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) May 8, 1996
ASSOCIATES FIRST CAPITAL CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation)
(Commission File Number) 2-44197
(I.R.S. Employer
Identification Number) 06-0876639
250 East Carpenter Freeway 75062-2729
Irving, Texas (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code
214-541-4000
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Item 2. Acquisition or Disposition of Assets.
On May 8, 1996, prior to an initial public offering of the common stock of
Associates First Capital Corporation ("First Capital"), Ford Motor Company
("Ford"), First Capital's ultimate parent, contributed to First Capital, for
stock, certain foreign finance operations that were managed by First Capital
although owned by other Ford subsidiaries (the "Associates International
Group"). The entities comprising Associates International Group were located
in Japan, United Kingdom, Canada, Puerto Rico, Bermuda, Netherlands and
Mexico. The effect of this contribution was retroactively included, on a
fully consolidated basis, in the supplemental combined financial statements
of First Capital filed on Form S-1 as part of its initial public offering.
Subsequent to the consummation of the contribution, these supplemental
combined financial statements became the historical consolidated financial
statements of First Capital. The contribution was accounted for in a manner
similar to the pooling of interests method of accounting in accordance with
generally accepted accounting principles.
On May 23, 1996, First Capital filed a Current Report on Form 8-K reflecting
the acquisition of Associates International Group. This filing contains the
financial statements required by Item 7(a) of Form 8-K and Rule 3-05 of
Regulation S-X. Financial information required by Item 7(a) was included in
the Form 8-K as previously filed.
Item 7. Financial Statements and Exhibits.
(a) Financial Statement of Business to be Acquired.
The following financial statements combine the statement of earnings, balance
sheet, changes in stockholder's equity and cash flows of the entities
comprising Associates International Group for the year then ended or as of
December 31, 1995. These combined financial statements are being filed in
satisfaction of the requirements of Item 7(a) of Form 8-K and Rule 3-05 of
Regulation S-X.
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Report of Independent Accountants
Board of Directors
Associates First Capital Corporation
We have audited the accompanying combined balance sheet of Associates
International Group ("AIG") as of December 31, 1995 and the related combined
statements of earnings, changes in stockholder's equity, and cash flows for
the year then ended. These financial statements are the responsibility of
AIG's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the combined financial position of AIG as of December
31, 1995, and the combined results of its operations and its cash flows for
the year then ended in conformity with generally accepted accounting
principles.
COOPERS & LYBRAND L.L.P.
Dallas, Texas
June 28, 1996
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COMBINED STATEMENT OF EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 1995
(In Thousands)
REVENUE
Finance charges $715,528
Insurance premiums 45,492
Investment and other income 8,153
769,173
EXPENSES
Interest expense 142,504
Operating expenses 262,065
Provision for losses on finance receivables - NOTE 4 91,636
Fees and expenses, related party - NOTE 5 68,409
Insurance benefits paid or provided 6,853
571,467
EARNINGS BEFORE PROVISION FOR INCOME TAXES 197,706
PROVISION FOR INCOME TAXES - NOTE 9 100,715
NET EARNINGS $ 96,991
See notes to combined financial statements.
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COMBINED BALANCE SHEET
AS OF DECEMBER 31, 1995
(In Thousands)
ASSETS
CASH AND CASH EQUIVALENTS $ 146,081
NET FINANCE RECEIVABLES - NOTE 3 3,093,009
ALLOWANCE FOR LOSSES ON FINANCE RECEIVABLES - NOTE 4 (144,576)
INSURANCE POLICY AND CLAIMS RESERVES (22,667)
PROPERTY AND EQUIPMENT, less accumulated
depreciation of $26,829 25,354
GOODWILL, less accumulated amortization of $119,236 933,168
OTHER ASSETS 74,726
Total Assets $4,105,095
LIABILITIES AND STOCKHOLDER'S EQUITY
NOTES PAYABLE - NOTE 10
Commercial Paper $ 169,933
Bank Loans 57,408
ACCOUNTS PAYABLE AND ACCRUALS 99,684
AFFILIATE NOTES AND PAYABLES - NOTE 5 70,696
DEFERRED INCOME TAXES - NOTE 9 219,070
LONG-TERM DEBT - NOTE 11 2,182,753
STOCKHOLDER'S EQUITY
Capital Stock - NOTE 1 761,515
Retained Earnings 223,106
Foreign Currency Translation Adjustments 320,930
Total Stockholder's Equity 1,305,551
Total Liabilities and Stockholder's Equity $4,105,095
See notes to combined financial statements.
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COMBINED STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1995
(In Thousands)
Foreign
Currency Total
Capital Retained Translation Stockholder's
Stock Earnings Adjustments Equity
December 31, 1994 $ 990,457 $126,155 $367,182 $1,483,794
Net Earnings 96,991 96,991
Capital Distribution (228,942) (228,942)
Cash Dividend (40) (40)
Current Period
Adjustments (46,252) (46,252)
December 31, 1995 $ 761,515 $223,106 $320,930 $1,305,551
See notes to combined financial statements.
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COMBINED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1995
(In Thousands)
Cash Flows from Operating Activities
Net earnings $ 96,991
Adjustments to net earnings for noncash items:
Provision for losses on finance receivables 91,636
Deferred income taxes 90,418
Depreciation and amortization 37,268
Increase in accounts payable and accruals 30,506
Increase in insurance policy and claims reserves 2,584
Net cash provided from operating activities 349,403
Cash Flows from Investing Activities
Finance receivables originated or purchased (3,217,325)
Finance receivables liquidated 2,467,050
Property and equipment additions (11,600)
Increase in other assets (14,044)
Net cash used for investing activities (775,919)
Cash Flows from Financing Activities
Issuance of long-term debt 884,014
Retirement of long-term debt (284,607)
Increase in bank overdraft 3,888
Increase in short-term promissory notes 3,619
Capital distribution (228,942)
Decrease in affiliate advance (509)
Cash dividend (40)
Net cash provided from financing activities 377,423
Decrease in cash and cash equivalents (49,093)
Effect of foreign currency translation adjustments
on cash (497)
Cash and cash equivalents at beginning of year 195,671
Cash and cash equivalents at end of year $ 146,081
Cash paid for:
Interest $ 135,380
Income taxes $ 756
See notes to combined financial statements.
NOTES TO COMBINED FINANCIAL STATEMENTS
NOTE 1 - THE GROUP
On May 8, 1996, prior to an initial public offering of the common stock of
Associates First Capital ("First Capital"), Ford Motor Company ("Ford"), First
Capital's ultimate parent, contributed the capital stock to First Capital, for
its stock, of certain foreign finance operations owned by other Ford
subsidiaries (herein after referred to as the Associates International Group
("AIG"). AIG entities were located in Japan, United Kingdom, Canada, Puerto
Rico, Bermuda, Netherlands and Mexico, the legal names of which are identified
below. AIG entities engage in certain financial service activities which
principally consist of making loans to consumer and commercial customers, and
to a lesser extent, making available related insurance products.
Japan
AIC Corporation ("AIC") (Parent Company)
Principal Subsidiary:
AIC Card Services, Inc.
U.K.
Associates Financial Corporation Limited ("AFCL") (Parent Company)
Principal Subsidiaries:
Associates Capital Corporation Limited
Cumberland Life Assurance Company Limited
Cumberland Insurance Company Limited
Canada
Associates Capital Corporation of Canada ("ACCC") (Parent Company)
Principal Subsidiaries:
Associates Commercial Corporation of Canada
VT Finance (Canada) Inc.
Associates Leasing (Canada), Ltd.
Puerto Rico
Associates Financial Services Company of Puerto Rico, Inc. ("AFSCPR")
(Parent Company)
Principal Subsidiary:
Associates Time Plan, Inc.
Bermuda
Financial Reassurance Company, Limited ("FRCL")
Netherlands
ACONA BV
U.S.
Associates International Holdings Corporation ("AIHC")
Mexico
Grupo Financiero Associates, S.A. de C.V. and Subsidiaries
("Grupo")
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The components of the Capital Stock of AIG are as follows:
Common Shares
Number
Number Issued and
Parent Companies: Authorized Outstanding Par Value Amount
($000)
AIC 1,172,100 1,172,100 No $581,351
AFCL 20,525,000 20,525,000 1 Pound 132,296
Sterling
ACCC (1) Unlimited 1,000 No 22,769
AFSCPR 25,000 15,000 $ 10 22,285
FRCL 3,700 3,700 $100 (27,200)
ACONA BV (1) 8,900 6,093 5,000 Dutch 14,914
Guilders
AIHC 10 10 $100 5,712
Grupo 5,700,804 5,700,804 10 Mexican 9,388
Pesos
$761,515
(1) ACCC and ACONA BV also have the following additional classes of stock:
Shares
Number
Number Issued and
Authorized Outstanding Par Value
ACCC
First Preferred,
8% Cumulative Unlimited 500,000 No
Series 1 Second
Preferred None None No
Special Shares Unlimited 1,500 No
ACONA BV
7% Preference
Shares 10,000 None 5,000 Dutch
Guilders
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NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies:
BASIS OF COMBINATION
The accompanying financial statements combine the statement of earnings,
balance sheet, and statements of changes in stockholder's equity and cash
flows of AIG for the one year ended or at December 31, 1995 using the pooling
of interests method of accounting. Goodwill is amortized using the straight-
line method over periods not exceeding forty years.
ESTIMATES
The preparation of these combined financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period.
REVENUE RECOGNITION
Finance charges on finance receivables are recognized as revenue using the
interest (actuarial) method. Premiums and discounts on purchased receivables
are considered as yield adjustments on assets purchased. Finance charge
accruals are generally suspended on accounts when they become 60 days
contractually delinquent. The accrual is resumed when the loan becomes
contractually current. At December 31, 1995, net finance receivables on which
revenue was not accrued approximated $48.4 million.
ALLOWANCE FOR LOSSES ON FINANCE RECEIVABLES
AIG maintains an allowance for losses on finance receivables at an amount
which it believes is sufficient to provide adequate protection against losses
in the portfolios. The allowance is determined principally on the basis of
historical loss experience, and reflects management's judgment of additional
loss potential considering future economic conditions and the nature and
characteristics of the underlying finance receivables. The allowance is
managed on an aggregate basis considering the relationship of the allowance
to net finance receivables and net credit losses. Additions to the allowance
are 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. Additionally, Company policy provides for charge-
off of various types of accounts on a contractual basis described as follows:
Consumer direct and other installment and credit card receivables are charged
to the allowance for losses when they become 180 days 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 one year delinquent. A delinquent account is one
on which the customer has not made payments as contractually agreed.
Extensions are granted on receivables from customers with satisfactory credit
and with prior approval of management. Recoveries on losses previously
charged to the allowance are credited to the allowance at the time the
recovery is collected.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed using a
declining balance method over the estimated useful lives of the assets.
Improvements are capitalized while repair and maintenance costs are charged
to operations as incurred. Upon disposal of assets, the cost and related
accumulated depreciation are removed and the resulting gain or loss is
recognized.
INCOME TAXES
AIG earnings are subject to taxes in the local jurisdictions. The provision
for income taxes is computed on a separate-return basis for each country of
location. AIG accounts for income taxes in accordance with statement of
Financial Accounting Standards No. 109, "Accounting for 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
enacted tax rates in effect for the year in which the differences are expected
to reverse.
DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The financial statements present the information 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.
CASH AND CASH EQUIVALENTS
AIG considers all highly liquid investments with a maturity of three months
or less when purchased to be cash equivalents. The amounts reported in the
combined balance sheet approximate fair value.
FOREIGN CURRENCY TRANSLATION
Assets and liabilities of foreign affiliates are translated at the rate of
exchange in effect on the balance sheet date; capital stock is recorded at
historical rates; income and expenses are translated at the average rate of
exchange prevailing during the year. The related translation adjustments are
reflected in the accumulated translation adjustment section of the combined
balance sheet.
NOTE 3 - NET FINANCE RECEIVABLES
At December 31, 1995, net finance receivables, of which approximately 69% were
concentrated within Japan, consisted of the following (in thousands):
Home equity lending $1,125,858
Personal lending and retail sales finance 1,599,084
Commercial lending 368,067
Net finance receivables $3,093,009
The estimated maturities of net finance receivables at December 31, 1995 were
as follows (in thousands):
Year Due
1996 $ 438,006
1997 297,837
1998 243,751
1999 590,129
2000 and after 1,523,286
$3,093,009
It is AIG's experience that a substantial portion of the consumer 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.
NOTE 4 - ALLOWANCE FOR LOSSES ON FINANCE RECEIVABLES
Changes in the allowance for losses on finance receivables for the year ended
December 31, 1995 were as follows (in thousands):
Balance at beginning of year $117,256
Provision for losses 91,636
Recoveries on receivables charged off 17,092
Losses sustained (73,423)
Other, primarily foreign currency
translation adjustments (7,985)
Balance at end of year $144,576
NOTE 5 - RELATED PARTY TRANSACTIONS
Certain administrative services, such as accounting, legal, financial, human
resources and data processing, provided by Associates Corporation of North
America ("Associates"), an affiliate, are charged to AIG. These charges,
which represent expense reimbursements, were approximately $12,623,000 for the
year ended December 31, 1995.
AIG and Associates have agreements under which Associates is entitled to
receive a royalty fee for AIG's use of the Associates trademarks. The fee,
based on a percentage of finance receivables volume, approximated $23,343,000
for the year ended December 31, 1995.
AIG and Associates have agreements under which Associates is entitled to
receive a fee for comfort letters that Associates issues to certain AIG
noteholders. The fee, based on a percentage of outstanding debt, approximated
$31,708,000 for the year ended December 31, 1995.
AIG and Associates have agreements under which Associates is entitled to
receive a fee for guarantees of debt that Associates provides to certain AIG
noteholders. The fee, based on a percentage of outstanding debt, approximated
$735,000 for the year ended December 31, 1995.
AIG affiliate notes and payables are comprised of the following (in
thousands):
Principal $55,881
Accrued interest payable 1,593
$57,474
Notes payable to Associates, due in 1996, carry interest rates ranging from
9.38% to 11.82%.
Advances payable to Associates $ 7,034
Fees payable to Associates $ 6,188
NOTE 6 - EMPLOYEE BENEFITS
DEFINED BENEFIT PLAN
AIC sponsors a defined benefit pension plan (the "Plan"), which covers
substantially all permanent employees who meet certain eligibility
requirements.
Net periodic pension cost for the year ended December 31, 1995 includes the
following components (in thousands):
Service cost $ 1,547
Interest cost 377
Actual return on Plan assets (701)
Net amortization (482)
Net periodic pension cost $ 741
Assumed discount rate, beginning of year 7.00%
The funded status of the plan at December 31, 1995 is as follows (in
thousands):
Actuarial present value of benefit obligation:
Vested $ 4,153
Nonvested -
Accumulated benefit obligation 4,153
Effect of projected future salary increases 1,493
Projected benefit obligation 5,646
Plan assets at fair market value 8,056
Excess of plan assets over plan obligation 2,410
Unamortized transition obligation and amendments -
Unamortized net gain (1,424)
Prepaid pension cost $ 986
Assumed discount rate 7.00%
Projected compensation increases 4.50%
Expected return 9.00%
NOTE 7 - LEASE COMMITMENTS
Leases are primarily short-term and generally provide for renewal options not
exceeding the initial term. Future minimum rental commitments as of December
31, 1995 for all non-cancelable leases (primarily office leases) were as
follows (in thousands):
Year Due
1996 $17,065
1997 10,709
1998 5,867
1999 4,027
2000 and thereafter 21,364
$59,032
Total rent expense for the year ended December 31, 1995 was $33.3 million.
NOTE 8 - BANK CREDIT FACILITIES
At December 31, 1995, AIG had contractually committed lines of credit at
sixteen banks aggregating $270.6 million, with various maturities through June
20, 1997, $49.9 million was utilized at December 31, 1995. Bank lines may be
withdrawn only under certain standard conditions. AIG pays fees to maintain
the availability of its bank lines. Bank fees incurred during 1995
approximated $299,000 and are .10 to .1875 of 1% per annum of the amount of
the facilities.
NOTE 9 - FOREIGN INCOME TAXES
The following table sets forth the components of the provision for foreign
income taxes and foreign deferred income tax for December 31, 1995 as
indicated (in thousands):
Current $ 10,297
Deferred:
Net operating loss utilized 157,109
Goodwill amortization (11,034)
Provision for losses on finance
receivables and other (55,657)
Total foreign tax expense $ 100,715
At December 31, 1995, the components of AIG's net deferred tax liability were
as follows (in thousands):
Deferred foreign tax assets:
Provision for losses on finance receivables
and other $ 74,160
Net operating loss 2,996
Leasing transactions 1,119
Allowance for losses on finance receivables 52,014
Adjustment of valuation allowance (384)
129,905
Deferred foreign tax liabilities:
Unamortized tax deductible goodwill (339,010)
Finance revenue and other (9,965)
(348,975)
Net foreign deferred tax
liability $(219,070)
AIG's net operating loss carryforward expires in 1997.
Due to AIG's present and expected earning levels, no valuation allowance
related to the deferred tax asset has been recorded.
<PAGE>
The effective tax rate differed from the income tax rate as follows:
% of Pretax Income
Year Ended December 31, 1995
Local Tax
Statutory Rate (net of Effective
Tax Rate statutory effect) Other Tax Rate
Japan 37.5% 15.0% 2.3 % 54.8%
UK 33.0 - 0.7 33.7
Canada 28.8 15.5 2.2 46.5
Puerto Rico 22.0 - (1.8) 20.2
Mexico 35.0 - - 35.0
NOTE 10 - NOTES PAYABLE
Commercial paper notes are issued by AIG in the minimum amount of $100,000
with terms from 1 to 270 days. Bank loan terms range from 1 to 90 days.
Information pertaining to AIG's commercial paper notes and bank loans is set
forth below for the periods indicated (in thousands):
Commercial Bank
Paper Notes Loans
Ending balance at December 31, 1995 $169,933 $57,408
Weighted average interest rate
at December 31, 1995 5.75% 7.00%
The amounts reported in the combined balance sheet approximate fair value.
NOTE 11 - LONG-TERM DEBT
The following summarizes AIG's long-term debt at December 31, 1995 (in
thousands):
Interest Rate Range Maturities Amount
Senior unsecured
notes 2.66 - 9.50% 1996 - 2002 $2,182,753
The weighted average interest rate for total long-term debt was 5.64% at
December 31, 1995. The loan agreements do not provide for restructure
commitments. As stated in NOTE 5, Associates issues comfort letters and
guarantees to the noteholders.
<PAGE>
A summary of long-term debt maturities during the next five years is as
follows (in thousands):
Year Due
1996 $ 271,817
1997 389,691
1998 373,697
1999 420,088
2000 512,933
2001 and thereafter 214,527
$2,182,753
NOTE 12 - FAIR VALUES OF FINANCIAL INSTRUMENTS
The estimated fair value of net finance receivables at December 31, 1995 was
approximately $3.7 billion. 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 long-term debt at December 31, 1995 was $2.3
billion. The fair value was estimated by discounting expected cash flows at
discount rates currently available to AIG for debt with similar terms and
remaining maturities.
Certain outstanding debt, consisting of long-term debt, is covered by
guarantees and comfort letters issued by Associates. AIG estimates the fair
value of the comfort letter and guarantee fees to be in the range of .25% to
2% of the average outstanding debt.
NOTE 13 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISKS
AIG 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.
AIG makes available credit lines to holders of their credit cards. The unused
portion of the available credit is revocable by AIG under specified
conditions. The unused portion of the available credit at December 31, 1995
approximated $190,022,000. The potential risk associated with, and the
estimated fair value of, the unused credit lines are not considered to be
significant.
AIG grants revolving lines of credit to certain of its customers. At December
31, 1995, the unused portion of these lines aggregated approximately
$122,879,000. The potential risk associated with, and the estimated fair
value of, the unused credit lines are not considered to be significant.
NOTE 14 - COMMITMENTS, CONTINGENCIES AND LEGAL PROCEEDINGS
AIG is the defendant in various legal proceedings which arose in the normal
course of business. In management's judgment (based upon the advice of
counsel), the ultimate liabilities, if any, from such legal proceedings will
not have a material adverse effect on the combined financial position or
operations of AIG.
<PAGE>
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 hereunto duly authorized.
ASSOCIATES FIRST CAPITAL CORPORATION
By/s/ Roy A. Guthrie
Executive Vice President, Comptroller,
Principal Accounting Officer and
Principal Financial Officer
Date: July 3, 1996
