<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): October 10, 2000
Citicorp
(Exact name of registrant as specified in charter)
Delaware 1-5738 06-1515595
(State or other jurisdiction (Commission File Number) (IRS Employer
of incorporation) Identification Number)
399 Park Avenue, New York, New York 10043
(Address of principal executive offices) (Zip Code)
Registrant's telephone number,
including area code: (212) 559-1000
<PAGE> 2
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
Page
-----
Unaudited Pro Forma Condensed 3
Combined Financial Statements
Financial Statements of Associates 12
First Capital Corporation and
Subsidiaries
Exhibit 23.1 Consent of Ernst & Young LLP
Exhibit 99.1 Excerpts from Quarterly Report
on Form 10-Q for the quarterly
period ended June 30, 2000 of
Associates First Capital
Corporation
<PAGE> 3
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
On October 10, 2000, Citigroup Inc. (Citigroup) filed a Form S-4
registration statement disclosing that it had agreed to acquire Associates
First Capital Corp. (Associates) through a merger of Associates with a wholly
owned subsidiary of Citigroup (the Merger). The Merger, which is expected to be
completed in the fourth quarter of 2000, is expected to be accounted for under
the pooling of interests method. In connection with the proposed transaction,
Associates will be merged with Citicorp, a wholly owned subsidiary of Citigroup.
The assets and liabilities of both companies will be combined at historical
cost. Historical consolidated financial statements presented in future reports
will be restated to include the accounts and results of Associates. The Merger
is subject to customary closing conditions, including regulatory and Associates
stockholder approval.
The following unaudited pro forma condensed combined statement of financial
condition combines the historical consolidated statement of financial condition
of Citicorp and the historical consolidated statement of financial condition of
Associates giving effect to the merger as though the transaction had been
consummated on June 30, 2000. The following unaudited pro forma condensed
combined statements of operations combine the historical statements of
operations of Citicorp and Associates giving effect to the merger as if it had
occurred on January 1, 1997. This information should be read in conjunction
with the accompanying notes hereto; the separate historical financial
statements of Citicorp as of June 30, 2000 and for the six months ended June
30, 2000 and 1999, and for each of the three years ended December 31, 1999
which are contained in Citicorp's Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 2000 and its Annual Report on Form 10-K for the
fiscal year ended December 31, 1999, respectively; and the separate historical
financial statements of Associates as of June 30, 2000 and for the six months
ended June 30, 2000 and 1999, and for each of the three years ended December
31, 1999 which are contained in Associates' Quarterly Report on Form 10-Q for
the quarterly period ended June 30, 2000 and its Annual Report on Form 10-K for
the fiscal year ended December 31, 1999, respectively.
The pro forma financial data is not necessarily indicative of the results of
operations that would have occurred had the merger been consummated or of
future operations of the combined company.
<PAGE> 4
CITICORP AND ASSOCIATES FIRST CAPTIAL CORP.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF FINANCIAL POSITION
AS OF JUNE 30, 2000
(IN MILLIONS)
<TABLE>
<CAPTION>
CITICORP ASSOCIATES PRO FORMA PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENT COMBINED
---------- ---------- ---------- --------
ASSETS
<S> <C> <C> <C> <C>
Cash and due from banks $ 9,358 $ 1,334 $ 10,692
Deposits at interest with banks 12,648 - 12,648
Securities, at fair value
Available for sale and short-term and other 45,378 8,011 53,389
Venture capital 5,256 - 5,256
Trading account assets 32,381 - 32,381
Loans held for sale 8,081 3,514 11,595
Federal funds sold and securities purchased under resale
agreements 5,493 - 5,493
Loans, net
Consumer 162,943 44,357 207,300
Commercial 111,003 23,728 134,731
------------- -------------- --------------- --------------
Loans, net of unearned income 273,946 68,085 - 342,031
Allowance for credit losses (6,736) (2,116) (8,852)
------------- -------------- --------------- --------------
Total loans, net 267,210 65,969 - 333,179
Customers' acceptance liability 1,115 - 1,115
Premises and equipment, net 4,974 736 5,710
Interest and fees receivable 4,088 718 4,806
Other assets 27,838 8,383 36,221
------------- -------------- --------------- --------------
Total assets $423,820 $ 88,665 $ - $512,485
============= ============== =============== ==============
LIABILITIES
Non-interest-bearing deposits in U.S. offices $20,033 $ - $ 20,033
Interest-bearing deposits in U.S. offices 53,383 - 53,383
Non-interest-bearing deposits in offices outside the U.S. 13,351 - 13,351
Interest-bearing deposits in offices outside the U.S. 199,181 - 199,181
------------- -------------- --------------- --------------
Total deposits 285,948 - - 285,948
Trading account liabilities 22,641 - 22,641
Purchased funds and other borrowings 33,545 31,263 64,808
Acceptances outstanding 1,173 - 1,173
Accrued taxes and other expenses 8,431 3,991 12,422
Other liabilities 14,664 964 15,628
Long-term debt 27,415 42,153 69,568
STOCKHOLDERS' EQUITY
Common stock - 7 7
Additional paid-in capital 7,064 5,282 (35) 12,311
Retained earnings 23,310 5,116 28,426
Treasury stock - (35) 35 -
Accumulated other changes in equity from nonowner -
sources (371) (76) (447)
------------- -------------- --------------- --------------
Total stockholders' equity 30,003 10,294 - 40,297
------------- -------------- --------------- --------------
Total liabilities and stockholders' equity $423,820 $ 88,665 $ - $512,485
============= ============== =============== ==============
</TABLE>
See accompanying notes to Unaudited Pro Forma Condensed Combined Financial
Statements
<PAGE> 5
CITICORP AND ASSOCIATES FIRST CAPTIAL CORP.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 2000
(IN MILLIONS)
<TABLE>
<CAPTION>
CITICORP ASSOCIATES PRO FORMA
HISTORICAL HISTORICAL COMBINED
---------- ---------- --------
<S> <C> <C> <C>
INTEREST REVENUE
Loans, including fees $12,476 $ 4,615 $17,091
Deposits with banks 532 - 532
Federal fund sold and securities
purchased under resale agreements 171 - 171
Securities, including dividends 1,611 287 1,898
Trading account assets 470 - 470
Loans held for sale 291 - 291
------- ------- -------
15,551 4,902 20,453
INTEREST EXPENSE
Deposits 6,001 - 6,001
Trading account liabilities 33 - 33
Purchased funds and other borrowings 1,090 754 1,844
Long-term debt 931 1,255 2,186
------- ------- -------
8,055 2,009 10,064
NET INTEREST REVENUE 7,496 2,893 10,389
PROVISION FOR CREDIT LOSSES 1,462 901 2,363
------- ------- -------
NET INTEREST REVENUE AFTER PROVISION FOR CREDIT LOSSES 6,034 1,992 8,026
FEES, COMMISSIONS, AND OTHER REVENUE
Fees and commissions 4,498 1,494 5,992
Foreign exchange 820 - 820
Trading account liabilities 680 - 680
Securities transactions 297 - 297
Other revenue 2,760 - 2,760
------- ------- -------
9,055 1,494 10,549
OPERATING EXPENSE
Salaries 3,429 748 4,177
Employee benefits 640 184 824
------- ------- -------
Total employee 4,069 932 5,001
Net premises and equipment 1,271 146 1,417
Restructuring - related items 24 - 24
Other expense 3,708 1,283 4,991
------- ------- -------
9,072 2,361 11,433
------- ------- -------
INCOME BEFORE INCOME TAXES 6,017 1,125 7,142
INCOME TAXES 2,205 416 2,621
------- ------- -------
NET INCOME $ 3,812 $ 709 $ 4,521
======= ======= =======
</TABLE>
See accompanying notes to Unaudited Pro Forma Condensed Combined Financial
Statements
<PAGE> 6
CITICORP AND ASSOCIATES FIRST CAPTIAL CORP.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1999
(IN MILLIONS)
<TABLE>
<CAPTION>
CITICORP ASSOCIATES PRO FORMA
HISTORICAL HISTORICAL COMBINED
---------- ---------- --------
<S> <C> <C> <C>
INTEREST REVENUE
Loans, including fees $11,364 $ 4,546 $15,910
Deposits with banks 494 -- 494
Federal fund sold and securities
purchased under resale agreements 238 -- 238
Securities, including dividends 1,995 366 2,361
Trading account assets 374 -- 374
Loans held for sale 286 -- 286
------- ------- -------
14,751 4,912 19,663
INTEREST EXPENSE
Deposits 5,432 -- 5,432
Trading account liabilities 38 -- 38
Purchased funds and other borrowings 1,145 666 1,811
Long-term debt 932 1,259 2,191
------- ------- -------
7,547 1,925 9,472
NET INTEREST REVENUE 7,204 2,987 10,191
PROVISION FOR CREDIT LOSSES 1,519 727 2,246
------- ------- -------
NET INTEREST REVENUE AFTER PROVISION FOR CREDIT LOSSES 5,685 2,260 7,945
FEES, COMMISSIONS, AND OTHER REVENUE
Fees and commissions 3,554 1,023 4,577
Foreign exchange 856 -- 856
Trading account liabilities 442 -- 442
Securities transactions 174 -- 174
Other revenue 1,614 -- 1,614
------- ------- -------
6,640 1,023 7,663
OPERATING EXPENSE
Salaries 3,102 691 3,793
Employee benefits 640 165 805
------- ------- -------
Total employee 3,742 856 4,598
Net premises and equipment 1,232 132 1,364
Restructuring - related items 126 -- 126
Other expense 3,287 1,183 4,470
------- ------- -------
8,387 2,171 10,558
------- ------- -------
INCOME BEFORE INCOME TAXES 3,938 1,112 5,050
INCOME TAXES 1,480 417 1,897
------- ------- -------
NET INCOME $ 2,458 $ 695 $ 3,153
======= ======= =======
</TABLE>
See accompanying notes to Unaudited Pro Forma Condensed Combined Financial
Statements
<PAGE> 7
CITICORP AND ASSOCIATES FIRST CAPTIAL CORP.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1999
(IN MILLIONS)
<TABLE>
<CAPTION>
CITICORP ASSOCIATES PRO FORMA
HISTORICAL HISTORICAL COMBINED
---------- ---------- --------
<S> <C> <C> <C>
INTEREST REVENUE
Loans, including fees $ 22,927 $ 9,106 $ 32,033
Deposits with banks 1,002 - 1,002
Federal fund sold and securities
purchased under resale agreements 402 - 402
Securities, including dividends 3,670 712 4,382
Trading account assets 692 - 692
Loans held for sale 549 - 549
------------- -------------- ---------------
29,242 9,818 39,060
INTEREST EXPENSE
Deposits 10,775 - 10,775
Trading account liabilities 88 - 88
Purchased funds and other borrowings 1,984 1,364 3,348
Long-term debt 1,853 2,542 4,395
------------- -------------- ---------------
14,700 3,906 18,606
NET INTEREST REVENUE 14,542 5,912 20,454
PROVISION FOR CREDIT LOSSES 2,837 1,506 4,343
------------- -------------- ---------------
NET INTEREST REVENUE AFTER PROVISION FOR CREDIT LOSSES 11,705 4,406 16,111
FEES, COMMISSIONS, AND OTHER REVENUE
Fees and commissions 7,547 2,313 9,860
Foreign exchange 1,569 - 1,569
Trading account liabilities 888 - 888
Securities transactions 332 - 332
Other revenue 3,270 - 3,270
------------- -------------- ---------------
13,606 2,313 15,919
OPERATING EXPENSE
Salaries 6,270 1,394 7,664
Employee benefits 1,333 306 1,639
------------- -------------- ---------------
Total employee 7,603 1,700 9,303
Net premises and equipment 2,505 270 2,775
Restructuring - related items 154 - 154
Other expense 6,756 2,372 9,128
------------- -------------- ---------------
17,018 4,342 21,360
------------- -------------- ---------------
INCOME BEFORE INCOME TAXES 8,293 2,377 10,670
INCOME TAXES 3,098 887 3,985
------------- -------------- ---------------
NET INCOME $ 5,195 $ 1,490 $ 6,685
============= ============== ===============
</TABLE>
See accompanying notes to Unaudited Pro Forma Condensed Combined Financial
Statements
<PAGE> 8
CITICORP AND ASSOCIATES FIRST CAPTIAL CORP.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1998
(IN MILLIONS)
<TABLE>
<CAPTION>
CITICORP ASSOCIATES PRO FORMA
HISTORICAL HISTORICAL COMBINED
---------- ---------- --------
<S> <C> <C> <C>
INTEREST REVENUE
Loans, including fees $22,545 $ 7,910 $30,455
Deposits with banks 1,070 - 1,070
Federal fund sold and securities
purchased under resale agreements 738 - 738
Securities, including dividends 3,028 343 3,371
Trading account assets 1,059 - 1,059
Loans held for sale 533 - 533
------- ------- -------
28,973 8,253 37,226
INTEREST EXPENSE
Deposits 11,511 - 11,511
Trading account liabilities 269 - 269
Purchased funds and other borrowings 2,146 1,221 3,367
Long-term debt 1,745 1,976 3,721
------- ------- -------
15,671 3,197 18,868
NET INTEREST REVENUE 13,302 5,056 18,358
PROVISION FOR CREDIT LOSSES 2,751 1,284 4,035
------- ------- -------
NET INTEREST REVENUE AFTER PROVISION FOR CREDIT LOSSES 10,551 3,772 14,323
FEES, COMMISSIONS, AND OTHER REVENUE
Fees and commissions 6,457 1,124 7,581
Foreign exchange 1,628 - 1,628
Trading account liabilities 265 - 265
Securities transactions 524 - 524
Other revenue 2,502 - 2,502
------- ------- -------
11,376 1,124 12,500
OPERATING EXPENSE
Salaries 6,028 1,010 7,038
Employee benefits 1,403 280 1,683
------- ------- -------
Total employee 7,431 1,290 8,721
Net premises and equipment 2,207 198 2,405
Restructuring - related items 1,011 - 1,011
Other expense 6,362 1,468 7,830
------- ------- -------
17,011 2,956 19,967
------- ------- -------
INCOME BEFORE INCOME TAXES 4,916 1,940 6,856
INCOME TAXES 1,820 717 2,537
------- ------- -------
NET INCOME $ 3,096 $ 1,223 $ 4,319
======= ======= =======
</TABLE>
See accompanying notes to Unaudited Pro Forma Condensed Combined Financial
Statements
<PAGE> 9
CITICORP AND ASSOCIATES FIRST CAPTIAL CORP.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN MILLIONS)
<TABLE>
<CAPTION>
CITICORP ASSOCIATES PRO FORMA
HISTORICAL HISTORICAL COMBINED
---------- ---------- --------
<S> <C> <C> <C>
INTEREST REVENUE
Loans, including fees $20,371 $ 7,560 $27,931
Deposits with banks 995 - 995
Federal fund sold and securities
purchased under resale agreements 872 - 872
Securities, including dividends 2,269 218 2,487
Trading account assets 1,012 - 1,012
Loans held for sale 440 - 440
------- ------- -------
25,959 7,778 33,737
INTEREST EXPENSE
Deposits 9,615 - 9,615
Trading account liabilities 310 - 310
Purchased funds and other borrowings 1,970 1,073 3,043
Long-term debt 1,760 1,702 3,462
------- ------- -------
13,655 2,775 16,430
NET INTEREST REVENUE 12,304 5,003 17,307
PROVISION FOR CREDIT LOSSES 2,197 1,378 3,575
------- ------- -------
NET INTEREST REVENUE AFTER PROVISION FOR CREDIT LOSSES 10,107 3,625 13,732
FEES, COMMISSIONS, AND OTHER REVENUE
Fees and commissions 5,991 501 6,492
Foreign exchange 1,486 - 1,486
Trading account liabilities 241 - 241
Securities transactions 668 - 668
Other revenue 2,094 - 2,094
------- ------- -------
10,480 501 10,981
OPERATING EXPENSE
Salaries 5,416 866 6,282
Employee benefits 1,346 244 1,590
------- ------- -------
Total employee 6,762 1,110 7,872
Net premises and equipment 1,992 160 2,152
Restructuring - related items 880 - 880
Other expense 4,844 1,216 6,060
------- ------- -------
14,478 2,486 16,964
------- ------- -------
INCOME BEFORE INCOME TAXES 6,109 1,640 7,749
INCOME TAXES 2,268 608 2,876
------- ------- -------
NET INCOME $ 3,841 $ 1,032 $ 4,873
======= ======= =======
</TABLE>
See accompanying notes to Unaudited Pro Forma Condensed Combined Financial
Statements
<PAGE> 10
CITICORP INC. AND ASSOCIATES FIRST CAPITAL CORP.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS
1. DESCRIPTION OF TRANSACTION AND BASIS OF PRESENTATION
On October 10, 2000, Citigroup Inc. (Citigroup) filed a Form S-4 registration
statement disclosing that it had agreed to acquire Associates First Capital
Corp. (Associates) through a merger of Associates with a wholly owned subsidiary
of Citigroup (the Merger). The Merger, which is expected to be completed in the
fourth quarter of 2000, is expected to be accounted for under the pooling of
interests method. In connection with the proposed transaction, Associates will
be merged with Citicorp, a wholly owned subsidiary of Citigroup. The assets and
liabilities of both companies will be combined at historical cost. Historical
consolidated financial statements presented in future reports will be restated
to include the accounts and results of Associates. The Merger is subject to
customary closing conditions, including regulatory and Associates stockholder
approval.
2. ACCOUNTING POLICIES AND FINANCIAL STATEMENT CLASSIFICATIONS
Citicorp and Associates are in the process of reviewing their accounting
policies and financial statement classifications and, as a result of this
review, it may be necessary to restate either Citicorp's or Associates'
financial statements to conform to those accounting policies and
classifications that are determined to be most appropriate.
3. INTERCOMPANY TRANSACTIONS
Transactions between Citicorp and Associates are not material in relation
to the pro forma combined financial statements and therefore intercompany
balances have not been eliminated from the pro forma combined accounts.
4. PRO FORMA ADJUSTMENTS
The pro forma adjustments at June 30, 2000 reflect the cancellation and
retirement of all Associates common stock held in treasury pursuant to the
Merger Agreement.
5. RESTRUCTURING CHARGES AND FUTURE COST SAVINGS
The pro forma financial statements do not reflect any restructuring costs
related to the Merger. Management has not yet determined the amount of such
costs; however, a restructuring charge may be recorded after the consummation
of the Merger. Management does not anticipate that any such charge will be
material to the financial position of the combined company.
The pro forma financial statements do not reflect cost savings that may
result from the reduction of overhead expenses, changes in corporate
infrastructure and the elimination of redundant expenses. Although management
expects that cost savings will result from the merger, there can be no
assurance that cost savings will be achieved.
<PAGE> 11
CITICORP INC. AND ASSOCIATES FIRST CAPITAL CORP.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS - (CONTINUED)
The statements contained in note 5 above may be deemed to be
forward-looking statements within the meaning of Section 27A of the Securities
Act. Forward-looking statements are typically identified by the words
"believe," "expect," "anticipate," "intend," "estimate" and similar
expressions. These forward-looking statements are based largely on management's
expectations and are subject to a number of uncertainties. Actual results could
differ materially from these forward-looking statements. Citicorp undertakes no
obligation to update publicly or revise any forward-looking statements.
<PAGE> 12
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Associates First Capital Corporation
We have audited the accompanying consolidated balance sheet of Associates
First Capital Corporation and subsidiaries as of December 31, 1999, and the
related consolidated statements of earnings, changes in stockholders' equity,
and cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States. 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 audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Associates
First Capital Corporation and subsidiaries as of December 31, 1999, and the
consolidated results of their operations and their cash flows for the year then
ended in conformity with accounting principles generally accepted in the United
States.
ERNST & YOUNG LLP
Dallas, Texas
January 27, 2000
1
<PAGE> 13
ASSOCIATES FIRST CAPITAL CORPORATION
CONSOLIDATED STATEMENT OF EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 1999
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<S> <C>
REVENUE
Finance charges........................................... $ 9,106.4
Servicing related income.................................. 1,256.8
Insurance premiums........................................ 1,055.7
Investment and other income............................... 712.3
---------
12,131.2
EXPENSES
Interest expense.......................................... 3,906.5
Operating expenses........................................ 3,894.4
Provision for losses on finance receivables............... 1,506.4
Insurance benefits paid or provided....................... 447.0
---------
9,754.3
---------
EARNINGS BEFORE PROVISION FOR INCOME TAXES.................. 2,376.9
PROVISION FOR INCOME TAXES.................................. 886.5
---------
NET EARNINGS................................................ $ 1,490.4
=========
NET EARNINGS PER SHARE
Basic..................................................... $ 2.05
=========
Diluted................................................... $ 2.04
=========
</TABLE>
See notes to consolidated financial statements.
2
<PAGE> 14
ASSOCIATES FIRST CAPITAL CORPORATION
CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1999
(DOLLARS IN MILLIONS)
ASSETS
<TABLE>
<S> <C>
CASH AND CASH EQUIVALENTS................................... $ 1,026.3
INVESTMENTS IN DEBT AND EQUITY SECURITIES................... 7,176.5
FINANCE RECEIVABLES, net of unearned finance income,
allowance for credit losses and insurance policy and
claims reserves........................................... 65,656.8
OTHER ASSETS................................................ 9,097.2
---------
Total assets...................................... $82,956.8
=========
LIABILITIES AND STOCKHOLDERS' EQUITY
NOTES PAYABLE, unsecured short-term
Commercial Paper.......................................... $25,991.9
Bank Loans................................................ 1,261.5
ACCOUNTS PAYABLE AND ACCRUALS............................... 4,498.9
LONG-TERM DEBT
Senior Notes.............................................. 40,978.8
Subordinated and Capital Notes............................ 425.2
---------
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 and 728,747,443 shares issued........ 7.3
Class B Common Stock, $0.01 par value, 144,118,820 shares
authorized, no shares issued or outstanding............ --
Paid-in Capital........................................... 5,282.1
Retained Earnings......................................... 4,501.8
Accumulated Other Comprehensive Income.................... 44.7
Less 597,785 shares of Class A Common Stock held at cost
in Treasury............................................ (35.4)
---------
Total stockholders' equity........................ 9,800.5
---------
Total liabilities and stockholders' equity........ $82,956.8
=========
</TABLE>
See notes to consolidated financial statements.
3
<PAGE> 15
ASSOCIATES FIRST CAPITAL CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1999
(IN MILLIONS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
ACCUMULATED
OTHER TOTAL
COMMON PAID-IN RETAINED COMPREHENSIVE TREASURY STOCKHOLDERS'
STOCK CAPITAL EARNINGS INCOME STOCK EQUITY
------ -------- -------- ------------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
DECEMBER 31, 1998................... 7.3 5,273.7 3,178.9 106.8 (40.2) 8,526.5
Comprehensive income
Net Earnings.................... 1,490.4 1,490.4
Other comprehensive loss, net of
tax........................... (62.1) (62.1)
-------- ------ --------
Total comprehensive
income................... 1,490.4 (62.1) 1,428.3
Cash dividends on Common Stock
($0.23 per share)............... (167.5) (167.5)
Treasury stock and other.......... 8.4 4.8 13.2
---- -------- -------- ------ ------ --------
DECEMBER 31, 1999................... $7.3 $5,282.1 $4,501.8 $ 44.7 $(35.4) $9,800.5
==== ======== ======== ====== ====== ========
</TABLE>
See notes to consolidated financial statements.
4
<PAGE> 16
ASSOCIATES FIRST CAPITAL CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1999
(IN MILLIONS)
<TABLE>
<S> <C>
Cash Flows from Operating Activities
Net earnings.............................................. $ 1,490.4
Adjustments to reconcile net earnings for non-cash and
other operating activities:
Provision for losses on finance receivables............ 1,506.4
Amortization of goodwill and other intangible assets... 234.0
Depreciation and other amortization.................... 278.0
Increase in insurance policy and claims reserves....... 131.7
Decrease in accounts payable and accruals.............. (1,207.1)
Deferred income taxes.................................. 173.3
Net gains on sale of assets and other.................. (155.2)
----------
Net cash provided from operating activities....... 2,451.5
----------
Cash Flows from Investing Activities
Finance receivables originated or purchased............... (64,840.7)
Finance receivables liquidated............................ 55,705.9
Proceeds from securitizations and sales of finance
receivables............................................ 7,285.7
Sale of finance businesses and branches................... 2,216.8
Acquisitions of other finance businesses, net............. (4,170.5)
Purchases of available-for-sale securities................ (2,503.5)
Sales and maturities of available-for-sale securities..... 1,497.6
Increase in other assets.................................. (925.9)
----------
Net cash used for investing activities............ (5,734.6)
----------
Cash Flows from Financing Activities
Issuance of long-term debt................................ 9,892.7
Retirement of long-term debt.............................. (9,015.7)
Decrease in notes payable................................. (1,279.3)
Cash dividends............................................ (167.5)
Treasury stock and other.................................. 22.4
----------
Net cash used for from financing activities....... (547.4)
Effect of foreign currency translation adjustment on cash... 191.2
----------
Decrease in cash and cash equivalents....................... (3,639.3)
Cash and cash equivalents at beginning of year.............. 4,665.6
----------
Cash and cash equivalents at end of year.................... $ 1,026.3
==========
Cash paid for:
Interest.................................................. $ 3,889.4
==========
Income taxes.............................................. $ 641.1
==========
</TABLE>
See notes to consolidated financial statements.
5
<PAGE> 17
ASSOCIATES FIRST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- THE COMPANY
Associates First Capital Corporation ("First Capital" or the "Company"), a
Delaware corporation, is a leading diversified financial services organization
providing finance, leasing, insurance and related services to individual
consumers and businesses in the United States and internationally.
From October 31, 1989 to April 7, 1998, First Capital was a subsidiary of
Ford FSG, Inc. and an indirect-owned subsidiary of Ford Motor Company ("Ford").
On May 8, 1996, the Company made an initial public offering of 67 million shares
of its Class A Common Stock representing a 19.3% interest in the Company. On
April 7, 1998, Ford completed a spin-off (the "Spin-Off") of its 80.7% interest
in First Capital in the form of a tax-free distribution of its First Capital
Class A Common Stock to Ford common and Class B stockholders. Immediately prior
to, and in connection with the Spin-Off, all of the issued and outstanding
shares of the Company's Class B Common Stock were converted at par value to an
equal number of shares of the Company's Class A Common Stock. Effective with
this distribution, First Capital was no longer a subsidiary of Ford and become a
fully independent company.
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies:
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. Certain prior period amounts have been reclassified to conform
to the current period presentation.
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.
Revenue Recognition
Finance charges on receivables are recognized as revenue using the interest
(actuarial) method. Premiums and discounts on purchased receivables are
considered as yield adjustments. The unamortized balance is included in finance
receivables and the associated amortization is included in finance charge
revenue. Finance charge accruals are generally suspended when the accounts
become 60 days contractually delinquent. The accrual is resumed when the loan
becomes contractually current. At December 31, 1999, net finance receivables on
which revenue was not being accrued approximated $1.9 billion. The interest
income that would have been recorded in 1999 if these nonaccruing receivables
had been current was approximately $51 million.
Insurance premiums are recorded as unearned premiums when collected or when
written and are subsequently amortized into income based on the nature and term
of the underlying insurance contracts. The methods of amortization used are pro
rata, sum-of-the-years-digits and a combination thereof.
Gains or losses on sales of securities classified as available-for-sale are
included in investment and other income when realized. Unrealized gains or
losses on securities classified as available-for-sale are reported, net of tax,
as a component of accumulated other comprehensive income. Realized and
unrealized gains or losses on trading securities (principally preferred stock)
are included in investment and other income as incurred. The cost basis of
securities sold is determined by the first-in, first-out method.
Advertising Costs
Advertising costs are expensed as incurred. The advertising costs for 1999
was $272 million.
6
<PAGE> 18
ASSOCIATES FIRST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Receivables Sold with Servicing Retained
The Company periodically securitizes certain pools of receivables in both
public and private markets and accounts for such transactions in accordance with
Statement of Financial Accounting Standards No. 125 ("SFAS 125"), Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.
Under SFAS 125, a sale is recognized when control over the receivables is
relinquished. In applying SFAS 125, the Company recognizes the resulting gains
at the time of initial sale and each subsequent sale for revolving receivable
arrangements. Initial gains on securitization transactions are recorded in the
consolidated statement of earnings as investment and other income. The income
earned on securitization related securities retained by the Company, including
the recognition of the yield on such securities as well as subsequent sales for
revolving receivable arrangements, is recorded in the consolidated statement of
earnings as servicing related income.
Initial gains on securitization transactions represent the difference
between the net proceeds received and the allocated carrying amount of the
receivables sold. The allocation of carrying amount is based on the relative
fair value of the individual financial components sold and retained pursuant to
the transaction. The financial components typically consist of such items as the
interests sold, retained senior securities, retained subordinated securities,
retained interest only strips and retained servicing rights. No servicing asset
or liability has been recorded related to the securitization transactions
because the Company earns service fees at rates which approximate adequate
compensation.
Senior securities are typically valued at par while subordinated securities
are typically valued at a discount using an estimated market discount rate and
cash flow estimates which consider the effects prepayments and losses will have
on the timing of the subordinated interest cash flows. The fair value of
interest only strips represents the present value of future excess cash flows,
using the "cash-out" method. Such future cash flows are estimated using
valuation assumptions appropriate for the type of receivable and transaction
structure. The resulting estimated cash flows represent the difference between
the finance charge and fee income received from the obligors on the finance
receivables and the sum of the interest paid to the investors in the
asset-backed securities, credit losses, servicing fees and other expenses.
Significant valuation assumptions relate to the average lives of the receivables
sold, including the anticipated prepayment speeds and the anticipated credit
losses, as well as the appropriate market discount rate. Significant changes in
these assumptions could impact the recorded value of retained securitization
interests.
The securitization related securities are accounted for under Statement of
Financial Accounting Standards No. 115, Accounting for Certain Investments in
Debt and Equity Marketable Securities. Because such assets can be contractually
prepaid or otherwise settled in such a way that the holder would not recover all
of its recorded investment, the assets are classified as available-for-sale
investments and measured at fair value. Any unrealized holdings gains or losses
are reported, net of income tax effects, as a component of accumulated other
comprehensive income in the consolidated balance sheet until realized. On a
quarterly basis, the Company assesses the carrying value of its securitization
related securities for impairment. If a decline in fair value is deemed other
than temporary, the securities are adjusted to their fair value through a charge
to operations.
There can be no assurance that the Company's estimates used to determine
the fair value of the securitization related securities, including those used to
determine the related gains, will remain appropriate for the life of each
securitization.
Finance Receivables
Receivables origination and commitment fees and loan origination costs
generally are deferred and amortized as a component of finance charges over the
life of the related receivable. Receivables which are expected to be securitized
and sold are included in other assets as receivables held for sale and recorded
at the
7
<PAGE> 19
ASSOCIATES FIRST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
lower of cost or market. The aggregate method is used in determining the lower
of cost or market of receivables held for sale. Finance receivables include the
Company's share of aggregate rentals on lease financing transactions and
residual values, net of related unearned income. Lease financing transactions
are principally direct financing leases. Unearned income is amortized under a
method which substantially results in an approximately level rate of return when
related to the unrecovered lease investment. Gains and losses from sales of
residual values of leased equipment are included in finance income.
Allowance for Losses on Finance Receivables
The Company maintains an allowance for losses on finance receivables at an
amount that it believes is sufficient to provide for losses in its existing
receivables portfolios. The allowance is determined principally on the basis of
historical loss experience, and reflects management's judgment of the present
loss exposure at the end of the period considering economic conditions and the
nature and characteristics of the underlying finance receivables. The Company
records an allowance for losses when it believes the event causing the loss has
occurred. The allowance is evaluated on an aggregate basis considering, among
other things, the relationship of the allowance to net finance receivables and
historical net credit losses. Additions to the allowance are generally charged
to the provision for losses on finance receivables.
Finance receivables are charged to the allowance for losses when they are
deemed to be uncollectible. As set forth below, the Company's policy generally
provides for charge-off of various types of accounts on a contractual basis.
Consumer direct and other installment and credit card receivables are charged to
the allowance for losses when they become 180 days contractually delinquent. All
other finance receivables are charged to the allowance for losses when any of
the following conditions occur: (i) the related security has been converted or
destroyed; (ii) the related security has been repossessed and sold or held for
sale for one year; or (iii) the related security has not been repossessed and
the receivable has become contractually delinquent for one year. A contractually
delinquent account is one on which the customer has not made payments as
contractually agreed. Recoveries on losses previously charged to the allowance
are credited to the allowance at the time the recovery is collected.
Although the allowance for losses on finance receivables reflected in the
Company's consolidated balance sheet at December 31, 1999 is considered adequate
by the Company's management, there can be no assurance that this allowance will
prove to be adequate over time to cover ultimate losses in connection with the
Company's finance receivables. This allowance may prove to be inadequate due to
unanticipated adverse changes in the economy or discrete events adversely
affecting specific customers or industries. The Company's results of operations
and financial condition could be materially adversely affected to the extent
that the Company's allowance is insufficient to cover such changes or events.
Insurance Reserves
The reserves for future benefits and refunds upon cancellation of credit
life and health insurance and property and casualty insurance for the affiliate
insurance business are provided for in the unearned premium reserve for each
class of insurance. Affiliate insurance relates to insurance products
distributed through the finance affiliates. The Company classifies its
affiliated insurance reserves as a component of finance receivables because the
related policy benefits are generally included in the financed receivable
balance as shown in Note 7. The reserves for future benefits and refunds upon
cancellation of credit life and health insurance and property and casualty
insurance for the non-affiliate insurance business are provided for in accounts
payable and accruals for each class of insurance. In addition, reserves for
reported claims on credit accident and health insurance are established based on
standard morbidity tables used in the insurance business for such purposes.
Claim reserves for reported property and casualty insurance claims are based on
estimates of costs and expenses to settle each claim. Additional amounts of
reserves, based on prior experience and insurance in
8
<PAGE> 20
ASSOCIATES FIRST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
force, are provided for each class of insurance for claims which have been
incurred but not reported as of the balance sheet date.
Intangible Assets
Amounts of goodwill relating to acquisitions are being amortized using the
straight-line method over periods not exceeding forty years. Other intangible
assets, which are made up primarily of customer lists, operating agreements,
trademarks and credit card customer relationships are amortized using the
straight-line method over the assets' estimated useful lives ranging from five
to twenty years. The carrying value of goodwill and other intangible assets is
reviewed if the facts and circumstances suggest that it may be impaired. If the
review indicates that goodwill or the other intangible assets will not be
recoverable, as determined based on undiscounted cash flows, the carrying value
of the goodwill or the other intangible asset is reduced by the estimated
short-fall of discounted cash flows.
Foreign Currency
Assets and liabilities of foreign subsidiaries are translated at the rate
of exchange in effect on the balance sheet date; income and expenses are
translated at the average rate of exchange prevailing during the year. The
related balance sheet translation adjustments are reflected in the stockholders'
equity section of the consolidated balance sheet while the impact of foreign
currency changes on income and expense items are included in earnings.
Foreign currency transactions resulted in net gains of approximately $3.2
million during the year ended December 31, 1999.
Income Taxes
Deferred tax assets and liabilities are determined based on the difference
between the financial statement and tax basis of assets and liabilities using
statutory tax rates in effect for the year in which the differences are expected
to reverse.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents. The amounts reported
in the consolidated balance sheet approximate fair value.
Segment Reporting
In 1998, the Company adopted Statement of Financial Accounting Standards
No. 131 ("SFAS 131") Disclosures about Segments of an Enterprise and Related
Information. SFAS 131 supersedes Statement of Financial Accounting Standards No.
14, Financial Reporting for Segments of a Business Enterprise, replacing the
"industry segment" approach with the "management" approach. The management
approach designates the internal organization that is used by management for
making operating decisions and assessing performance as the source of the
Company's reportable segments. SFAS 131 also requires disclosures about products
and services, geographic areas, and major customers. The adoption of SFAS 131
did not affect results of operations or financial position of the Company, but
did affect the disclosure of segment information as illustrated in Note 18.
Derivative Financial Instruments
The Company uses derivative financial instruments for the purpose of
hedging specific exposures as part of its risk management program and generally
holds derivatives for purposes other than trading. Deferral
9
<PAGE> 21
ASSOCIATES FIRST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(hedge) accounting is applied only if the derivative reduces the risk of the
underlying hedged item and is designated at inception as a hedge with respect to
the underlying hedged item. Additionally, the derivative must result in cash
flows that are expected to be inversely correlated to those of the underlying
hedged item. Such instruments to date have been limited to foreign currency
forward exchange, currency swap, interest rate swap and treasury lock
agreements. See Note 17 for additional information related to derivative
financial instruments.
Forward currency exchange agreements are used to hedge the Company's net
investment in Japan. Accordingly, unrealized translation gains and losses on
these agreements are recorded, net of tax, as a separate component of
accumulated other comprehensive income. The economic discount on such agreements
is recognized over the agreement life on a straight-line basis as an adjustment
to interest expense.
Foreign currency swap and interest rate swap agreements are used to hedge
debt obligations and financing transactions. Accordingly, the differential paid
or received by the Company on these agreements is recognized as an adjustment to
interest expense over the term of the underlying transaction.
Treasury lock agreements are used to hedge anticipated asset securitization
transactions or debt issuances of the Company. Accordingly, the differential
paid or received by the Company on maturity of a treasury lock agreement is
recognized as an adjustment to interest expense over the term of the underlying
financing transaction.
Treasury futures and option contracts are used to minimize fluctuations in
the value of certain investments classified as available-for-sale. Accordingly,
unrealized gains and losses on these agreements are recorded, net of tax, as a
separate component of accumulated other comprehensive income.
Recent Accounting Pronouncements
Statement of Financial Accounting Standards No. 133 ("SFAS 133"),
Accounting for Derivative Instruments and Hedging Activities, was issued by the
Financial Accounting Standards Board in June 1998. This Statement requires
companies to record derivatives on the balance sheet as assets or liabilities,
measured at fair value. Generally, changes in the fair value of derivatives must
be recognized in income when they occur, except when the derivative qualifies as
a hedge in accordance with the standard. This statement will be effective for
the Company for the 2001 fiscal year. The Financial Accounting Standards Board
is considering amending SFAS 133, as a result, the Company has not yet
determined the impact SFAS 133 and any related amendment will have on its
earnings or financial position. The Company has been proactive in evaluating
various strategies which management believes will qualify for hedge accounting
treatment under SFAS 133.
NOTE 3 -- SIGNIFICANT ACQUISITIONS AND DISPOSITIONS
Significant Acquisitions
In June 1999, the Company acquired the Newcourt Credit Group automotive
fleet management business. The transaction included Newcourt Fleet Services,
which operates in Canada, and Newcourt Automotive Services Limited, which
operates in the United Kingdom. The fair market value of the total assets
acquired was approximately $460 million.
In February 1999, the Company acquired the Shell Oil Proprietary Credit
Card program. The fair market value of the private label credit card receivables
acquired was approximately $260 million.
On January 6, 1999, the Company purchased the assets and assumed the
liabilities of Avco Financial Services, Inc. ("Avco") for $3.9 billion. Prior to
the acquisition, Avco, formerly a subsidiary of Textron Inc., was a global,
diversified financial services company with approximately $9 billion in assets.
Founded in 1927, Avco's product offerings included home equity lending, retail
sales finance and consumer loans, equipment,
10
<PAGE> 22
ASSOCIATES FIRST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
inventory and vendor finance, and credit and collateral-related insurance. At
the date of acquisition, Avco had operations in the U.S., Canada, Puerto Rico,
Australia, the United Kingdom, New Zealand, France, Hong Kong, Spain, Ireland,
India and Sweden. All intangibles resulting from this transaction, primarily
consisting of goodwill, customer lists and trademarks, are being amortized using
the straight-line method. As described in the "Significant Dispositions" section
that follows, certain of these operations were subsequently sold by First
Capital. The Company assumed from Avco approximately $7.5 billion in debt and,
after giving effect for the sale of these operations, acquired approximately
$6.0 billion in finance receivables, $2.1 billion in goodwill and $690 million
in other intangible assets. In 1999, the Company expensed approximately $100
million in Avco related goodwill and other intangible asset amortization and
approximately $35 million in Avco related integration costs. In addition, the
Company established an integration plan that identified the activities that
would not be continued after the acquisition and the cost of exiting those
activities. Those costs primarily consisted of severance costs and related
expenses, lease termination costs and other contractual liabilities. The total
amount of the integration cost reserve was approximately $146 million at the
date of the Avco acquisition. At December 31, 1999, the remaining integration
reserve balance was approximately $44 million. This amount was primarily
comprised of unpaid lease termination costs.
All of the transactions described above were accounted for as purchases,
and as such, the results of these operations are included in the consolidated
results of the Company from the respective acquisition dates.
The unaudited pro forma combined revenues, net earnings and net earnings
per basic and diluted share of the Company including the above transactions were
approximately $12.2 billion, $1.5 billion, $2.04 and $2.03, respectively, for
the year ended December 31, 1999. These unaudited pro forma results include the
historical operating results of the significant 1999 acquisitions and
dispositions related to these acquisitions and assume that these transactions
occurred at the beginning of each applicable period. Certain adjustments,
including additional common shares outstanding and interest and amortization
expenses associated with these purchases are reflected in the pro forma results.
This information has been prepared for comparative purposes only, and is based
on the historical operating results of these entities prior to their acquisition
by the Company and does not include cost savings and other profit enhancement
initiatives introduced by the Company that management believes will be reflected
in the post-acquisition operating results. As a result, management does not
believe that these pro forma results are indicative of the actual results that
would have occurred had the acquisitions closed at the beginning of each period.
Pending Acquisitions
In December 1999, the Company announced an agreement to enter into an agent
bank partnership with KeyCorp, under which the companies will jointly manage
KeyCorp's credit card program. Under the terms of the agreement, First Capital
also will acquire KeyCorp's credit card portfolio of approximately $1.3 billion
in receivables and nearly 600,000 active VISA(R) and MasterCard(R) accounts. The
transaction closed on January 31, 2000 (unaudited) and will be accounted for as
a purchase.
In November 1999, the Company announced an agreement to acquire Arcadia
Financial Ltd. ("Arcadia"). Arcadia is a leading U.S. independent automobile
finance company which services over $5 billion in finance receivables. The
acquisition is expected to close during the first half of 2000. The Company
entered into a continuous asset purchase and sale agreement under which the
Company purchased from Arcadia approximately $500 million of retail installment
sales contracts in November and December 1999. In the event of a termination of
the merger between the Company and Arcadia, approximately $200 million of these
receivables may be repurchased by Arcadia. Additionally, the Company purchased
approximately $350 million of retail installment sales contracts in January,
February and March 2000 (unaudited).
In August 1999, the Company announced an agreement to acquire and manage
the proprietary credit card program of CITGO Petroleum Corporation. The
transaction closed in March 2000 (unaudited) and the Company acquired
approximately $130 million in receivables.
11
<PAGE> 23
ASSOCIATES FIRST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Significant Dispositions
In November 1999, the Company closed the sale of its Balboa Life and
Casualty Insurance Group ("Balboa") to a subsidiary of Countrywide Credit
Industries, Inc. for approximately $425 million. First Capital acquired Balboa
when it purchased Avco Financial Services, Inc. in January 1999.
In July 1999, the Company sold the Network Transaction Services unit of its
Associates Commerce Solutions, Inc. subsidiary (formerly SPS Payment Systems,
Inc.) to Alliance Data Systems, a leading provider of electronic transaction
processing services for approximately $169 million.
In June 1999, the Company sold its Avco consumer and commercial finance
operations in Australia and New Zealand, which were acquired in the Avco
transaction, to General Electric Capital Corporation, a subsidiary of General
Electric Company, for approximately $493 million.
In June 1999, the Company sold 41 of its Canadian consumer branches to
Commercial Credit Corporation CCC Limited, a subsidiary of Citigroup, Inc., for
approximately $155 million. All of these branches were acquired from Avco in
January 1999.
In March 1999, the Company sold Fleetwood Credit Corporation, its
recreational vehicle financing subsidiary, to NationsBank, N.A., a unit of
BankAmerica Corporation for approximately $227 million.
In March 1999, the Company sold 128 domestic consumer finance branches to
Commercial Credit Corporation, a subsidiary of Citigroup, Inc., for
approximately $640 million. All of these branches were acquired from Avco in
January 1999.
The operating income recorded on the above dispositions was included in
investment and other income from January 1, 1999 through the date of the related
sale. The operating income and any related net gains or losses on the above
dispositions recorded in investment and other income during 1999 was
approximately $117 million.
NOTE 4 -- EARNINGS PER SHARE
Earnings per share on a basic and diluted basis for the year ended December
31, 1999 is calculated as follows (in millions, except per share amounts):
<TABLE>
<S> <C>
Basic net earnings per share:
Net earnings.............................................. $1,490.4
Weighted average shares outstanding....................... 728.1
$ 2.05
========
Diluted net earnings per share:
Net earnings.............................................. $1,490.4
Weighted average shares outstanding plus assumed
conversions............................................ 731.5
$ 2.04
========
Calculation of weighted average shares outstanding plus
assumed conversions:
Weighted average shares outstanding....................... 728.1
Effect of dilutive securities options(1).................. 3.4
--------
731.5
========
</TABLE>
(1) At December 31, 1999, 12,251,465 outstanding stock options were not included
in the computation of 1999 diluted net earnings per share because these
options' exercise price was greater than the average market price of common
shares outstanding.
12
<PAGE> 24
ASSOCIATES FIRST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 5 -- COMPREHENSIVE INCOME (LOSS)
The Company adopted Statement of Financial Accounting Standards No. 130
("SFAS 130"), Reporting Comprehensive Income, on January 1, 1998. SFAS 130
requires the reporting of all items which are required to be recognized under
generally accepted accounting standards as components of comprehensive income
(loss) in the financial statements. Accordingly, total comprehensive income for
the year ended 1999 is reported in the Company's consolidated statement of
changes in stockholders' equity. Total accumulated other comprehensive income is
reported in the Company's consolidated balance sheet. The components of
accumulated other comprehensive income as of December 31, 1999, net of tax, are
as follows (in millions):
<TABLE>
<S> <C>
Foreign currency translation adjustments.................... $ 148.8
Net unrealized loss available-for-sale securities........... (104.1)
-------
Accumulated other comprehensive income.................... $ 44.7
=======
</TABLE>
The components of other comprehensive loss for the year ended December 31,
1999 are as follows:
<TABLE>
<CAPTION>
BEFORE TAX TAX (EXPENSE) NET-OF-TAX
AMOUNT BENEFIT AMOUNT
---------- ------------- ----------
<S> <C> <C> <C>
Foreign currency translation adjustments.......... $ 50.6 $(18.9) $ 31.7
Unrealized losses on available-for-sale
securities:
Unrealized holding losses arising during the
period....................................... (140.7) 50.4 (90.3)
Less: reclassification for gains realized in net
income....................................... (5.5) 2.0 (3.5)
------- ------ ------
Net unrealized losses................... (146.2) 52.4 (93.8)
------- ------ ------
Other comprehensive loss........................ $ (95.6) $ 33.5 $(62.1)
======= ====== ======
</TABLE>
NOTE 6 -- INVESTMENTS IN DEBT AND EQUITY SECURITIES
Available-for-Sale Securities
Available-for-sale securities consist of retained securitization interests
(as described in Notes 2 and 7), bonds, notes and preferred stock and other
equity securities. As applicable, the Company invests in these securities with
the intention of holding them to maturity. However, if market conditions change,
the Company may sell them prior to maturity. Accordingly, the Company classifies
these securities as available-for-sale securities and adjusts their recorded
value to market.
During 1999, gross realized gains and losses on sales of investments in
debt and equity securities amounted to $6.3 million and $11.4 million,
respectively. Unrealized gains or losses are reported as a component of
accumulated other comprehensive income, net of tax. During the fourth quarter of
1999, the Company wrote down its retained interests in certain manufactured
housing transactions by approximately $26 million. This write down represented a
permanent impairment in the value of these investments. Accordingly, the loss
resulting from this write down was recorded in investment and other income.
13
<PAGE> 25
ASSOCIATES FIRST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following tables set forth, by type of available-for-sale security
issuer, the amortized cost, gross unrealized holding gains, gross unrealized
holding losses, and estimated market value at December 31, 1999 (in millions):
<TABLE>
<CAPTION>
GROSS GROSS
UNREALIZED UNREALIZED ESTIMATED
AMORTIZED HOLDING HOLDING MARKET
COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Retained securitization interests........... $4,040.7 $ -- $ (25.9) $4,014.8
Preferred stock............................. 708.3 13.5 (93.6) 628.2
Municipal bonds............................. 250.1 3.0 (4.1) 249.0
Other....................................... 33.0 -- -- 33.0
Insurance Subsidiaries
Mortgage-backed........................... 602.1 0.1 (15.9) 586.3
Municipal obligations..................... 417.1 0.1 (23.6) 393.6
Corporate obligations..................... 573.4 0.1 (17.9) 555.6
Preferred stock........................... 200.9 1.1 (16.2) 185.8
U.S. government obligations............... 317.9 0.2 (10.3) 307.8
Other equity securities................... 5.2 1.0 (0.3) 5.9
Other..................................... 194.4 0.4 (5.1) 189.7
-------- ----- ------- --------
Total available-for-sale
securities...................... $7,343.1 $19.5 $(212.9) $7,149.7
======== ===== ======= ========
</TABLE>
The amortized cost and estimated market value of available-for-sale
securities at December 31, 1999 by contractual maturity are shown below (in
millions):
<TABLE>
<CAPTION>
ESTIMATED
AMORTIZED MARKET
COST VALUE
--------- ---------
<S> <C> <C>
Due in one year or less..................................... $ 112.9 $ 115.1
Due in one year through five years.......................... 638.3 625.3
Due after five years through ten years...................... 642.1 615.2
Due after ten years......................................... 977.7 942.4
-------- --------
Subtotal............................................... 2,371.0 2,298.0
Retained securitization interests........................... 4,040.7 4,014.8
Equity securities........................................... 931.4 836.9
-------- --------
Total............................................. $7,343.1 $7,149.7
======== ========
</TABLE>
Trading Securities
Trading securities consist of investments in equity securities which are
recorded at market value. Unrealized gains or losses on trading securities are
included in earnings. The estimated market value at December 31, 1999 was $26.8
million. Historical cost at December 31, 1999 was $17.1 million.
14
<PAGE> 26
ASSOCIATES FIRST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 7 -- FINANCE RECEIVABLES
Composition of Net Finance Receivables
At December 31, 1999, net finance receivables consisted of the following
products (in millions):
<TABLE>
<S> <C>
Home equity................................................. $25,015.0
Personal lending and retail sales finance................... 16,012.4
Truck and truck trailer..................................... 13,130.3
Equipment................................................... 6,977.3
Credit card................................................. 2,247.1
Auto fleet leasing.......................................... 2,070.1
Manufactured housing(1)..................................... 1,849.0
Warehouse lending and other(2).............................. 1,515.9
---------
Finance receivables, net of unearned finance income ("net
finance receivables")(3)............................... 68,817.1
Allowance for losses on finance receivables................. (2,174.4)
Insurance policy and claims reserves........................ (985.9)
---------
Finance receivables, net of unearned finance income,
allowance for losses and insurance policy and claims
reserves............................................... $65,656.8
=========
</TABLE>
---------------
(1) As described in Note 20, in January 2000, the Company announced its
intention to discontinue its manufactured housing loan origination
operations.
(2) Includes warehouse lending, government guaranteed lending and municipal
finance.
(3) Unearned finance income was approximately $4.7 billion.
Securitizations and Sales of Finance Receivables
During 1999, approximately $1.6 billion of the Company's private label
credit card receivables were securitized and sold to a master trust.
Additionally, approximately $2.3 billion of the Company's investment in the
Bankcard securitization master trust formed in 1998 was sold during 1999. The
Company received $3.2 billion in proceeds from these transactions, of which $2.6
billion was in the fourth quarter, and retained securitization interests in the
master trust of approximately $770 million.
During the fourth quarter of 1999, the Company securitized and sold
approximately $2.4 billion of home equity receivables. The Company received
approximately $2.0 billion in proceeds from this transaction and retained
approximately $460 million in interests in the securitization trusts. Also
during the fourth quarter of 1999, the Company sold a home equity receivables
portfolio of approximately $80 million.
During the third quarter of 1999, approximately $2.5 billion of the
Company's manufactured housing receivables were securitized and sold to a trust.
The Company received $2.0 billion in proceeds from this transaction and retained
$500 million in interests in the trust.
In the aggregate, the Company recorded a net gain of approximately $100
million in 1999 on the above transactions, of which approximately $68 million
was recorded in the fourth quarter.
In each of these transactions, the Company retained servicing
responsibilities for the receivables sold. The retained securitization
interests, as described in Notes 2 and 6, are classified as available-for-sale
investment securities on the consolidated balance sheet.
15
<PAGE> 27
ASSOCIATES FIRST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The table below summarizes the significant assumptions used to value the
Company's retained securitization interests at December 31, 1999:
<TABLE>
<CAPTION>
CREDIT HOME EQUITY MANUFACTURED
CARD LENDING HOUSING
------ ----------- ------------
<S> <C> <C> <C>
Weighted average discount rate(1)........................... 12% 10% 11%
Projected prepayment rate................................... n/m 20-30% 10-12%
Projected loss rate(2)...................................... 8-10% 8% 9-12%
</TABLE>
---------------
(1) Represents the weighted average discount rate used to value the retained
interest components which include interest only strips and subordinated and
other retained interests.
(2) Loss rates are annualized and exclude recoveries for credit card and
cumulative for home equity and manufactured housing.
The above assumptions are consistent with those used to determine the
initial retained interest valuation and the gains on 1999 securitization
transactions. In addition to the assumptions noted above, the Company utilized
certain transaction structures that included written put options to the
investors. These put options had the impact of reducing the securitization gains
recognized in 1999 by approximately $23 million. See Note 16 for additional
information.
Contractual Maturities of Net Finance Receivables
At December 31, 1999, contractual maturities of net finance receivables
were as follows (in millions):
<TABLE>
<CAPTION>
YEAR DUE TOTAL
-------- ---------
<S> <C>
2000........................................................ $15,889.9
2001........................................................ 10,609.7
2002........................................................ 8,072.5
2003........................................................ 6,436.5
2004 and thereafter......................................... 27,808.5
---------
$68,817.1
=========
</TABLE>
It is the Company's experience that a substantial portion of the loan
portfolio generally is renewed or repaid prior to contractual maturity dates.
The above maturity schedule should not be regarded as a forecast of future cash
collections.
Direct Financing Leases
Included in net finance receivables at December 31, 1999 are direct
financing leases as follows (in millions):
<TABLE>
<S> <C>
Minimum lease rentals....................................... $ 7,766.4
Unearned finance income..................................... (1,143.5)
---------
Net investment in direct financing leases................... $ 6,622.9
=========
</TABLE>
Future net minimum lease rentals on direct financing leases for each of the
years succeeding December 31, 1999 are as follows (in millions):
2000 -- $1,884.9; 2001 -- $1,333.9; 2002 -- $1,231.1; 2003 -- $1,111.4;
2004 -- $619.1 and 2005 and thereafter -- $442.5.
Dispersion of Finance Receivables
The Company has geographically dispersed finance receivables. At December
31, 1999, approximately 77% of the Company's Owned Basis total receivables were
dispersed across the United States, and the remaining 23% were in foreign
countries. Of the total receivables, 11% were in Japan, 8% in California, 6% in
Canada, 6% in Texas and 5% in Florida; no other individual state or foreign
country had more than 4%.
16
<PAGE> 28
ASSOCIATES FIRST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 8 -- ALLOWANCE FOR LOSSES ON FINANCE RECEIVABLES
Changes in the allowance for losses on finance receivables during the year
ended December 31, 1999 were as follows (in millions):
<TABLE>
<S> <C>
Balance at beginning of year................................ $ 1,978.7
Provision for losses...................................... 1,506.4
Recoveries on receivables charged off..................... 268.8
Losses sustained.......................................... (1,717.1)
Reserves of receivables sold or held for securitization... (214.0)
Reserves of acquired businesses and other................. 351.6
---------
Balance at end of year...................................... $ 2,174.4
=========
</TABLE>
NOTE 9 -- OTHER ASSETS
The components of other assets at December 31, 1999 were as follows (in
millions):
<TABLE>
<S> <C>
Goodwill, net............................................... $3,747.8
Notes and other receivables................................. 1,877.9
Other intangible assets, net................................ 1,579.4
Property and equipment...................................... 662.2
Collateral held for resale.................................. 431.7
Relocation client advances.................................. 185.4
Finance receivables held for sale or securitization, net.... 153.0
Other....................................................... 459.8
--------
Total............................................. $9,097.2
========
</TABLE>
Reductions as a result of goodwill amortization were $128.8 million for
1999. Reductions as a result of other intangible asset amortization were $105.2
million for 1999. Goodwill and other intangible assets are net of accumulated
amortization of $644.3 million at December 31, 1999 and related deferred tax
liabilities. Other changes in the amount of goodwill were principally due to
changes in foreign exchange rates which impact the translation of foreign
currency denominated goodwill recorded on the books of the Company's
international subsidiaries.
NOTE 10 -- CREDIT FACILITIES
At December 31, 1999, the Company had the following credit facilities (in
millions):
<TABLE>
<CAPTION>
FACILITY
AMOUNTS(1)
----------
<S> <C>
Domestic
Lines of credit........................................... $ 4,272.8
Syndicated credit facilities.............................. 14,455.0
---------
Total domestic.................................... 18,727.8
Foreign
Lines of credit........................................... 45.0
Syndicated credit facilities.............................. 2,821.1
---------
Total foreign..................................... 2,866.1
---------
Total domestic and foreign........................ $21,593.9
=========
</TABLE>
---------------
(1) Included in these amounts are $210 million and $2.2 billion of lines of
credit and syndicated credit facilities, respectively, that are available to
either First Capital or Associates Corporation of North America.
17
<PAGE> 29
ASSOCIATES FIRST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Lines of credit and syndicated credit facilities may be withdrawn only
under certain standard conditions, including, as to the credit facilities
identified above, failure to pay principal or interest when due, breach of
representations, warranties or covenants, default on other debt, or bankruptcy
or other insolvency-type proceedings. As to the credit facilities of the foreign
operations, in addition to the foregoing standard conditions, certain facilities
contain provisions which prohibit withdrawals as a result of any material
adverse changes in the financial conditions of such operations. The Company
principally pays fees for the availability of its credit facilities. These
credit facilities are used to support commercial paper borrowings and utilized
uncommitted lines of credit.
Limitation on Minimum Tangible Net Worth
Restrictions defined in certain syndicated credit facilities require the
Company to maintain a minimum tangible net worth, as defined, of $2.5 billion.
At December 31, 1999, the Company's tangible net worth, as defined in the
syndicated credit facilities, was approximately $6.1 billion.
NOTE 11 -- NOTES PAYABLE
Commercial paper notes are issued by the Company in the minimum amount of
$100,000 with terms generally from one to 270 days. Bank loan terms range from
one to 365 days. Information pertaining to the Company's commercial paper notes
and bank loans is set forth below as of December 31, 1999 (dollar amounts in
millions):
<TABLE>
<CAPTION>
COMMERCIAL BANK
PAPER NOTES LOANS
----------- --------
<S> <C> <C>
Domestic Notes Payable
Ending balance............................................ $18,991.0 $ 990.7
Weighted average interest rate............................ 5.62% 4.92%
Foreign Notes Payable
Ending balance............................................ $ 7,000.9 $ 270.8
Weighted average interest rate............................ 5.58% 4.01%
Total Notes Payable
Ending balance............................................ $25,991.9 $1,261.5
Weighted average interest rate............................ 5.61% 4.72%
</TABLE>
18
<PAGE> 30
ASSOCIATES FIRST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 12 -- LONG-TERM DEBT
Outstanding balances of long-term debt at December 31, 1999 were as follows
(in millions):
<TABLE>
<CAPTION>
INTEREST WEIGHTED
RATE AVERAGE MATURITIES
RANGE RATE THROUGH 1999
-------------- -------- ---------- ---------
<S> <C> <C> <C> <C>
Senior Notes:
Domestic:
Notes.................................... 5.25% - 11.40% 6.10% 2037 $34,128.5
Investment notes......................... 6.10% - 7.37% 7.37% 2001 50.9
---------
34,179.4
---------
Foreign:
Japan.................................... 1.23% - 8.00% 2.57% 2004 2,062.2
All other foreign........................ 0.22% - 32.00% 5.04% 2004 4,737.2
----
6,799.4
---------
Total senior notes.................. 40,978.8
---------
Subordinated and Capital Notes:
Domestic:
Subordinated............................. 6.88% - 8.15% 7.25% 2009 425.0
Capital.................................. 4.68% - 9.00% 6.73% 2002 0.2
---------
Total subordinated and capital debt
notes............................. 425.2
---------
Total long-term debt................ $41,404.0
=========
</TABLE>
The weighted average interest rate for total long-term debt was 5.82% at
December 31, 1999.
In 1999, the Company issued a $500 million senior note to a trust which in
turn issued $500 million in trust securities to an institutional investor in a
private transaction. The trust securities and senior notes mature in 2002.
Long-term borrowing maturities during the next five years, including the
current portion of notes payable after one year are: 2000, $8,758.9 million;
2001, $7,313.2 million; 2002, $7,943.5 million; 2003, $5,815.1 million; 2004,
$3,514.4 million and 2005 and thereafter, $8,058.9 million. Certain debt issues
are subject to put or call redemption provisions whereby repayment may be
required prior to the maturity date. As applicable, the amount of the option
premium received by the Company is deferred and amortized over the expected life
of the debt obligation.
NOTE 13 -- INCOME TAXES
The following table sets forth the components of the provision for income
taxes and deferred income tax (benefit) for the year ended December 31, 1999 (in
millions):
<TABLE>
<CAPTION>
UNITED STATES
---------------
FEDERAL STATE FOREIGN TOTAL
------- ----- ------- ------
<S> <C> <C> <C> <C>
Current........................................... $438.8 $38.0 $236.4 $713.2
Deferred.......................................... 90.8 3.3 79.2 173.3
------ ----- ------ ------
$529.6 $41.3 $315.6 $886.5
====== ===== ====== ======
</TABLE>
19
<PAGE> 31
ASSOCIATES FIRST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 1999, the components of the Company's net deferred tax
asset were as follows (in millions):
<TABLE>
<S> <C>
Deferred tax assets:
Provision for losses on finance receivables and other..... $1,439.2
Foreign tax credits....................................... 87.7
Postretirement and other employee benefits................ 112.4
--------
1,639.3
Deferred tax liabilities:
Leasing transactions...................................... (579.0)
Goodwill.................................................. (373.6)
Finance revenue and other................................. (563.0)
--------
(1,515.6)
--------
Net deferred tax asset................................. $ 123.7
========
</TABLE>
The effective tax rate differed from the statutory United States federal
income tax rate for the year ended December 31, 1999 as follows:
<TABLE>
<S> <C>
Statutory tax rate.......................................... 35.0%
State tax rate.............................................. 1.1
Non-deductible goodwill..................................... 1.1
Other....................................................... 0.1
----
Effective tax rate........................................ 37.3%
====
</TABLE>
NOTE 14 -- LEASE COMMITMENTS
Leases on the Company's branch and operating center facilities are
primarily short-term and generally provide for renewal options not exceeding the
initial term. Total rent expense for the years ended December 31, 1999 was
$198.5 million. Minimum rental commitments as of December 31, 1999 for all
noncancelable leases (primarily office leases) for the years ending December 31,
2000, 2001, 2002, 2003 and 2004 are $108.8 million, $81.9 million, $57.6
million, $37.4 million and $44.9 million, respectively, and $45.1 million
thereafter.
NOTE 15 -- EMPLOYEE BENEFITS
Pension and Other Post-Retirement Benefits
The Company sponsors various qualified and non-qualified pension plans,
which together cover substantially all United States-based employees who meet
certain eligibility requirements. The Company also provides certain
post-retirement benefits through unfunded plans. These benefits are currently
provided to substantially all United States-based employees who meet certain
eligibility requirements. The benefits of such plans can be modified or
terminated at the discretion of the Company. The health care plans are
contributory, with participants' contributions adjusted annually; the life
insurance plans are also contributory.
20
<PAGE> 32
ASSOCIATES FIRST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The funded status of these Plans at December 31, 1999 is as follows
(dollars in millions):
<TABLE>
<CAPTION>
PENSION OTHER
BENEFITS BENEFITS
-------- --------
<S> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year................... $ 562.8 $ 123.4
Service cost.............................................. 36.5 9.0
Interest cost............................................. 37.5 10.2
Plan participants' contributions.......................... -- 0.4
Plan amendment............................................ (1.2) (18.3)
Acquisition............................................... -- 32.5
Actuarial gains........................................... (88.7) (20.6)
Benefits paid............................................. (15.1) (4.5)
------- -------
Benefit obligation at end of year................. $ 531.8 $ 132.1
======= =======
Change in plan assets:
Fair value of plan assets at beginning of year............ $ 538.6 $ --
Actual return on plan assets.............................. 101.2 --
Employer contributions.................................... 29.9 4.1
Plan participants' contributions.......................... -- 0.4
Benefits paid............................................. (15.1) (4.5)
------- -------
Fair value of plan assets at end of year.......... $ 654.6 $ --
======= =======
Funded status............................................. $ 122.8 $(132.1)
Unrecognized net transition obligation.................... 1.4 --
Unrecognized net actuarial gain........................... (137.8) (27.4)
Unrecognized prior service cost........................... -- (17.7)
------- -------
Net amount recognized............................. $ (13.6) $(177.2)
======= =======
Amounts recognized in the consolidated balance sheet:
Prepaid benefit cost...................................... $ 25.4 $ --
Accrued benefit liability................................. (46.0) (177.2)
Intangible asset.......................................... 7.0 --
------- -------
Net amount recognized............................. $ (13.6) $(177.2)
======= =======
Weighted-average assumptions:
Discount rate............................................. 7.75% 7.75%
Expected return on plan assets............................ 9.00% --%
Rate of compensation increase............................. 5.00% --%
</TABLE>
For measurement purposes, a 10.0% annual rate of increase in the per capita
cost of covered health care benefits was assumed for 1999. The rate was assumed
to decrease gradually to 5.5% by 2010 and remain at that level thereafter.
Additionally, no future increase in retiree premiums was assumed.
The pension plan assets are allocated 72.1% to equity securities and 27.9%
to debt securities at December 31, 1999.
21
<PAGE> 33
ASSOCIATES FIRST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The net periodic pension cost for the year ended December 31, 1999 includes
the following components (in millions):
<TABLE>
<CAPTION>
PENSION OTHER
BENEFITS BENEFITS
-------- --------
<S> <C> <C>
Components of net periodic benefit cost:
Service cost.............................................. $ 36.5 $ 9.0
Interest cost............................................. 37.5 10.2
Expected return on plan assets............................ (43.0) --
Amortization of transition liability...................... 0.3 --
Amortization of prior service cost........................ 0.3 (1.5)
Recognized net actuarial gain............................. 4.6 0.1
------ -----
Net periodic benefit cost......................... $ 36.2 $17.8
====== =====
</TABLE>
For the pension plans with accumulated benefit obligations in excess of
plan assets, the projected benefit obligation and accumulated benefit obligation
were $54.9 million and $40.8 million, respectively as of December 31, 1999. The
assets of these plans had no fair value as of December 31, 1999.
Assumed health care cost trend rates have a significant effect on the
amounts reported for the health care plans. A one-percentage-point change in the
assumed health care cost trend rates would have the following effects (in
millions):
<TABLE>
<CAPTION>
1-PERCENTAGE- 1-PERCENTAGE-
POINT POINT
INCREASE DECREASE
------------------ ------------------
<S> <C> <C>
Effect on total of service and interest cost
components........................................... $ 1.9 $ (1.9)
Effect on post-retirement benefit obligations.......... 10.7 (10.6)
</TABLE>
The Company also sponsors two qualified pension plans, which cover
substantially all of the employees of its Japan operations who meet certain
eligibility requirements. For the year ended December 31, 1999, the Company's
net periodic benefit cost of these plans was $4.7 million. As of December 31,
1999, the total benefit obligation and fair value of plan assets was $26.7
million and $28.3 million respectively.
Associates Savings and Profit-Sharing Plan
The Company sponsors a defined contribution plan that covers substantially
all United States-based employees who meet certain eligibility requirements, is
intended to provide assistance in accumulating personal savings for retirement
and is designed to qualify for favorable tax treatment under Sections 401(a) and
401(k) of the United States Internal Revenue Code of 1986, as amended. For the
year ended December 31, 1999, the Company's pre-tax contributions to the plan
was $43.7 million. Among other options, the plan provides as an investment
option the Associates Stock Fund which invests principally in the Company's
Class A Common Stock.
Associates Discounted Employee Stock Purchase Plan
The Company sponsors a discounted employee stock purchase plan which,
beginning in 1999, allows employees to purchase Class A Common Stock of the
Company at a discount. The price of the stock is discounted 15% from the closing
price at the lower of the beginning or the end of the offering period.
22
<PAGE> 34
ASSOCIATES FIRST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INCENTIVE COMPENSATION PROGRAMS
The Company sponsors the following compensation plans covering certain
officers and employees:
Incentive Compensation Plan and Long-Term Performance Plan
The Company sponsors the Incentive Compensation Plan (the "ICP"), which
beginning in 1997 has provided for corporate annual performance pay bonuses, in
addition to other types of compensation. The bonuses are paid out of one of two
pools. The size of each bonus pool is determined based, in part, on the
performance of the Company. Prior to 1997, corporate annual performance pay
bonuses were provided under the Corporate Annual Performance Plan which was a
separate plan prior to being incorporated into the ICP in 1997. The Long Term
Performance Plan ("LTPP") for 1999 was a long term cash incentive plan. The size
of the LTPP incentive pool was determined for the performance period ending
December 31, 1999, based, in part, on the success of the Company in achieving a
target level of profits established for each year of the performance period,
with such annual performance then averaged for the performance period. Bonuses
reflect individual participants' performances during the applicable performance
period. Amounts charged to expense for these bonus plans amounted to $31.6
million during the year ended December 31, 1999.
Deferred Compensation Plan
The Company sponsors the Deferred Compensation Plan (the "DCP"), a
non-qualified defined contribution plan. Under the DCP, participants may elect
to defer payment of current cash compensation. Deferred amounts are deemed
invested as the participants elect among available investment measures, but no
actual investments are made. Among the available investment measures is a deemed
investment in Class A Common Stock, with the value of the deferred amount
adjusted to reflect the performance of Class A Common Stock.
Stock-Based Compensation Plans
The ICP also includes an equity compensation plan, formerly known as the
Long-Term Equity Compensation Plan, which was established in 1996 and amended
and merged into the ICP effective January 1, 1997. The Company had no
outstanding grants under any other stock-based compensation plan prior to 1996.
The ICP allows the Company to issue to eligible employees awards of up to
41,598,536 shares of its Class A Common Stock ("Common Stock"). In addition to
awards of corporate annual performance pay, awards may be made as nonqualified
or incentive stock options, stock appreciation rights, restricted stock,
performance units or performance shares. Through December 31, 1999, the Company
had only issued non-qualified stock options and restricted stock under the ICP.
Stock Options -- Stock options have contractual terms of 10 years and an
exercise price equal to the fair market value of the stock underlying the option
at grant. Options generally vest at 33.33% each year beginning on the first
anniversary of the date of grant. A summary of the activity of option grants by
the Company under the ICP for the year ended December 31, 1999 is presented
below.
<TABLE>
<CAPTION>
WEIGHTED-AVG.
OPTIONS EXERCISE PRICE
---------- --------------
<S> <C> <C>
Outstanding at beginning of year............................ 12,938,752 $26.17
Granted................................................... 7,767,630 42.27
Exercised................................................. (1,294,758) 22.05
Forfeited................................................. (1,215,557) 38.25
----------
Outstanding at end of year.................................. 18,196,067 32.55
==========
Options exercisable at year end............................. 6,253,629 22.82
Weighted-average fair value of options granted during the
year...................................................... 13.83
</TABLE>
23
<PAGE> 35
ASSOCIATES FIRST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The fair value of each stock option granted during 1999 is estimated on the
date of grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions:
<TABLE>
<CAPTION>
ASSUMPTIONS
-----------
<S> <C>
Expected Term in years...................................... 4.00
Expected Volatility......................................... 34.83%
Expected Dividend Yield..................................... 0.52%
Risk-Free Interest Rate..................................... 4.72%
</TABLE>
The weighted average remaining life and weighted average exercise price for
total options outstanding and exercisable options outstanding at December 31,
1999 is summarized below:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
------------------------------ OPTIONS EXERCISABLE
WEIGHTED-AVG. --------------------------
RANGE OF REMAINING WEIGHTED-AVG. WEIGHTED-AVG.
EXERCISE PRICES OPTIONS LIFE EXERCISE PRICE OPTIONS EXERCISE PRICE
--------------- ---------- ------------- -------------- --------- --------------
(YEARS)
<S> <C> <C> <C> <C> <C>
$14.50 to $24.50....... 5,770,402 6.70 $18.20 4,425,157 $17.73
27.63 to 35.31....... 5,260,756 8.04 35.12 1,762,419 35.00
37.50 to 44.69....... 7,164,909 9.01 42.23 66,053 38.50
---------- ---------
14.50 to 44.69....... 18,196,067 8.00 32.55 6,253,629 22.82
========== ====== =========
</TABLE>
Restricted Stock -- Under the ICP, the Company issued 340,668 shares of
restricted Common Stock to employees in 1999. At December 31, 1999, 789,988 were
outstanding. Restrictions generally will not lapse until the fifth anniversary
of the date of issuance.
Deemed Investment in Stock -- Prior to 1996, the Company sponsored a
long-term cash incentive plan, the Phantom Stock Appreciation Right Plan (The
"PSAR Plan"). The Company terminated the PSAR Plan as of December 1995 and
extinguished, principally by cash payment, all outstanding phantom stock
appreciation rights ("PSAR"). A PSAR granted under the PSAR Plan entitled the
holder to receive a specified amount of cash upon the exercise of the PSAR. Upon
termination of the PSAR Plan, certain officers of the Company were required to
defer a portion of the amount payable in satisfaction of the termination of the
PSAR Plan. The amounts deferred are administered in accordance with the terms of
the Equity Deferral Plan (the "EDP"), sponsored by the Company.
In 1999, under the EDP, the Company credited PSAR amounts deferred by
selected employees to unfunded accounts that are deemed to be invested in shares
of Common Stock, which amounts are then deemed to be reinvested in Common Stock.
Approximately 1,129 deemed shares were issued during 1999 and related to the
reinvestment of dividends. On December 31, 1999, the EDP was merged into the DCP
and the PSAR amounts were reinvested in the DCP. At December 31, 1999, there
were no PSAR amounts outstanding.
Accounting for Stock-Based Compensation Plans -- The Company has elected to
apply Accounting Principles Board Opinion 25 ("APB 25") rather than the optional
provisions of Statement of Financial Accounting Standards No. 123 ("SFAS 123")
in accounting for its stock-based compensation plans. Had the compensation cost
of the Company's stock-based compensation plans been determined based on the
optional provisions of SFAS 123, in the year ended December 31, 1999 the
Company's net income, basic earnings per share and diluted earnings per share
would have been $1,451 million, $1.99, and $1.98, respectively.
24
<PAGE> 36
ASSOCIATES FIRST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 16 -- COMMITMENTS, CONTINGENCIES AND LEGAL PROCEEDINGS
The Company grants revolving lines of credit to certain of its credit card
and other revolving customers. At December 31, 1999, the unused portion of these
lines aggregated $56.1 billion.
The Company also grants lines of credit to certain dealers of trucks,
construction equipment and manufactured housing. At December 31, 1999, the
unused portion of these lines aggregated $865 million.
Various legal actions and proceedings and claims are pending or may be
instituted or asserted in the future against the Company and its subsidiaries.
Certain of the pending legal actions are, or purport to be, class actions. Some
of the foregoing matters involve or may involve compensatory, punitive or treble
damage claims which, if adversely held against the Company, would require large
expenditures or could affect the manner in which the Company conducts its
business.
In addition, the Company like many other companies that operate in
regulated businesses is from time to time the subject of various governmental
inquiries and investigations. The Company is currently the subject of certain
investigations and inquiries by federal and state governmental authorities
relating generally to the Company's lending practices. The Company does not have
sufficient information to predict with certainty the ultimate outcome of such
investigations and inquiries or their ultimate effect, if any, on the Company's
results of operations or financial condition or the manner in which the Company
operates its business.
Legal actions, governmental inquiries and investigations are subject to
many uncertainties, and the outcome of individual matters is not predictable
with assurance. Some of the matters discussed in the foregoing paragraphs could
be decided unfavorably to the Company or the subsidiary involved and could
require the Company or such subsidiary to pay damages or make other expenditures
in amounts or a range of amounts that cannot be estimated at December 31, 1999.
The Company does not reasonably expect, based on its analysis, that any adverse
outcome from such matters would have a material effect on future consolidated
financial statements for a particular year, although such an outcome is
possible.
To broaden its investor base and improve execution in connection with its
asset securitization program, the Company wrote "put options" which require it
to purchase, upon request of the holders, securities issued in four
securitization transactions. These put options include: a put option,
exercisable any time after February 17, 2000, with respect to an aggregate of up
to $500 million principal amounts of certificates backed by credit card
receivables; a put option, exercisable in October of each year beginning in
October 2000, with respect to an aggregate of up to approximately $2 billion
principal amount of certificates backed by manufactured housing contract
receivables; a put option, exercisable at any time after June 15, 2000, with
respect to an aggregate of up to approximately $1 billion principal amount of
notes secured by home equity loan receivables, only to the extent the
securitization trust cannot meet its obligation under a separate put option by
the trust which is exercisable at any time after March 15, 2000, and a put
option, exercisable at any time after June 15, 2000, with respect to an
aggregate of up to approximately $1 billion of notes secured by home equity loan
receivables only to the extent the securitization trust cannot meet its
obligation under a separate put option issued by the trust. In each case, if
exercised, the Company will be obligated to purchase the certificates or notes
at par plus accrued interest. The Company has recorded liabilities totaling
approximately $23 million in connection with these options. Subsequent to their
initial issuance, such options are marked to market with the fluctuation being
reflected in the statement of earnings.
NOTE 17 -- FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISKS
The Company maintains cash, cash equivalents, investments and certain other
financial instruments with various major financial institutions. To the extent
such deposits exceed maximum insurance levels, they are uninsured.
25
<PAGE> 37
ASSOCIATES FIRST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company uses derivative financial instruments for the purpose of
hedging specific exposures as part of its risk management program. Such
instruments are limited to foreign currency forward exchange, currency swap,
interest rate swap, municipal bond futures and treasury futures and option
contracts.
Foreign currency forward exchange agreements are generally held for
purposes other than trading and 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
five years. The aggregate notional amount of these agreements at December 31,
1999 was $2.8 billion. The fair value of such agreements at December 31, 1999
would have been a liability of $389.0 million.
Foreign currency swap agreements are held for purposes other than trading
and 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 counter parties are obligated to exchange specific
foreign currencies at varying times over the next four years. The aggregate
notional amount of these agreements at December 31, 1999 was $5.9 billion. The
fair value of such agreements at December 31, 1999 would have been a liability
of $307.9 million.
Interest rate swap agreements are held for purposes other than trading and
are used by the Company to hedge the effect of interest rate movements on
existing debt. The aggregate notional amount of interest rate swap agreements at
December 31, 1999 was $9.2 billion. The fair value of such agreements at
December 31, 1999 would have been a liability of $46.7 million. These agreements
mature on varying dates over the next 19 years.
Treasury futures and option contracts are used to minimize fluctuations in
the value of preferred stock investments and are held for purposes other than
trading. The aggregate notional amount of futures and option contracts at
December 31, 1999 was $536.2 million. The fair value of these contracts would
have been an asset of $12.4 million at December 31, 1999. Such contracts mature
on varying dates through 2000.
Municipal bond futures are used to minimize fluctuations in the value of
municipal bond investments and are held for purposes other than trading. The
aggregate notional amount of municipal bond futures contracts at December 31,
1999 was $180.1 million. The fair value of these contracts would have been an
asset of $2.4 million at December 31, 1999. Such contracts mature on varying
dates through 2000.
NOTE 18 -- BUSINESS SEGMENT INFORMATION
Reportable Segment Overview
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. In
1999, these allocations included gains or losses on business dispositions and
assets sold and securitized as set forth in Notes 3 and 7.
U.S. Credit Card
The U.S. credit card finance segment offers bankcard, private label credit
card and related insurance products to customers throughout the United States.
26
<PAGE> 38
ASSOCIATES FIRST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
U.S. Consumer Finance
The U.S. consumer finance reportable segment includes the Company's U.S.
consumer branch and U.S. home equity lending business units. These business
units have been aggregated into one reportable segment because they have similar
operating characteristics. Finance products and services offered by this segment
include home equity loans, personal loans, automobile financing, retail sales
finance and related insurance products in the United States (excluding Hawaii
and Puerto Rico, which are included in the international finance segment).
Commercial
The commercial segment is principally engaged in the financing and leasing
of transportation, industrial and communication equipment, auto fleet leasing
and fleet management services, manufactured housing financing, warehouse
lending, government guaranteed lending, municipal finance, employee relocation
services and insurance products in the United States and Canada.
International Finance
The international finance segment is primarily engaged in consumer lending,
and to a lesser extent, credit card and commercial lending activities and
related insurance products in Japan, Canada, the United Kingdom, Puerto Rico,
Hawaii, Sweden, Hong Kong, Spain, France, India, Mexico, Taiwan, Ireland and
Costa Rica.
Measurement
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"). The
table below presents this Managed Basis information for each reportable segment
as of and for the year ended December 31, 1999 (in millions):
<TABLE>
<CAPTION>
U.S. U.S.
CREDIT CONSUMER INTERNATIONAL TOTAL
CARD FINANCE COMMERCIAL FINANCE COMPANY
--------- ---------- ---------- ------------- ---------
<S> <C> <C> <C> <C> <C>
Total revenue........................... $ 2,542.3 $ 4,442.2 $ 3,285.2 $ 2,981.3 $13,251.0
Net interest margin..................... 1,737.9 2,266.7 1,028.4 2,191.4 7,224.4
Segment earnings........................ 441.1 688.7 506.9 740.2 2,376.9
Finance receivables..................... 10,928.3 31,566.8 27,948.6 13,971.0 84,414.7
</TABLE>
27
<PAGE> 39
ASSOCIATES FIRST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Reconciliation of Segment and Consolidated Information
A reconciliation of total Company revenue, net interest margin and net
finance receivables as of and for the year ended December 31, 1999 to the
related consolidated totals is as follows (in millions):
<TABLE>
<S> <C>
Total Revenue
Total Company Managed Basis revenue....................... $ 13,251.0
Managed Basis adjustments................................. (1,119.8)
----------
Consolidated revenue.............................. $ 12,131.2
==========
Net Interest Margin
Total Company Managed Basis net interest margin........... $ 7,224.4
Managed Basis adjustments................................. (2,024.5)
----------
Consolidated net interest margin.................. $ 5,199.9
==========
Finance Receivables
Total Company Managed Basis finance receivables........... $ 84,414.7
Managed Basis adjustments................................. (15,597.6)
----------
Consolidated net finance receivables.............. $ 68,817.1
==========
</TABLE>
Segment earnings and consolidated earnings before income taxes are equal;
therefore, no reconciliation is presented.
Information About Geographic Areas
The following is finance charge information by geographic area for the year
ended December 31, 1999 (in millions):
<TABLE>
<S> <C>
Finance charges
United States............................................. $6,361.0
Japan..................................................... 1,628.5
Canada.................................................... 553.8
United Kingdom............................................ 470.6
All other................................................. 92.5
--------
Consolidated finance charges...................... $9,106.4
========
</TABLE>
Information About Products and Services
The Company manages its product and service offering primarily through
these reportable segments. Therefore, pursuant to the provisions of SFAS 131, no
enterprise-wide disclosures of information about products and services are
necessary.
Information About Major Customers
The Company has no customer that represents greater than 10% of total
revenue.
28
<PAGE> 40
ASSOCIATES FIRST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 19 -- FAIR VALUE OF FINANCIAL INSTRUMENTS
The information provided below is required by Statement of Financial
Accounting Standards No. 107, Disclosures about Fair Value of Financial
Instruments. Amounts disclosed represent estimates of fair values at a
particular point in time. Significant assumptions regarding economic conditions,
loss experience and risk characteristics associated with particular financial
instruments and other factors were used for purposes of this disclosure. These
assumptions are subjective in nature and involve matters of judgment. Changes in
assumptions could have a material impact on these estimates.
At December 31, 1999, the carrying value and estimated fair value of
certain of the Company's financial instruments were as follows (in millions):
<TABLE>
<CAPTION>
CARRYING ESTIMATED
VALUE FAIR VALUE
-------- ----------
<S> <C> <C>
Cash and cash equivalents(1)................................ $ 1,026.3 $ 1,026.3
Investment securities(2).................................... 7,176.5 7,176.5
Net finance receivables(3).................................. 68,817.1 72,740.7
Notes payable(1)
Commercial paper.......................................... 25,991.9 25,991.9
Bank Loans................................................ 1,261.5 1,261.5
Long-term debt(4)........................................... 41,404.0 40,961.9
</TABLE>
---------------
(1) The estimated fair value approximates their carrying value.
(2) Estimated market values of investment securities are based on quoted market
prices. If quoted prices are not available, the fair value was estimated by
discounting the expected cash flows from the investments at discount rates
which approximate the rates that would achieve an expected return on assets
with similar risk characteristics.
(3) In order to determine the fair values of loans, the loan portfolio was
segmented based on loan type, credit quality and repricing characteristics.
The fair value was estimated by discounting the expected cash flows from
such loans at discount rates which approximate gross finance charge rates
that would achieve an expected return on assets with similar risk
characteristics. The estimated fair value of the credit card receivables was
based on the Company's experience in pricing similar portfolios for
acquisition purposes.
(4) The fair value of long-term debt was determined by discounting expected cash
flows at discount rates currently available to the Company for debt with
similar terms and remaining maturities.
See Note 17 for fair value information regarding derivative financial
instruments.
NOTE 20 -- DISCONTINUATION OF MANUFACTURED HOUSING ORIGINATION (UNAUDITED)
In January 2000, the Company announced its intention to discontinue the
loan origination operations of its Associates Housing Finance ("AHF") unit. AHF
originates and services loans for manufactured homes. As a result, the Company
plans to take a special pre-tax charge against first quarter 2000 earnings of
approximately $112 million. This charge will cover exit costs, including
severance, noncancellable contractual obligations and related costs, as well as
a provision for increased losses on the disposition of repossessions and
fair-value adjustments of related assets. The Company closed substantially all
of its sales purchase offices in February 2000 and will close its regional loan
origination centers in the second quarter of 2000. The Company will service the
liquidation of the existing receivables through its centralized service facility
in Knoxville, Tennessee. The Company will limit its origination activities to
support of its contractual arrangements and loss mitigation activities.
NOTE 21 -- EVENTS (UNAUDITED) SUBSEQUENT TO DATE OF INDEPENDENT AUDITORS REPORT
On September 5, 2000, First Capital and Citigroup Inc. entered into an
agreement and plan of merger whereby First Capital will be merged with and into
Citigroup Inc. (the "Agreement"). Under the Agreement,
29
<PAGE> 41
ASSOCIATES FIRST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
which was filed as a Form 8-K dated September 6, 2000, holders of First Capital
common stock will receive 0.7334 shares of Citigroup Inc. common stock for each
share of First Capital common stock. Potential impacts related to the plan of
merger between First Capital and Citigroup Inc. have not been reflected in the
accompanying financial statements.
In September 2000, First Capital was notified by certain investors in its
securitization transactions that such investors intended to exercise those put
options. See Note 16 for a discussion of put options issued.
NOTE 22 -- UNAUDITED QUARTERLY FINANCIAL DATA
The following table sets forth the unaudited 1999 quarterly results of
operations (in millions, except earnings per share):
<TABLE>
<CAPTION>
FOURTH THIRD SECOND FIRST
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Finance charges.............................. $2,318.8 $2,241.6 $2,262.1 $2,283.9
======== ======== ======== ========
Interest expense............................. $ 988.7 $ 992.5 $ 965.3 $ 960.0
======== ======== ======== ========
Earnings before provision for income taxes... $ 646.4 $ 618.6 $ 573.0 $ 538.9
Provision for income taxes................... 237.7 231.8 214.9 202.1
-------- -------- -------- --------
Net earnings................................. $ 408.7 $ 386.8 $ 358.1 $ 336.8
======== ======== ======== ========
Net earnings per share
Basic...................................... $ 0.56 $ 0.53 $ 0.49 $ 0.46
======== ======== ======== ========
Diluted.................................... $ 0.56 $ 0.53 $ 0.49 $ 0.46
======== ======== ======== ========
</TABLE>
30
<PAGE> 42
ASSOCIATES FIRST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 23 -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT (PARENT COMPANY ONLY)
Condensed unconsolidated financial information of First Capital as of and
for the year ended December 31, 1999 is as follows (in millions):
CONDENSED STATEMENT OF EARNINGS
(IN MILLIONS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1999
------------
<S> <C>
Revenue
Interest and other income................................. $ 448.5
Dividends from subsidiaries............................... 658.7
--------
1,107.2
Expenses
Interest expense.......................................... 701.7
Operating expenses........................................ 97.4
Provision for losses on finance receivables............... 6.5
--------
805.6
--------
Income before credit for federal income taxes and equity in
undistributed earnings of subsidiaries.................... 301.6
Tax benefit................................................. 237.2
--------
Earnings before equity in undistributed earnings of
subsidiaries.............................................. 538.8
Equity in undistributed earnings of subsidiaries, net of
tax....................................................... 951.6
--------
Net earnings................................................ $1,490.4
========
</TABLE>
See notes to condensed financial information.
31
<PAGE> 43
ASSOCIATES FIRST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED BALANCE SHEET
(IN MILLIONS)
<TABLE>
<CAPTION>
DECEMBER 31,
1999
------------
<S> <C>
Assets
Investment in subsidiaries................................ $13,665.8
Finance receivables, net of unearned income and allowance
for credit losses...................................... 668.8
Advances to subsidiaries, eliminated in consolidation, and
other.................................................. 7,238.8
---------
Total assets...................................... $21,573.4
=========
Liabilities and Stockholders' Equity
Accounts payable and accruals............................. $ 759.6
Short-term notes payable.................................. 9,625.9
Long-term debt............................................ 1,387.4
Stockholders' equity...................................... 9,800.5
---------
Total liabilities and stockholders' equity........ $21,573.4
=========
</TABLE>
The estimated fair value of notes payable and long-term debt at December
31, 1999 was $11,003.1 million. Fair values were estimated by discounting
expected cash flows at discount rates currently available to the Company for
debt with similar terms and remaining maturities.
See notes to condensed financial information.
32
<PAGE> 44
ASSOCIATES FIRST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED STATEMENT OF CASH FLOWS
(IN MILLIONS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1999
------------
<S> <C>
Cash Flows from Operating Activities
Net earnings.............................................. $ 1,490.4
Adjustments to net earnings for non-cash items:
Provision for losses on finance receivables............ 6.5
Depreciation and amortization.......................... 10.5
Increase (decrease) in accounts payable and accruals... 263.0
Equity in undistributed earnings of subsidiaries....... (951.6)
---------
Net cash provided from operating activities............ 818.8
---------
Cash Flows from Investing Activities
Finance receivables originated or purchased............... (584.3)
Finance receivables liquidated............................ 571.4
Acquisition of other finance businesses, net.............. (4,170.5)
Sale of other finance businesses.......................... 2,162.8
Cash dividends from subsidiaries.......................... 658.7
Increase in investments in and advances to subsidiaries... (3,647.2)
(Increase) decrease in other assets....................... (495.1)
---------
Net cash used for investing activities................. (5,504.2)
---------
Cash Flows from Financing Activities
Increase in notes payable and long-term debt.............. 5,805.7
Retirement of long-term debt.............................. (1,074.9)
Sale of Class A Common Stock.............................. --
Cash dividends............................................ (167.5)
Treasury stock and other.................................. 22.4
---------
Net cash provided from financing activities............ 4,585.7
Effect of foreign currency translation adjustments on
cash...................................................... 191.2
---------
Increase in cash and cash equivalents....................... 91.5
Cash and cash equivalents at beginning of year.............. 77.2
---------
Cash and cash equivalents at end of year.................... $ 168.7
=========
</TABLE>
See notes to condensed financial information.
33
<PAGE> 45
ASSOCIATES FIRST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTES TO CONDENSED FINANCIAL INFORMATION:
(1) The ability of the Company's subsidiaries to transfer funds to the
Company in the form of cash dividends is restricted pursuant to the terms of
certain debt agreements entered into by the Company's principal domestic
operating subsidiary, Associates Corporation of North America. See Note 10 for a
summary of the most significant of these restrictions.
(2) Notes payable and long-term debt bear interest at rates from 5.50% to
8.87%. The estimated maturities of the notes outstanding, at December 31, 1999,
during subsequent years were as follows (in millions):
<TABLE>
<CAPTION>
YEAR AMOUNT
---- --------
<S> <C>
2000........................................................ $ 727.0
2001........................................................ 260.4
2002........................................................ 200.0
2003........................................................ --
2004........................................................ --
Thereafter.................................................. 200.0
--------
Total....................................................... $1,387.4
========
</TABLE>
(3) Effective January 1, 1999, First Capital entered into a tax sharing
agreement with certain of its subsidiaries included in First Capital's
consolidated return, which requires an allocation of the consolidated tax
liability among these subsidiaries.
34
<PAGE> 46
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CITICORP
(Registrant)
By: /s/ Roger W. Trupin
------------------------
Name: Roger W. Trupin
Title: Controller
Dated: October 17, 2000
