if any, arising from these
lawsuits would have no material effect on its consolidated financial
position or its consolidated results of operations.
16
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters.
There is no trading market for AGFI's common stock, all of which is owned
by American General. The frequency and amount of cash dividends declared
on AGFI's common stock for the years indicated were as follows:
Quarter Ended 1993 1992
(dollars in thousands)
March 31 $ 26,000 $ 58,000
June 30 42,100 33,240
September 30 52,900 -
December 31 48,198 41,600
$169,198 $132,840
See Management's Discussion and Analysis of Financial Condition and Results
of Operations in Item 7. herein, as well as Note 13. of Notes to
Consolidated Financial Statements in Item 8. herein, with respect to
limitations on the ability of AGFI to pay dividends.
Item 6. Selected Financial Data.
The following selected financial data are derived from the consolidated
financial statements of the Company. The data should be read in
conjunction with the consolidated financial statements, related notes, and
other financial information included herein.
Selected Financial Data
Years Ended December 31,
1993(a) 1992 1991 1990 1989
(dollars in thousands)
Total revenues $1,288,777 $1,170,371 $1,141,662 $1,114,068 $1,072,817
Net income (b) 195,741 161,908 135,020 121,925 86,107
December 31,
1993(a) 1992 1991 1990 1989
(dollars in thousands)
Total assets $7,658,775 $7,210,763 $6,906,025 $6,802,524 $6,534,341
Long-term debt 4,018,797 3,604,371 2,819,045 2,239,448 2,348,158
17
Item 6. Continued
(a) The Company adopted three new accounting standards through cumulative
adjustments as of January 1, 1993, resulting in a one-time reduction
of net income of $12.7 million. See Note 2. of the Notes to
Consolidated Financial Statements in Item 8. herein for information on
the adoption of new accounting standards.
(b) Per share information is not included because all of the common stock
of AGFI is owned by American General.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Liquidity and Capital Resources
Overview. The Company believes that its overall sources of liquidity will
continue to be sufficient to satisfy its foreseeable financial obligations.
Operating Activities. The Consolidated Statements of Cash Flows included
in Item 8. herein indicate the adjustments for non-cash items in order to
reconcile net income to net cash from operating activities. Such non-cash
items include the provision for finance receivable losses, the depreciation
and amortization of assets, the deferral of finance receivable origination
costs, the change in other assets and other liabilities and the change in
insurance claims and policyholder liabilities.
Net cash flows from operating activities include the receipt of finance
charges on finance receivables and the payment of interest on borrowings,
the payment of operating expenses and income taxes, the receipt of
insurance premiums and payment of contractual obligations to policyholders,
and net investment revenue. The Company's increase in finance charges for
1993 and 1992 when compared to the respective previous year reflects an
increase in ANR and yield. The decline in interest expense for 1993 and
1992 when compared to the respective previous year reflects a decline in
both short-term and long-term borrowing cost which more than offsets the
increase in average borrowings. Operating expenses increased for 1993 and
1992 when compared to the respective previous year primarily due to
increases in salaries, benefits, and occupancy costs. These expenses
increased primarily due to an increase in the number of consumer finance
offices in the third quarter of 1992 and the additional employees required
to operate such offices.
Investing Activities. Net cash flows from investing activities include
funding finance receivables originated or purchased, which is the Company's
primary requirement for cash, and principal collections on finance
receivables, which is the Company's primary source of cash. Finance
receivables originated or purchased and principal collections on finance
receivables increased for 1993 and 1992 when compared to the respective
previous year due to business development efforts and the continuance of
the Company's historical practice of purchasing portfolios of receivables.
18
Item 7. Continued
Also included in net cash flows from investing activities are the
marketable securities purchased and sold by the insurance operations.
Financing Activities. To the extent net cash flows from operating
activities do not match net cash flows from investing activities, the
Company adjusts its financing activities accordingly. Net cash flows from
financing activities include proceeds from issuance of long-term debt and
short-term debt as major sources of funds, and repayment of such borrowings
and the payment of dividends as major uses of funds. The ability of AGFI
to pay dividends is substantially dependent on the receipt of dividends or
other funds from its subsidiaries. See Note 13. of the Notes to
Consolidated Financial Statements in Item 8. herein for information on
dividend restrictions. The Company's decrease in investment certificates
for 1993 and 1992 when compared to the respective previous year reflects
the Company's decision to reduce its usage of this source of funds. The
Company's issuances of long-term debt for 1993 and 1992 reflect the
replacement of maturing issues of long-term interest obligations, asset
growth and the long-term funding opportunities resulting from declining
long-term interest rates.
The Company's principal borrowing subsidiary is AGFC, a direct, wholly-
owned subsidiary of the Company. AGFC obtains funds by the issuance of
commercial paper, long-term debt, and through bank borrowings. AGFC is a
party to various interest conversion agreements, which are used to manage
its exposure to the volatility of short-term interest rates. On a
portfolio basis, the Company attempts generally to match the cash flows of
its debt to those anticipated for its finance receivables. Fixed-rate
finance receivables are generally funded with fixed-rate debt while
floating-rate finance receivables are generally funded with commercial
paper. Some of the long-term debt agreements of AGFC contain restrictive
covenants which limit the amount of various levels of debt based upon
maintenance of defined ratios.
Credit Facilities. Credit facilities are maintained to support the
issuance of commercial paper by AGFC and as an additional source of funds
for operating requirements. See Note 7. of the Notes to Consolidated
Financial Statements in Item 8. herein for additional information on credit
facilities.
Analysis of Operating Results
See Selected Financial Statistics in Item 1. herein, for illustration of
important aspects of the Company's business and to provide a frame of
reference for the discussion following.
Net income for the years ended December 31, 1993, 1992, and 1991, was
$195.7 million, $161.9 million, and $135.0 million, respectively.
19
Item 7. Continued
Factors which specifically affected the Company's operating results are as
follows:
Finance Charges. Changes in finance charge revenues, the principal
component of total revenues, are a function of period to period changes in
the levels of ANR, the yield, and the number of days in the periods
compared. ANR for 1993 and 1992 increased when compared to the respective
previous year. The increases resulted from receivables originated or
renewed by the Company due to business development efforts and the
continuance of the Company's historical practice of purchasing portfolios
of receivables. The yield for 1993 and 1992 increased when compared to the
respective previous year primarily due to increased emphasis on higher-rate
non-real estate secured loans during 1993 and 1992 and higher yield on
retail sales contracts for 1992. The additional day in 1992 also increased
finance charge revenues for 1992 when compared to 1993 and 1991.
Insurance Revenues. There was an increase in insurance premiums earned for
1993 when compared to 1992 primarily due to the increase in premiums
written in 1992 when compared to 1991. Insurance premiums written also
increased for 1993 when compared to 1992 primarily due to an increase in
the sale of the core credit and credit-related insurance products that
resulted from increased loan volume, insurance product roll-outs, and the
assumption of additional reinsurance business. Insurance premiums earned
increased in 1992 when compared to 1991 primarily due to the increase in
premiums written in 1991 when compared to 1990.
Other Revenues. Other revenues increased for 1993 and 1992 when compared
to the respective previous year primarily due to an increase in investment
revenue. The increase in investment revenue is due to the increased amount
of investments in marketable securities and realized investment gains
partially offset by a decline in investment yields. The decline in
investment yields is primarily due to the low interest rate environment
which caused some higher-yielding investments to be called. The proceeds
of the called investments were reinvested at then current rates.
Interest Expense. Changes in interest expense are a function of period to
period changes in the borrowing cost, average borrowings, and the number of
days in the periods compared. The borrowing cost for 1993 and 1992
decreased when compared to the respective previous year due to the decline
in short-term interest rates and the issuance of long-term debt at rates
lower than the rates on fixed-rate obligations maturing, redeemed or that
remain outstanding. Average borrowings for 1993 and 1992 increased when
compared to the respective previous year primarily to fund asset growth.
Operating Expenses. Operating expenses increased for 1993 and 1992 when
compared to the respective previous period. The increases were primarily
due to increases in salaries, benefits, and occupancy costs. These
expenses increased primarily due to an increase in the number of consumer
finance offices in the third quarter of 1992 and the additional employees
required to operate such offices. The increase in operating expenses for
1993 and 1992 when compared to the respective previous year was partially
offset by the increase in deferral of finance receivable origination costs.
Operating expenses also increased for 1993 when compared to 1992 due to a
major branch office automation program.
20
Item 7. Continued
Provision for Finance Receivable Losses. Provision for finance receivable
losses for 1993 increased when compared to 1992 due to an increase in net
charge-offs and amounts provided for the allowance for finance receivable
losses. Provision for finance receivable losses for 1992 decreased when
compared to 1991 due to a decrease in net charge-offs partially offset by
an increase in the amounts provided for the allowance for finance
receivable losses. Net charge-offs for 1993 increased when compared to
1992 primarily due to the increase in ANR. The allowance for finance
receivable losses for 1993 and 1992 increased when compared to the
respective previous year primarily due to the increase in net finance
receivables and to bring the balance to appropriate levels based upon the
economic climate, portfolio mix, levels of delinquency, and net charge-
offs.
Insurance Losses and Loss Adjustment Expenses. Insurance losses and loss
adjustment expenses for 1993 increased when compared to 1992 primarily due
to an increase in premiums written and the assumption of additional
reinsurance business, slightly offset by a decrease in loss ratios.
Insurance losses and loss adjustment expenses for 1992 also increased when
compared to 1991. This increase was primarily due to an increase in
premiums written and annuity payments that were made beginning in 1992 on
annuity business which was acquired in 1991.
Cumulative Effect of Accounting Changes. The adoption of three new
accounting standards resulted in a cumulative adjustment effective January
1, 1993 consisting of a one-time charge to earnings of $12.7 million.
Other than the cumulative effect, adoption of these new accounting
standards did not have a material effect on 1993 net income and is not
expected to have a material impact in the future. See Note 2. of the Notes
to Consolidated Financial Statements in Item 8. herein for information on
the adoption of new accounting standards.
Analysis of Financial Condition
At December 31, 1993, the Company's assets are distributed primarily as
follows: 83.4% in finance receivables, 9.1% in marketable securities, 3.9%
in acquisition-related goodwill and 3.6% in other assets.
Asset Quality. The Company believes that its geographic diversification
reduces the risk associated with a recession in any one region. An
additional indication of asset quality is that of the loans and retail
sales contracts outstanding, 91% are secured by real property or personal
property.
The delinquency ratio increased for 1993 when compared to 1992 reflecting
increases in the delinquency ratio of loans, due to the Company's emphasis
on non-real estate secured loans, and retail sales contracts, partially
offset by a decrease in the delinquency ratio of credit cards. The charge-
off ratio for 1993 remained at near the same level when compared to 1992
with the increase in the charge-off ratio of retail sales contracts offset
by the decrease in the charge-off ratio of credit cards. While finance
receivables have some exposure to further economic uncertainty, the Company
21
Item 7. Continued
believes that in the present environment, the allowance for finance
receivable losses is adequate.
Marketable securities principally represent the investment portfolio of the
Company's insurance operations. The investment strategy is to maximize
after-tax returns on invested assets, subject to the constraints of safety,
liquidity, diversification, and regulation.
The largest intangible asset is acquisition-related goodwill which is being
amortized over periods of twenty or forty years. The carrying value of
this asset is regularly reviewed for indicators of impairment in value.
The value and remaining life are considered appropriate.
Operating Requirements. The Company's principal operating requirements for
cash are: funding finance receivables, payment of interest, payment of
operating expenses and income taxes, and contractual obligations to
policyholders. The principal sources of cash are collections of finance
receivables and finance charges, and proceeds from the issuance of debt.
The overall sources of cash available to the Company are expected to be
more than sufficient to satisfy operating requirements in 1994.
Capital Requirements. Long-term debt repayments and maturities plus normal
refinancing of short-term debt and any funds required to support growth in
finance receivables are expected to be financed through the issuance of new
long-term and short-term debt and surplus operating cash.
Asset/Liability Management. Anticipated cash flows of the Company's assets
and liabilities are managed in an effort to reduce the risk associated with
unfavorable changes in interest rates. On a portfolio basis, the Company
generally attempts to match cash flows of its debt to those anticipated for
its finance receivables. Fixed-rate finance receivables are generally
funded with fixed-rate debt while floating-rate finance receivables are
generally funded with commercial paper. The Company has also entered into
interest conversion agreements to effectively fix interest rates on a
portion of its floating rate obligations.
Business Environment Factors
The Company operates in a business environment in which effective and
efficient managerial performance, and a prudent lending and investment
strategy are essential. The three most relevant environmental factors
affecting the Company are economic, regulatory, and competitive.
22
Item 7. Continued
Economic Factors
The three key economic factors that affect the results of the Company are
interest rates, inflation, and recession/recovery.
Interest Rates. The pricing of products and services must be sensitive to
changes in interest rates if profit margins are to be maintained or
improved. Fluctuations in interest rates also affect the duration of the
assets and liabilities supporting these products and services.
Inflation. Inflation affects the Company's growth and operating costs.
The Company endeavors to facilitate growth through pricing strategies and
to offset the effects of increasing operating costs through cost control.
Recession/Recovery. The impact on the Company of economic recession/
recovery will depend on the cycle's duration and severity. A cycle
influences the number of defaults on finance receivables and investments.
The Company believes that it can mitigate the potential impact of cycles by
using conservative lending, underwriting and investment policies, and by
geographic diversification.
Regulatory Factors
The regulatory environment of the consumer finance and insurance industries
is described in Item 1. Taxation is another regulatory factor affecting
the Company. A risk to any business is that changes in state and federal
tax laws or regulations may affect the way that the business operates.
Since tax laws affect not only the way that the Company is taxed but also
the design of many of its products, these laws and regulations and the way
they are interpreted are of concern to the Company. The Company monitors
federal and state tax legislation and responds with appropriate tax
planning in order to minimize the impact of taxation.
Competitive Factors
Consumer finance companies compete with other types of financial
institutions which offer similar products and services. Competition in
financial services markets also continues to intensify due to an increase
in the number and sophistication of financial products, technological
improvement, and more rapid communication.
The Company has positioned itself to meet the continuing challenge of
competition in three primary ways:
Customer Focus. The Company focuses on selling financial service products
to low- to middle-income consumers.
Customer Service. The Company concentrates on delivering quality service
to its customers. This is done through one of the industry's largest
domestic branch networks.
23
Item 7. Continued
Productivity. The Company continuously monitors performance of its
branches and products. Organizational and procedural changes are made as
necessary to manage marketing and cost effectiveness.
Item 8. Financial Statements and Supplementary Data.
The Report of Independent Auditors and the related consolidated financial
statements are presented on the following pages.
24
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
American General Finance, Inc.
We have audited the accompanying consolidated balance sheets of American
General Finance, Inc. (a wholly-owned subsidiary of American General
Corporation) as of December 31, 1993 and 1992, and the related consolidated
statements of income, shareholder's equity and cash flows for each of the
three years in the period ended December 31, 1993. Our audit also included
the financial statement schedule listed in the Index at Item 14(a). These
financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial
position of American General Finance, Inc. and subsidiaries at December 31,
1993 and 1992, and the consolidated results of their operations and their
cash flows for each of the three years in the period ended December 31,
1993, in conformity with generally accepted accounting principles. Also,
in our opinion, the related financial statement schedule, when considered
in relation to the basic financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.
As discussed in Note 2. of the Notes to Consolidated Financial Statements,
in 1993 the Company changed its method of accounting for postretirement
benefits other than pensions, income taxes, postemployment benefits,
reinsurance, loan impairments, and certain investments in debt and equity
securities, as a result of adopting recently promulgated accounting
standards governing the accounting treatment for these items.
ERNST & YOUNG
Nashville, Tennessee
February 14, 1994
25
American General Finance, Inc. and Subsidiaries
Consolidated Balance Sheets
December 31,
Assets 1993 1992
(dollars in thousands)
Finance receivables, net of unearned
finance charges (Note 4.):
Loans $4,959,981 $4,836,677
Retail sales contracts 922,856 871,503
Credit cards 691,151 491,506
Net finance receivables 6,573,988 6,199,686
Deduct allowance for finance receivable
losses (Note 5.) 183,756 161,678
Net finance receivables, less allowance
for finance receivable losses 6,390,232 6,038,008
Marketable securities (Note 3.) 699,697 585,811
Cash and cash equivalents 48,374 43,584
Goodwill (Note 6.) 299,653 310,736
Other assets (Note 6.) 220,819 232,624
Total assets $7,658,775 $7,210,763
26
December 31,
Liabilities and Shareholder's Equity 1993 1992
(dollars in thousands)
Long-term debt (Note 11.) $4,018,797 $3,604,371
Short-term notes payable (Notes 7. and 8.)
Commercial paper 1,643,961 1,708,281
Banks and other 171,000 150,558
Investment certificates (Note 9.) 9,406 73,528
Insurance claims and policyholder
liabilities 415,488 363,174
Other liabilities 231,737 225,847
Accrued taxes 57,686 34,117
Total liabilities 6,548,075 6,159,876
Shareholder's equity (Notes 3., 12., and 13.)
Common stock 1,000 1,000
Additional paid-in capital 616,021 615,874
Net unrealized investment gains 33,740 617
Retained earnings 459,939 433,396
Total shareholder's equity 1,110,700 1,050,887
Total liabilities and shareholder's equity $7,658,775 $7,210,763
See Notes to Consolidated Financial Statements.
27
American General Finance, Inc. and Subsidiaries
Consolidated Statements of Income
Years Ended December 31,
1993 1992 1991
(dollars in thousands)
Revenues
Finance charges $1,082,660 $ 994,296 $ 977,166
Insurance 142,856 119,272 110,069
Other 63,261 56,803 54,427
Total revenues 1,288,777 1,170,371 1,141,662
Expenses
Interest expense 379,764 398,168 440,086
Operating expenses 330,122 307,782 286,781
Provision for finance receivable
losses 162,847 135,102 136,885
Insurance losses and loss
adjustment expenses 79,214 66,603 59,410
Total expenses 951,947 907,655 923,162
Income before provision for income
taxes and cumulative effect of
accounting changes 336,830 262,716 218,500
Provision for Income Taxes
(Note 10.) 128,437 100,808 83,480
Income before cumulative effect
of accounting changes 208,393 161,908 135,020
Cumulative Effect of Accounting
Changes (Note 2.) 12,652 - -
Net Income $ 195,741 $ 161,908 $ 135,020
See Notes to Consolidated Financial Statements.
28
American General Finance, Inc. and Subsidiaries
Consolidated Statements of Shareholder's Equity
Years Ended December 31,
1993 1992 1991
(dollars in thousands)
Preferred Stock
Balance at beginning of year $ - $ - $ 495,500
Retired - - 495,500
Balance at end of year - - -
Common Stock
Balance at beginning of year 1,000 1,000 1,000
Balance at end of year 1,000 1,000 1,000
Additional Paid-in Capital
Balance at beginning of year 615,874 615,874 120,374
Capital contribution from parent
and other 147 - 495,500
Balance at end of year 616,021 615,874 615,874
Net Unrealized Investment Gains
Balance at beginning of year 617 655 427
Change in non-redeemable
preferred stock investments (318) (38) 228
Effect of accounting change
on fixed-maturity investments 33,441 - -
Balance at end of year 33,740 617 655
Retained Earnings
Balance at beginning of year 433,396 404,328 442,113
Net income 195,741 161,908 135,020
Cash dividends:
Preferred stock - - (48,311)
Common stock (169,198) (132,840) (124,494)
Balance at end of year 459,939 433,396 404,328
Total Shareholder's Equity $1,110,700 $1,050,887 $1,021,857
See Notes to Consolidated Financial Statements.
29
American General Finance, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Years Ended December 31,
1993 1992 1991
(dollars in thousands)
Cash Flows from Operating Activities
Net Income $195,741 $161,908 $135,020
Reconciling adjustments to net cash
provided by operating activities:
Provision for finance receivable losses 162,847 135,102 136,885
Depreciation and amortization 112,555 91,738 79,019
Deferral of finance receivable
origination costs (71,113) (51,057) (34,697)
Deferred federal income tax charge (7,617) 759 5,390
Change in other assets and other
liabilities 38,863 (10,093) 51,854
Change in insurance claims and
policyholder liabilities 52,314 16,117 3,746
Other, net (4,768) 7,365 (4,458)
Net cash provided by operating activities 478,822 351,839 372,759
Cash Flows from Investing Activities
Finance receivables originated or purchased (4,319,581) (3,681,888) (3,116,574)
Principal collections on finance receivables 3,796,839 3,292,077 2,870,596
Marketable securities purchased (193,386) (179,702) (94,943)
Marketable securities called, matured and sold 141,429 127,871 61,667
Purchase of affiliate - - (1,036)
Other, net (38,708) (28,814) (13,506)
Net cash used for investing activities (613,407) (470,456) (293,796)
Cash Flows from Financing Activities
Proceeds from issuance of long-term debt 1,004,823 1,033,894 1,008,974
Repayment of long-term debt (594,848) (267,783) (432,577)
Change in investment certificates (64,122) (370,560) (370,223)
Net decrease in short-term notes payable (43,878) (156,231) (133,884)
Dividends paid (162,600) (136,818) (150,155)
Net cash provided by (used for) financing
activities 139,375 102,502 (77,865)
Increase (decrease) in cash and cash equivalents 4,790 (16,115) 1,098
Cash and cash equivalents at beginning of year 43,584 59,699 58,601
Cash and cash equivalents at end of year $ 48,374 $ 43,584 $ 59,699
Supplemental Disclosure of Cash Flow Information
Income taxes paid $112,156 $ 88,470 $ 66,368
Interest paid $384,855 $391,645 $432,074
See Notes to Consolidated Financial Statements.
30
American General Finance, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1993
Note 1. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of American
General Finance, Inc. (AGFI) and all of its subsidiaries (the Company)
including American General Finance Corporation (AGFC) and American General
Financial Center (AGF-Utah). The subsidiaries are all wholly-owned and all
intercompany items have been eliminated. AGFI is a wholly-owned subsidiary
of American General Corporation (American General).
Reclassifications
Certain amounts in the 1992 and 1991 financial statements have been
reclassified to conform to the 1993 presentation.
Finance Receivable Revenue
Revenue on finance receivables is accounted for as follows:
(1) Finance charges on discounted finance receivables and interest on
interest-bearing finance receivables are recognized as revenue on the
accrual basis using the interest method. The accrual of revenue is
suspended when the fourth contractual payment becomes past due for
loans and retail sales contracts and when the sixth contractual
payment becomes past due for credit cards.
(2) Extension fees and late charges are recognized as revenue when
received.
(3) Nonrefundable points and fees on loans and retail sales contracts are
recognized on the accrual basis using the interest method over the
lesser of the contractual term or the estimated life based upon
prepayment experience. Effective January 1, 1992, the Company
changed, on a prospective basis, the estimated life over which
nonrefundable points and fees are amortized to finance charges to the
lesser of the contractual term or 50 months for real estate secured
finance receivables and 19 months for non-real estate secured finance
receivables. This change did not have a material impact on the
results of operations of the Company. For loans and retail sales
contracts originated prior to January 1, 1992, the estimated life over
which nonrefundable points and fees are amortized to finance charges
continues to be 36 months. If a loan or retail sales contract
liquidates before amortization is completed, any unamortized fees are
recognized as revenue at the date of liquidation. Deferred annual
fees on credit cards are not material.
31
Notes to Consolidated Financial Statements, Continued
Finance Receivable Origination Costs
The Company defers costs associated with the origination of loans and
credit card receivables. Deferred loan origination costs are included in
finance receivables and are required to be amortized to finance charges
using the interest method over the contractual term or the estimated
economic life of the loans. In 1992, the Company changed, on a prospective
basis, the method used to amortize deferred loan origination costs to
revenue, and the term over which such deferred costs are amortized.
Effective January 1, 1992, deferred costs on loans originated are amortized
to finance charges using the interest method over the lesser of the
contractual term or 50 months for real estate secured loans and 19 months
for non-real estate secured loans. This change did not have a material
impact on the results of operations of the Company. For loans originated
prior to January 1, 1992, the Company amortizes these deferred costs over
the contractual term or 24 months on a straight-line basis; which produces
a result not materially different from the interest method over 36 months,
which was the estimated life based upon prepayment experience. If a loan
liquidates before amortization is completed, any unamortized costs are
charged to revenue at the date of liquidation. Deferred costs for the
origination of credit cards are not material.
Allowance For Finance Receivable Losses
The allowance for finance receivable losses is maintained at a level based
on management's periodic evaluation of the finance receivable portfolio and
reflects an amount that, in management's opinion, is adequate to absorb
losses in the existing portfolio. In evaluating the portfolio, management
takes into consideration numerous factors, including current economic
conditions, prior finance receivable loss and delinquency experience, the
composition of the finance receivable portfolio, and management's estimate
of anticipated finance receivable losses.
AGFI's basic policy is to charge off each month loan accounts, except those
secured by real estate, on which little or no collections were made in the
prior six-month period. Retail sales contracts are charged off when four
installments are past due. Credit card accounts are charged off when 180
days past due. In the case of loans secured by real estate, foreclosure
proceedings are instituted when four monthly installments are past due.
When foreclosure is completed and the Company has obtained title to the
property, the real estate is established as an asset valued at market value
and any loan value in excess of that amount is charged off. Exceptions are
made to the charge-off policies when, in the opinion of management, such
treatment is warranted.
Cash Equivalents
The Company considers all short-term investments with a maturity at date of
purchase of three months or less to be cash equivalents.
32
Notes to Consolidated Financial Statements, Continued
Marketable Securities
Prior to December 31, 1993, the Company reported marketable securities in
accordance with the then-existing accounting standards. Investments in
bonds and redeemable preferred stocks were considered held for investment
purposes and were carried at cost, adjusted where appropriate for
amortization of premiums or discounts. Investments in non-redeemable
preferred stocks were stated at fair value and net unrealized gains or
losses on revaluation of these stocks were credited or charged to
shareholder's equity.
Effective with the adoption of Statement of Financial Accounting Standards
115 (see Note 2.), management determines the appropriate classification of
marketable securities at the time of purchase and re-evaluates such
designation as of each balance sheet date. All marketable securities are
currently classified as available-for-sale and recorded at fair value. The
fair value adjustment, net of deferred taxes, is recorded in net unrealized
investment gains within shareholder's equity.
Interest Conversion Agreements
The interest differential to be paid or received on interest conversion
agreements is accrued as interest rates change and is recognized over the
life of the agreements as an adjustment to interest expense.
Realized Gains or Losses
The difference between the selling price and cost of an investment is
recorded as a gain or loss (using the specific identification method) and
is included in other revenues.
If the fair value of an investment declines below its cost or amortized
cost and this decline is considered to be other than temporary, the
investment is reduced to its fair value, and the reduction is recorded as a
realized loss.
Insurance Operations
The Company's insurance subsidiaries are engaged in writing credit life and
credit accident and health insurance, ordinary life insurance, and property
and casualty insurance. Premiums on credit life insurance are recognized
as revenue using using the sum-of-the-digits or actuarial methods, except
in the case of level-term contracts, which are recognized as revenue using
the straight-line method over the lives of the policies. Premiums on
credit accident and health insurance are recognized as revenue using an
average of the sum-of-the-digits and the straight-line methods. Ordinary
life insurance premiums are reported as earned when collected but not
before their due dates. Premiums on property and casualty insurance are
recognized as revenue using the straight-line method over the terms of the
policies or appropriate shorter periods.
33
Notes to Consolidated Financial Statements, Continued
Policy reserves for credit life and credit accident and health insurance
are equal to related unearned premiums, and claim reserves are based on
company experience. Liabilities for future life insurance policy benefits
associated with ordinary life contracts are accrued when premium revenue is
recognized and are computed on the basis of assumptions as to investment
yields, mortality, and withdrawals. Annuity reserves are computed on the
basis of assumptions as to investment yields and mortality. Reserves for
losses and loss adjustment expenses of the property and casualty insurance
company are based upon estimates of claims reported plus estimates of
incurred but not reported claims. Ordinary life, group annuity, and
accident and health insurance reserves assumed under coinsurance agreements
are established on the bases of various tabular and unearned premium
methods.
Insurance acquisition costs, principally commissions, reinsurance fees, and
premium taxes, are deferred and charged to expense over the terms of the
related policies or reinsurance agreements.
The Company's insurance subsidiaries enter into reinsurance agreements
among themselves and other insurers, including insurance subsidiaries of
American General. The life reserves attributable to this business with the
subsidiaries of American General were $62.6 million and $63.4 million at
December 31, 1993 and 1992, respectively. In 1993, the Company's insurance
subsidiaries assumed from and ceded to other insurers $42.5 million and
$3.7 million of reinsurance premiums, respectively. Liabilities for unpaid
claims and claim adjustment expenses and receivables for reinsurance
credits are included in the balance sheet at their respective gross
amounts. The Company's insurance subsidiaries remain liable to the extent
reinsurers do not meet their obligations.
Statutory accounting practices differ from generally accepted accounting
principles, primarily in the following respects: credit life insurance
reserves are maintained on the basis of mortality tables; ordinary life and
group annuity insurance reserves are based on statutory requirements;
insurance acquisition costs are expensed when incurred rather than expensed
over the related contract period; deferred income taxes are not recorded on
temporary differences in the recognition of revenue and expense for tax
versus statutory reporting purposes; certain intangible assets resulting
from a purchase and the related amortization are not reflected in statutory
financial statements; and a security valuation reserve is required for
Merit Life Insurance Co. (Merit), which is a wholly-owned subsidiary of
AGFC. The following compares net income and shareholder's equity
determined under statutory accounting practices with those determined under
generally accepted accounting principles:
Net Income Shareholder's Equity
Years Ended December 31, December 31,
1993 1992 1991 1993 1992
(dollars in thousands)
Statutory accounting
practices $31,080 $32,128 $22,837 $245,175 $221,233
Generally accepted
accounting principles 39,363 38,164 34,991 386,821 317,636
34
Notes to Consolidated Financial Statements, Continued
Effective December 31, 1991, an indirect insurance subsidiary of American
General was purchased by a subsidiary of AGFI. Total assets at the time of
purchase were $12.3 million. The cash paid for the affiliate as shown in
the Consolidated Statements of Cash Flows was $1.0 million.
Fair Value of Financial Instruments
Fair values are based on estimates using discounted cash flows when quoted
market prices are not available. Those techniques are significantly
affected by the assumptions used, including the discount rate and estimates
of future cash flows. In that regard, the derived fair value estimates
cannot be substantiated by comparison to independent markets and, in many
cases, could not be realized in immediate settlement of the instrument.
The fair value amounts presented can be misinterpreted, and care should be
exercised in drawing conclusions from such data.
Cash and Cash Equivalents. The carrying amounts reported in the
Consolidated Balance Sheets for cash and cash equivalents approximate those
assets' fair values.
Marketable Securities. Fair values for investment securities are based on
quoted market prices, where available. For investments not actively
traded, fair values were estimated using values obtained from independent
pricing services or, in the case of private placements, by discounting
expected future cash flows using a current market rate applicable to yield,
credit quality, and maturity of the investment.
Finance Receivables. The fair values for fixed-rate finance receivables
are estimated using discounted cash flow analysis, using interest rates
currently being offered for finance receivables with similar terms to
borrowers of similar credit quality. For variable-rate finance receivables
that reprice frequently and with no significant change in credit risk, fair
values are based on carrying values.
Interest Conversion Agreements. Fair values for the Company's interest
conversion agreements are based on estimates, obtained from the individual
counterparties, of the cost or benefit of terminating the agreements.
Unused Customer Credit Lines. The unused credit lines available to the
Company's customers are considered to have no fair value. The interest
rates charged on these facilities are either variable and reprice
frequently, such as for revolving lines of credit, or can be changed at the
Company's discretion, such as for credit cards. Furthermore, these
amounts, in part or in total, may be cancelled at the discretion of the
Company.
Credit Facilities. The Company's committed credit facilities are
substantially short-term, and therefore no fair value is determined.
Long-term Debt. The fair values of the Company's long-term borrowings are
estimated using discounted cash flows based on current borrowing rates.
35
Notes to Consolidated Financial Statements, Continued
Short-term Notes Payable. The carrying value of short-term notes payable
approximates the fair value.
Investment Certificates. Fair values for fixed-rate time deposits are
estimated using a discounted cash flow calculation that applies interest
rates currently being offered on time deposits to a schedule of aggregated
expected monthly maturities on time deposits. The carrying amounts for
variable-rate time deposits approximate their fair values at the reporting
date. The fair values disclosed for demand deposits are, by definition,
equal to the amount payable on demand at the reporting date.
Note 2. New Accounting Standards
During 1993, the Company adopted six new Statements of Financial Accounting
Standards (SFAS) issued by the Financial Accounting Standards Board.
The Company adopted SFAS 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions," through a cumulative adjustment, effective
January 1, 1993, resulting in a one-time reduction of net income of $2.9
million ($4.4 million pretax). This standard requires accrual of a
liability for postretirement benefits other than pensions. Other than the
cumulative effect, adoption of SFAS 106 did not have a material impact on
1993 net income and is not expected to have a material impact in the
future.
The Company adopted SFAS 109, "Accounting for Income Taxes," through a
cumulative adjustment, effective January 1, 1993, resulting in a one-time
reduction of net income of $8.6 million. This standard changes the way
income tax expense is determined for financial reporting purposes. Other
than the cumulative effect, adoption of SFAS 109 did not have a material
impact on 1993 net income and is not expected to have a material impact in
the future.
The Company adopted SFAS 112, "Employers' Accounting for Postemployment
Benefits," through a cumulative adjustment, effective January 1, 1993,
resulting in a one-time reduction of net income of $1.2 million ($1.8
million pretax). This standard requires the accrual of a liability for
benefits provided to employees after employment but before retirement.
Other than the cumulative effect, adoption of SFAS 112 did not have a
material impact on 1993 net income and is not expected to have a material
impact in the future.
The Company adopted SFAS 113, "Accounting and Reporting for Reinsurance of
Short-Duration and Long-Duration Contracts," effective January 1, 1993.
This standard, which does not have a material impact on the consolidated
financial statements, requires that reinsurance receivables and prepaid
reinsurance premiums be reported as assets, rather than netted against the
related insurance liabilities.
36
Notes to Consolidated Financial Statements, Continued
The Company adopted SFAS 114, "Accounting by Creditors for Impairment of a
Loan," effective January 1, 1993. This standard requires that certain
impaired loans be reported at the present value of expected future cash
flows, the loan's observable market price, or the fair value of underlying
collateral. The adoption of SFAS 114 did not have a material impact on
1993 net income and is not expected to have a material impact in the
future.
The Company adopted SFAS 115, "Accounting for Certain Investments in Debt
and Equity Securities," at December 31, 1993. This statement requires that
debt and equity securities be carried at fair value unless the Company has
the positive intent and ability to hold these investments to maturity.
Marketable securities must be classified into one of three categories: 1)
held-to-maturity, 2) available-for-sale, or 3) trading securities. Upon
adoption of SFAS 115, the Company classified all marketable securities as
available-for-sale and, accordingly, recorded them at fair value. The
corresponding unrealized gain, net of deferred taxes, was credited directly
to shareholder's equity. The adjustment increased marketable securities by
$51.4 million, deferred income taxes by $18.0 million, and shareholder's
equity by $33.4 million.
Note 3. Marketable Securities
At December 31, 1993, all marketable securities were classified as
available-for-sale and reported at fair value due to the adoption of SFAS
115 (see Note 2.). Previously, fixed-maturity marketable securities were
classified as held-to-maturity and reported at amortized cost. Marketable
securities were as follows at December 31:
Fair Value Amortized Cost
1993 1992 1993 1992
(dollars in thousands)
Fixed-maturity marketable
securities:
Bonds:
Corporate securities $313,174 $307,156 $290,153 $289,186
Mortgage-backed securities 234,062 183,988 223,868 176,627
States and political
subdivisions 102,438 70,301 94,540 64,499
Other 40,766 51,328 30,736 44,247
Redeemable preferred stocks 7,486 8,877 7,180 8,913
Total 697,926 621,650 646,477 583,472
Non-redeemable preferred
stocks 1,771 2,339 1,313 2,339
Total marketable securities $699,697 $623,989 $647,790 $585,811
37
Notes to Consolidated Financial Statements, Continued
At December 31, the gross unrealized gains and losses were as follows:
Gross Gross
Unrealized Gains Unrealized Losses
1993 1992 1993 1992
Fixed-maturity marketable (dollars in thousands)
securities:
Bonds:
Corporate securities $23,836 $19,597 $ 815 $ 1,627
Mortgage-backed securities 11,681 7,916 1,487 555
State and political
subdivisions 8,031 5,865 133 63
Other 10,032 7,141 2 60
Redeemable preferred stocks 315 111 9 147
Total 53,895 40,630 2,446 2,452
Non-redeemable preferred
stocks 458 - - -
Total marketable securities $54,353 $40,630 $ 2,446 $ 2,452
During the years ended December 31, 1993, 1992, and 1991, marketable
securities with a fair value of $141.4 million, $127.9 million, and $61.7
million, respectively, were sold or redeemed. The gross realized gains on
such sales or redemptions totaled $7.4 million, $3.1 million, and $.9
million, respectively. The gross realized losses totaled $.1 million, $.5
million and $2.8 million, respectively.
The contractual maturities of fixed-maturity securities at December 31,
1993 were as follows:
Fair Amortized
Value Cost
Fixed maturities, excluding (dollars in thousands)
mortgage-backed securities:
Due in 1 year or less $ 11,298 $ 11,146
Due after 1 year through 5 years 75,474 69,644
Due after 5 years through 10 years 232,320 215,818
Due after 10 years 144,772 126,001
463,864 422,609
Mortgage-backed securities 234,062 223,868
Total $697,926 $646,477
Actual maturities may differ from contractual maturities since borrowers
may have the right to call or prepay obligations. Company requirements and
investment strategies may result in the sale of investments before
maturity.
Certain of the bonds were on deposit with regulatory authorities. The
carrying value of such bonds was $18.6 million and $21.2 million at
December 31, 1993 and 1992, respectively.
38
Notes to Consolidated Financial Statements, Continued
Note 4. Finance Receivables
Loans collateralized by security interests in real estate generally have
maximum original terms of 180 months. Loans collateralized by consumer
goods, automobiles or other chattel security, and loans that are unsecured,
generally have maximum original terms of 60 months. Retail sales contracts
are collateralized principally by consumer goods and automobiles, and
generally have maximum original terms of 60 months. Credit card
receivables are all unsecured and require minimum monthly payments based
upon current balances. Of the loans and retail sales contracts outstanding
at December 31, 1993, 91% were secured by the real or personal property of
the borrower. At December 31, 1993, mortgage loans (generally second
mortgages) accounted for 11% of the total number of loans outstanding and
53% of the aggregate dollar amount of loans outstanding.
Contractual maturities of loans and retail sales contracts were as follows:
December 31, 1993
Net Receivables Percent of
Amount Net Receivables
(dollars in thousands)
1994 $2,079,612 35.4%
1995 1,219,180 20.7
1996 758,336 12.9
1997 375,914 6.4
1998 224,437 3.8
Thereafter 1,225,358 20.8
Total $5,882,837 100.0%
Experience of the Company has shown that a substantial portion of loans and
retail sales contracts will be renewed, converted, or paid in full prior to
maturity. Accordingly, the preceding information as to contractual
maturities should not be considered as a forecast of future cash
collections. Principal cash collections and such collections as a
percentage of average net finance receivables were as follows:
1993 1992
(dollars in thousands)
Loans:
Principal cash collections $2,100,565 $1,903,077
Percent of average net finance receivables 42.5% 40.2%
Retail sales contracts:
Principal cash collections $1,123,098 $ 887,115
Percent of average net finance receivables 125.5% 113.5%
Credit cards:
Principal cash collections $ 573,176 $ 501,885
Percent of average net receivables 104.4% 119.2%
39
Notes to Consolidated Financial Statements, Continued
Unused credit limits on credit card receivables extended by the Company to
its customers were $1.8 billion and $1.4 billion at December 31, 1993 and
1992, respectively. Unused credit limits on revolving lines of credit
extended by the Company to its customers were $188.3 million and $128.8
million at December 31, 1993 and 1992, respectively. These amounts, in
part or in total, can be cancelled at the discretion of the Company, and
are not indicative of the amount expected to be funded.
Geographic diversification of finance receivables reduces the concentration
of credit risk associated with a recession in any one region. The largest
concentrations of finance receivables, net of unearned finance charges, are
as follows:
December 31, 1993 December 31, 1992
Location Amount Percent Amount Percent
(dollars in thousands) (dollars in thousands)
California $ 750,772 11% $ 838,163 14%
N. Carolina 581,754 9 512,109 8
Florida 502,977 8 503,980 8
Illinois 409,032 6 386,795 6
Indiana 364,706 6 361,442 5
Virginia 353,397 5 325,395 5
Ohio 341,179 5 284,013 5
Georgia 264,260 4 244,284 4
Other 3,005,911 46 2,743,505 44
$6,573,988 100% $6,199,686 100%
The fair values determined for finance receivables at December 31, 1993 and
1992 approximate the carrying amounts reported in the Consolidated Balance
Sheets net of the allowance for finance receivable losses. Care should be
exercised in drawing conclusions based on the estimated fair values at the
end of the year, since such fair value estimates are based only on the
value of the finance receivables and do not reflect the value of the
underlying customer relationships or the related distribution system.
40
Notes to Consolidated Financial Statements, Continued
Note 5. Allowance for Finance Receivable Losses
The changes in the allowance for finance receivable losses are detailed
below:
1993 1992 1991
(dollars in thousands)
Balance at beginning of year $161,678 $151,091 $148,127
Provision for finance receivable
losses 162,847 135,102 136,885
Allowance related to net acquired
receivables and other (21) 4,565 (37)
Charge-offs:
Finance receivables charged off (169,758) (158,781) (160,205)
Recoveries 29,010 29,701 26,321
Net charge-offs (140,748) (129,080) (133,884)
Balance at end of year $183,756 $161,678 $151,091
Note 6. Costs In Excess of Net Assets Acquired
Goodwill, resulting from the excess of the purchase price paid over the
value of separately identified tangible and intangible assets acquired,
amounted to $299.7 million and $310.7 million at December 31, 1993 and
1992, respectively, and is being amortized on a straight-line basis over
periods of twenty or forty years. Accumulated amortization amounted to
$48.4 million and $39.3 million at December 31, 1993 and 1992, repectively.
Included in other assets is a customer base valuation of $23.2 million and
$24.8 million at December 31, 1993 and 1992, respectively, which is being
amortized to operating expenses on a straight-line basis over a twenty-five
year period.
Note 7. Short-term Notes Payable and Credit Facilities
AGFC issues commercial paper with terms ranging from 1 to 270 days.
Information concerning short-term notes payable for commercial paper and to
banks was as follows:
1993 1992 1991
(dollars in thousands)
Maximum borrowings at any month end $1,886,426 $2,096,961 $2,143,947
Average borrowings $1,780,732 $1,887,408 $1,904,245
Weighted average interest rate
(total interest expense divided
by average borrowings) 3.2% 3.9% 6.3%
Weighted average interest rate,
giving effect to commitment fees
and interest conversion agreements 4.1% 5.6% 7.5%
Weighted average interest rate, at
December 31, 3.3% 3.5% 4.9%
41
Notes to Consolidated Financial Statements, Continued
Credit facilities are maintained to support the issuance of commercial
paper and as an additional source of funds for operating requirements. At
December 31, 1993 and 1992, the Company had committed credit facilities of
$390.0 million and $365.0 million, respectively, and was an eligible
borrower under a $2.1 billion committed credit facility and $2.6 billion of
committed credit facilities, respectively, extended to American General and
certain of its subsidiaries. The annual commitment fees for all committed
facilities range from .075% to .1875%. At December 31, 1993 and 1992, the
Company also had $496.0 million and $451.0 million, respectively, of
uncommitted credit facilities and was an eligible borrower under $240.0
million and $220.0 million, respectively, of uncommitted credit facilities
extended to American General and certain of its subsidiaries. Available
borrowings under all facilities are reduced by any amounts outstanding
thereunder. At December 31, 1993 and 1992, Company short-term borrowings
outstanding under all credit facilities were $171.0 million and $148.3
million, respectively, and Company long-term borrowings outstanding under
all credit facilities were $147.0 million and $117.2 million, respectively,
with remaining availability to the Company of $2.4 billion and $2.9
billion, respectively, in committed facilities and $461.0 million and
$425.5 million, respectively, in uncommitted facilities.
Interest conversion agreements in which the Company contracted to pay
interest at fixed rates and receive interest at floating rates were $290.0
million, $415.0 million, and $765.0 million in notional amounts at December
31, 1993, 1992, and 1991, respectively. The fair value of these agreements
was $29.4 million and $19.9 million at December 31, 1993 and 1992,
respectively, which would have been the cost to the Company of termination
of the agreements. The weighted average interest rate was 8.75%, 8.83%,
and 8.87% at December 31, 1993, 1992, and 1991, respectively. These
agreements mature at various dates and have various fixed rates as shown in
the table below:
Weighted
Average
Notional Interest
Maturity Amount Rate
(dollars in
thousands)
1994 $100,000 8.71%
1996 50,000 8.38
1998 90,000 9.06
2000 50,000 8.64
$290,000 8.75%
Options on interest conversion agreements at December 31, 1993, 1992, and
1991, in aggregate notional amounts were $200.0 million, $250.0 million,
and $350.0 million, respectively. The fair value of these agreements was
$33.3 million and $20.7 million at December 31, 1993 and 1992,
respectively, which would have been the cost to the Company of termination
of the agreements. The option agreements at December 31, 1993, if
exercised by the counterparty, will commit the Company to pay interest at
42
Notes to Consolidated Financial Statements, Continued
fixed rates. The related option fees received are being amortized as a
reduction of interest expense over the aggregate of the option period and
interest conversion period.
Interest conversion agreements involve credit risk due to possible non-
performance by the counterparties. The Company manages the credit risk of
counterparty defaults in these transactions by limiting the total amount of
arrangements outstanding, both by individual counterparty and in the
aggregate, by monitoring the size and maturity structure of the
off-balance-sheet portfolio, and by applying uniform credit standards. The
Company does not anticipate non-performance by the counterparties, and any
such non-performance would not have a material impact on net income.
Notional amounts represent amounts on which interest payments to be
exchanged are calculated. The credit risk to the Company is limited to the
interest differential based on the interest rates contained in the
agreements.
Note 8. Short-term Notes Payable - Parent
Borrowings from American General are primarily to provide overnight
operating liquidity when American General is in a surplus cash position.
All such borrowings are made on a due on demand basis at short-term rates
based on American General's commercial paper rates. At December 31, 1993,
1992 and 1991, AGFI had no borrowings outstanding with American General.
Information concerning such borrowings was as follows:
1993 1992 1991
(dollars in thousands)
Maximum borrowings at any month end $ 178 $29,200 $86,000
Average borrowings $ 433 $ 2,466 $19,439
Weighted average interest rate (total
interest expense divided by average
borrowings) 3.2% 4.0% 7.4%
The information above excludes $2.3 million in borrowings from American
General by the Company's insurance subsidiaries at December 31, 1992, which
are not material. At December 31, 1993 and 1991, the Company's insurance
subsidiaries had no borrowings outstanding from American General.
43
Notes to Consolidated Financial Statements, Continued
Note 9. Investment Certificates
At December 31, 1993, AGF-Utah was the Company's only active industrial
loan company with investment certificates outstanding. AGF-Utah and other
previously active industrial loan companies derived a portion of their
operating funds from various types of investment certificates issued under
provisions of the laws in the states in which they operate. Information
concerning investment certificates was as follows:
1993 1992 1991
(dollars in thousands)
Weighted average interest rate
(total interest expense divided
by average borrowings) 4.7% 6.3% 7.8%
Weighted average interest rate,
as of December 31, 5.5% 5.1% 6.9%
Balances at year end by type:
Demand deposits $ 633 $ 18,866 $ 71,987
Time deposits 8,773 54,662 372,101
Total $ 9,406 $ 73,528 $444,088
The fair value of the investment certificates at December 31, 1993 and 1992
was $.6 million and $18.9 million, respectively, for demand deposits and
$9.0 million and $55.9 million, respectively, for time deposits.
1993 1992 1991
Balances at year end, by maturity, (dollars in thousands)
for time deposits:
3 months or less $ 1,381 $ 10,998 $ 93,919
over 3 months through 6 months 1,365 10,239 57,946
over 6 months through 12 months 2,404 15,838 85,499
over 12 months 3,623 17,587 134,737
Total $ 8,773 $ 54,662 $372,101
Note 10. Income Taxes
AGFI and all of its subsidiaries file a consolidated federal income tax
return with American General and its subsidiaries. AGFI and its
subsidiaries provide for federal income taxes as if filing a separate tax
return, and pay such amounts to American General in accordance with a tax
sharing agreement.
Beginning in 1993, income taxes have been provided in accordance with SFAS
109 (see Note 2.). Under this method, deferred tax assets and liabilities
are calculated using the differences between the financial reporting basis
and the tax basis of assets and liabilities, using the enacted tax rate.
The effect of a tax rate change is recognized in income in the period of
enactment. Before 1993, the Company recognized deferred taxes on timing
differences between financial reporting income and taxable income.
Deferred taxes were not adjusted for tax rate changes.
44
Notes to Consolidated Financial Statements, Continued
As a result of this accounting change, 1993 income tax disclosures are not
comparable to prior years.
Provision for income taxes is summarized as follows:
Years Ended December 31,
1993 1992 1991
(dollars in thousands)
Federal
Current $124,295 $ 86,942 $68,006
Deferred (7,617) 759 5,390
Total federal 116,678 87,701 73,396
State 11,759 13,107 10,084
Total $128,437 $100,808 $83,480
Provision for deferred federal income taxes is summarized as follows:
Years Ended December 31,
1992 1991
(dollars in thousands)
Finance receivable losses $(5,370) $ 2,656
Other, net 6,129 2,734
Total $ 759 $ 5,390
The U.S. statutory federal income tax rate differs from the effective
income tax rate as follows:
Years Ended December 31,
1993 1992 1991
Statutory federal income tax rate 35.0% 34.0% 34.0%
State income taxes 2.3 3.3 3.1
Amortization of goodwill 1.2 1.1 1.3
Nontaxable investment income (.6) (.6) (.8)
Other, net .2 .6 .6
Effective income tax rate 38.1% 38.4% 38.2%
The net deferred tax liability of $25.5 million is net of deferred tax
assets totalling $80.9 million. The most significant deferred tax assets
relate to the provision for finance receivable losses and insurance
premiums recorded for financial reporting purposes. No valuation allowance
on deferred tax assets is considered necessary at December 31, 1993.
45
Notes to Consolidated Financial Statements, Continued
On August 10, 1993, the Revenue Reconciliation Act of 1993 was enacted,
which increased the corporate tax rate from 34% to 35%, retroactive to
January 1, 1993. The additional 1% tax on earnings for first and second
quarter 1993 was $1.6 million, and the effect of the 1% increase in the tax
rate used to value existing deferred tax liabilities, as required by SFAS
109, was $.6 million. In accordance with SFAS 109, this total one-time
charge of $2.2 million was included in provision for income taxes for the
quarter ended September 30, 1993.
Note 11. Long-term Debt
Long-term debt outstanding at December 31, is summarized as follows:
Senior
Maturity Senior Subordinated Total
(dollars in thousands)
1994 $ 468,337 $196,974 $ 665,311
1995 663,986 274,579 938,565
1996 562,853 - 562,853
1997 352,361 - 352,361
1998 243,130 - 243,130
1999-2003 958,866 - 958,866
2004-2009 297,711 - 297,711
Total $3,547,244 $471,553 $4,018,797
Certain debt issues of the Company are redeemable prior to maturity at par,
at the option of the holders. If these issues were so redeemed, the senior
amounts above would increase $150.0 million in 1994 and 1996 and would
decrease $150.0 million in 1999 and 2009.
Carrying Value Fair Value
Type of Debt 1993 1992 1993 1992
(dollars in thousands)
Senior $3,547,244 $3,155,194 $3,776,820 $3,299,964
Senior subordinated 471,553 449,177 486,806 478,470
Total $4,018,797 $3,604,371 $4,263,626 $3,778,434
The senior subordinated debt at December 31, 1992 included $50 million held
by certain subsidiaries of American General.
46
Notes to Consolidated Financial Statements, Continued
The weighted average interest rates on long-term debt outstanding by type
were as follows:
Years Ended December 31, December 31,
1993 1992 1993 1992
Senior 7.6% 8.4% 7.4% 8.1%
Senior subordinated 8.7 9.4 7.1 9.0
Total 7.9 8.7 7.3 8.2
The agreements under which certain of the Company's long-term debt was
issued contain provisions for optional prepayments after a specified period
of time. Certain debt agreements also contain restrictions on consolidated
retained earnings for certain purposes (see Note 13.).
Note 12. Capital Stock
AGFI has two classes of capital stock: special shares (without par value,
25 million shares authorized) which may be issued in series with such
dividend, liquidation, redemption, conversion, voting and other rights as
the board of directors may determine prior to issuance; and common shares
($.50 par value, 25 million shares authorized). Issued shares were as
follows:
Special Shares - As of December 31, 1993 and 1992, there were no shares
issued and outstanding.
Common Shares - As of December 31, 1993 and 1992, there were 2 million
shares issued and outstanding.
Note 13. Consolidated Retained Earnings
The ability of AGFI to pay dividends is substantially dependent on the
receipt of dividends or other funds from its subsidiaries. The Company's
insurance subsidiaries are restricted by state laws as to the amounts they
may pay as dividends without prior notice to, or in some cases prior
approval from, their respective state insurance departments. The maximum
amount of dividends which can be paid by the Company's insurance
subsidiaries in 1994 without prior approval is $29.6 million. The
Company's insurance subsidiaries had statutory capital and surplus of
$245.2 million at December 31, 1993. The amount of dividends which may be
paid by AGFC is limited by provisions of certain of its debt agreements.
Under the most restrictive provisions of such agreements, $38.9 million of
the consolidated retained earnings of AGFC at December 31, 1993, was free
from such restrictions. At that same date, $24.6 million of the retained
earnings of AGFI's industrial loan company subsidiaries was unrestricted as
to the payment of dividends.
47
Notes to Consolidated Financial Statements, Continued
At December 31, 1993, Merit had $52.7 million of accumulated earnings for
which no federal income tax provisions have been required. Federal income
taxes will become payable only to the extent such earnings are distributed
as dividends or exceed limits prescribed by tax laws. No distributions are
presently contemplated from these earnings. If such earnings were to
become taxable at December 31, 1993, the federal income tax would
approximate $18.4 million.
Note 14. Benefit Plans
Retirement Income Plans
The Company participates in the American General Retirement Plans (AGRP),
which are noncontributory defined benefit pension plans covering most
employees. Pension benefits are based on the participant's average monthly
compensation and length of credited service. American General's funding
policy is to contribute annually no more than the maximum amount that can
be deducted for federal income tax purposes. American General uses the
projected unit credit method to compute pension expense.
The plans' assets include primarily readily marketable stocks and bonds.
The pension plans purchased annuity contracts from several of American
General's life insurance subsidiaries that provide benefits to certain
retirees. These annuity contracts provided $2 million for benefits to the
Company's retirees for the years ended December 31, 1993 and 1992.
AGFI's participation in the AGRP is accounted for as if AGFI had its own
plan. The following table sets forth AGFI's portion of the plans' funded
status:
Years Ended December 31,
1993 1992 1991
(dollars in thousands)
Actuarial present value of benefit
obligation:
Accumulated benefit obligation $35,868 $22,400 $39,249
Vested benefits (included in
accumulated benefit obligation) $35,639 $21,985 $38,810
Projected benefit obligation $43,212 $29,278 $42,686
Plan assets at fair value 49,767 44,678 63,090
Plan assets in excess of projected
benefit obligation 6,555 15,400 20,404
Unrecognized prior service cost (659) (821) (984)
Unrecognized net loss (gain) 3,485 (4,320) (9,295)
Unrecognized net asset at
January 1, net of amortization (2,747) (3,925) (5,118)
Prepaid pension expense $ 6,634 $ 6,334 $ 5,007
48
Notes to Consolidated Financial Statements, Continued
Net pension expense included the following components for the years ended
December 31:
1993 1992 1991
(dollars in thousands)
Service cost $ 2,375 $ 1,881 $ 1,349
Interest on projected benefit obligation 2,791 3,687 3,373
Actual return on plan assets (6,112) (5,000) (8,926)
Amortization of prior service costs (157) (163) (157)
Amortization of unrecognized net
asset existing at date of
initial application (1,190) (1,193) (562)
Deferral of net asset (loss) gain 2,224 (631) 3,093
Total pension expense (income) $ (69) $(1,419) $(1,830)
Additional assumptions concerning the determination of net pension costs is
as follows:
1993 1992 1991
Weighted average discount rate 7.25% 8.00% 8.50%
Expected long-term rate of
return on plan assets 10.00 10.00 10.00
Rate of increase in
compensation levels 4.00 5.00 5.00
Postretirement Benefits Other Than Pensions
The Company participates in American General's life, medical and dental
plans for certain retired employees. Most plans are contributory, with
retiree contributions adjusted annually to limit employer contributions to
predetermined amounts. For individuals retiring after December 31, 1992,
the cost of the supplemental major medical plan is borne entirely by
retirees. American General and its subsidiaries have reserved the right to
change or eliminate these benefits at any time.
American General's retiree medical and dental plans are unfunded and self-
insured. The life plans are fully insured.
49
Notes to Consolidated Financial Statements, Continued
AGFI's participation in the plans is accounted for as if AGFI had its own
plans. The following table sets forth AGFI's portion of the plans'
combined funded status and the accrued postretirement benefit cost included
in other liabilities in the Company's Consolidated Balance Sheet at
December 31, 1993:
Accumulated postretirement benefit obligation (dollars in thousands):
Retirees $2,223
Fully eligible active plan participants 1,804
Other active plan participants 2,341
Accumulated postretirement benefit
obligation 6,368
Unrecognized net gain (226)
Accrued postretirement benefit cost $6,142
Postretirement benefit expense for the year ended December 31, 1993
included the following components (dollars in thousands):
Service cost-benefits attributed to
service during the period $ 184
Interest cost on accumulated
postretirement benefit obligation 403
Postretirement benefit expense $ 587
For measurement purposes, a 13.5% annual rate of increase in the per capita
cost of covered health care benefits was assumed in 1994; the rate was
assumed to decrease gradually to 6% for 2009 and remain at that level. A
1% increase in the assumed annual rate of increase in per capita cost of
health care benefits results in an immaterial increase in the accumulated
postretirement benefit obligation and postretirement benefit expense. The
discount rate used in determining the accumulated postretirement benefit
obligation was 7.25%.
Note 15. Lease Commitments, Rent Expense and Contingent Liabilities
The approximate annual rental commitments for leased office space,
automobiles and data processing and related equipment accounted for as
operating leases, excluding leases on a month-to-month basis and those with
a remaining term of one year or less, are as follows: 1994, $21.9 million;
1995, $17.3 million; 1996, $12.9 million; 1997, $8.4 million; 1998, $4.4
million; and subsequent to 1998, $19.3 million.
50
Notes to Consolidated Financial Statements, Continued
Taxes, insurance and maintenance expenses are obligations of the Company
under certain leases. It is expected that, in the normal course of
business, leases that expire will be renewed or replaced by leases on other
properties; therefore, it is believed that future minimum annual rental
commitments will not be less than the amount of rental expense incurred in
1993. Rental expense incurred for the years ended December 31, 1993, 1992,
and 1991, was $31.4 million, $25.9 million, and $26.2 million,
respectively.
The Company is a defendant in various lawsuits arising in the normal course
of business. The Company believes it has valid defenses in these lawsuits
and is defending the cases vigorously. The Company also believes that the
total amounts that would ultimately have to be paid, if any, arising from
these lawsuits would have no material effect on its consolidated financial
position.
Note 16. Interim Financial Information (Unaudited)
Unaudited interim information for 1993 and 1992 is summarized below:
Income Before Provision
for Income Taxes and
Cumulative Effect of
Total Revenues Accounting Changes
Three Months Ended 1993 1992 1993 1992
(dollars in thousands)
March 31 $ 310,915 $ 286,463 $ 77,317 $ 58,314
June 30 322,485 284,052 89,793 60,033
September 30 328,277 294,384 86,797 69,931
December 31 327,100 305,472 82,923 74,438
Total $1,288,777 $1,170,371 $336,830 $262,716
Net Income
Three Months Ended 1993 1992
(dollars in thousands)
March 31 $ 35,761(a) $ 35,962
June 30 56,391 36,989
September 30 51,642(b) 43,295
December 31 51,947 45,662
Total $195,741 $161,908
(a) Includes cumulative charge of $12.7 million due to adoption of
accounting changes: SFAS 106, SFAS 109, and SFAS 112. Amounts
previously reported in the 1993 first quarter Form 10-Q have been
restated above for SFAS 112.
(b) Includes corporate tax rate increase enacted in the third quarter,
retroactive to January 1, 1993 (see Note 10.).
51
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) (1) and (2) The following consolidated financial statements of American
General Finance, Inc. and subsidiaries are included in Item 8:
Consolidated Balance Sheets, December 31, 1993 and 1992
Consolidated Statements of Income, years ended December 31,
1993, 1992, and 1991
Consolidated Statements of Shareholder's Equity, years ended
December 31, 1993, 1992, and 1991
Consolidated Statements of Cash Flows, years ended December
31, 1993, 1992, and 1991
Notes to Consolidated Financial Statements
Schedule III--Condensed Financial Information of Registrant is included
in Item 14(d).
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission have
been omitted, because they are inapplicable, or the information
required therein is included in the consolidated financial statements
or notes.
(3) Exhibits:
Exhibits are listed in the Exhibit Index beginning on page 58
herein.
(b) Reports on Form 8-K
No Current Reports on Form 8-K were filed during the last quarter of
1993.
(c) Exhibits
The exhibits required to be included in this portion of Item 14. are
submitted as a separate section of this report.
52
Item 14(d).
Schedule III - Condensed Financial Information of Registrant
American General Finance, Inc.
Condensed Balance Sheets
December 31,
1993 1992
(dollars in thousands)
Assets
Cash $ 217 $ 248
Credit card finance receivables 587,404 417,780
Deduct allowance for credit card
finance receivable losses 26,143 22,615
Net credit card finance receivables 561,261 395,165
Investments in subsidiaries 1,268,775 1,186,904
Other assets 79,534 56,508
Total assets $1,909,787 $1,638,825
Liabilities and Shareholder's Equity
Senior long-term debt, 5.0% - 13.0%,
due 1994-2000 $ 53,025 $ 45,970
Notes payable to banks 120,000 120,000
Notes payable to subsidiaries 573,256 378,671
Other liabilities 52,806 43,297
Total liabilities 799,087 587,938
Shareholder's equity:
Common stock 1,000 1,000
Additional paid-in capital 616,021 615,874
Other equity 33,740 617
Retained earnings 459,939 433,396
Total shareholder's equity 1,110,700 1,050,887
Total liabilities and shareholder's equity $1,909,787 $1,638,825
See Notes to Condensed Financial Statements.
53
Schedule III, Continued
American General Finance, Inc.
Condensed Statements of Income
Years Ended December 31,
1993 1992 1991
(dollars in thousands)
Revenues
Dividends received from subsidiaries $152,555 $171,139 $147,842
Finance charges - credit cards 84,367 25,043 -
Interest and other 3,517 3,369 1,608
Total revenues 240,439 199,551 149,450
Expenses
Provision for credit card finance
receivable losses 24,429 6,868 -
Interest expense 40,122 22,821 15,979
Operating expenses 24,967 6,569 1,446
Total expenses 89,518 36,258 17,425
Income before federal income taxes,
equity in undistributed net income of
subsidiaries, and cumulative effect
of accounting changes 150,921 163,293 132,025
Federal Income Tax Credit 584 10,260 5,390
Income before equity in undistributed
net income of subsidiaries and
cumulative effect of accounting
changes 151,505 173,553 137,415
Equity in Undistributed Net Income
of Subsidiaries 56,888 (11,645) (2,395)
Income before cumulative effect of
accounting changes 208,393 161,908 135,020
Cumulative Effect of Accounting Changes
Parent company 65 - -
Subsidiaries (12,717) - -
Net Income $195,741 $161,908 $135,020
See Notes to Condensed Financial Statements.
54
Schedule III, Continued
American General Finance, Inc.
Condensed Statements of Cash Flows
Years ended December 31,
1993 1992 1991
(dollars in thousands)
Cash Flows from Operating Activities
Net Income $195,741 $161,908 $135,020
Reconciling adjustments to net cash
provided by operating activities:
Provision for credit card
finance receivable losses 24,429 6,868 -
Change in dividends receivable (11,239) 14,842 (36,115)
Equity in undistributed net income
of subsidiaries (44,171) 11,645 2,395
Other, net 10,616 (13,107) (1,149)
Net cash provided by operating
activities 175,376 182,156 100,151
Cash Flows from Investing Activities
Participation in credit card finance
receivables (677,847) (586,151) -
Cash collections on credit card finance
receivables participation 487,200 161,853 -
Return of capital from subisidiary - 23,537 -
Capital contribution to subsidiary (4,577) (17,267) (9,248)
Preferred stock redemption of subsidiary - 4,000 -
Other, net (18,040) (8,604) -
Net cash used for investing activities (213,264) (422,632) (9,248)
Cash Flows from Financing Activities
Proceeds from issuance of
long-term debt 17,320 16,043 11,605
Repayment of long-term debt (11,448) (14,108) (16,874)
Change in notes receivable or payable
with parent and subsidiaries 194,585 254,733 62,160
Change in notes payable to banks - 120,000 -
Common stock dividends paid (162,600) (124,740) (101,844)
Preferred stock dividends paid - (12,078) (48,311)
Other, net - - 2,441
Net cash provided by (used for)
financing activities 37,857 239,850 (90,823)
(Decrease) increase in cash (31) (626) 80
Cash at beginning of year 248 874 794
Cash at end of year $ 217 $ 248 $ 874
See Notes to Condensed Financial Statements.
55
Schedule III, Continued
American General Finance, Inc.
Notes to Condensed Financial Statements
December 31, 1993
Note 1. Accounting Policies
In the financial statements of the registrant, AGFI's investments in
subsidiaries are stated at cost plus the equity in undistributed net income
of subsidiaries since the date of the acquisition. The condensed financial
statements of the registrant should be read in conjunction with AGFI's
consolidated financial statements.
Note 2. Long-Term Debt
The aggregate amounts of long-term senior debt maturities for the five
years subsequent to December 31, 1993, are as follows: 1994, $11.2
million; 1995, $12.4 million; 1996, $6.5 million; 1997, $11.2 million;
1998, $10.8 million; and thereafter, $.9 million.
Note 3. Participation Agreement
On May 1, 1992, AGFI entered into a credit card participation agreement
whereby AGFI purchases credit card finance receivables from a subsidiary.
The servicing fee expense for the participation transaction for the years
ended December 31, 1993 and 1992 was $18.2 million and $5.1 million,
respectively.
56
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
AMERICAN GENERAL FINANCE, INC.
(Registrant)
By /s/ Philip M. Hanley
(Philip M. Hanley)
Date: March 23, 1994 Senior Vice President and Chief
Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
/s/ Daniel Leitch III President and Chief Executive March 23, 1994
(Daniel Leitch III) Officer and Director (Principal
Executive Officer)
/s/ Philip M. Hanley Senior Vice President and Chief March 23, 1994
(Philip M. Hanley) Financial Officer and Director
(Principal Financial Officer)
/s/ George W. Schmidt Controller and Assistant March 23, 1994
(George W. Schmidt) Secretary (Principal Accounting
Officer)
/s/ Wayne D. Baker Director March 23, 1994
(Wayne D. Baker)
/s/ Robert M. Devlin Director March 23, 1994
(Robert M. Devlin)
/s/ Bennie D. Hendrix Director March 23, 1994
(Bennie D. Hendrix)
/s/ Harold S. Hook Director March 23, 1994
(Harold S. Hook)
/s/ James R. Jerwers Director March 23, 1994
(James R. Jerwers)
/s/ Larry R. Klaholz Director March 23, 1994
(Larry R. Klaholz)
/s/ David C. Seeley Director March 23, 1994
(David C. Seeley)
/s/ James R. Tuerff Director March 23, 1994
(James R. Tuerff)
/s/ Peter V. Tuters Director March 23, 1994
(Peter V. Tuters)
57
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO
SECTION 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 BY REGISTRANTS WHICH
HAVE NOT REGISTERED SECURITIES PURSUANT TO SECTION 12 OF THE SECURITIES
EXCHANGE ACT OF 1934.
No annual report to security-holders or proxy material has been sent to
security-holders.
58
Exhibit Index
Exhibits Page
(3) a. Restated Articles of Incorporation of American General
Finance, Inc. (formerly Credithrift Financial, Inc.) dated May
27, 1988 and amendments thereto dated September 7, 1988 and
March 20, 1989. Incorporated by reference to Exhibit (3)a
filed as a part of the Company's Annual Report on Form 10-K
for the year ended December 31, 1988 (File No. 1-7422).
b. By-laws of American General Finance, Inc. Incorporated by
reference to Exhibit (3)b filed as a part of the Company's
Annual Report on Form 10-K for the year ended December 31,
1992 (File No. 1-7422).
(4) a. The following instruments are filed pursuant to Item
601(b)(4)(ii) of Regulation S-K, which requires with certain
exceptions that all instruments be filed which define the
rights of holders of long-term debt of the Company and its
consolidated subsidiaries. In the aggregate, the issuances of
debt under each Indenture referred to under items (1), (2) and
(3) below exceed 10% of the total assets of the Company on a
consolidated basis.
(1) Indenture dated as of January 1, 1988 from American
General Finance Corporation (formerly Credithrift
Financial Corporation) to Continental Bank, N.A. (formerly
Continental Illinois National Bank and Trust Company of
Chicago). Incorporated by reference to Exhibit 4(c) filed
as a part of American General Finance Corporation's Annual
Report on Form 10-K for the year ended December 31, 1987
(File No. 1-6155).
(a) Resolutions and form of note for senior note, 8 3/8%
due January 15, 1995. Incorporated by reference to
Exhibits 4(a)(1) and 4(a)(2) filed as a part of
American General Finance Corporation's Current Report
on Form 8-K dated January 21, 1988 (File No. 1-6155).
(b) Resolutions and forms of notes for (senior) Medium-
Term Notes, Series A. Incorporated by reference to
Exhibits 4(a), 4(b), 4(c), 4(d), and 4(e) filed as a
part of American General Finance Corporation's
Current Report on Form 8-K dated July 12, 1988 (File
No. 1-6155).
(c) Resolutions and form of note for senior note, 8 1/2%
due June 15, 1999. Incorporated by reference to
Exhibits 4(a)(1) and 4(a)(2) filed as a part of
American General Finance Corporation's Current Report
on Form 8-K dated June 12, 1989 (File No. 1-6155).
59
Exhibit Index, Continued
Exhibits Page
(d) Consent and form of note for senior note, 8 1/8% due
August 15, 2009. Incorporated by reference to
Exhibits 4(a)(1) and 4(a)(2) filed as a part of
American General Finance Corporation's Current Report
on Form 8-K dated August 3, 1989 (File No. 1-6155).
(e) Resolutions and form of note for senior note, 8.45%
due October 15, 2009. Incorporated by reference to
Exhibits 4(a)(1) and 4(a)(2) filed as a part of
American General Finance Corporation's Current Report
on Form 8-K dated October 24, 1989 (File No. 1-6155).
(f) Resolutions and form of note for senior note, 9 1/4%
due July 1, 1994. Incorporated by reference to
Exhibits 4(a)(1) and 4(a)(2) filed as a part of
American General Finance Corporation's Current Report
on Form 8-K dated June 28, 1990 (File No. 1-6155).
(2) Indenture dated as of December 1, 1985 from American
General Finance Corporation (formerly Credithrift
Financial Corporation) to The Chase Manhattan Bank
(National Association). Incorporated by reference to
Exhibit 4(a) filed as a part of Credithrift Financial
Corporation's Current Report on Form 8-K dated February
4, 1986 (File No. 1-6155).
(a) Resolutions and form of note for senior note, 7 3/4%
due January 15, 1997. Incorporated by reference to
Exhibit 4 filed as a part of Credithrift Financial
Corporation's Current Report on Form 8-K dated
January 22, 1987 (File No. 1-6155).
(b) Resolutions and form of note for (senior) Medium-Term
Notes, Series B. Incorporated by reference to
Exhibits 4(a) and 4(b) filed as a part of American
General Finance Corporation's Current Report on Form
8-K dated September 10, 1990 (File No. 1-6155).
(c) Resolutions and form of note for senior note, 8 7/8%
due March 15, 1996. Incorporated by reference to
Exhibits 4(a) and 4(b) filed as a part of American
General Finance Corporation's Current Report on Form
8-K dated March 7, 1991 (File No. 1-6155).
60
Exhibit Index, Continued
Exhibits Page
(d) Resolutions for (senior) Medium-Term Notes, Series B.
Incorporated by reference to Exhibit 4 filed as a
part of American General Finance Corporation's
Current Report on Form 8-K dated March 18, 1991 (File
No. 1-6155).
(e) Resolutions and form of note for senior note, 8.10%
due August 15, 1995. Incorporated by reference to
Exhibits 4(a) and 4(b) filed as a part of American
General Finance Corporation's Current Report on Form
8-K dated July 31, 1991 (File No. 1-6155).
(f) Resolutions and form of note for senior note, 8 1/2%
due August 15, 1998. Incorporated by reference to
Exhibits 4(a) and 4(b) filed as a part of American
General Finance Corporation's Current Report on Form
8-K dated August 6, 1991 (File No. 1-6155).
(g) Resolutions for (senior) Medium-Term Notes, Series B.
Incorporated by reference to Exhibit 4 filed as a
part of American General Finance Corporation's
Current Report on Form 8-K dated November 20, 1991
(File No. 1-6155).
(3) Senior Indenture dated as of November 1, 1991 from
American General Finance Corporation to Morgan Guaranty
Trust Company of New York. Incorporated by reference to
Exhibit 4(a) filed as part of American General Finance
Corporation's Current Report on Form 8-K dated November
6, 1991 (File No. 1-6155).
(a) Resolutions and form of note for senior note, 7 3/8%
due November 15, 1996. Incorporated by reference to
Exhibits 4(c) and 4(d) filed as part of American
General Finance Corporation's Current Report on Form
8-K dated November 6, 1991 (File No. 1-6155).
(b) Resolutions and form of note for senior note, 7.15%
due May 15, 1997. Incorporated by reference to
Exhibits 4(a) and 4(b) filed as part of American
General Finance Corporation's Current Report on Form
8-K dated May 13, 1992 (File No. 1-6155).
(c) Resolutions and form of note for senior note, 7.45%
due July 1, 2002. Incorporated by reference to
Exhibits 4(a) and 4(b) filed as a part of American
General Finance Corporation's Current Report on Form
8-K dated July 2, 1992 (File No. 1-6155).
61
Exhibit Index, Continued
Exhibits Page
(d) Resolutions and form of note for senior note, 5% due
September 1, 1995. Incorporated by reference to
Exhibits 4(a) and 4(b) filed as a part of American
General Finance Corporation's Current Report on Form
8-K dated August 20, 1992 (File No. 1-6155).
(e) Resolutions and form of note for senior note, 7 1/8%
due December 1, 1999. Incorporated by reference to
Exhibits 4(a) and 4(b) filed as a part of American
General Finance Corporation's Current Report on Form
8-K dated December 1, 1992 (File No. 1-6155).
(f) Resolutions and forms of notes for (senior) Medium-
Term Notes, Series C. Incorporated by reference to
Exhibits 4(a), 4(b) and 4(c) filed as a part of
American General Finance Corporation's Current Report
on Form 8-K dated December 10, 1992 (File No. 1-
6155).
(g) Resolutions and form of note for senior note, 6 7/8%
due January 15, 2000. Incorporated by reference to
Exhibits 4(a) and 4(b) filed as a part of American
General Finance Corporation's Current Report on Form
8-K dated January 11, 1993 (File No. 1-6155).
b. In accordance with Item 601(b)(4)(iii) of Regulation S-K,
certain other instruments defining the rights of holders
of long-term debt of the Company and its subsidiaries
have not been filed as exhibits to this Annual Report on
Form 10-K because the total amount of securities
authorized under each such instrument does not exceed 10%
of the total assets of the Company on a consolidated
basis. The Company hereby agrees to furnish a copy of
each such instrument to the Securities and Exchange
Commission upon request therefor.
(12) Computation of ratio of earnings to fixed charges. 62
(23) Consent of Ernst & Young 63