<PAGE> 1
PART I - FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS.
ASSOCIATES FIRST CAPITAL CORPORATION
CONSOLIDATED STATEMENT OF EARNINGS
(In Millions, Except Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
June 30 June 30
------- -------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUE
Finance charges $4,615.3 $4,546.0 $2,337.1 $2,262.1
Servicing related income 938.6 506.1 535.0 282.8
Insurance premiums 554.6 516.8 279.3 260.5
Investment and other
income 286.9 365.5 186.1 184.0
-------- -------- -------- --------
6,395.4 5,934.4 3,337.5 2,989.4
EXPENSES
Interest expense 2,009.2 1,925.3 1,048.1 965.3
Operating expenses 2,090.7 1,951.1 1,046.5 971.5
Provision for losses on
finance receivables 900.9 727.2 449.4 364.4
Insurance benefits paid
or provided 269.4 218.9 144.0 115.2
-------- -------- -------- --------
5,270.2 4,822.5 2,688.0 2,416.4
-------- -------- -------- --------
EARNINGS BEFORE PROVISION
FOR INCOME TAXES 1,125.2 1,111.9 649.5 573.0
PROVISION FOR INCOME TAXES 416.3 417.0 240.3 214.9
-------- -------- -------- --------
NET EARNINGS $ 708.9 $ 694.9 $ 409.2 $ 358.1
======== ======== ======== ========
NET EARNINGS PER SHARE
Basic $ 0.97 $ 0.95 $ 0.56 $ 0.49
======== ======== ======== ========
Diluted $ 0.97 $ 0.95 $ 0.56 $ 0.49
======== ======== ======== ========
</TABLE>
See notes to consolidated interim financial statements.
<PAGE> 2
ASSOCIATES FIRST CAPITAL CORPORATION
CONSOLIDATED BALANCE SHEET
--------------------------
(Dollars In Millions, Except Per Share Information)
<TABLE>
<CAPTION>
June 30 December 31
2000 1999
--------- -----------
(Unaudited)
<S> <C> <C>
ASSETS
CASH AND CASH EQUIVALENTS $ 1,334.0 $ 1,026.3
INVESTMENTS IN DEBT AND EQUITY SECURITIES 8,010.6 7,176.5
FINANCE RECEIVABLES, net of unearned finance
income, allowance for losses and insurance
policy and claims reserves 65,723.2 65,656.8
OTHER ASSETS 12,633.2 9,097.2
--------- ---------
Total assets $87,701.0 $82,956.8
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
NOTES PAYABLE, unsecured short-term
Commercial Paper $31,034.5 $25,991.9
Bank Loans 228.5 1,261.5
ACCOUNTS PAYABLE AND ACCRUALS 3,990.7 4,498.9
LONG-TERM DEBT
Senior Notes 41,697.5 40,978.8
Subordinated and Capital Notes 455.2 425.2
--------- ---------
42,152.7 41,404.0
STOCKHOLDERS' EQUITY
Series A Junior Participating Preferred
Stock, $0.01 par value, 734,500 shares
authorized, no shares issued
or outstanding - -
Class A Common Stock, $0.01 par value,
1,150,000,000 shares authorized,
728,865,065 and 728,747,443 shares
issued in 2000 and 1999, respectively 7.3 7.3
Class B Common Stock, $0.01 par value,
144,118,820 shares authorized, no shares
issued or outstanding - -
Paid-in Capital 5,281.9 5,282.1
Retained Earnings 5,115.9 4,501.8
Accumulated Other Comprehensive (75.8) 44.7
(Loss) Income
Less 457,909 and 597,785 shares of
Class A Common Stock at cost held
in Treasury in 2000 and 1999,
respectively, and Restricted Stock (34.7) (35.4)
--------- ---------
Total stockholders' equity 10,294.6 9,800.5
--------- ---------
Total liabilities and stockholders' equity $87,701.0 $82,956.8
========= =========
</TABLE>
See notes to consolidated interim financial statements.
<PAGE> 3
ASSOCIATES FIRST CAPITAL CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
------------------------------------
(In Millions)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30
-------
2000 1999
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 708.9 $ 694.9
Adjustments to reconcile net earnings for
non-cash and other operating activities:
Provision for losses on finance
receivables 900.9 727.2
Amortization of goodwill and other
intangible assets 135.8 109.1
Depreciation and other amortization 201.8 138.7
Other operating activities (1,023.2) (344.2)
---------- ----------
Net cash provided from operating
activities 924.2 1,325.7
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Finance receivables originated (28,679.5) (32,963.8)
Finance receivables liquidated 23,796.3 29,692.6
Sale of finance businesses and branches - 1,490.1
Acquisitions of loan portfolios and
other finance businesses, net (2,839.3) (4,511.9)
Proceeds from securitization of finance
receivables 2,327.7 664.6
Other investing activities 213.4 (670.8)
---------- ----------
Net cash used for investing
activities (5,181.4) (6,299.2)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of long-term debt 8,456.9 8,294.2
Retirement of long-term debt (7,491.6) (5,295.1)
Increase in notes payable 3,698.0 856.3
Other financing activities (94.7) (51.5)
---------- ----------
Net cash provided from financing
activities 4,568.6 3,803.9
EFFECT OF FOREIGN CURRENCY TRANSLATION
ADJUSTMENTS ON CASH (3.7) (10.6)
---------- ----------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 307.7 (1,180.2)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 1,026.3 4,665.6
---------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,334.0 $ 3,485.4
========== ==========
</TABLE>
See notes to consolidated interim financial statements.
<PAGE> 4
ASSOCIATES FIRST CAPITAL CORPORATION
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
NOTE 1 - THE COMPANY
Associates First Capital Corporation (the "Company"), a Delaware
corporation, is a leading diversified finance organization providing finance,
leasing, insurance and related services to consumers and businesses in the
United States and internationally.
NOTE 2 - BASIS OF PRESENTATION AND CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and its subsidiaries after elimination of all significant intercompany
balances and transactions. These statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
Certain prior period financial statement amounts have been reclassified to
conform to the current period presentation.
In the opinion of management, all adjustments, consisting only of
normal, recurring accruals, necessary to present fairly the results of
operations and financial position have been made. The financial position and
results of operations as of and for any interim period are unaudited and not
necessarily indicative of the results of operations for a full year. This Form
10-Q should be read in conjunction with the consolidated financial statements
and footnotes thereto included in the Company's Annual Report on Form 10-K for
the year ended December 31, 1999.
The preparation of these consolidated financial statements in conformity
with generally accepted accounting principles requires the use of management
estimates. These estimates are subjective in nature and involve matters of
judgment. Actual results could differ from these estimates.
NOTE 3 - SIGNIFICANT TRANSACTIONS
In January 2000, the Company entered into an agreement with KeyCorp,
under which the companies will jointly manage KeyCorp's credit card program.
Additionally, the Company acquired KeyCorp's credit card receivables portfolio
with a fair market value of $1.3 billion and intangible assets, primarily
related to customer lists and operating agreements, of approximately $350
million for $1.7 billion.
In April 2000, the Company acquired the common stock of Arcadia
Financial Ltd. ("Arcadia") for $195 million which approximated the fair value of
the intangible assets established in the acquisition. Arcadia had approximately
$470 million in senior and subordinated notes at the time of the acquisition. At
June 30, 2000, the Company managed approximately $3.4 billion of Arcadia's
serviced assets originated and sold with servicing retained prior to the
acquisition.
All of the transactions described above were accounted for as purchases.
The results of operations are included in the consolidated results of the
Company from the respective acquisition dates. The
<PAGE> 5
ASSOCIATES FIRST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
allocation of the purchase price for these transactions is based upon
preliminary estimates and may be refined as additional information is available.
In July 2000, the Company announced an agreement to purchase
approximately $630 million in credit card receivables from Zale Corporation
("Zale"). Additionally, the Company entered into an operating agreement for
Zale's on-going credit card business.
NOTE 4 - EARNINGS PER SHARE
Earnings per share on a basic and diluted basis for the periods
indicated is calculated as follows (in millions, except per share amounts):
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
June 30 June 30
------- -------
<S> <C> <C> <C> <C>
2000 1999 2000 1999
---- ---- ---- ----
Basic net earnings per share: (1)
Net earnings $708.9 $694.9 $409.2 $358.1
Weighted average shares
outstanding 727.4 728.0 727.5 728.4
$ 0.97 $ 0.95 $ 0.56 $ 0.49
====== ====== ====== ======
Diluted net earnings per share:(1)
Net earnings $708.9 $694.9 $409.2 $358.1
Weighted average shares
outstanding plus assumed
conversions 728.7 732.5 729.1 732.7
$ 0.97 $ 0.95 $ 0.56 $ 0.49
====== ====== ====== ======
Calculation of weighted average
shares outstanding plus
assumed conversions:
Weighted average shares
outstanding 727.4 728.0 727.5 728.4
Effect of dilutive
securities 1.3 4.5 1.6 4.3
------ ------ ------ ------
728.7 732.5 729.1 732.7
====== ====== ====== ======
</TABLE>
(1) Net earnings and earnings per share for the six months ended June 30, 2000
include a special pre-tax charge of approximately $112 million as described in
Note 7. Excluding the special pre- tax charge, net earnings would have been
$779.7 million and basic and diluted earnings per share would have been $1.07.
During the six months ended June 30, 2000 and 1999, the Company declared
and paid cash dividends of $0.13 and $0.11 per common share, respectively.
<PAGE> 6
ASSOCIATES FIRST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 5 - COMPREHENSIVE INCOME (LOSS)
The components of accumulated other comprehensive income (loss), net of
tax, are as follows (in millions):
<TABLE>
<CAPTION>
June 30 December 31
2000 1999
---- ----
<S> <C> <C>
Foreign currency translation adjustments $ 34.3 $ 148.8
Net unrealized loss on available-for-sale
securities (110.1) (104.1)
------ -------
Accumulated other comprehensive (loss) income $(75.8) $ 44.7
====== =======
</TABLE>
Comprehensive income, net of tax, for the six- and three-month periods
ended June 30, 2000 and 1999 consisted of (in millions):
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
June 30 June 30
------- -------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net earnings $ 708.9 $694.9 $409.2 $358.1
Foreign currency translation
adjustments (114.5) (14.9) (84.9) (22.3)
Net unrealized (loss) gain on
available-for-sale securities (6.0) (37.4) 2.2 (42.3)
------ ------ ------ ------
Total Comprehensive income $588.4 $642.6 $326.5 $293.5
====== ====== ====== ======
</TABLE>
NOTE 6 - INVESTMENTS IN DEBT AND EQUITY SECURITIES
Available-for-sale securities consist of retained securitization
interests, notes and preferred stock and other equity securities primarily held
by the Company's insurance subsidiaries. The Company classifies these debt and
equity securities as available-for-sale securities and adjusts their recorded
value to market. The estimated market value at June 30, 2000 and December 31,
1999 was $8.0 billion and $7.1 billion, respectively. The amortized cost at June
30, 2000 and December 31, 1999 was $8.2 billion and $7.3 billion, respectively.
Realized gains or losses on sales are included in investment and other income.
Unrealized gains or losses are included, net of tax, in accumulated other
comprehensive income.
NOTE 7 - FINANCE RECEIVABLES
<PAGE> 7
ASSOCIATES FIRST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
At June 30, 2000 and December 31, 1999, finance receivables consisted of
the following (in millions):
<TABLE>
<CAPTION>
June 30 December 31
2000 1999
---- ----
<S> <C> <C>
Home equity $26,264.7 $25,015.0
Personal lending and retail sales
finance 16,371.1 16,012.4
Truck and truck trailer 12,722.4 13,130.3
Equipment 7,109.2 6,977.3
Credit card 2,358.4 2,247.1
Auto fleet leasing 2,192.6 2,070.1
Manufactured housing - 1,849.0
Warehouse lending, government guaranteed
lending and municipal finance 1,784.4 1,515.9
--------- ---------
Finance receivables, net of unearned
finance income of approximately $4.7
billion at June 30, 2000 and December
31, 1999 ("net finance receivables") 68,802.8 68,817.1
Allowance for losses on finance receivables (2,115.7) (2,174.4)
Insurance policy and claims reserves (963.9) (985.9)
--------- ---------
Finance receivables, net of unearned
finance income, allowance for losses and
insurance policy and claims reserves $65,723.2 $65,656.8
========= =========
</TABLE>
In January 2000, the Company announced it would discontinue originating
loans for manufactured housing. As a result of this decision, the Company took a
special pre-tax charge against earnings of approximately $112 million. At June
30, 2000, the Company included such finance receivables and related allowance
for losses of $1.7 billion and $0.2 billion, respectively, in other assets as
finance receivables held for sale or securitization.
In 2000, the Company has securitized and sold a home equity receivables
portfolio, a credit card receivables portfolio and an automobile retail sales
finance receivables portfolio totaling $2.7 billion and retained interests in
the related securitization trusts approximating $473 million. Pre-tax gains of
approximately $53 million were recorded on these transactions.
NOTE 8 - ALLOWANCE FOR LOSSES ON FINANCE RECEIVABLES
Changes in the allowance for losses on finance receivables were (in
millions):
<PAGE> 8
ASSOCIATES FIRST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30 December 31
------- -----------
2000 1999 1999
---- ---- ----
<S> <C> <C> <C>
Balance at beginning of period $2,174.4 $1,978.7 $ 1,978.7
Provision for losses 900.9 727.2 1,506.4
Recoveries on receivables
charged off 145.0 157.5 268.8
Losses sustained (937.3) (856.9) (1,717.1)
Reserves of receivables sold
and held for securitization (185.7) (185.2) (214.0)
Reserves of acquired
businesses and other 18.4 318.1 351.6
-------- -------- ---------
Balance at end of period $2,115.7 $2,139.4 $ 2,174.4
======== ======== =========
</TABLE>
NOTE 9 - OTHER ASSETS
The components of other assets at June 30, 2000 and December 31, 1999
were as follows (in millions):
<TABLE>
<CAPTION>
June 30 December 31
2000 1999
<S> <C> <C>
Goodwill, net $ 3,624.7 $3,747.8
Finance receivables held for sale
or securitization, net (1) 3,514.5 153.0
Other intangible assets, net 2,097.2 1,579.4
Notes and other receivables 1,281.7 1,877.9
Property and equipment 736.3 662.2
Collateral held for resale 606.8 431.7
Relocation client advances 235.3 185.4
Other 536.7 459.8
--------- --------
Total other assets $12,633.2 $9,097.2
========= ========
</TABLE>
(1) At June 30, 2000, finance receivables held for sale or securitization
includes approximately $516 million of automobile finance receivables acquired
from Arcadia, approximately $1.1 billion of securitizable finance receivables
acquired from KeyCorp and approximately $1.5 billion of manufactured housing net
finance receivables as discussed in Note 7.
NOTE 10 - DERIVATIVE FINANCIAL INSTRUMENTS
The Company uses derivative financial instruments for the purpose of
hedging specific exposures as part of its risk management program. Instruments
currently used by the Company are foreign currency forward exchange, currency
swap, interest rate swap, interest rate option, municipal bond and treasury
futures and option contracts. All of these instruments are held for purposes
other than trading.
Foreign currency forward exchange agreements have been designated for
accounting purposes as hedges of certain of the Company's foreign currency
denominated net investments. Under these agreements, the Company is obligated to
deliver specific foreign currencies in exchange for United States dollars at
varying times over the next year. The aggregate notional amount of these
agreements was $2.9 billion and $2.8 billion at June 30, 2000 and December 31,
1999, respectively. The fair value of such agreements at June 30, 2000 and
December 31, 1999 would have been an asset of $14.5 million and a liability of
$389.0 million,
<PAGE> 9
ASSOCIATES FIRST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
respectively.
Foreign currency swap agreements have been designated for accounting
purposes as hedges of specific foreign currency exposures under certain debt
obligations. Under these agreements, the Company and the agreement
counterparties are obligated to exchange specific foreign currencies at varying
times over the next four years. The aggregate notional amount of these
agreements at June 30, 2000 and December 31, 1999 was $7.0 billion and $5.9
billion, respectively. The fair value of such agreements at June 30, 2000 and
December 31, 1999 would have been a liability of $303.0 million and $307.9
million, respectively.
Interest rate swap and interest rate option agreements are used by the
Company to hedge the effect of interest rate movements on existing debt and
anticipated debt and asset securitization transactions. The aggregate notional
amount of interest rate swap agreements at June 30, 2000 and December 31, 1999
was $15.8 billion and $9.2 billion, respectively. The fair value of such
agreements at June 30, 2000 and December 31, 1999 would have been a liability of
$63.6 million and $46.7 million, respectively. The aggregate notional amount of
interest rate option agreements was $1.5 billion at June 30, 2000. The fair
value of such agreements at June 30, 2000 would have been an asset of $1.2
million. Interest rate swap and interest rate option agreements mature on
varying dates over the next 30 years.
Treasury futures and option contracts are used to minimize fluctuations
in the value of preferred stock investments. The aggregate notional amount of
futures and option contracts at June 30, 2000 and December 31, 1999 was $308.9
million and $536.2 million, respectively. The fair value of these contracts at
June 30, 2000 and December 31, 1999 would have been a liability of $1.9 million
and an asset of $12.4 million, respectively. Such contracts mature on varying
dates through 2000.
<PAGE> 10
ASSOCIATES FIRST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Municipal bond futures are used to minimize fluctuations in the value of
municipal bond investments. The aggregate notional amount of municipal bond
futures contracts at June 30, 2000 and December 31, 1999 was $243.7 million and
$180.1 million, respectively. The fair value of these contracts at June 30, 2000
and December 31, 1999 would have been a liability of $5.0 million and an asset
of $2.4 million, respectively. Such contracts mature on varying dates through
2000.
NOTE 11 - SEGMENT REPORTING
The Company is organized into five primary business units: U.S. credit
card, U.S. consumer branch, U.S. home equity, commercial and international
finance. The U.S. consumer branch and U.S. home equity business units are
aggregated into one reportable U.S. consumer finance segment due to their
similar operating characteristics. The Company's corporate activities
include, among others, managing the operations of its domestic and foreign
subsidiaries, accessing the global debt, securitization and capital markets
and managing the mix of businesses in its portfolio. The Company fully
allocates its corporate activities to its business segments primarily based
upon managed receivables.
<PAGE> 11
ASSOCIATES FIRST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The Company allocates resources to and evaluates the performance of its
segments primarily based on total revenue, net interest margin, segment earnings
and managed finance receivables adjusted to include the impact of receivables
either held for sale or sold with servicing retained ("Managed Basis"). Managed
Basis revenue, earnings and receivables information for each of the Company's
reportable segments is presented below (in millions):
<TABLE>
<CAPTION>
U.S. U.S.
Credit Consumer International
Card Finance Commercial Finance Total
---- ------- ---------- ------- -----
<S> <C> <C> <C> <C> <C>
Total revenue
Six months ended:
June 30, 2000 $ 1,577.7 $ 2,353.3 $ 1,432.2 $ 1,662.9 $ 7,026.1
June 30, 1999 1,214.8 2,238.0 1,571.2 1,408.8 6,432.8
Three months ended:
June 30, 2000 $ 817.6 $ 1,216.7 $ 754.8 $ 856.7 $ 3,645.8
June 30, 1999 593.7 1,113.5 806.8 733.3 3,247.3
Segment earnings
Six months ended:
June 30, 2000 (2) $ 312.7 $ 299.6 $ 78.4 $ 434.5 $ 1,125.2
June 30, 1999 167.6 373.2 255.2 315.9 1,111.9
Three months ended:
June 30, 2000 (2) $ 160.3 $ 170.2 $ 80.0 $ 239.0 $ 649.5
June 30, 1999 85.3 199.2 128.6 159.9 573.0
Finance receivables (1):
June 30, 2000 $13,321.6 $34,073.1 $22,444.6 $14,959.2 $84,798.5
December 31, 1999 11,576.0 31,566.8 22,453.8 13,323.3 78,919.9
</TABLE>
(1) Commercial finance receivables exclude the manufactured housing owned
finance receivables and serviced assets of $1.7 billion and $3.4 billion,
respectively, at June 30, 2000 and $1.8 billion and $3.6 billion at December 31,
1999, respectively. The owned receivables have been reclassified to finance
receivables held for sale or securitization and are included in other assets.
Additionally, U.S. Consumer Finance receivables excludes the serviced assets of
Arcadia securitized prior to the acquisition of Arcadia of $3.4 billion at June
30, 2000.
(2) Excluding the special pre-tax charge, as discussed in Note 7, commercial
segment earnings and total earnings would have been $187.8 million and $1.2
billion, respectively.
