FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-1004
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 2-44197
ASSOCIATES FIRST CAPITAL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 06-0876639
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
250 East Carpenter Freeway, Irving, Texas 75062-2729
(Address of principal executive offices)
(Zip Code)
214-541-4000
(Registrant's telephone number, including area code)
Not applicable
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes..X.. No.....
As of March 31, 1994, the registrant had 250 shares of Common Stock issued and
outstanding, all of which were owned directly by Ford Holdings, Inc. The
registrant meets the conditions set forth in General Instruction H.(1)(a) and
(b) to Form 10-Q and is therefore filing this Form 10-Q with the reduced
disclosure format.
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PART I - FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS.
ASSOCIATES FIRST CAPITAL CORPORATION
CONSOLIDATED STATEMENT OF EARNINGS
(In Millions)
Three Months Ended
March 31
1994 1993
REVENUE
Finance charges $ 899.5 $783.7
Insurance premiums 63.0 56.2
Investment and other income 57.1 42.2
1,019.6 882.1
EXPENSES
Interest expense 344.7 330.5
Operating expenses 303.9 236.8
Provision for losses on finance receivables 126.9 115.3
Insurance benefits paid or provided 39.2 25.6
814.7 708.2
EARNINGS BEFORE PROVISION FOR INCOME TAXES 204.9 173.9
PROVISION FOR INCOME TAXES 77.4 63.3
NET EARNINGS $ 127.5 $110.6
See notes to consolidated financial statements.
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ASSOCIATES FIRST CAPITAL CORPORATION
CONSOLIDATED BALANCE SHEET
(In Millions)
March 31 December 31
1994 1993
ASSETS
CASH AND CASH EQUIVALENTS $ 361.1 $ 290.3
INVESTMENTS IN MARKETABLE SECURITIES - NOTE 4 546.3 633.7
FINANCE RECEIVABLES - NOTE 5
Consumer Finance 20,992.8 20,495.8
Commercial Finance 9,453.8 9,077.2
Total finance receivables 30,446.6 29,573.0
Less
Unearned finance income 3,293.8 3,208.2
Allowance for losses on finance receivables 832.5 808.9
26,320.3 25,555.9
OTHER ASSETS 1,195.9 1,215.7
Total assets $28,423.6 $27,695.6
LIABILITIES AND STOCKHOLDER'S EQUITY
NOTES PAYABLE unsecured short-term
Commercial Paper $10,445.0 $ 9,735.8
Bank Loans 472.4
ACCOUNTS PAYABLE AND ACCRUALS 1,081.5 950.4
INSURANCE POLICY AND CLAIMS RESERVES 462.7 429.8
LONG-TERM DEBT
Senior Notes 13,629.7 13,358.9
Subordinated and Capital Notes 241.9 241.9
13,871.6 13,600.8
STOCKHOLDER'S EQUITY
Common Stock, no par value, 250 shares
authorized, issued and outstanding, at stated
value 47.0 47.0
Paid-in Capital 904.4 904.4
Retained Earnings 1,614.5 1,551.0
Unrealized (Loss) Gain on Marketable
Securities - NOTES 3 and 4 (3.1) 4.0
Total stockholder's equity 2,562.8 2,506.4
Total liabilities and stockholder's equity $28,423.6 $27,695.6
See notes to consolidated financial statements.
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ASSOCIATES FIRST CAPITAL CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(In Millions)
Three Months Ended
March 31
1994 1993
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 127.5 $ 110.6
Adjustments to net earnings for noncash items:
Increase in accounts payable and accruals 154.6 189.4
Provision for losses on finance receivables 126.9 115.3
Depreciation and amortization 36.9 32.4
Increase in insurance policy and claims
reserves 32.9 7.3
Deferred income taxes (19.6) (29.3)
Unrealized gain on trading securities (3.6)
Purchases of trading securities (9.1)
Sales of trading securities 7.9
Other (3.0) (1.0)
Net cash provided from operating activities 451.4 424.7
CASH FLOWS FROM INVESTING ACTIVITIES
Finance receivables originated or purchased (6,120.6) (4,509.6)
Finance receivables liquidated 5,206.1 3,936.7
Decrease in real estate loans held for sale 14.4 33.0
Purchases of securities available for sale (89.9)
Sales and maturities of securities available
for sale 174.2
Purchases of marketable securities (103.0)
Sales and maturities of marketable securities 64.3
Increase in other assets (8.4) (10.3)
Net cash used for investing activities (824.2) (588.9)
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of long-term debt 849.2 1,033.9
Increase (decrease) in notes payable 236.8 (343.1)
Cash dividends (64.0) (54.0)
Retirement of long-term debt (578.4) (451.6)
Net cash provided from financing activities 443.6 185.2
INCREASE IN CASH AND CASH EQUIVALENTS 70.8 21.0
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 290.3 204.3
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 361.1 $ 225.3
CASH PAID FOR:
Interest $ 329.2 $ 287.4
Income taxes $ 18.9 $ 19.3
See notes to consolidated financial statements.
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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 an indirect subsidiary of Ford Motor Company
("Ford"). All the outstanding Common Stock of First Capital is owned by Ford
Holdings, Inc. ("Holdings"). Associates Corporation of North America
("Associates") is the principal operating subsidiary of First Capital.
NOTE 2 - BASIS OF CONSOLIDATION
The accompanying consolidated financial statements consolidate First Capital
and its subsidiaries. In the opinion of the management of First Capital, all
adjustments necessary to present fairly the results of operations and
financial position have been made and are of a normal recurring nature. The
results of operations for any interim period are not necessarily indicative
of the results of operations for a full year. Certain prior period financial
statement amounts have been reclassified to conform to the current period
presentation.
NOTE 3 - CHANGE IN ACCOUNTING PRINCIPLES
Effective January 1, 1994, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in
Debt and Equity Securities". The adoption of this standard was not
significant to the Company's consolidated financial statements.
NOTE 4 - INVESTMENTS IN MARKETABLE SECURITIES
DEBT SECURITIES
The Company invests in debt securities, principally bonds and notes, with the
intention of holding them to term. However, if market conditions change, the
Company may sell these securities prior to maturity. Accordingly, concurrent
with the adoption of SFAS No. 115, the Company classified its investments in
debt securities as available-for-sale and adjusted its recorded value to
market. Prior to adoption of this standard, the Company carried these
investments at amortized cost. The estimated market value at March 31, 1994
and December 31, 1993 was $510.9 million and $612.0 million, respectively.
Amortized cost at March 31, 1994 and December 31, 1993 was $515.7 million and
$598.7 million, respectively. Realized gains or losses on sale are included
in investment and other income. Unrealized gains or losses are reported as
a component of stockholder's equity, net of tax.
EQUITY SECURITIES
Equity security investments, principally common stock held by the Company's
insurance subsidiaries, are recorded at market value. Concurrent with the
adoption of SFAS No. 115, the Company classified its investments in equity
securities as trading securities and included in earnings unrealized gains or
losses on such securities. Prior to adoption, unrealized gains or losses were
reported as a component of stockholder's equity, net of tax. The estimated
market value at March 31, 1994 and December 31, 1993 was $35.4 million and
$35.0 million, respectively. Historical cost at March 31, 1994 and December
31, 1993 was $31.8 million and $28.9 million, respectively. Realized gains
or losses on sale are included in investment and other income.
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NOTE 5 - FINANCE RECEIVABLES
At March 31, 1994 and December 31, 1993, finance receivables consisted of the
following (in millions):
March 31 December 31
1994 1993
Consumer Finance
Residential real estate-secured receivables $10,894.2 $10,626.0
Direct installment and credit card
receivables 6,022.3 6,060.2
Manufactured housing and other installment
receivables 4,076.3 3,809.6
20,992.8 20,495.8
Commercial Finance
Heavy-duty truck receivables 4,468.6 4,333.7
Other industrial equipment receivables 4,985.2 4,743.5
9,453.8 9,077.2
30,446.6 29,573.0
Unearned Finance Income (3,293.8) (3,208.2)
Net finance receivables $27,152.8 $26,364.8
NOTE 6 - DEBT RESTRICTIONS
Associates is subject to various limitations under the provisions of its
outstanding debt and revolving credit agreements. The most significant of
these limitations are summarized as follows:
LIMITATION ON PAYMENT OF DIVIDENDS
A restriction contained in one series of debt securities maturing August 1,
1996, generally limits payments of cash dividends on Associates Common Stock
in any year to not more than 50% of Associates consolidated net earnings for
such year, subject to certain exceptions, plus increases in contributed
capital and extraordinary gains. Any such amounts available for the payment
of dividends in such fiscal year and not so paid, may be paid in any one or
more of the five subsequent fiscal years. The restriction is applicable to
periods beginning after December 31, 1992. In accordance with this provision,
at March 31, 1994, $292.2 million was available for dividends.
LIMITATION ON MINIMUM TANGIBLE NET WORTH
A restriction contained in certain revolving credit agreements requires
Associates to maintain a minimum tangible net worth, as defined, of $1.5
billion. At March 31, 1994, Associates tangible net worth was approximately
$3.0 billion.
LIMITATION ON AFFILIATE RECEIVABLES
A debt agreement of Associates limits the total of all affiliate-related
receivables, as defined, to 7% of the aggregate gross receivables owned by
Associates. An affiliate within the meaning of affiliate-related receivables
includes First Capital, its parent corporation, and any corporation, other
than Associates and its subsidiaries, of which First Capital or its parent
corporation owns or controls at least 50% of its stock. The net total of all
affiliate-related receivables which Associates owned at March 31, 1994
amounted to 1.9% of its aggregate gross receivables.
NOTE 7 - RATIO OF EARNINGS TO FIXED CHARGES
The ratio of earnings to fixed charges of First Capital for the three months
ended March 31, 1994 and 1993 was 1.59 and 1.53, respectively. For purposes
of such computation, the term "Earnings" represents Earnings Before Provision
for Income Taxes, plus fixed charges. The term "Fixed Charges" represents
interest expense and a portion of rentals representative of an implicit
interest factor for such rentals.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
For the three months ended March 31, 1994 compared with the three months
ended March 31, 1993:
REVENUE - Total revenue for the three months ended March 31, 1994
increased $137.5 million (16%), compared to the three months ended March 31,
1993. The components of the increase were as follows:
Finance charges increased $115.8 million (15%), primarily caused by an
increase in average net finance receivables outstanding, which was partially
offset by a decrease in average revenue rates. Average net finance
receivables outstanding were $26.7 billion and $23.1 billion for the three
months ended March 31, 1994 and 1993, respectively, an increase of $3.6
billion (16%). Total net finance receivables increased by approximately $3.9
billion (17%) from March 31, 1993 to March 31, 1994. Of the total growth, 22%
was in the residential real estate-secured portfolio, 20% was in the direct
installment and credit card portfolios, 19% was in the manufactured housing
and other portfolios, 21% was in the heavy-duty truck portfolio and 18% was
in the industrial equipment portfolio. The growth was due, in part, to the
acquisition of Allied Finance Company (April 1993), and the acquisitions of
finance receivables of Mack Financial Corporation (September 1993) and Great
Western Financial Corporation (September 1993). The annualized average
revenue rates on aggregate net receivables were 13.49% and 13.60% for the
three months ended March 31, 1994 and 1993, respectively. The decline in
average revenue rates was principally due to changes in market conditions,
including lower prevailing market rates affecting yields on new business and
variable and adjustable rate loans, and a shift in the loan portfolio mix
toward a higher percentage of commercial loans, which generally have lower
yields than consumer loans.
Insurance premiums increased $6.8 million (12%), as a result of increased
sales of insurance products, primarily in the credit life and credit accident
and health insurance programs.
Investment and other income increased $14.9 million (36%), primarily due
to an increase in fee-based financial services revenue, and a general increase
in the interest income on investments.
EXPENSES - Total expenses for the three months ended March 31, 1994
increased $106.5 million (15%), compared with the three months ended March 31,
1993. The components of the increase were as follows:
Interest expense increased $14.2 million (4%). This change was caused by
an increase in average outstanding debt ($46.9 million) attributable to higher
net finance receivables outstanding, which was partially offset by a decrease
in average interest rates ($32.7 million). The annualized average interest
rates on total debt, including amortization of discount and issuance expense,
were 5.68% and 6.16% for the three months ended March 31, 1994 and 1993,
respectively. The annualized net interest margin was 8.32% for the three
months ended March 31, 1994 compared with 7.86% for the three months ended
March 31, 1993.
Operating expenses increased $67.1 million (28%), primarily as a result
of increased salaries, employment benefits and other operating expenses
generally related to increased volumes of business, including acquisitions.
The provision for loan losses increased $11.6 million (10%), primarily due
to growth in net finance receivables. Net credit losses annualized as a
percentage of average net finance receivables declined to 1.54% from 1.73% for
the comparative period. The allowance for loan losses increased $23.6 million
(3%) from $808.9 million at December 31, 1993 to $832.5 million at March 31,
1994. The increase relates primarily to growth in net finance receivables.
The allowance for losses, measured as a percent of net finance receivables was
3.07% at March 31, 1994 and December 31, 1993. The allowance for losses is
maintained at a level which considers, among other factors, historical loss
experience, possible deviations from historical loss experience and varying
economic conditions.
Insurance benefits paid or provided increased $13.6 million (53%) during
the three months ended March 31, 1994, primarily due to an increase in overall
claims activity and an increase in the reserve for credit accident and health
insurance claims.
EARNINGS BEFORE PROVISION FOR INCOME TAXES - As a result of the aforemen-
tioned changes, earnings before provision for income taxes increased $31.0
million (18%) during the three months ended March 31, 1994.
PROVISION FOR INCOME TAXES - The provision for income taxes represented
37.8% and 36.4% of earnings before provision for income taxes for the three
months ended March 31, 1994 and 1993, respectively. The increase in the
effective tax rate is primarily related to an increase in the Federal
statutory rate.
NET EARNINGS - As a result of the aforementioned changes, net earnings
increased $16.9 million (15%) during the three months ended March 31, 1994.
LIQUIDITY/CAPITAL RESOURCES
The following sets forth liquidity and capital resources for First Capital
and its subsidiaries other than Associates and its subsidiaries.
First Capital's primary sources of funds have been (i) borrowings from
both commercial banks and the public and (ii) borrowings and dividends from
Associates. Associates is subject to various limitations under the provisions
of its outstanding debt and revolving credit agreements. The most significant
of these limitations are summarized in NOTE 6 of these consolidated financial
statements.
At March 31, 1994, First Capital had contractually committed bank lines
of credit of $75.0 million, and revolving credit facilities of $250.0 million,
none of which was in use. During the three months ended March 31, 1994, First
Capital raised $50.9 million through public and private offerings of
intermediate- and long-term debt.
The following sets forth liquidity and capital resources for Associates:
Associates endeavors to maximize its liquidity by diversifying its sources
of funds, which include: (i) its operations; (ii) the issuance of commercial
paper; (iii) the issuance of unsecured intermediate-term debt in the public
and private markets; (iv) borrowings available from short-term and revolving
credit facilities with commercial banks; and (v) receivables purchase
facilities.
Issuance of Short- and Intermediate-Term Debt
Commercial paper, with maturities ranging from 1 to 270 days, is the
primary source of short-term debt. The average commercial paper interest rate
incurred during the three months ended March 31, 1994 was 3.25%.
Associates issues intermediate-term debt publicly and privately in the
domestic and foreign markets. During the three months ended March 31, 1994,
Associates raised $798.3 million through public and private offerings at a
weighted average effective interest rate and a weighted average term of 5.55%
and 4.5 years, respectively. At March 31, 1994, Associates short-term debt,
as defined, as a percent of total debt was 52%. Short-term debt, for purposes
of this computation, includes the current portion of long-term debt but
excludes short-term investments.
Credit Facilities and Related Borrowings
Associates policy is to maintain bank credit facilities in support of its
net short-term borrowings consistent with market conditions. Bank credit
facilities provide a means of refinancing maturing commercial paper
obligations as needed. Bank lines and revolvers may be withdrawn only under
certain standard conditions.
At March 31, 1994, Associates had contractually committed lines of credit
at 119 banks aggregating $3.3 billion, with various maturities through March
31, 1995, none of which was utilized at March 31, 1994. Also at March 31,
1994, Associates had agreements with 99 banks extending revolving credit
facilities of $3.8 billion, with maturity dates ranging from June 1, 1994
through October 1, 1997, and $1.0 billion of receivables purchase facilities,
$500.0 million of which is available through April 15, 1994 and $500.0 million
of which is available through April 30, 1995; none of these facilities was
utilized as of March 31, 1994. The aggregate credit facilities as of March
31, 1994 were $8.1 billion with 143 banks. Subsequent to March 31, 1994, the
$500.0 million receivables purchase facility that matured on April 15, 1994
was renewed to mature on April 15, 1997. Associates pays fees or maintains
compensating balances or utilizes a combination of both to maintain the
availability of its bank credit facilities. Fees are .05% to .25% of 1% per
annum of the amount of the facilities. At March 31, 1994, short-term bank
lines, revolving credit and receivables purchase facilities with banks
represented 77% of net short-term borrowings outstanding.
<PAGE>
RECENT ACCOUNTING PRONOUNCEMENTS
Effective January 1, 1994, the Company adopted SFAS No. 115, "Accounting
for Certain Investments in Debt and Equity Securities". The adoption of this
standard was not significant to the Company's consolidated financial
statements.
The Financial Accounting Standards Board has issued SFAS No. 114,
"Accounting by Creditors for Impairment of a Loan" effective 1995. The
adoption of this standard is not expected to be significant to the Company's
consolidated financial statements.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None to report
In accordance with General Instruction H.(2)(b), the following items have been
omitted: Item 2, Changes in Securities; Item 3, Defaults Upon Senior
Securities; and Item 4, Submission of Matters to a Vote of Security Holders.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibit
(12) Computation of Ratio of Earnings to Fixed Charges.
(b) Reports on Form 8-K
During the first quarter ended March 31, 1994, First Capital
filed no Current Reports on Form 8-K.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
May 13, 1994
ASSOCIATES FIRST CAPITAL CORPORATION
(registrant)
By/s/ Roy A. Guthrie
Senior Vice President and Comptroller
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None to report
In accordance with General Instruction H.(2)(b), the following items have been
omitted: Item 2, Changes in Securities; Item 3, Defaults Upon Senior
Securities; and Item 4, Submission of Matters to a Vote of Security Holders.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibit
(12) Computation of Ratio of Earnings to Fixed Charges.
(b) Reports on Form 8-K
During the first quarter ended March 31, 1994, First Capital
filed no Current Reports on Form 8-K.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
May 13, 1994
ASSOCIATES FIRST CAPITAL CORPORATION
(registrant)
By/s/
Senior Vice President and Comptroller
11
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EXHIBIT 12
ASSOCIATES FIRST CAPITAL CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollar Amounts in Millions)
Three Months Ended
March 31
1994 1993
Fixed Charges
Interest expense $344.7 $330.5
Implicit interest in rent 0.7 0.6
Total fixed charges $345.4 $331.1
Earnings
Earnings before provision for income
taxes $204.9 $173.9
Fixed charges 345.4 331.1
Earnings, as defined $550.3 $505.0
Ratio of Earnings to Fixed Charges 1.59 1.53
