<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) FEBRUARY 9, 1996
ASSOCIATES FIRST CAPITAL CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE
(State or other jurisdiction of 06-0876639
incorporation) (I.R.S. Employer Identification No.)
2-44197
(Commission File Number)
250 E. CARPENTER FREEWAY
IRVING, TEXAS 75062-2729
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code (214) 541-4000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
ITEM 5. OTHER EVENTS.
(a) On February 9, 1996, the Registrant announced that a registration
statement had been filed with the Securities and Exchange Commission for a
potential initial public offering ("Offering") of up to a 19.8% interest in the
Registrant's Common Stock. A copy of the news release dated February 9, 1996
issued by the Registrant is attached as Exhibit 20 hereto and incorporated by
reference herein.
(b) On February 8, 1996, the Registrant declared and paid a dividend to its
sole stockholder in the form of a note in the principal amount of $1.75 billion.
(c) Prior to the completion of the Offering, Ford Motor Company ("Ford"),
the ultimate parent of the Registrant, is expected to recontribute to the
Registrant the operations of Ford's non-U.S. Subsidiaries currently managed by
the Registrant (principally subsidiaries in Japan, United Kingdom, Canada,
Puerto Rico and Mexico, (the "Foreign Subsidiaries").
The Registrant is filing herewith the following audited financial
statements as of and for the year ended December 31, 1995 as Exhibits 28(a),
28(b) and 28(c), respectively: (i) Audited Consolidated Financial Statements of
Associates First Capital Corporation, (ii) Audited Consolidated Financial
Statements of AIC Corporation (A Japan Corporation) and Subsidiary and (iii)
Supplemental Combined Financial Statements of Associates First Capital
Corporation.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(C) Exhibits
12 -- Ratios of Earnings to Fixed Charges
20 -- News release by the Registrant dated February 9, 1996
24 -- Consent of Independent Accountants
27 -- Financial Data Schedule
28(a) -- Audited Consolidated Financial Statements of Associates First
Capital Corporation
28(b) -- Audited Consolidated Financial Statements of AIC Corporation (A
Japan Corporation) and Subsidiary
28(c) -- Supplemental Combined Financial Statements of Associates First
Capital Corporation
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 hereto duly authorized.
ASSOCIATES FIRST CAPITAL CORPORATION
By: /s/ ROY A. GUTHRIE
----------------------------------
Roy A. Guthrie
Executive Vice President, Comptroller
and Principal Accounting Officer
Date: February 9, 1996
-1-
<PAGE> 3
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- ---------------------
<C> <S>
</TABLE>
12 -- Ratios of Earnings to Fixed Charges
20 -- News release by the Registrant dated February 9, 1996
24 -- Consent of Independent Accountants
27 -- Financial Data Schedule
28(a) -- Audited Consolidated Financial Statements of Associates First
Capital Corporation
28(b) -- Audited Consolidated Financial Statements of AIC Corporation (A
Japan Corporation) and Subsidiary
28(c) -- Supplemental Combined Financial Statements of Associates First
Capital Corporation
<PAGE> 1
EXHIBIT 12
ASSOCIATES FIRST CAPITAL CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(DOLLAR AMOUNTS IN MILLIONS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Fixed Charges(a)
Interest expense......................... $2,044.7 $1,558.2 $1,340.5 $1,281.4 $1,347.8
Implicit interest in rent................ 9.6 8.3 8.0 7.8 7.4
-------- -------- -------- -------- --------
Total fixed charges.............. $2,054.3 $1,566.5 $1,348.5 $1,289.2 $1,355.2
======== ======== ======== ======== ========
Earnings(b)................................ $1,004.3 $ 888.0 $ 751.8 $ 606.4 $ 540.4
Fixed charges.............................. 2,054.3 1,566.5 1,348.5 1,289.2 1,355.2
-------- -------- -------- -------- --------
Earnings, as defined............. $3,058.6 $2,454.5 $2,100.3 $1,895.6 $1,895.6
======== ======== ======== ======== ========
Ratio of Earnings to Fixed Charges......... 1.49 1.57 1.56 1.47 1.40
======== ======== ======== ======== ========
</TABLE>
- ---------------
(a) For purposes of such computation, the term "fixed charges" represents
interest expense and a portion of rentals representative of an implicit
interest factor for such rentals.
(b) For purposes of such computation, the term "earnings" represents earnings
before provision for income taxes and cumulative effect of changes in
accounting principles, plus fixed charges.
<PAGE> 1
[THE ASSOCIATES LOGO] THE ASSOCIATES(R)
- --------------------------------------------------------------------------------
NEWS
Contact: Fred Stern FOR IMMEDIATE RELEASE
The Associates
(214) 541-4042
Mary Joseph
Ford Financial Services Group
(313) 322-4466
ASSOCIATES FIRST CAPITAL CORPORATION FILES
FOR AN INITIAL PUBLIC OFFERING
DALLAS, February 9, 1996 -- Associates First Capital Corporation
announced today that a registration statement has been filed with the
Securities and Exchange Commission for a potential initial public offering of
up to 19.8% interest in the company's common stock.
The company, which is an indirect wholly owned subsidiary of Ford
Motor Company, said the planned offering would involve newly issued shares of
Associates.
"This public offering would give Associates an additional performance
measurment through the securities markets and at the same time allow us to
continue our excellent partnership with Ford," said Keith W. Hughes, chairman
and chief executive officer of Associates.
Associates First Capital Corporation is a leading diversified consumer
and commercial finance company providing finance, leasing and related services.
A registration statement relating to these securities has been filed
with the Securities and Exchange Commission but has not yet become effective.
These securities may not be sold nor may offers to buy be accepted prior to the
time the registration statement becomes effective. This news release shall not
constitute an offer to sell or the solicitation of an offer to buy nor shall
there be any sale of these securities in any state in which such offer,
solicitation or sale would be unlawful prior to registration or qualification
under the securities laws of any such state.
# # #
<PAGE> 1
EXHIBIT 24
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement
of Associates First Capital Corporation on Form S-3 (File No. 33-60769) of our
report dated January 26, 1996, except for Note 18, as to which the date is
February 8, 1996, on our audits of the consolidated financial statements of
Associates First Capital Corporation and Subsidiaries as of December 31, 1995
and 1994, and for the years ended December 31, 1995, 1994, and 1993, which
report is included in this Current Report on Form 8-K.
COOPERS & LYBRAND L.L.P.
Dallas, Texas
February 8, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
0 MEANS NOT APPLICABLE OR NOT SEPARATELY DISCLOSED. THIS SCHEDULE CONTAINS
SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S AUDITED CONSOLIDATED
FINANCIAL STATEMENTS AS OF DECEMBER 31, 1995 AND THE YEAR THEN ENDED AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 386
<SECURITIES> 878
<RECEIVABLES> 36,610
<ALLOWANCES> 1,124
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 37,264
<CURRENT-LIABILITIES> 0
<BONDS> 32,710
<COMMON> 47
0
0
<OTHER-SE> 3,457
<TOTAL-LIABILITY-AND-EQUITY> 37,264
<SALES> 5,415
<TOTAL-REVENUES> 5,415
<CGS> 0
<TOTAL-COSTS> 4,411
<OTHER-EXPENSES> 1,623
<LOSS-PROVISION> 743
<INTEREST-EXPENSE> 2,045
<INCOME-PRETAX> 1,004
<INCOME-TAX> 372
<INCOME-CONTINUING> 632
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 632
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<PAGE> 1
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors
Associates First Capital Corporation
We have audited the accompanying consolidated balance sheets of Associates
First Capital Corporation (an indirect subsidiary of Ford Motor Company) as of
December 31, 1995 and 1994, and the related consolidated statements of earnings,
changes in stockholder's equity, and cash flows for each of the three years in
the period ended December 31, 1995. 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Associates
First Capital Corporation as of December 31, 1995 and 1994 and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1995, in conformity with generally accepted
accounting principles.
COOPERS & LYBRAND L.L.P.
Dallas, Texas
January 26, 1996, except for NOTE 18,
as to which the date is February 8, 1996.
1
<PAGE> 2
ASSOCIATES FIRST CAPITAL CORPORATION
CONSOLIDATED STATEMENT OF EARNINGS
(IN MILLIONS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
REVENUE
Finance charges.............................................. $4,847.1 $3,898.2 $3,276.3
Insurance premiums........................................... 325.1 293.5 242.2
Investment and other income.................................. 243.0 213.6 187.1
-------- -------- --------
5,415.2 4,405.3 3,705.6
EXPENSES
Interest expense............................................. 2,044.7 1,558.2 1,340.5
Operating expenses........................................... 1,487.8 1,237.5 1,022.3
Provision for losses on finance receivables -- NOTE 4........ 742.7 577.5 476.1
Insurance benefits paid or provided.......................... 135.7 144.1 114.9
-------- -------- --------
4,410.9 3,517.3 2,953.8
-------- -------- --------
EARNINGS BEFORE PROVISION FOR INCOME TAXES..................... 1,004.3 888.0 751.8
PROVISION FOR INCOME TAXES -- NOTE 8........................... 372.4 339.9 281.7
-------- -------- --------
NET EARNINGS................................................... $ 631.9 $ 548.1 $ 470.1
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
2
<PAGE> 3
ASSOCIATES FIRST CAPITAL CORPORATION
CONSOLIDATED BALANCE SHEET
(IN MILLIONS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
1995 1994
-------- --------
<S> <C> <C>
CASH AND CASH EQUIVALENTS.............................................. $ 386.3 $ 410.0
INVESTMENTS IN DEBT AND EQUITY SECURITIES -- NOTE 16................... 878.0 605.1
FINANCE RECEIVABLES, net of unearned finance income -- NOTE 3
Consumer Finance..................................................... 24,850.4 21,360.1
Commercial Finance................................................... 11,759.1 9,815.9
--------- ---------
Total net finance receivables................................ 36,609.5 31,176.0
ALLOWANCE FOR LOSSES ON FINANCE RECEIVABLES -- NOTE 4.................. (1,124.0) (944.3)
INSURANCE POLICY AND CLAIMS RESERVES................................... (602.8) (545.6)
OTHER ASSETS -- NOTE 13................................................ 1,117.4 1,000.2
--------- ---------
Total assets................................................. $37,264.4 $31,701.4
========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY
NOTES PAYABLE -- NOTE 6
Commercial Paper..................................................... $12,732.7 $11,640.5
Bank Loans........................................................... 787.0 571.4
ACCOUNTS PAYABLE AND ACCRUALS.......................................... 1,051.2 875.5
LONG-TERM DEBT -- NOTES 7 and 9........................................ 19,189.9 15,654.1
STOCKHOLDER'S EQUITY
Common Stock, no par value, 250 shares authorized, issued and
outstanding, at stated value...................................... 47.0 47.0
Paid-in Capital...................................................... 1,304.4 1,104.4
Retained Earnings.................................................... 2,140.0 1,826.1
Unrealized Gain (Loss) on Available-for-Sale Securities --
NOTES 2 and 16................................................... 12.2 (17.6)
--------- ---------
Total stockholder's equity................................... 3,503.6 2,959.9
--------- ---------
Total liabilities and stockholder's equity........................ $37,264.4 $31,701.4
========= =========
</TABLE>
See notes to consolidated financial statements.
3
<PAGE> 4
ASSOCIATES FIRST CAPITAL CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY
(IN MILLIONS)
<TABLE>
<CAPTION>
UNREALIZED
GAIN
(LOSS) ON
AVAILABLE- TOTAL
COMMON PAID-IN RETAINED FOR-SALE STOCKHOLDER'S
STOCK CAPITAL EARNINGS SECURITIES EQUITY
------ -------- -------- ---------- -------------
<S> <C> <C> <C> <C> <C>
DECEMBER 31, 1992.................... $47.0 $ 704.4 $1,306.9 $ 3.7 $2,062.0
Net Earnings....................... 470.1 470.1
Contributions from Parent.......... 200.0 200.0
Cash Dividends..................... (226.0) (226.0)
Current Period Adjustment.......... 0.3 0.3
----- -------- ------ -------- ----------
DECEMBER 31, 1993.................... 47.0 904.4 1,551.0 4.0 2,506.4
Net Earnings....................... 548.1 548.1
Contributions from Parent.......... 200.0 200.0
Cash Dividends..................... (273.0) (273.0)
Current Period Adjustment.......... (21.6) (21.6)
----- -------- ------ -------- ----------
DECEMBER 31, 1994.................... 47.0 1,104.4 1,826.1 (17.6) 2,959.9
Net Earnings....................... 631.9 631.9
Contributions from Parent.......... 200.0 200.0
Cash Dividends..................... (318.0) (318.0)
Current Period Adjustment.......... 29.8 29.8
----- -------- ------ -------- ----------
DECEMBER 31, 1995.................... $47.0 $1,304.4 $2,140.0 $ 12.2 $3,503.6
===== ======== ====== ======== ==========
</TABLE>
See notes to consolidated financial statements.
4
<PAGE> 5
ASSOCIATES FIRST CAPITAL CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN MILLIONS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------------
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net earnings......................................... $ 631.9 $ 548.1 $ 470.1
Adjustments to net earnings for noncash items:
Provision for losses on finance receivables....... 742.7 577.5 476.1
Increase in accounts payable and accruals......... 160.1 33.0 195.0
Depreciation and amortization..................... 156.6 151.9 214.5
Increase in insurance policy and claims
reserves........................................ 57.2 115.8 69.3
Deferred income taxes............................. 8.9 (91.7) (75.9)
Unrealized gain on trading securities............. (3.6) (1.6)
Purchases of trading securities...................... (5.8) (23.8)
Sales and maturities of trading securities........... 38.7 17.4
Other................................................ (6.8) (5.0)
---------- ---------- ----------
Net cash provided from operating
activities................................. 1,786.7 1,319.8 1,344.1
---------- ---------- ----------
Cash Flows from Investing Activities
Finance receivables originated or purchased.......... (33,800.2) (28,374.9) (21,344.1)
Finance receivables liquidated....................... 28,085.4 23,505.7 18,053.5
Acquisitions of other finance businesses, net........ (143.9) (484.9) (293.0)
Proceeds from sale of investment in mortgage
servicing rights.................................. 97.1
(Increase) decrease in real estate loans held for
sale.............................................. (3.7) 51.9 0.8
(Increase) decrease in other assets.................. (188.3) 10.4 (79.9)
Purchases of available-for-sale securities........... (893.9) (274.1)
Sales and maturities of available-for-sale
securities........................................ 639.0 284.7
Purchases of marketable securities................... (639.6)
Sales and maturities of marketable securities........ 518.9
---------- ---------- ----------
Net cash used for investing activities....... (6,305.6) (5,184.1) (3,783.4)
---------- ---------- ----------
Cash Flows from Financing Activities
Issuance of long-term debt........................... 5,487.6 4,253.6 3,770.7
Retirement of long-term debt......................... (2,182.2) (2,200.3) (2,040.3)
Increase in notes payable............................ 1,307.8 2,003.7 820.9
Capital contributions................................ 200.0 200.0 200.0
Cash dividends....................................... (318.0) (273.0) (226.0)
---------- ---------- ----------
Net cash provided from financing
activities................................. 4,495.2 3,984.0 2,525.3
---------- ---------- ----------
(Decrease) increase in cash and cash equivalents....... (23.7) 119.7 86.0
Cash and cash equivalents at beginning of period....... 410.0 290.3 204.3
---------- ---------- ----------
Cash and cash equivalents at end of period............. $ 386.3 $ 410.0 $ 290.3
========== ========== ==========
Cash paid for:
Interest............................................. $ 2,037.9 $ 1,563.8 $ 1,338.3
========== ========== ==========
Income taxes......................................... $ 398.8 $ 459.9 $ 371.7
========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
5
<PAGE> 6
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 subsidiary of Ford FSG, Inc. and an indirect
subsidiary of Ford Motor Company ("Ford"). Associates Corporation of North
America ("Associates") is the principal operating subsidiary of First Capital.
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies:
Basis of Consolidation
The accompanying consolidated financial statements consolidate First
Capital and its subsidiaries. Amounts of goodwill relating to acquisitions are
being amortized by the straight-line method over periods not exceeding forty
years. The carrying value of goodwill is reviewed if the facts and circumstances
suggest that it may be impaired. If the review indicates that goodwill will not
be recoverable, as determined based on undiscounted cash flows, the carrying
value of the goodwill is reduced by the estimated short-fall of discounted cash
flows.
All significant intercompany balances and transactions have been eliminated
in consolidation. Certain prior period financial statement amounts have been
reclassified to conform to the current year presentation.
The preparation of these consolidated financial statements in conformity
with generally accepted accounting principles requires the use of management's
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 suspended on accounts when they become 60
days contractually delinquent. The accrual is resumed when the loan becomes
contractually current. At December 31, 1995 and 1994, net finance receivables on
which revenue was not accrued approximated $633.3 million and $417.8 million,
respectively.
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 debt securities are included in revenue when
realized. Unrealized gains or losses on debt securities are reported as a
component of stockholder's equity, net of tax. Realized and unrealized gains or
losses on equity securities are included in revenue as incurred. The cost of
debt and equity securities sold is determined by the specific identification
method.
Allowance for Losses on Finance Receivables
The Company 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.
6
<PAGE> 7
ASSOCIATES FIRST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
Insurance Reserves
The reserves for future benefits and refunds upon cancellation of credit
life and health insurance and property and casualty insurance are provided for
in the unearned premium reserve 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
force, are provided for each class of insurance for claims which have been
incurred but not reported as of the balance sheet date.
Income Taxes
First Capital and its subsidiaries are included in the consolidated Federal
income tax return of Ford. The provision for income taxes is computed on a
separate-return basis. 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.
In 1993, the Company entered into a tax-sharing agreement with Ford whereby
state income taxes are provided on a separate-return basis.
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.
Disclosures about Fair Value of Financial Instruments
The consolidated financial statements present the information required by
Statement of Financial Accounting Standards ("SFAS") 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.
Derivative Financial Instruments
The Company does not hold or issue derivative financial instruments for
trading purposes. The Company's derivative activity is limited to currency swap
transactions designed to hedge its currency risk on specific foreign
currency-denominated assets to certain foreign affiliates denominated in British
Sterling.
7
<PAGE> 8
ASSOCIATES FIRST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Gains and losses on qualifying hedges are deferred and are recognized in income
or as adjustments of carrying amounts when the hedged transaction occurs. See
NOTE 15 to the consolidated financial statements for additional information
related to currency swap transactions.
NOTE 3 -- NET FINANCE RECEIVABLES
Composition of Net Finance Receivables
At December 31, 1995 and 1994, net finance receivables consisted of the
following (in millions):
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Consumer Finance
Home equity lending....................................... $13,190.4 $11,455.2
Personal lending and retail sales finance................. 4,752.7 4,188.9
Credit card............................................... 4,858.0 4,034.9
Manufactured housing...................................... 2,049.3 1,681.1
--------- ---------
24,850.4 21,360.1
--------- ---------
Commercial Finance
Truck and truck trailer................................... 7,302.5 6,524.6
Equipment................................................. 4,111.6 3,088.8
Other..................................................... 345.0 202.5
--------- ---------
11,759.1 9,815.9
--------- ---------
Net finance receivables................................... $36,609.5 $31,176.0
========= =========
</TABLE>
At December 31, 1995, contractual maturities of net finance receivables
were as follows (in millions):
<TABLE>
<CAPTION>
CONSUMER COMMERCIAL
YEAR DUE FINANCE FINANCE TOTAL
- -------- --------- ---------- ---------
<S> <C> <C> <C> <C>
1996............................................. $ 3,620.5 $ 5,298.5 $ 8,919.0
1997............................................. 3,014.8 2,921.8 5,936.6
1998............................................. 2,663.3 1,966.4 4,629.7
1999............................................. 2,044.1 1,056.0 3,100.1
2000 and thereafter.............................. 13,507.7 516.4 14,024.1
--------- --------- ---------
$24,850.4 $11,759.1 $36,609.5
========= ========= =========
</TABLE>
It is the Company'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.
Included in commercial finance receivables are direct financing leases as
follows (in millions):
<TABLE>
<CAPTION>
DECEMBER 31
---------------------
1995 1994
-------- --------
<S> <C> <C>
Minimum lease rentals......................................... $3,080.8 $2,291.4
Unguaranteed residual values.................................. 76.6 52.4
-------- --------
Future minimum lease rentals................................ 3,157.4 2,343.8
Unearned finance income....................................... (437.1) (328.7)
-------- --------
Net investment in direct financing leases................... $2,720.3 $2,015.1
======== ========
</TABLE>
8
<PAGE> 9
ASSOCIATES FIRST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Future net minimum lease rentals on direct financing leases for each of the
years succeeding December 31, 1995 are as follows (in millions): 1996 -- $839.4;
1997 -- $713.0; 1998 -- $567.5; 1999 -- $374.7; 2000 -- $157.4 and 2001 and
thereafter -- $68.3.
Estimated Fair Value of Net Finance Receivables
The estimated fair value of net finance receivables at December 31, 1995
and 1994 was $39.7 billion and $33.4 billion, respectively. 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.
Dispersion of Finance Receivables
The Company has geographically dispersed finance receivables. The Company's
total receivables were dispersed across the United States at December 31, 1995
as follows: 12% were in California, 7% in Florida, 6% in Texas, 4% in Georgia,
4% in Pennsylvania, 4% in North Carolina, 4% in New York, 4% in Illinois, 4% in
Ohio and 4% in Tennessee; no other individual state had more than 4%.
Acquisitions of Finance Businesses
During the years ended December 31, 1995, 1994 and 1993, the Company made
acquisitions of finance businesses accounted for as purchases, the most
significant of which were as follows:
On January 1, 1995, Associates acquired $116 million of net home
equity receivables and certain other assets from Ford Motor Credit Company,
an affiliate. The transaction was recorded at historical cost, which
approximated market.
In October 1995, Associates acquired the assets of LCA Corporation,
principally consisting of lease receivables. The fair market value of total
assets acquired and liabilities assumed was $253 million and $225 million,
respectively.
In September 1994, Associates acquired the credit card portfolio and
certain other assets of Amoco Oil Company. The fair market value of assets
acquired totaled $426 million.
In December 1994, Associates acquired the assets of First Collateral
Services, Inc., principally consisting of warehouse loan facilities
extended to mortgage brokers secured by mortgage contracts. The fair market
value of total assets acquired and liabilities assumed was $62 million and
$3 million, respectively.
In April 1993, Associates purchased the stock of Allied Finance
Company, with assets primarily consisting of $146 million of net consumer
finance receivables, principally comprised of home equity and personal
lending and sales finance receivables. The fair market value of total
assets acquired and liabilities assumed was $197 million and $112 million,
respectively.
In September 1993, Associates purchased the assets of Mack Financial
Corporation, the financing division of Mack Trucks, Inc., consisting of
$552 million of net commercial finance receivables, principally secured by
heavy-duty trucks and truck trailers. The fair market value of total assets
acquired and liabilities assumed was $587 million and $380 million,
respectively.
The pro forma effect of the above acquisitions was not significant to
current or prior periods.
9
<PAGE> 10
ASSOCIATES FIRST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4 -- ALLOWANCE FOR LOSSES ON FINANCE RECEIVABLES
Changes in the allowance for losses on finance receivables during the
periods indicated were as follows (in millions):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Balance at beginning of period........................ $ 944.3 $ 808.9 $ 699.2
Provision for losses................................ 742.7 577.5 476.1
Recoveries on receivables charged off............... 115.8 101.0 88.5
Losses sustained.................................... (683.7) (565.3) (482.2)
Reserves of acquired businesses and other........... 4.9 22.2 27.3
-------- ------- -------
Balance at end of period.............................. $1,124.0 $ 944.3 $ 808.9
======== ======= =======
</TABLE>
NOTE 5 -- CREDIT FACILITIES
At December 31, 1995, credit facilities were as follows (in millions):
<TABLE>
<CAPTION>
FACILITY
ENTITY CREDIT FACILITY DESCRIPTION AMOUNT
- ----------- ---------------------------- --------
<S> <C> <C>
Associates Lines of Credit $ 3,959.7*
Revolving Lines 5,105.0*
Receivables Purchase
Facilities 1,275.0
---------
$10,339.7
=========
</TABLE>
- ---------------
* Included in Associates Lines of Credit and Revolving Lines are $90.0 million
and $1,080.0 million of Lines of Credit and Revolving Lines, respectively,
that are available to First Capital.
Lines of Credit, Revolving Lines and Receivables Purchase Facilities may be
withdrawn only under certain standard conditions. Associates pays fees for the
availability of its credit facilities. Bank fees incurred during 1995, 1994 and
1993 approximated $11.5 million, $11.0 million and $9.6 million, respectively,
and are .07 to .25 of 1% per annum of the amount of the facilities.
NOTE 6 -- NOTES PAYABLE
Commercial paper notes are issued by Associates in the minimum amount of
$100,000 with terms from 1 to 270 days. Bank loan terms range from 4 to 5 days.
Information pertaining to the Company's commercial paper notes and bank loans is
set forth below for the periods indicated (dollar amounts in millions):
<TABLE>
<CAPTION>
COMMERCIAL BANK
PAPER NOTES LOANS
----------- ------
<S> <C> <C>
Ending balance at December 31, 1995............................. $12,732.7 $787.0
Weighted average interest rate at December 31, 1995............. 5.73% 6.44%
Ending balance at December 31, 1994............................. $11,640.5 $571.4
Weighted average interest rate at December 31, 1994............. 5.88% 6.88%
</TABLE>
The amounts reported in the consolidated balance sheet approximate fair
value.
10
<PAGE> 11
ASSOCIATES FIRST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 7 -- LONG-TERM DEBT
Outstanding balances of long-term debt at December 31 were as follows (in
millions):
<TABLE>
<CAPTION>
INTEREST
RATE RANGE MATURITIES 1995 1994
---------- ---------- --------- ---------
<S> <C> <C> <C> <C>
Senior:
Notes................................ 3.63-13.75% 1996-2010 $18,619.0 $15,157.7
Investment notes..................... 4.90- 9.50 1996-2000 429.1 354.6
19,048.1 15,512.3
Subordinated and Capital:
Subordinated......................... 7.63- 8.15 1998-2009 141.2 141.2
Capital.............................. 4.68- 9.00 1996-2002 0.6 0.6
141.8 141.8
Total long-term debt......... $19,189.9 $15,654.1
</TABLE>
The weighted average interest rate for total long-term debt was 7.07% at
December 31, 1995 and 7.24% at December 31, 1994.
The estimated fair value of long-term debt at December 31, 1995 and 1994
was $20.2 billion and $15.1 billion, respectively. The fair value was determined
by discounting expected cash flows at discount rates currently available to the
Company for debt with similar terms and remaining maturities.
Long-term borrowing maturities during the next five years, including the
current portion of notes payable after one year are: 1996, $2,894.9 million;
1997, $3,296.2 million; 1998, $3,416.3 million; 1999, $2,253.9 million; 2000,
$2,468.0 million and 2001 and thereafter, $4,860.6 million.
Certain debt issues contain call provisions or may be subject to repayment
provisions at the option of the holder on specified dates prior to the maturity
date. At December 31, 1995, 3,509 warrants were outstanding to purchase $154.8
million aggregate principal amount of senior notes at par with interest rates
ranging from 7.00% to 10.50%. The warrants are exercisable at various dates
through October 1, 1999 at prices ranging from $1,000 to $25,000,000 per
warrant. All of the above issues are unsecured, except for a $50 million, 8.25%
Senior Note due August 15, 2001, which is collateralized by First Capital's
corporate offices.
NOTE 8 -- INCOME TAXES
The following table sets forth the components of the provision for income
taxes and deferred income tax (benefit) for the periods indicated (in millions):
<TABLE>
<CAPTION>
FEDERAL STATE TOTAL
------- ----- -------
<S> <C> <C> <C>
Year Ended December 31, 1995
Current................................................. $ 342.0 $21.5 $ 363.5
------- ----- -------
Deferred:
Leasing transactions................................. 66.7 66.7
Finance revenue...................................... 14.0 14.0
Provision for losses on finance receivables and
other.............................................. (71.8) (71.8)
------- ----- -------
Total deferred.................................. 8.9 8.9
------- ----- -------
$ 350.9 $21.5 $ 372.4
======= ===== =======
</TABLE>
11
<PAGE> 12
ASSOCIATES FIRST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
FEDERAL STATE TOTAL
------- ----- -------
<S> <C> <C> <C>
Year Ended December 31, 1994
Current................................................. $ 400.1 $31.5 $ 431.6
------- ----- -------
Deferred:
Leasing transactions................................. 29.2 29.2
Finance revenue...................................... (5.7) (5.7)
Provision for losses on finance receivables and
other.............................................. (115.2) (115.2)
------- ----- -------
Total deferred.................................. (91.7) (91.7)
------- ----- -------
$ 308.4 $31.5 $ 339.9
======= ===== =======
Year Ended December 31, 1993
Current................................................. $ 337.1 $20.5 $ 357.6
------- ----- -------
Deferred:
Leasing transactions................................. 3.6 3.6
Finance revenue...................................... 3.9 3.9
Provision for losses on finance receivables and
other.............................................. (83.4) (83.4)
------- ----- -------
Total deferred.................................. (75.9) (75.9)
------- ----- -------
$ 261.2 $20.5 $ 281.7
======= ===== =======
</TABLE>
At December 31, 1995 and 1994, the components of the Company's net deferred
tax asset were as follows (in millions):
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Deferred tax assets:
Provision for losses on finance receivables and other.......... $ 601.5 $ 517.2
Postretirement and other employee benefits..................... 56.0 74.0
------- -------
657.5 591.2
Deferred tax liabilities:
Leasing transactions........................................... (241.8) (175.1)
Finance revenue and other...................................... (236.3) (214.3)
------- -------
(478.1) (389.4)
------- -------
Net deferred tax asset................................. $ 179.4 $ 201.8
======= =======
</TABLE>
Due to the Company's earnings level, no valuation allowance related to the
deferred tax asset has been recorded.
The effective tax rate differed from the statutory U.S. Federal income tax
rate as follows:
<TABLE>
<CAPTION>
% OF PRETAX INCOME
YEAR ENDED DECEMBER 31
----------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Statutory tax rate............................................. 35.0% 35.0% 35.0%
State tax rate................................................. 1.4 2.3 1.8
Other non-deductible items..................................... 0.7 1.0 0.7
---- ---- ----
Effective tax rate................................... 37.1% 38.3% 37.5%
==== ==== ====
</TABLE>
12
<PAGE> 13
ASSOCIATES FIRST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 9 -- DEBT RESTRICTIONS
Associates, First Capital's principal operating subsidiary, is subject to
various limitations under the provisions of its outstanding debt and credit
facilities. The most significant of these limitations are summarized as follows:
Limitation on Payment of Dividends
A restriction contained in one series of Associates 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. In accordance
with this provision, at December 31, 1995, $727.6 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 December 31, 1995, Associates tangible net worth was $4.1 billion.
Limitation of 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 December 31, 1995 and
1994, amounted to 0.7% and 1.0%, respectively, of its aggregate gross
receivables as of those dates.
NOTE 10 -- LEASE COMMITMENTS
Leases are primarily short-term and generally provide for renewal options
not exceeding the initial term. Total rent expense for the years ended December
31, 1995, 1994 and 1993 was $59.3 million, $48.7 million, and $43.9 million,
respectively. Minimum rental commitments as of December 31, 1995 for all
noncancelable leases (primarily office leases) for the years ending December 31,
1996, 1997, 1998, 1999 and 2000 are $54.4 million, $41.6 million, $29.1 million,
$16.2 million and $4.2 million, respectively, and $3.4 million thereafter.
13
<PAGE> 14
ASSOCIATES FIRST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 11 -- EMPLOYEE BENEFITS
Defined Benefit Plans
The Company sponsors various qualified and nonqualified pension plans (the
"Plan" or "Plans"), which together cover substantially all permanent employees
who meet certain eligibility requirements.
Net periodic pension cost for the years indicated includes the following
components (in millions):
<TABLE>
<CAPTION>
DECEMBER 31
----------------------------
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Service cost............................................. $ 13.1 $ 13.7 $ 10.0
Interest cost............................................ 23.1 21.3 18.1
Actual return on Plan assets............................. (51.1) (0.4) (21.6)
Net amortization......................................... 33.9 (10.9) 7.4
------ ------ ------
Net periodic pension cost.............................. $ 19.0 $ 23.7 $ 13.9
====== ====== ======
Assumed discount rate, beginning of year................. 8.25% 7.00% 8.00%
==== ==== ====
</TABLE>
The funded status of the Plan is as follows (in millions):
<TABLE>
<CAPTION>
DECEMBER 31
---------------------------------------------------------
1995 1994
-------------------------- --------------------------
QUALIFIED NONQUALIFIED QUALIFIED NONQUALIFIED
PLAN PLANS PLAN PLANS
--------- ------------ --------- ------------
<S> <C> <C> <C> <C>
Actuarial present value of benefit
obligation:
Vested................................ $ 255.9 $ 23.7 $ 187.6 $ 16.8
Nonvested............................. 11.5 0.3 9.0 0.8
------ ----- ------ -----
Accumulated benefit obligation.......... 267.4 24.0 196.6 17.6
Effect of projected future salary
increases............................. 76.1 9.3 50.4 6.2
------ ----- ------ -----
Projected benefit obligation............ 343.5 33.3 247.0 23.8
Plan assets at fair market value........ 322.0 204.7
------ ----- ------ -----
Excess of plan obligation over plan
assets................................ 21.5 33.3 42.3 23.8
Unamortized transition obligation and
amendments............................ (5.1) (3.8) (6.5) (4.3)
Unamortized net loss.................... (53.0) (8.8) (13.3) (1.5)
Adjustment required to recognize minimum
liability............................. 3.3
------ ----- ------ -----
(Prepaid)/accrued pension liability... $ (36.6) $ 24.0 $ 22.5 $ 18.0
====== ===== ====== =====
Assumed discount rate................... 7.00% 7.00% 8.25% 8.25%
==== ==== ==== ====
Projected compensation increases........ 6.00% 6.00% 6.00% 6.00%
==== ==== ==== ====
Expected return......................... 9.00% 9.00% 9.00% 9.00%
==== ==== ==== ====
</TABLE>
A determination of the Federal income tax status related to the qualified
Pension Plan has not been received. An application was filed with the Internal
Revenue Service in March 1995. If a favorable determination letter is not
received, First Capital has agreed to make any changes required to receive a
favorable determination letter.
14
<PAGE> 15
ASSOCIATES FIRST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Retirement Savings and Profit Sharing Plan
The Company sponsors a defined contribution plan intended to provide
assistance in accumulating personal savings for retirement and is designed to
qualify under Sections 401(a) and 401(k) of the Internal Revenue Code. An
application for determination was filed with the Internal Revenue Service in
March 1995. If a favorable determination letter is not received, First Capital
has agreed to make any changes required to receive a favorable determination
letter. For the years ended December 31, 1995, 1994 and 1993, the Company's
pretax contributions to the plan were $18.0 million, $15.9 million and $14.0
million, respectively.
Employers' Accounting for Postretirement Benefits Other Than Pensions
The Company provides certain postretirement benefits through unfunded plans
sponsored by First Capital. These benefits are currently provided to
substantially all permanent employees who meet certain eligibility requirements.
The benefits of the plan can be modified or terminated at the discretion of the
Company. The amount paid for postretirement benefits for the years ended
December 31, 1995, 1994 and 1993 was approximately $2.0 million, $1.8 million
and $1.5 million, respectively.
Net periodic postretirement benefit cost for 1995, 1994 and 1993 includes
the following components (in millions)
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------
1995 1994 1993
----- ----- -----
<S> <C> <C> <C>
Service cost................................................ $ 5.5 $ 5.5 $ 4.2
Interest cost............................................... 7.7 6.3 6.3
Net amortization............................................ (1.3) (1.0) (0.7)
----- ----- -----
Net periodic postretirement benefit cost.................. $11.9 $10.8 $ 9.8
===== ===== =====
Assumed discount rate, beginning of year.................... 8.75% 7.50% 8.50%
===== ===== =====
</TABLE>
Accrued postretirement benefit cost at December 31, 1995 and 1994 is
composed of the following (in millions):
<TABLE>
<CAPTION>
DECEMBER 31
----------------
1995 1994
------ -----
<S> <C> <C>
Accumulated postretirement benefit obligation ("APBO"):
Retired participants.............................................. $ 45.2 $33.9
Fully eligible participants....................................... 26.9 18.6
Other active participants......................................... 45.7 29.5
------ -----
Total APBO................................................ 117.8 82.0
Unamortized amendments.............................................. 5.4 9.8
Unrecognized actuarial loss......................................... (24.2) (2.7)
------ -----
Accrued postretirement benefit cost............................... $ 99.0 $89.1
====== =====
Assumed discount rate............................................... 7.25% 8.75%
====== =====
</TABLE>
For measurement purposes, a 13.00% and 12.10% weighted average annual rate
of increase in per capita cost of covered health care benefits was assumed for
1995 and 1994, respectively, decreasing gradually to 5.50% by the year 2010.
Increasing the assumed health care cost trend rate by one percentage point each
year would increase the APBO as of December 31, 1995 and 1994 by $8.6 million
and $6.0 million, respectively, and the aggregate of the service and interest
cost components of the net periodic postretirement benefit cost by $1.0 million
and $0.9 million, respectively.
15
<PAGE> 16
ASSOCIATES FIRST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INCENTIVE COMPENSATION PROGRAMS
The Company sponsors compensation plans covering certain officers and
employees.
Corporate Annual Performance Plan and Long-Term Performance Plan
The Corporate Annual Performance Plan ("CAPP") is an annual bonus plan.
CAPP bonuses are determined based on the performance of the Company, the
business unit in which a participant is employed, and the participant,
personally. The Long-Term Performance Plan ("LTPP") is a long-term cash
incentive plan. LTPP awards are determined for a performance period based 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. Amounts charged to expense under CAPP and LTPP
amounted to $16.1 million, $16.2 million and $14.8 million during the years
ended December 31, 1995, 1994 and 1993, respectively.
Phantom Stock Appreciation Right Plan
The Company sponsored a long-term cash plan, the Phantom Stock Appreciation
Right Plan (the "PSAR Plan"). The Company terminated the PSAR Plan as of
December 1995 and intends to cash out all outstanding phantom stock appreciation
rights ("PSARs") prior to completion of the Company's public offering. A PSAR
granted under the PSAR Plan entitled the holder thereof to receive from the
Company, upon exercise of such PSAR, a specified amount of cash. A PSAR had a
term of five years and vested 100% on the first anniversary of the date of
grant. Amounts charged to expense under the PSAR Plan amounted to $30.1 million,
$4.1 million and $36.1 million during the years ended December 31, 1995, 1994
and 1993, respectively. The company also amended the PSAR Plan to provide that
certain officers of the Company (all of whom were granted PSARs in 1995) are
required to defer one-half of the amount payable in satisfaction of their
respective PSARs granted in 1995. The amounts so deferred will be administered
by the Company in accordance with the terms of the Associates First Capital
Corporation Equity Deferral Plan.
Long-Term Equity Compensation Plan
The Long-Term Equity Compensation Plan ("ECP") is a stock-based incentive
plan that will be adopted in 1996 prior to the Company's public offering. The
ECP provides for the grant of incentive and nonqualified stock options, stock
appreciation rights, restricted stock, performance shares and performance units.
Awards granted under the ECP are based on shares of Class A Common Stock.
NOTE 12 -- COMMITMENTS, CONTINGENCIES AND LEGAL PROCEEDINGS
The Company is a defendant in various lawsuits arising in the ordinary
course of its business. The Company aggressively manages its litigation and
assesses appropriate responses to its lawsuits in light of a number of factors,
including potential impact of the actions on the conduct of the Company's
operations. In the opinion of management, the resolution of any of these matters
is not expected to have a material adverse effect on the Company's financial
condition or results of operations.
16
<PAGE> 17
ASSOCIATES FIRST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 13 -- OTHER ASSETS
The components of Other Assets at December 31, 1995 and 1994 were as
follows (in millions):
<TABLE>
<CAPTION>
DECEMBER 31
-------------------
1995 1994
------- -------
<S> <C> <C>
Balances with related parties -- NOTE 14........................ $ 70.7 $ 68.7
Goodwill........................................................ 345.7 362.0
Other........................................................... 701.0 569.5
-------- --------
Total other assets.................................... $1,117.4 $1,000.2
======== ========
</TABLE>
NOTE 14 -- TRANSACTIONS AND BALANCES WITH RELATED PARTIES
First Capital, through Associates, provides debt financing or advances to
certain of its former foreign subsidiaries. At December 31, 1995 and 1994,
amounts due from foreign affiliates totaled $70.7 million and $68.7 million,
respectively, and were included in Other Assets. These receivables or advances
bear fluctuating interest rates (as applicable) and are payable on demand.
Interest income related to these transactions was $7.9 million, $14.4 million
and $21.3 million for the years ended December 31, 1995, 1994 and 1993,
respectively. The estimated fair value of these receivables was $72.2 million
and $70.4 million at December 31, 1995 and 1994, respectively.
The Company provides certain services of an administrative nature, use of
certain tangible and intangible assets, including trademarks, guarantees of debt
and related interest, and other management services to certain of its foreign
affiliates in Japan, Canada, Puerto Rico and the United Kingdom. Services and
usage are charged to the affiliates based on the nature of the service. Fees for
financial accommodations range from .25% to 1% of the average outstanding debt
guaranteed. Management believes such charges reflect the market value for such
services, usage and guarantees. The amounts paid or accrued under these
arrangements for the years ended December 31, 1995, 1994 and 1993 were $68.4
million, $53.7 million and $40.1 million, respectively.
The Company provides certain auto club and relocation services to Ford.
Revenues related to these services were $29.7 million, $19.4 million and $12.1
million for the years ended December 31, 1995, 1994 and 1993, respectively.
The Company pays fees for certain administrative services provided by its
Ford-affiliated parent. Such fees were $8.8 million, $5.0 million and $4.3
million for the years ended December 31, 1995, 1994 and 1993, respectively.
At December 31, 1995 and 1994, the Company was a guarantor on debt and
related accrued interest of its foreign affiliates in Canada and Puerto Rico
amounting to $487.2 million and $339.9 million, respectively.
At December 31, 1995 and 1994, First Capital's current income taxes payable
to its Ford-affiliated parent amounted to $45.1 million and $30.4 million,
respectively.
NOTE 15 -- 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.
As explained in NOTE 2 to the consolidated financial statements, the
Company does not hold or issue derivative financial instruments for trading
purposes. The Company's derivative activity is limited to currency swap
transactions designed to hedge its currency risk on specific foreign
currency-denominated assets to certain subsidiaries denominated in British
Sterling. One interest rate swap transaction for $40.0 million,
17
<PAGE> 18
ASSOCIATES FIRST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
assumed in 1993 as part of a business acquisition, matured in April 1995 and is
no longer outstanding. The Company is a buyer in each transaction.
The Company's currency swap transactions are not material to its
consolidated balance sheet and do not represent a material exposure to its
consolidated net earnings. Amounts under currency and interest rate swap
contracts at December 31, 1995 and 1994 were $55.7 million and $95.7 million,
respectively. At December 31, 1995, the Company was at market risk for any
currency differential should a counterparty to these contracts fail to meet the
terms of the contracts. The contracts expire in October 1996. At December 31,
1995, the Company's estimated exposure to loss resulting from currency
differentials, in the event of nonperformance by certain counterparties, was
$1.1 million; the Company estimates its benefit resulting from currency
differentials, in the event of nonperformance by certain counterparties, was
$0.2 million. The estimated fair value of amounts under contract approximated
$0.9 million and $0.7 million at December 31, 1995 and 1994, respectively. Such
value was determined based on the foreign currency exchange rates/interest rate
for similar transactions in effect at the balance sheet date. It is the
Company's policy that each counterparty's public debt rating must be rated Aa3,
AA- or better by at least two nationally recognized rating agencies at the time
any such contract is entered into. The Company monitors such ratings on an
ongoing basis. The Company does not employ other methods to assess credit risk,
because swap transactions are not a significant part of its operating activities
and because the Company does not enter into complex derivative transactions.
Associates National Bank (Delaware) a subsidiary of First Capital, makes
available credit lines to holders of their credit cards. The unused portion of
the available credit is revocable by the bank under specified conditions. The
unused portion of the available credit at December 31, 1995 and 1994 was $12.6
billion and $9.0 billion, respectively. The potential risk associated with, and
the estimated fair value of, the unused credit lines are not considered to be
significant.
Associates Investment Corporation, an indirect subsidiary of First Capital,
makes available credit lines to holders of their private label credit cards. The
unused portion of the available credit is revocable by Associates Investment
Corporation under specified conditions. The unused portion of the available
credit at December 31, 1995 and 1994 was $4.8 billion and $5.1 billion,
respectively. The potential risk associated with, and the estimated fair value
of, the unused credit lines are not considered to be significant.
The consumer finance business grants revolving lines of credit to certain
of its customers. At December 31, 1995 and 1994, the unused portion of these
lines aggregated $661.1 million and $455.2 million, respectively. The potential
risk associated with, and the estimated fair value of, the unused credit lines
are not considered to be significant.
The commercial finance business grants lines of credit to certain dealers
of truck, construction equipment and manufactured housing. At December 31, 1995
and 1994, the unused portion of these lines aggregated $1.2 billion and $849.7
million, respectively. The potential risk associated with, and the estimated
fair value of, the unused credit lines are not considered to be significant.
NOTE 16 -- INVESTMENTS IN DEBT AND EQUITY SECURITIES
Debt Securities
The Company invests in debt securities, principally bonds and notes held by
the Company's insurance subsidiaries, with the intention of holding them to
maturity. However, if market conditions change, the Company may sell these
securities prior to maturity. Accordingly, concurrent with the adoption of SFAS
No. 115 in 1994, 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.
During 1995, gross realized gains on sales amounted to $0.2 million. Gross
realized gains and losses on sales during 1994 amounted to $2.1 million and $0.3
million, respectively. Unrealized gains or losses are reported as a component of
stockholder's equity, net of tax. The following tables set forth, by type of
18
<PAGE> 19
ASSOCIATES FIRST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
security issuer, the amortized cost, gross unrealized holding gains, gross
unrealized holding losses, and estimated market value at December 31, 1995 and
1994 (in millions):
<TABLE>
<CAPTION>
1995
--------------------------------------------------
GROSS GROSS
UNREALIZED UNREALIZED ESTIMATED
AMORTIZED HOLDING HOLDING MARKET
COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
U.S. Government obligations................. $ 400.2 $ 14.4 $ $ 414.6
Corporate obligations....................... 222.3 3.5 225.8
Mortgage-backed............................. 215.6 0.8 216.4
Other....................................... 8.6 8.6
------- ------ ------ -------
Total debt securities............. $ 846.7 $ 18.7 $ $ 865.4
======= ====== ====== =======
</TABLE>
<TABLE>
<CAPTION>
1994
--------------------------------------------------
GROSS GROSS
UNREALIZED UNREALIZED ESTIMATED
AMORTIZED HOLDING HOLDING MARKET
COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
U.S. Government obligations................. $ 422.4 $0.7 $(25.2) $ 397.9
Corporate obligations....................... 66.8 0.2 (0.5) 66.5
Mortgage-backed............................. 96.3 (2.3) 94.0
Other....................................... 4.8 4.8
------- ---- ------ -------
Total debt securities............. $ 590.3 $0.9 $(28.0) $ 563.2
======= ==== ====== =======
</TABLE>
The amortized cost and estimated market value of debt securities at
December 31, 1995 and 1994, by contractual maturity, are shown below (in
millions):
<TABLE>
<CAPTION>
1995 1994
----------------------- -----------------------
ESTIMATED ESTIMATED
AMORTIZED MARKET AMORTIZED MARKET
COST VALUE COST VALUE
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Due in one year or less................... $ 155.9 $ 156.5 $ 93.2 $ 92.1
Due after one year through five years..... 379.9 390.4 384.3 369.6
Due after five years through ten years.... 187.5 194.6 110.8 99.6
Due after ten years....................... 123.4 123.9 2.0 1.9
------- ------- ------- -------
$ 846.7 $ 865.4 $ 590.3 $ 563.2
======= ======= ======= =======
</TABLE>
Equity Securities
Equity security investments are recorded at market value. Concurrent with
the adoption of SFAS No. 115 in 1994, 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 December 31, 1995 and 1994 was $12.6 million and $41.9
million, respectively. Historical cost at December 31, 1995 and 1994 was $8.5
million and $38.9 million, respectively.
Estimated market values of debt and equity securities are based on quoted
market prices.
19
<PAGE> 20
ASSOCIATES FIRST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 17 -- BUSINESS SEGMENT INFORMATION
First Capital's primary business activities are consumer finance and
commercial finance. The consumer finance operation is engaged in making and
investing in home equity, personal lending and sales finance receivables, credit
card receivables, primarily through a wholly-owned credit card bank, and
providing sales financing of manufactured housing. The commercial finance
operation is principally engaged in financing sales of transportation and
industrial equipment and leasing, and sales of other financial services,
including auto fleet leasing and management, relocation services and auto club
and roadside assistance services. The Company has an insurance operation which
is engaged in underwriting credit life, credit accident and health, property and
casualty, and accidental death and dismemberment insurance, principally for
customers of the finance operations. Such insurance activity is conducted by the
Company's licensed insurance agents and managed as a separate activity.
Insurance sales are dependent on the business activities and volumes of the
consumer and commercial business. Accordingly, insurance revenues and related
claims are included in the consumer and commercial business to which they
relate.
The following table sets forth information by business segment (in
millions):
<TABLE>
<CAPTION>
BUSINESS SEGMENT
-----------------------
CONSUMER COMMERCIAL
FINANCE FINANCE(A) CONSOLIDATED
-------- ---------- ------------
<S> <C> <C> <C>
Year Ended or at December 31, 1995
Revenue........................................ $ 3,917.3 $1,497.9 $ 5,415.2
========= ========= =========
Operating income(b):
From segment................................ $ 804.6 $ 325.5 $ 1,130.1
Corporate and other......................... (89.6) (36.2) (125.8)
--------- --------- ---------
Total.................................. $ 715.0 $ 289.3 $ 1,004.3
========= ========= =========
Total assets................................... $23,493.0 $13,771.4 $37,264.4
========= ========= =========
Year Ended or at December 31, 1994
Revenue........................................ $ 3,169.7 $1,235.6 $ 4,405.3
========= ========= =========
Operating income(b):
From segment................................ $ 675.0 $ 307.5 $ 982.5
Corporate and other......................... (64.9) (29.6) (94.5)
--------- --------- ---------
Total.................................. $ 610.1 $ 277.9 $ 888.0
========= ========= =========
Total assets................................... $20,014.7 $11,686.7 $ 31,701.4
========= ========= =========
Year Ended or at December 31, 1993
Revenue........................................ $ 2,623.3 $1,082.3 $ 3,705.6
========= ========= =========
Operating income(b):
From segment................................ $ 564.8 $ 277.4 $ 842.2
Corporate and other......................... (60.6) (29.8) (90.4)
--------- --------- ---------
Total.................................. $ 504.2 $ 247.6 $ 751.8
========= ========= =========
Total assets................................... $17,301.7 $9,964.1 $27,265.8
========= ========= =========
</TABLE>
- ---------------
(a) Includes information pertaining to the financing of manufactured housing
purchases which are managed by the commercial operation.
(b) Includes operating income pertaining to the Company's non-operating
subsidiaries.
Capital expenditures and depreciation and amortization expense are not
significant.
20
<PAGE> 21
ASSOCIATES FIRST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 18 -- SUBSEQUENT EVENT
On February 8, 1996, the Company paid a dividend in the amount of $1.75
billion to its Ford-affiliated parent in the form of an intercompany note.
NOTE 19 -- UNAUDITED QUARTERLY FINANCIAL DATA
The following table sets forth the unaudited quarterly results of
operations (in millions):
<TABLE>
<CAPTION>
1995
--------------------------------------------
FOURTH THIRD SECOND FIRST
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Finance charges.............................. $1,279.9 $1,244.6 $1,191.8 $1,130.8
======== ======== ======== ========
Interest expense............................. $ 536.5 $ 524.3 $ 506.5 $ 477.4
======== ======== ======== ========
Earnings before provision for income taxes... $ 268.1 $ 272.2 $ 226.3 $ 237.7
Provision for income taxes................... 100.1 101.3 85.2 85.8
-------- -------- -------- --------
Net earnings................................. $ 168.0 $ 170.9 $ 141.1 $ 151.9
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
1994
--------------------------------------------
FOURTH THIRD SECOND FIRST
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Finance charges.............................. $1,081.9 $ 992.6 $ 924.2 $ 899.5
======== ======== ======== ========
Interest expense............................. $ 440.4 $ 403.2 $ 369.9 $ 344.7
======== ======== ======== ========
Earnings before provision for income taxes... $ 243.2 $ 241.4 $ 198.5 $ 204.9
Provision for income taxes................... 94.9 90.5 77.1 77.4
-------- -------- -------- --------
Net earnings................................. $ 148.3 $ 150.9 $ 121.4 $ 127.5
======== ======== ======== ========
</TABLE>
21
<PAGE> 22
ASSOCIATES FIRST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 20 -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT (PARENT COMPANY ONLY)
Condensed unconsolidated financial information of Associates First Capital
Corporation as of or for the years ended December 31, 1995, 1994 and 1993 were
as follows (in millions):
CONDENSED STATEMENT OF EARNINGS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Revenue
Interest and other income................................ $ 10.2 $ 8.7 $ 6.7
Dividends from subsidiaries.............................. 284.0 270.5 242.7
------ ------ ------
294.2 279.2 249.4
Expenses
Interest expense......................................... 66.0 54.8 51.1
Operating expenses....................................... 23.3 16.2 15.3
------ ------ ------
89.3 71.0 66.4
------ ------ ------
Income before credit for Federal income taxes and equity in
net earnings of subsidiaries............................. 204.9 208.2 183.0
Credit for Federal income taxes resulting from tax
agreements with subsidiaries............................. 28.0 21.7 21.2
------ ------ ------
Earnings before equity in undistributed earnings of
subsidiaries............................................. 232.9 229.9 204.2
Equity in undistributed earnings of subsidiaries........... 399.0 318.2 265.9
------ ------ ------
Net earnings............................................... $631.9 $548.1 $470.1
====== ====== ======
</TABLE>
See notes to condensed financial information.
22
<PAGE> 23
ASSOCIATES FIRST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
1995 1994
-------- --------
<S> <C> <C>
Assets
Investment in and advances to subsidiaries, eliminated in
consolidation, and other.................................... $4,477.0 $3,829.4
-------- --------
Total assets........................................... $4,477.0 $3,829.4
-------- --------
Liabilities and Stockholder's Equity
Accounts payable and accruals.................................. $ 52.5 $ 33.0
Bank lines..................................................... 85.0
Notes payable and long-term debt(2)............................ 835.9 836.5
Stockholder's equity(1)........................................ 3,503.6 2,959.9
-------- --------
Total liabilities and stockholder's equity............. $4,477.0 $3,829.4
======== ========
</TABLE>
The estimated fair value of notes payable and long-term debt at December
31, 1995 and 1994 was $878.6 million and $829.4 million, respectively. 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.
23
<PAGE> 24
ASSOCIATES FIRST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED STATEMENT OF CASH FLOWS
(IN MILLIONS)
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net earnings.................................................. $ 631.9 $ 548.1 $ 470.1
Adjustments to net earnings for noncash items:
Amortization and depreciation.............................. 0.1 0.1 0.1
Increase (decrease) in accounts payable and accruals....... 19.5 13.1 (6.5)
Equity in undistributed earnings of subsidiaries........... (399.0) (318.2) (265.9)
Other......................................................... 29.5 (20.9) (0.6)
------- ------- -------
Net cash provided from operating activities................ 282.0 222.2 197.2
------- ------- -------
Cash Flows from Investing Activities
Cash dividends from subsidiaries(1)........................... 284.0 270.5 242.7
Increase in investments in and advances to subsidiaries....... (534.3) (583.7) (402.7)
------- ------- -------
Net cash used for investing activities..................... (250.3) (313.2) (160.0)
------- ------- -------
Cash Flows from Financing Activities
Increase in notes payable and long-term debt(2)............... 438.9 352.7 231.6
Capital contribution from parent.............................. 200.0 200.0 200.0
Cash dividends paid........................................... (318.0) (273.0) (226.0)
Retirement of long-term debt.................................. (354.4) (188.9) (244.2)
------- ------- -------
Net cash (used for) provided from financing activities..... (33.5) 90.8 (38.6)
------- ------- -------
Decrease in cash and cash equivalents........................... (1.8) (0.2) (1.4)
Cash and cash equivalents at beginning of period................ (1.1) (0.9) 0.5
------- ------- -------
Cash and cash equivalents at end of period...................... $ (2.9) $ (1.1) $ (0.9)
======= ======= =======
</TABLE>
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 operating
subsidiary, Associates Corporation of North America. See NOTE 9 to the
consolidated financial statements for a summary of the most significant of
these restrictions.
(2) Notes payable and long-term debt bear interest at rates from 4.79% to
13.75%. The estimated maturities of the notes outstanding, at December 31,
1995, during subsequent years were as follows (in millions):
<TABLE>
<S> <C>
1996........................................................ $279.5
1997........................................................ 208.1
1998........................................................ 142.2
1999........................................................ 113.9
2000........................................................ 92.2
------
$835.9
======
</TABLE>
24
<PAGE> 1
AIC CORPORATION (A JAPAN CORPORATION) AND SUBSIDIARY
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants..................................................... 1
Consolidated Statement of Earnings.................................................... 2
Consolidated Balance Sheet............................................................ 3
Consolidated Statement of Changes in Stockholder's Equity............................. 4
Consolidated Statement of Cash Flows.................................................. 5
Notes to Consolidated Financial Statements............................................ 6
</TABLE>
<PAGE> 2
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors
AIC Corporation
We have audited the accompanying consolidated balance sheet of AIC
Corporation (a Japan Corporation) and subsidiary ("AIC"), a wholly-owned
subsidiary of Ford Ensite International, Inc., as of December 31, 1995 and the
related consolidated statement of earnings, changes in stockholder's 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 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 consolidated financial position of AIC as of
December 31, 1995, and the consolidated results of their operations and their
cash flows for the year then ended in conformity with generally accepted
accounting principles.
COOPERS & LYBRAND L.L.P
Dallas, Texas
January 26, 1996
1
<PAGE> 3
AIC CORPORATION (A JAPAN CORPORATION) AND SUBSIDIARY
CONSOLIDATED STATEMENT OF EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS)
<TABLE>
<S> <C>
REVENUE
Finance charges................................................................. $562,790
Insurance premiums and other income............................................. 24,935
--------
587,725
EXPENSES
Interest expense................................................................ 87,399
Operating expenses.............................................................. 208,775
Provision for losses on finance receivables -- NOTE 4........................... 65,180
Fees and expenses, related party -- NOTE 5...................................... 61,600
--------
422,954
--------
INCOME BEFORE PROVISION FOR INCOME TAXES.......................................... 164,771
PROVISION FOR INCOME TAXES -- NOTE 9.............................................. 90,418
--------
NET EARNINGS...................................................................... $ 74,353
========
</TABLE>
See notes to consolidated financial statements.
2
<PAGE> 4
AIC CORPORATION (A JAPAN CORPORATION) AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1995
(IN THOUSANDS)
ASSETS
<TABLE>
<S> <C>
CASH AND CASH EQUIVALENTS........................................................ $ 53,817
NET FINANCE RECEIVABLES -- NOTE 3................................................ 2,125,787
ALLOWANCE FOR LOSSES ON FINANCE RECEIVABLES -- NOTE 4............................ (98,871)
PROPERTY AND EQUIPMENT, less accumulated depreciation of $10,702................. 19,800
GOODWILL, less accumulated amortization of $105,791.............................. 856,930
OTHER ASSETS..................................................................... 39,010
----------
Total Assets........................................................... $2,996,473
==========
LIABILITIES AND STOCKHOLDER'S EQUITY
ACCOUNTS PAYABLE AND ACCRUALS.................................................... $ 65,360
DEFERRED INCOME TAXES -- NOTE 9.................................................. 218,781
LONG-TERM DEBT -- NOTE 10........................................................ 1,682,933
----------
Total Liabilities...................................................... 1,967,074
STOCKHOLDER'S EQUITY
Capital stock, no par value, 1,172,100 shares authorized, 1,172,100 shares
issued and outstanding...................................................... 581,351
Retained earnings.............................................................. 114,504
Foreign currency translation adjustments....................................... 333,544
----------
Total Stockholder's Equity............................................. 1,029,399
----------
Total Liabilities and Stockholder's Equity............................. $2,996,473
==========
</TABLE>
See notes to consolidated financial statements.
3
<PAGE> 5
AIC CORPORATION (A JAPAN CORPORATION) AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOREIGN
CURRENCY TOTAL
CAPITAL RETAINED TRANSLATION STOCKHOLDER'S
STOCK EARNINGS ADJUSTMENTS EQUITY
--------- -------- ----------- -------------
<S> <C> <C> <C> <C>
December 31, 1994........................... $ 810,293 $ 40,151 $ 377,377 $1,227,821
Net Earnings.............................. 74,353 74,353
Capital Reduction......................... (228,942) (228,942)
Current Period Adjustment................. (43,833) (43,833)
--------- -------- -------- -----------
December 31, 1995........................... $ 581,351 $114,504 $ 333,544 $1,029,399
========= ======== ======== ===========
</TABLE>
See notes to consolidated financial statements.
4
<PAGE> 6
AIC CORPORATION (A JAPAN CORPORATION) AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS)
<TABLE>
<S> <C>
Cash Flows from Operating Activities
Net earnings................................................................ $ 74,353
Adjustments to net earnings for non-cash items:
Provision for losses on finance receivables.............................. 65,180
Depreciation and amortization............................................ 33,648
Deferred income taxes.................................................... 90,418
Increase in accounts payable and accruals................................... 17,718
-----------
Net cash provided from operating activities.............................. 281,317
-----------
Cash Flows from Investing Activities
Finance receivables originated or purchased................................. (2,223,351)
Finance receivables liquidated.............................................. 1,712,807
Property and equipment additions............................................ (8,587)
Increase in other assets.................................................... (17,450)
-----------
Net cash used for investing activities................................... (536,581)
-----------
Cash Flows from Financing Activities
Issuance of long-term debt.................................................. 647,496
Capital reduction paid to parent............................................ (228,942)
Retirement of long-term debt................................................ (227,909)
-----------
Net cash provided from financing activities.............................. 190,645
-----------
Net decrease in cash and cash equivalents................................... (64,619)
Foreign currency translation adjustment..................................... 1,923
Cash and cash equivalents at beginning of year.............................. 116,513
-----------
Cash and cash equivalents at end of year.................................... $ 53,817
===========
Cash paid for:
Interest................................................................. $ 84,798
===========
Taxes.................................................................... $ --
===========
</TABLE>
See notes to consolidated financial statements.
5
<PAGE> 7
AIC CORPORATION (A JAPAN CORPORATION) AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- THE COMPANY
AIC Corporation (the "Company"), a Japan corporation, is an indirect
subsidiary of Ford Motor Company ("Ford") and a wholly-owned subsidiary of Ford
Ensite International ("Ensite"), a Canada corporation. The Company provides
consumer financing consisting of home equity lending, personal lending and
retail sales finance loans in Japan. The Company's wholly-owned subsidiary, AIC
Card Services, Inc. ("ACS"), issues MasterCard credit cards in Japan.
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies:
Basis of Consolidation
The accompanying consolidated financial statements consolidate AIC
Corporation and its subsidiary. Goodwill is amortized using the straight-line
method over periods not exceeding forty years. The carrying value of goodwill is
reviewed if the facts and circumstances suggest that it may be impaired. If the
review indicates that goodwill will not be recoverable, as determined based on
undiscounted cash flows, the carrying value of the goodwill is reduced by the
estimated short-fall of discounted cash flows.
All significant intercompany transactions and balances have been eliminated
in consolidation.
Estimates
The preparation of these financial statements in accordance with generally
accepted accounting principles requires the use of management's estimates. These
estimates are subjective in nature and involve matters of judgment. Actual
results could differ from these estimates.
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 $25,862,000.
Allowance for Losses on Finance Receivables
The Company maintains an allowance for losses on finance receivables at an
amount which it believes is sufficient to provide adequate protection against
future 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 finance receivables. 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 the
charge-off of finance receivables to the allowance for losses when an account
becomes contractually delinquent and no cash payment has been received for six
months. 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 life of the asset.
Improvements are capitalized while repair and maintenance costs
6
<PAGE> 8
AIC CORPORATION (A JAPAN CORPORATION) AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
are charged to operations as incurred. Upon disposal of asset, the cost and
related accumulated depreciation are removed and the resulting gain or loss is
recognized.
Income Taxes
The Company's earnings are subject to Japanese tax. The provision for
income tax is computed on a separate return basis. The Company accounts for
income taxes in accordance with Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes." Deferred tax liabilities and assets are
determined based on the difference between the financial statement and tax bases
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 consolidated 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 effect on these
estimates.
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.
Foreign Currency Translation
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 translation adjustments are reflected in the accumulated translation
adjustment section of the Consolidated Balance Sheet.
NOTE 3 -- NET FINANCE RECEIVABLES
At December 31, 1995, net finance receivables consisted of the following
(in thousands):
<TABLE>
<S> <C>
Home equity lending.............................................. $1,011,829
Personal lending and retail sales finance........................ 1,113,958
----------
Net finance receivables.......................................... $2,125,787
==========
</TABLE>
The estimated maturities of net finance receivables at December 31, 1995
were as follows (in thousands):
<TABLE>
<CAPTION>
YEAR DUE
-----------------------------------------------------------------
<S> <C>
1996............................................................. $ 70,412
1997............................................................. 64,750
1998............................................................. 94,999
1999............................................................. 513,174
2000 and after................................................... 1,382,452
----------
$2,125,787
==========
</TABLE>
7
<PAGE> 9
AIC CORPORATION (A JAPAN CORPORATION) AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
It is the Company'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):
<TABLE>
<S> <C>
Balance at beginning of year...................................... $ 73,047
Provision for losses............................................ 65,180
Receivables charged off......................................... (37,885)
Recoveries on receivables charged off........................... 6,047
Foreign currency translation adjustment......................... (7,518)
--------
Balance at end of year............................................ $ 98,871
========
</TABLE>
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 the Company. These charges,
which represent expense reimbursements, were approximately $9,257,000 for the
year ended December 31, 1995.
The Company and Associates have an agreement under which Associates is
entitled to receive a royalty fee for the Company's use of the Associates
trademark. The fee, based on a percentage of finance receivables volume,
approximated $21,691,000 for the year ended December 31, 1995.
The Company and Associates have an agreement under which Associates is
entitled to receive a fee for comfort letters that Associates issues to the
Company's noteholders. The fee, based on a percentage of outstanding debt,
approximated $30,652,000 for the year ended December 31, 1995.
NOTE 6 -- EMPLOYEE BENEFITS
Defined Benefit Plan
The Company 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):
<TABLE>
<S> <C>
Service cost........................................................ $1,547
Interest cost....................................................... 377
Return on Plan assets............................................... (701)
Net amortization.................................................... (482)
------
Net periodic pension cost................................. $ 741
======
Assumed discount rate, beginning of year............................ 7.00%
======
</TABLE>
8
<PAGE> 10
AIC CORPORATION (A JAPAN CORPORATION) AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The funded status of the plan at December 31, 1995 is as follows:
<TABLE>
<S> <C>
Actuarial present value of benefit obligation:
Vested........................................................ $4,153,411
Nonvested..................................................... --
-----------
Accumulated benefit obligation.................................. 4,153,411
Effect of projected future salary increases..................... 1,492,757
-----------
Projected benefit obligation.................................... 5,646,168
Plan assets at fair market value................................ 8,056,484
-----------
Excess of plan assets over plan obligation...................... 2,410,316
Unamortized transition obligation and amendments................ --
Unamortized net gain............................................ (1,424,108)
-----------
Prepaid pension cost............................................ $ 986,208
===========
Assumed discount rate........................................... 7.00%
Projected compensation increases................................ 4.50%
Expected return................................................. 9.00%
</TABLE>
NOTE 7 -- LEASES
Leases are primarily short-term and generally provide for renewal options
not exceeding the original term. Future minimum rental commitments as of
December 31, 1995 for all non-cancelable leases (primarily office leases) were
as follows (in thousands):
<TABLE>
<CAPTION>
YEAR DUE
- --------
<S> <C> <C>
1996................................................................. $14,088
1997................................................................. 7,881
1998................................................................. 3,333
1999................................................................. 1,919
2000 and after....................................................... 6,204
-------
$33,425
=======
</TABLE>
Total rent expense for the year ended December 31, 1995 was $28,147,000.
NOTE 8 -- BANK CREDIT FACILITIES
At December 31, 1995, the Company had contractually committed lines of
credit at six banks aggregating $136.1 million. These lines of credit have
various maturities through February 28, 1996, none of which were utilized at
December 31, 1995. Bank lines may be withdrawn only under certain standard
conditions. The Company pays fees to maintain the availability of its bank
lines. Bank fees incurred during 1995 approximated $176,000, and are .01 of 1%
per annum of the amount of the facilities.
9
<PAGE> 11
AIC CORPORATION (A JAPAN CORPORATION) AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 9 -- INCOME TAXES
The following table sets forth the components of the provision for income
taxes and deferred income tax (benefit) for December 31, 1995 as indicated (in
thousands):
<TABLE>
<S> <C>
Current:.......................................................... --
Deferred:
Net operating loss utilized..................................... $157,109
Goodwill amortization........................................... (11,034)
Provision for losses on finance receivables and other........... (55,657)
--------
$ 90,418
========
</TABLE>
At December 31, 1995, the components of the company's net deferred tax
liability was as follows (in thousands):
<TABLE>
<S> <C>
Deferred tax assets:
Provision for losses on finance receivables and other.......... $ 126,032
Net operating loss carryforward................................ 2,612
---------
128,644
Deferred tax liabilities:
Unamortized tax deductible goodwill............................ (339,010)
Finance revenue and other...................................... (8,415)
---------
(347,425)
---------
Net deferred tax liability............................. $(218,781)
=========
</TABLE>
The Company's net operating loss carryforward expires in 1997.
Due to the Company's present and expected earning levels, no valuation
allowance related to the deferred tax asset has been recorded.
The effective tax rate differed from the Japan income tax rate as follows:
<TABLE>
<CAPTION>
% OF
PRETAX INCOME
YEAR ENDED
DECEMBER 31, 1995
-----------------
<S> <C>
Statutory tax rate........................................... 37.5%
Local tax rate (net of statutory effect)..................... 15.0
Other........................................................ 2.3
----
Effective tax rate................................. 54.8%
====
</TABLE>
NOTE 10 -- LONG-TERM DEBT
The following summarizes the Company's long-term debt at December 31, 1995
(in thousands):
<TABLE>
<CAPTION>
INTEREST RATE RANGE MATURITIES AMOUNT
------------------- ------------ ----------
<S> <C> <C> <C>
Unsecured notes 2.66% to 8.9% 1996 -- 2002 $1,682,933
</TABLE>
The weighted average interest rate for total long-term debt was 4.96% at
December 31, 1995. The loan agreements do not provide for restructure
commitments. As stated in Note 5, Associates issues comfort letters to the
noteholders.
10
<PAGE> 12
AIC CORPORATION (A JAPAN CORPORATION) AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A summary of long-term debt maturities during the next five years is as
follows:
<TABLE>
<CAPTION>
YEAR DUE
-----------------------------------------------------------------
<S> <C>
1996............................................................. $ 187,032
1997............................................................. 250,735
1998............................................................. 245,992
1999............................................................. 354,890
2000 and after................................................... 644,284
----------
$1,682,933
==========
</TABLE>
NOTE 11 -- FAIR VALUES OF FINANCIAL INSTRUMENTS
The estimated fair value of net finance receivables at December 31, 1995
was approximately $2.7 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 $1.8
billion. The fair value was estimated by discounting expected cash flows at
discount rates currently available to the Company for debt with similar terms
and remaining maturities.
The Company's outstanding debt, consisting of long-term debt, is covered by
comfort letters issued by Associates. The Company estimates the fair value of
the comfort letter fee to be in the range of 1% to 2% of the average outstanding
debt.
NOTE 12 -- FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
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.
ACS makes available credit lines to holders of their credit cards. The
unused portion of the available credit is revocable by ACS under specified
conditions. The unused portion of the available credit at December 31, 1995
approximated $36,681,000. The potential risk associated with, and the estimated
fair value of, the unused credit lines are not considered to be significant.
The Company 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 13 -- COMMITMENTS AND CONTINGENCIES
AIC Corporation and its subsidiary are defendants 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
consolidated financial position or operations of the Company.
NOTE 14 -- SUBSEQUENT EVENT
Management of Ford has indicated it may contribute the operations of the
Company to Associates First Capital Corporation, an indirect subsidiary of Ford
and an affiliate of the Company and Ensite. This transaction could take place
during the first half of 1996.
11
<PAGE> 1
ASSOCIATES FIRST CAPITAL CORPORATION
INDEX TO SUPPLEMENTAL COMBINED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Supplemental Combined Financial Statements
Report of Independent Accountants................................................... F-2
Supplemental Combined Statement of Earnings -- Years Ended December 31, 1995, 1994
and 1993......................................................................... F-3
Supplemental Combined Balance Sheet -- December 31, 1995 and 1994................... F-4
Supplemental Combined Statement of Changes in Stockholder's Equity -- Years Ended
December 31, 1995, 1994 and 1993................................................. F-5
Supplemental Combined Statement of Cash Flows -- Years Ended December 31, 1995, 1994
and 1993......................................................................... F-6
Notes to Supplemental Combined Financial Statements................................. F-7
</TABLE>
F-1
<PAGE> 2
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors
Associates First Capital Corporation
We have audited the supplemental combined statements of financial position
of Associates First Capital Corporation (an indirect subsidiary of Ford Motor
Company) and subsidiaries as of December 31, 1995 and 1994, and the related
supplemental combined statements of earnings, changes in stockholder's equity,
and cash flows for each of the years in the three-year period ended December 31,
1995. 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
The supplemental combined financial statements give retroactive effect to
the proposed contributions by Ford Motor Company of certain foreign subsidiaries
to Associates First Capital Corporation, to be accounted for as a pooling of
interests as described in NOTE 2 to the supplemental combined financial
statements. Generally accepted accounting principles proscribe giving effect to
a consummated business combination accounted for by the pooling of interests
method in financial statements that do not include the date of consummation.
These financial statements do not extend through the date of consummation;
however, they will become the historical consolidated financial statements of
Associates First Capital Corporation and subsidiaries after financial statements
covering the date of consummation of the business combination are issued.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the supplemental combined financial position of
Associates First Capital Corporation and subsidiaries at December 31, 1995 and
1994, and the supplemental combined results of their operations and their cash
flows for each of the years in the three-year period ended December 31, 1995, in
conformity with generally accepted accounting principles applicable after
financial statements are issued for a period which includes the date of
consummation of the proposed business combination.
COOPERS & LYBRAND L.L.P.
Dallas, Texas
January 26, 1996, except for Note 18,
as to which the date is February 8, 1996
F-2
<PAGE> 3
ASSOCIATES FIRST CAPITAL CORPORATION
SUPPLEMENTAL COMBINED STATEMENT OF EARNINGS
(IN MILLIONS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
REVENUE
Finance charges......................................... $5,560.8 $4,445.2 $3,709.7
Insurance premiums...................................... 370.6 329.0 270.9
Investment and other income............................. 175.8 151.6 134.2
-------- -------- --------
6,107.2 4,925.8 4,114.8
EXPENSES
Interest expense........................................ 2,177.9 1,657.3 1,421.7
Operating expenses...................................... 1,754.7 1,456.1 1,216.8
Provision for losses on finance receivables -- NOTE 4... 834.0 647.1 536.1
Insurance benefits paid or provided..................... 142.5 147.9 118.9
-------- -------- --------
4,909.1 3,908.4 3,293.5
-------- -------- --------
EARNINGS BEFORE PROVISION FOR INCOME TAXES................ 1,198.1 1,017.4 821.3
PROVISION FOR INCOME TAXES -- NOTE 8...................... 475.0 414.1 327.3
-------- -------- --------
NET EARNINGS.............................................. $ 723.1 $ 603.3 $ 494.0
======== ======== ========
NET EARNINGS PER SHARE*................................... $ $ $
======== ======== ========
</TABLE>
- ---------------
* Based on an assumed million shares outstanding and in whole dollars.
See notes to supplemental combined financial statements.
F-3
<PAGE> 4
ASSOCIATES FIRST CAPITAL CORPORATION
SUPPLEMENTAL COMBINED BALANCE SHEET
(IN MILLIONS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31
-----------------------
1995 1994
--------- ---------
<S> <C> <C>
CASH AND CASH EQUIVALENTS........................................... $ 532.2 $ 606.0
INVESTMENTS IN DEBT AND EQUITY SECURITIES -- NOTE 16................ 881.1 605.1
FINANCE RECEIVABLES, net of unearned finance income -- NOTE 3
Consumer Finance.................................................. 27,575.3 23,627.8
Commercial Finance................................................ 12,127.2 10,057.9
--------- ---------
Total net finance receivables.................................. 39,702.5 33,685.7
ALLOWANCE FOR LOSSES ON FINANCE RECEIVABLES -- NOTE 4............... (1,268.6) (1,061.6)
INSURANCE POLICY AND CLAIMS RESERVES................................ (625.4) (565.7)
OTHER ASSETS -- NOTE 13............................................. 2,082.1 2,014.0
--------- ---------
Total assets.............................................. $41,303.9 $35,283.5
========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY
NOTES PAYABLE -- NOTE 6
Commercial Paper.................................................. $12,902.9 $11,807.4
Bank Loans........................................................ 844.4 624.5
ACCOUNTS PAYABLE AND ACCRUALS....................................... 1,382.9 1,108.6
LONG-TERM DEBT -- NOTES 7 and 9..................................... 21,372.6 17,306.2
STOCKHOLDER'S EQUITY
Common Stock, no par value, 250 shares authorized, issued and
outstanding, at stated value................................... 47.0 47.0
Paid-in Capital................................................... 2,124.3 2,153.2
Retained Earnings................................................. 2,287.0 1,881.9
Foreign Currency Translation Adjustments -- NOTE 2................ 330.6 372.3
Unrealized Gain (Loss) on Available-for-Sale Securities -- NOTES 2
and 16......................................................... 12.2 (17.6)
--------- ---------
Total stockholder's equity................................ 4,801.1 4,436.8
--------- ---------
Total liabilities and stockholder's equity................ $41,303.9 $35,283.5
========= =========
</TABLE>
See notes to supplemental combined financial statements.
F-4
<PAGE> 5
ASSOCIATES FIRST CAPITAL CORPORATION
SUPPLEMENTAL COMBINED STATEMENT OF
CHANGES IN STOCKHOLDER'S EQUITY
(IN MILLIONS)
<TABLE>
<CAPTION>
UNREALIZED
GAIN
FOREIGN (LOSS) ON TOTAL
CURRENCY AVAILABLE- STOCK-
COMMON PAID-IN RETAINED TRANSLATION FOR-SALE HOLDER'S
STOCK CAPITAL EARNINGS ADJUSTMENTS SECURITIES EQUITY
------ -------- -------- ----------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
DECEMBER 31, 1992.................. $47.0 $1,738.1 $1,298.7 $ 143.6 $ 3.7 $3,231.1
Net Earnings..................... 494.0 494.0
Contributions from Parent........ 200.0 200.0
Cash Dividends................... (226.0) (226.0)
Current Period Adjustment........ 74.9 0.3 75.2
----- -------- -------- ------- ------ --------
DECEMBER 31, 1993.................. 47.0 1,938.1 1,566.7 218.5 4.0 3,774.3
Net Earnings..................... 603.3 603.3
Contributions from Parent........ 215.1 215.1
Cash Dividends................... (288.1) (288.1)
Current Period Adjustment........ 153.8 (21.6) 132.2
----- -------- -------- ------- ------ --------
DECEMBER 31, 1994.................. 47.0 2,153.2 1,881.9 372.3 (17.6) 4,436.8
Net Earnings..................... 723.1 723.1
Contributions from Parent........ 200.0 200.0
Capital distribution to Ford..... (228.9) (228.9)
Cash Dividends................... (318.0) (318.0)
Current Period Adjustment........ (41.7) 29.8 (11.9)
----- -------- -------- ------- ------ --------
DECEMBER 31, 1995.................. $47.0 $2,124.3 $2,287.0 $ 330.6 $ 12.2 $4,801.1
===== ======== ======== ======= ====== ========
</TABLE>
See notes to supplemental combined financial statements.
F-5
<PAGE> 6
ASSOCIATES FIRST CAPITAL CORPORATION
SUPPLEMENTAL COMBINED STATEMENT OF CASH FLOWS
(IN MILLIONS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
---------------------------------
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net earnings....................................................... $ 723.1 $ 603.3 $ 494.0
Adjustments to net earnings for noncash items:
Provision for losses on finance receivables..................... 834.0 647.1 536.1
Depreciation and amortization................................... 193.8 187.4 264.8
Increase in accounts payable and accruals....................... 166.5 91.1 172.5
Deferred income taxes........................................... 101.1 (18.8) 33.6
Increase in insurance policy and claims reserves................ 59.7 118.9 67.6
Unrealized gain on trading securities........................... (3.6) (1.6)
Purchases of trading securities.................................... (5.8) (23.8)
Sales and maturities of trading securities......................... 38.7 17.4
Other.............................................................. (6.8) (5.0)
--------- --------- ---------
Net cash provided from operating activities................ 2,107.5 1,614.2 1,563.6
--------- --------- ---------
Cash Flows from Investing Activities
Finance receivables originated or purchased........................ (37,051.1) (30,431.1) (22,868.8)
Finance receivables liquidated..................................... 30,689.1 24,942.8 19,217.5
Acquisitions of other finance businesses, net...................... (143.9) (484.9) (329.1)
Proceeds from sale of investment in mortgage servicing rights...... 97.1
(Increase) decrease in real estate loans held for sale............. (3.7) 51.9 0.8
Increase in other assets........................................... (176.5) (200.3) (208.3)
Purchases of available-for-sale securities......................... (893.9) (306.0)
Sales and maturities of available-for-sale securities.............. 635.9 318.1
Purchases of marketable securities................................. (639.6)
Sales and maturities of marketable securities...................... 519.0
--------- --------- ---------
Net cash used for investing activities..................... (6,944.1) (6,012.4) (4,308.5)
--------- --------- ---------
Cash Flows from Financing Activities
Issuance of long-term debt......................................... 6,327.8 4,837.2 4,073.1
Retirement of long-term debt....................................... (2,491.8) (2,357.7) (2,092.9)
Increase in notes payable.......................................... 1,315.4 2,046.0 797.4
Capital contributions.............................................. 200.0 215.1 200.0
Capital distribution............................................... (228.9)
Cash dividends..................................................... (318.0) (288.1) (226.0)
Other.............................................................. (20.7) (0.4)
--------- --------- ---------
Net cash provided from financing activities................ 4,804.5 4,431.8 2,751.2
--------- --------- ---------
Effect of foreign currency translation adjustments on cash........... (41.7) 153.8 74.9
--------- --------- ---------
(Decrease)increase in cash and cash equivalents...................... (73.8) 187.4 81.2
Cash and cash equivalents at beginning of period..................... 606.0 418.6 337.4
--------- --------- ---------
Cash and cash equivalents at end of period........................... $ 532.2 $ 606.0 $ 418.6
========= ========= =========
Cash paid for:
Interest........................................................... $ 2,175.8 $ 1,693.6 $ 1,448.1
========= ========= =========
Income taxes....................................................... $ 399.7 $ 465.3 $ 375.3
========= ========= =========
</TABLE>
See notes to supplemental combined financial statements.
F-6
<PAGE> 7
ASSOCIATES FIRST CAPITAL CORPORATION
NOTES TO SUPPLEMENTAL COMBINED FINANCIAL STATEMENTS
NOTE 1 -- THE COMPANY
Associates First Capital Corporation ("First Capital" or the "Company"), a
Delaware corporation, is a subsidiary of Ford FSG, Inc. and an indirect
subsidiary of Ford Motor Company ("Ford"). Associates Corporation of North
America ("Associates") is the principal U.S.-based operating subsidiary of First
Capital. AIC Corporation is the principal foreign-based operating subsidiary of
First Capital.
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies:
Basis of Presentation
The supplemental combined financial statements of First Capital and
subsidiaries have been prepared to give retroactive effect to the contribution
by Ford of certain foreign operations to First Capital. First Capital was
acquired by Ford in 1989. At that time, First Capital transferred its finance
operations in Japan, the United Kingdom, Canada and Puerto Rico to other foreign
subsidiaries of Ford but maintained management supervision over such operations.
In 1995, First Capital also commenced management supervision of operations in
Mexico. As part of an organizational restructuring of Ford's financial services
companies expected to be completed prior to completion of the Company's public
offering, Ford expects to recontribute the previously owned foreign operations,
and Mexico, collectively referred to hereafter as the "Foreign Operations", back
to First Capital. The results of these operations have been retroactively
included in First Capital's results contained herein. Generally accepted
accounting principles proscribe giving effect to a consummated business
combination accounted for by the pooling-of-interests method in financial
statements that do not include the date of consummation. These financial
statements do not extend through the date of consummation; however, they will
become the historical consolidated financial statements of First Capital after
financial statements covering the date of consummation of the business
combination are issued.
Amounts of goodwill relating to acquisitions are being amortized by the
straight-line method over periods not exceeding forty years. The carrying value
of goodwill is reviewed if the facts and circumstances suggest that it may be
impaired. If the review indicates that goodwill will not be recoverable, as
determined based on undiscounted cash flows, the carrying value of the goodwill
is reduced by the estimated short-fall of discounted cash flows.
All significant intercompany balances and transactions have been eliminated
in consolidation.
The preparation of these supplemental combined financial statements in
conformity with generally accepted accounting principles requires the use of
management's 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 suspended on accounts when they become 60
days contractually delinquent. The accrual is resumed when the loan becomes
contractually current. At December 31, 1995 and 1994, net finance receivables on
which revenue was not accrued approximated $678.9 million and $454.8 million,
respectively.
F-7
<PAGE> 8
ASSOCIATES FIRST CAPITAL CORPORATION
NOTES TO SUPPLEMENTAL COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
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 debt securities are included in revenue when
realized. Unrealized gains or losses on debt securities are reported as a
component of stockholder's equity, net of tax. Realized and unrealized gains or
losses on equity securities are included in revenue as incurred. The cost of
debt and equity securities sold is determined by the specific identification
method.
Allowance for Losses on Finance Receivables
The Company 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.
Insurance Reserves
The reserves for future benefits and refunds upon cancellation of credit
life and health insurance and property and casualty insurance are provided for
in the unearned premium reserve 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
force, are provided for each class of insurance for claims which have been
incurred but not reported as of the balance sheet date.
Foreign Currency Translation
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 translation adjustments are reflected in the stockholder's equity
section of the supplemental combined balance sheet. Foreign currency gains and
losses resulting from transactions are included in earnings. Such foreign
currency losses approximated
F-8
<PAGE> 9
ASSOCIATES FIRST CAPITAL CORPORATION
NOTES TO SUPPLEMENTAL COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
$0.6 million, $0.5 million and $0.3 million during the years ended December 31,
1995, 1994 and 1993, respectively.
Income Taxes
First Capital and its subsidiaries are included in the consolidated Federal
income tax return of Ford. The provision for income taxes is computed on a
separate-return basis. 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.
In 1993, the Company entered into a tax-sharing agreement with Ford whereby
state income taxes are provided on a separate-return basis.
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 supplemental combined balance sheet approximate fair value.
Disclosures About Fair Value of Financial Instruments
The supplemental combined financial statements present the information
required by Statement of Financial Accounting Standards ("SFAS") 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.
Derivative Financial Instruments
The Company does not hold or issue derivative financial instruments for
trading purposes. The Company's derivative activity is limited to currency swap
transactions designed to hedge its currency risk on specific foreign
currency-denominated assets denominated in British Sterling. Gains and losses on
qualifying hedges are deferred and are recognized in income or as adjustments of
carrying amounts when the hedged transaction occurs. See NOTE 15 to the
supplemental combined financial statements for additional information related to
currency swap transactions.
Earnings Per Share
Net earnings per share are determined by dividing net earnings during each
year by an assumed million shares outstanding after completion of the
Company's initial public offering.
F-9
<PAGE> 10
ASSOCIATES FIRST CAPITAL CORPORATION
NOTES TO SUPPLEMENTAL COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 3 -- NET FINANCE RECEIVABLES
Composition of Net Finance Receivables
At December 31, 1995 and 1994, net finance receivables consisted of the
following (in millions):
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Consumer Finance
Home equity lending....................................... $ 14,316.3 $ 12,449.9
Personal lending and retail sales finance................. 6,225.1 5,420.3
Credit card............................................... 4,984.6 4,076.5
Manufactured housing...................................... 2,049.3 1,681.1
---------- ----------
27,575.3 23,627.8
---------- ----------
Commercial Finance
Truck and truck trailer................................... 7,578.9 6,653.4
Equipment................................................. 4,201.9 3,133.4
Other..................................................... 346.4 271.1
---------- ----------
12,127.2 10,057.9
---------- ----------
Net finance receivables........................... $ 39,702.5 $ 33,685.7
========== ==========
</TABLE>
At December 31, 1995, contractual maturities of net finance receivables
were as follows (in millions):
<TABLE>
<CAPTION>
CONSUMER COMMERCIAL
YEAR DUE FINANCE FINANCE TOTAL
------------------------------------------------- --------- ---------- ----------
<S> <C> <C> <C>
1996............................................ $ 3,899.7 $ 5,461.9 $ 9,361.6
1997............................................ 3,230.7 3,013.2 6,243.9
1998............................................ 2,849.7 2,032.0 4,881.7
1999............................................ 2,576.4 1,092.0 3,668.4
2000 and thereafter............................. 15,018.8 528.1 15,546.9
--------- --------- ----------
$27,575.3 $12,127.2 $ 39,702.5
========= ========= ==========
</TABLE>
It is the Company'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.
Included in commercial finance receivables are direct financing leases as
follows (in millions):
<TABLE>
<CAPTION>
DECEMBER 31
---------------------
1995 1994
-------- --------
<S> <C> <C>
Minimum lease rentals......................................... $3,147.1 $2,315.5
Unguaranteed residual values.................................. 77.1 52.4
-------- --------
Future minimum lease rentals................................ 3,224.2 2,367.9
Unearned finance income....................................... (448.6) (332.7)
-------- --------
Net investment in direct financing leases........... $2,775.6 $2,035.2
======== ========
</TABLE>
Future net minimum lease rentals on direct financing leases for each of the
years succeeding December 31, 1995 are as follows (in millions): 1996 -- $856.2;
1997 -- $727.6; 1998 -- $578.5; 1999 -- $383.8; 2000 -- $160.9 and 2001 and
thereafter -- $68.6.
F-10
<PAGE> 11
ASSOCIATES FIRST CAPITAL CORPORATION
NOTES TO SUPPLEMENTAL COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Estimated Fair Value of Net Finance Receivables
The estimated fair value of net finance receivables at December 31, 1995
and 1994 was $43.4 billion and $36.4 billion, respectively. 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.
Dispersion of Finance Receivables
The Company has geographically dispersed finance receivables. At December
31, 1995, approximately 93% of the Company's total receivables were dispersed
across the United States, 5% were in Japan and the remaining 2% were in other
foreign countries. Of the total receivables dispersed across the United States
or foreign jurisdictions, 11% were in California, 6% in Florida, 6% in Texas, 4%
in Georgia, 4% in Pennsylvania, 4% in North Carolina, 4% in New York, 4% in
Illinois, and 4% in Ohio; no other individual state had more than 4%.
Acquisitions of Finance Businesses
During the years ended December 31, 1995, 1994 and 1993, the Company made
acquisitions of finance businesses accounted for as purchases, the most
significant of which were as follows:
On January 1, 1995, Associates acquired $116 million of net home
equity receivables and certain other assets from Ford Motor Credit Company,
an affiliate. The transaction was recorded at historical cost, which
approximated market.
In October 1995, Associates acquired the stock of LCA Corporation,
principally consisting of leasing receivables. The fair market value of
total assets acquired and liabilities assumed was $253 million and $225
million, respectively.
In September 1994, Associates acquired the credit card portfolio and
certain other assets of Amoco Oil Company. The fair market value of assets
acquired totaled $426 million.
In December 1994, Associates acquired the assets of First Collateral
Services, Inc., principally consisting of warehouse loan facilities
extended to mortgage brokers secured by mortgage contracts. The fair market
value of total assets acquired and liabilities assumed was $62 million and
$3 million, respectively.
In April 1993, Associates purchased the stock of Allied Finance
Company, with assets primarily consisting of $146 million of net consumer
finance receivables, principally comprised of home equity and personal
lending and sales finance receivables. The fair market value of total
assets acquired and liabilities assumed was $197 million and $112 million,
respectively.
In September 1993, Associates purchased the assets of Mack Financial
Corporation, the financing division of Mack Trucks, Inc., consisting of
$626 million of net commercial finance receivables, principally secured by
heavy-duty trucks and truck trailers. The fair market value of total assets
acquired and liabilities assumed was $663 million and $419 million,
respectively.
The pro forma effect of the above acquisitions was not significant to
current or prior periods.
F-11
<PAGE> 12
ASSOCIATES FIRST CAPITAL CORPORATION
NOTES TO SUPPLEMENTAL COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4 -- ALLOWANCE FOR LOSSES ON FINANCE RECEIVABLES
Changes in the allowance for losses on finance receivables during the
periods indicated were as follows (in millions):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------
1995 1994 1993
-------- -------- -------
<S> <C> <C> <C>
Balance at beginning of period....................... $1,061.6 $ 892.3 $ 764.7
Provision for losses............................... 834.0 647.1 536.1
Recoveries on receivables charged off.............. 132.9 118.2 101.3
Losses sustained................................... (757.1) (626.8) (542.5)
Reserves of acquired businesses and other.......... (2.8) 30.8 32.7
-------- -------- -------
Balance at end of period............................. $1,268.6 $1,061.6 $ 892.3
======== ======== =======
</TABLE>
NOTE 5 -- CREDIT FACILITIES
At December 31, 1995, available credit facilities were as follows (in
millions):
<TABLE>
<CAPTION>
FACILITY
ENTITY CREDIT FACILITY DESCRIPTION AMOUNT
- --------------------- ------------------------------- ---------
<S> <C> <C>
Associates Lines of Credit $ 3,959.7*
Revolving Lines 5,105.0*
Receivables Purchase Facilities 1,275.0
---------
$10,339.7
=========
Foreign Operations:
Japan Lines of Credit $ 136.1
United Kingdom Lines of Credit 51.5
Canada Lines of Credit 33.1
---------
$ 220.7
=========
</TABLE>
- ---------------
* Included in the Associates Lines of Credit and Revolving Lines are $90.0
million and $1,080.0 million of Lines of Credit and Revolving Lines,
respectively, that are available to First Capital.
Lines of Credit, Revolving Lines and Receivables Purchase Facilities may be
withdrawn only under certain standard conditions. Associates principally pays
fees for the availability of its credit facilities. Bank fees incurred during
1995, 1994 and 1993 were $11.8 million, $11.4 million and $9.8 million,
respectively, and are .07 to .25 of 1% per annum of the amount of the
facilities.
F-12
<PAGE> 13
ASSOCIATES FIRST CAPITAL CORPORATION
NOTES TO SUPPLEMENTAL COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6 -- NOTES PAYABLE
Commercial paper notes are issued by Associates 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 the Company's commercial paper notes and bank loans is
set forth below for the periods indicated (dollar amounts in millions):
<TABLE>
<CAPTION>
COMMERCIAL BANK
PAPER NOTES LOANS
----------- ------
<S> <C> <C>
Ending balance at December 31, 1995......................... $12,902.9 $844.4
Weighted average interest rate at December 31, 1995......... 5.73% 6.48%
Ending balance at December 31, 1994......................... $11,807.4 $624.5
Weighted average interest rate at December 31, 1994......... 5.89% 6.82%
</TABLE>
The amounts reported in the supplemental combined balance sheet approximate
fair value.
NOTE 7 -- LONG-TERM DEBT
Outstanding balances of long-term debt at December 31 were as follows (in
millions):
<TABLE>
<CAPTION>
INTEREST
RATE
RANGE MATURITIES 1995 1994
---------- ---------- --------- ---------
<S> <C> <C> <C> <C>
Senior:
Notes........................... 2.66-13.75% 1996-2010 $20,801.7 $16,809.8
Investment notes................ 4.90- 9.50 1996-2000 429.1 354.6
--------- ---------
21,230.8 17,164.4
--------- ---------
Subordinated and Capital:
Subordinated.................... 7.63- 8.15 1998-2009 141.2 141.2
Capital......................... 4.68- 9.00 1996-2002 0.6 0.6
--------- ---------
141.8 141.8
--------- ---------
Total long-term debt.... $21,372.6 $17,306.2
========= =========
</TABLE>
The weighted average interest rate for total long-term debt was 6.92% at
December 31, 1995 and 7.15% at December 31, 1994.
The estimated fair value of long-term debt at December 31, 1995 and 1994
was $22.5 billion and $16.8 billion, respectively. The fair value was determined
by discounting expected cash flows at discount rates currently available to the
Company for debt with similar terms and remaining maturities.
Long-term borrowing maturities during the next five years, including the
current portion of notes payable after one year, are: 1996, $3,166.7 million;
1997, $3,676.8 million; 1998, $3,790.0 million; 1999, $2,674.0 million; 2000,
$2,981.0 million and 2001 and thereafter, $5,084.1 million.
Certain debt issues contain call provisions or may be subject to repayment
provisions at the option of the holder on specified dates prior to the maturity
date. At December 31, 1995, 3,509 warrants were outstanding to purchase $154.8
million aggregate principal amount of senior notes at par with interest rates
ranging from 7.00% to 10.50%. The warrants are exercisable at various dates
through October 1, 1999 at prices ranging from $1,000 to $25,000,000 per
warrant. All of the above issues are unsecured, except for a $50 million, 8.25%
Senior Note due August 15, 2001, which is collateralized by First Capital's
corporate offices.
F-13
<PAGE> 14
ASSOCIATES FIRST CAPITAL CORPORATION
NOTES TO SUPPLEMENTAL COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 8 -- INCOME TAXES
The following table sets forth the components of the provision for income
taxes and deferred income tax (benefit) for the periods indicated (in millions):
<TABLE>
<CAPTION>
UNITED STATES
----------------
FEDERAL STATE FOREIGN TOTAL
------- ----- ------- -------
<S> <C> <C> <C> <C>
Year Ended December 31, 1995
Current............................................ $ 342.0 $21.5 $ 10.4 $ 373.9
------- ----- ------- -------
Deferred:
Leasing transactions............................ 66.7 66.7
Finance revenue................................. 14.0 14.0
Net operating loss utilized..................... 167.4 167.4
Goodwill amortization........................... (11.0) (11.0)
Provision for losses on finance receivables and
other......................................... (71.8) (64.2) (136.0)
------- ----- ------- -------
Total deferred............................. 8.9 92.2 101.1
------- ----- ------- -------
$ 350.9 $21.5 $ 102.6 $ 475.0
======= ===== ======= =======
Year Ended December 31, 1994
Current............................................ $ 400.1 $31.5 $ 1.3 $ 432.9
------- ----- ------- -------
Deferred:
Leasing transactions............................ 29.2 29.2
Finance revenue................................. (5.7) (5.7)
Net operating loss utilized..................... 187.3 187.3
Goodwill amortization........................... (119.4) (119.4)
Provision for losses on finance receivables and
other......................................... (115.2) 5.0 (110.2)
------- ----- ------- -------
Total deferred............................. (91.7) 72.9 (18.8)
------- ----- ------- -------
$ 308.4 $31.5 $ 74.2 $ 414.1
======= ===== ======= =======
Year Ended December 31, 1993
Current............................................ $ 337.1 $20.5 $ (63.9) $ 293.7
------- ----- ------- -------
Deferred:
Leasing transactions............................ 3.6 3.6
Finance revenue................................. 3.9 3.9
Net operating loss utilized..................... (342.6) (342.6)
Goodwill amortization........................... 450.3 450.3
Provision for losses on finance receivables and
other......................................... (83.4) 1.8 (81.6)
------- ----- ------- -------
Total deferred............................. (75.9) 109.5 33.6
------- ----- ------- -------
$ 261.2 $20.5 $ 45.6 $ 327.3
======= ===== ======= =======
</TABLE>
F-14
<PAGE> 15
ASSOCIATES FIRST CAPITAL CORPORATION
NOTES TO SUPPLEMENTAL COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 1995 and 1994, the components of the Company's net deferred
tax asset and liability were as follows (in millions):
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Deferred tax assets:
Provision for losses on finance receivables and other....... $ 744.0 $ 593.7
Net operating loss.......................................... 2.6 160.1
Postretirement and other employee benefits.................. 56.0 74.0
------- -------
802.6 827.8
Deferred tax liabilities:
Leasing transactions........................................ (241.8) (175.1)
Unamortized tax deductible goodwill......................... (339.0) (361.5)
Finance revenue and other................................... (261.7) (237.0)
------- -------
(842.5) (773.6)
------- -------
Net deferred tax (liability)/asset.................. $ (39.9) $ 54.2
======= =======
</TABLE>
Deferred income taxes have not been provided on approximately $48.3 million
of undistributed earnings related to foreign subsidiaries as the earnings are
considered to be permanently reinvested. If these amounts were not considered
permanently reinvested, additional deferred taxes of $16.9 million would have
been provided.
Due to the Company's earnings level, no valuation allowance related to the
deferred tax asset has been recorded.
The effective tax rate differed from the statutory U.S. Federal income tax
rate as follows:
<TABLE>
<CAPTION>
% OF PRETAX INCOME
YEAR ENDED DECEMBER 31
----------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Statutory tax rate............................................ 35.0% 35.0% 35.0%
State tax rate................................................ 1.2 2.0 1.6
Non-deductible goodwill....................................... 0.9 1.2 1.6
Foreign rates in excess of U.S. rates and other............... 2.5 2.5 1.7
---- ---- ----
Effective tax rate.......................................... 39.6% 40.7% 39.9%
==== ==== ====
</TABLE>
NOTE 9 -- DEBT RESTRICTIONS
Associates, First Capital's principal operating subsidiary, is subject to
various limitations under the provisions of its outstanding debt and credit
facilities. The most significant of these limitations are summarized as follows:
Limitation on Payment of Dividends
A restriction contained in one series of Associates debt securities
maturing August 1, 1996, generally limits payments of 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. In accordance with this provision,
at December 31, 1995, $727.6 million was available for dividends.
F-15
<PAGE> 16
ASSOCIATES FIRST CAPITAL CORPORATION
NOTES TO SUPPLEMENTAL COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
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 December 31, 1995, Associates tangible net worth was $4.1 billion.
NOTE 10 -- LEASE COMMITMENTS
Leases are primarily short-term and generally provide for renewal options
not exceeding the initial term. Total rent expense for the years ended December
31, 1995, 1994 and 1993 was $92.6 million, $75.4 million, and $63.7 million,
respectively. Minimum rental commitments as of December 31, 1995 for all
noncancelable leases (primarily office leases) for the years ending December 31,
1996, 1997, 1998, 1999 and 2000 are $71.4 million, $52.3 million, $35.0 million,
$20.3 million and $7.5 million, respectively, and $21.5 million thereafter.
NOTE 11 -- EMPLOYEE BENEFITS
Defined Benefit Plans
The Company sponsors various qualified and nonqualified pension plans (the
"Plan" or "Plans"), which together cover substantially all permanent employees,
other than those of the foreign operations, who meet certain eligibility
requirements.
Net periodic pension cost for the years indicated includes the following
components (in millions):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Service cost........................................... $ 13.1 $ 13.7 $ 10.0
Interest cost.......................................... 23.1 21.3 18.1
Actual return on Plan assets........................... (51.1) (0.4) (21.6)
Net amortization....................................... 33.9 (10.9) 7.4
------- ------- -------
Net periodic pension cost.................... $ 19.0 $ 23.7 $ 13.9
======= ======= =======
Assumed discount rate, beginning of year............... 8.25% 7.00% 8.00%
==== ==== ====
</TABLE>
F-16
<PAGE> 17
ASSOCIATES FIRST CAPITAL CORPORATION
NOTES TO SUPPLEMENTAL COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The funded status of the Plan is as follows (in millions):
<TABLE>
<CAPTION>
DECEMBER 31
---------------------------------------------------------
1995 1994
-------------------------- --------------------------
QUALIFIED NONQUALIFIED QUALIFIED NONQUALIFIED
PLAN PLANS PLAN PLANS
--------- ------------ --------- ------------
<S> <C> <C> <C> <C>
Actuarial present value of benefit
obligation:
Vested................................ $ 255.9 $ 23.7 $ 187.6 $ 16.8
Nonvested............................. 11.5 0.3 9.0 0.8
------- ------ ------- ------
Accumulated benefit obligation.......... 267.4 24.0 196.6 17.6
Effect of projected future salary
increases............................. 76.1 9.3 50.4 6.2
------- ------ ------- ------
Projected benefit obligation............ 343.5 33.3 247.0 23.8
Plan assets at fair market value........ 322.0 204.7
------- ------ ------- ------
Excess of plan obligation over plan
assets................................ 21.5 33.3 42.3 23.8
Unamortized transition obligation and
amendments............................ (5.1) (3.8) (6.5) (4.3)
Unamortized net loss.................... (53.0) (8.8) (13.3) (1.5)
Adjustment required to recognize minimum
liability............................. 3.3
------- ------ ------- ------
(Prepaid)/accrued pension liability... $ (36.6) $ 24.0 $ 22.5 $ 18.0
======= ====== ======= ======
Assumed discount rate................... 7.00% 7.00% 8.25% 8.25%
==== ==== ==== ====
Projected compensation increases........ 6.00% 6.00% 6.00% 6.00%
==== ==== ==== ====
Expected return......................... 9.00% 9.00% 9.00% 9.00%
==== ==== ==== ====
</TABLE>
A determination of the Federal income tax status related to the qualified
Pension Plan has not been received. An application was filed with the Internal
Revenue Service in March 1995. If a favorable determination letter is not
received, First Capital has agreed to make any changes required to receive a
favorable determination letter.
Retirement Savings and Profit Sharing Plan
The Company sponsors a defined contribution plan which covers substantially
all employees, other than those of the foreign operations, intended to provide
assistance in accumulating personal savings for retirement and is designed to
qualify under Sections 401(a) and 401(k) of the Internal Revenue Code. An
application for determination was filed with the Internal Revenue Service in
March 1995. If a favorable determination letter is not received, First Capital
has agreed to make any changes required to receive a favorable determination
letter. For the years ended December 31, 1995, 1994 and 1993, the Company's
pretax contributions to the plan were $18.2 million, $16.1 million and $14.1
million, respectively.
Employers' Accounting for Postretirement Benefits Other than Pensions
The Company provides certain postretirement benefits through unfunded plans
sponsored by First Capital. These benefits are currently provided to
substantially all permanent employees, other than those of the foreign
operations, who meet certain eligibility requirements. The benefits of the plan
can be modified or terminated at the discretion of the Company. The amount paid
for postretirement benefits for the years ended December 31, 1995, 1994 and 1993
was $2.0 million, $1.8 million and $1.5 million, respectively.
F-17
<PAGE> 18
ASSOCIATES FIRST CAPITAL CORPORATION
NOTES TO SUPPLEMENTAL COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Net periodic postretirement benefit cost for 1995, 1994 and 1993 includes
the following components (in millions):
<TABLE>
<CAPTION>
DECEMBER 31
--------------------------
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Service cost................................................. $ 5.5 $ 5.5 $ 4.2
Interest cost................................................ 7.7 6.3 6.3
Net amortization............................................. (1.3) (1.0) (0.7)
------ ------ ------
Net periodic postretirement benefit cost........... $ 11.9 $ 10.8 $ 9.8
====== ====== ======
Assumed discount rate, beginning of year..................... 8.75% 7.50% 8.50%
====== ====== ======
</TABLE>
Accrued postretirement benefit cost at December 31, 1995 and 1994 is
composed of the following (in millions):
<TABLE>
<CAPTION>
DECEMBER 31
------------------
1995 1994
------- ------
<S> <C> <C>
Accumulated postretirement benefit obligation ("APBO"):
Retired participants............................................ $ 45.2 $ 33.9
Fully eligible participants..................................... 26.9 18.6
Other active participants....................................... 45.7 29.5
------- ------
Total APBO.............................................. 117.8 82.0
Unamortized amendments............................................ 5.4 9.8
Unrecognized actuarial loss....................................... (24.2) (2.7)
------- ------
Accrued postretirement benefit cost............................. $ 99.0 $ 89.1
======= ======
Assumed discount rate............................................. 7.25% 8.75%
======= ======
</TABLE>
For measurement purposes, a 13.00% and 12.10% weighted average annual rate
of increase in per capita cost of covered health care benefits was assumed for
1995 and 1994, respectively, decreasing gradually to 5.50% by the year 2010.
Increasing the assumed health care cost trend rate by one percentage point each
year would increase the APBO as of December 31, 1995 and 1994 by $8.6 million
and $6.0 million, respectively, and the aggregate of the service and interest
cost components of the net periodic postretirement benefit cost by $1.0 million
and $0.9 million, respectively.
Incentive Compensation Programs
The Company sponsors compensation plans covering certain officers and
employees.
Corporate Annual Performance Plan and Long-Term Performance Plan
The Corporate Annual Performance Plan ("CAPP") is an annual bonus plan.
CAPP bonuses are determined based on the performance of the Company, the
business unit in which a participant is employed, and the participant,
personally. The Long-Term Performance Plan ("LTPP") is a long-term cash
incentive plan. LTPP awards are determined for a performance period based 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. Amounts charged to expense under CAPP and LTPP
amounted to $16.1 million, $16.2 million and $14.8 million during the years
ended December 31, 1995, 1994 and 1993, respectively.
F-18
<PAGE> 19
ASSOCIATES FIRST CAPITAL CORPORATION
NOTES TO SUPPLEMENTAL COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Phantom Stock Appreciation Right Plan
The Company sponsored a long-term cash plan, the Phantom Stock Appreciation
Right Plan (the "PSAR Plan"). The Company terminated the PSAR Plan as of
December 1995 and intends to cash out all outstanding phantom stock appreciation
rights ("PSARs") prior to completion of the Company's public offering. A PSAR
granted under the PSAR Plan entitled the holder thereof to receive from the
Company, upon exercise of such PSAR, a specified amount of cash. A PSAR had a
term of five years and vested 100% on the first anniversary of the date of
grant. Amounts charged to expense under the PSAR Plan amounted to $30.1 million,
$4.1 million and $36.1 million during the years ended December 31, 1995, 1994
and 1993, respectively. The company also amended the PSAR Plan to provide that
certain officers of the Company (all of whom were granted PSARs in 1995) are
required to defer one-half of the amount payable in satisfaction of their
respective PSARs granted in 1995. The amounts so deferred will be administered
by the Company in accordance with the terms of the Associates First Capital
Corporation Equity Deferral Plan.
Long-Term Equity Compensation Plan
The Long-Term Equity Compensation Plan ("ECP") is a stock-based incentive
plan that will be adopted in 1996 prior to the Company's public offering. The
ECP provides for the grant of incentive and nonqualified stock options, stock
appreciation rights, restricted stock, performance shares and performance units.
Awards granted under the ECP are based on shares of Class A Common Stock.
NOTE 12 -- COMMITMENTS, CONTINGENCIES AND LEGAL PROCEEDINGS
The Company is a defendant in various lawsuits arising in the ordinary
course of its business. The Company aggressively manages its litigation and
assesses appropriate responses to its lawsuits in light of a number of factors,
including potential impact of the actions on the conduct of the Company's
operations. In the opinion of management, the resolution of any of these matters
is not expected to have a material adverse effect on the Company's financial
condition or results of operations.
NOTE 13 -- OTHER ASSETS
The components of Other Assets at December 31, 1995 and 1994 were as
follows (in millions):
<TABLE>
<CAPTION>
DECEMBER 31
----------------------
1995 1994
--------- ---------
<S> <C> <C>
Goodwill...................................................... $ 1,278.9 $ 1,354.3
Other......................................................... 803.2 659.7
--------- ---------
Total other assets.................................. $ 2,082.1 $ 2,014.0
========= =========
</TABLE>
NOTE 14 -- TRANSACTIONS AND BALANCES WITH RELATED PARTIES
The Company paid cash dividends to Ford of $226.0 million, $288.1 million
and $318.0 million during the years ended December 31, 1993, 1994 and 1995,
respectively. In 1993, 1994 and 1995, Ford made cash capital contributions to
the Company of $200.0 million, $215.1 million and $200.0 million, respectively.
The Company provides certain auto club and relocation services to Ford.
Revenues related to these services were $29.7 million, $19.4 million and $12.1
million for the years ended December 31, 1995, 1994 and 1993, respectively.
F-19
<PAGE> 20
ASSOCIATES FIRST CAPITAL CORPORATION
NOTES TO SUPPLEMENTAL COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The Company pays fees for certain administrative services provided by its
Ford-affiliated parent. Such fees were $8.8 million, $5.0 million and $4.3
million for the years ended December 31, 1995, 1994 and 1993, respectively.
At December 31, 1995 and 1994, First Capital's current income taxes payable
to its Ford-affiliated parent amounted to $45.1 million and $30.4 million,
respectively.
NOTE 15 -- 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.
As explained in NOTE 2 to the supplemental combined financial statements,
the Company does not hold or issue derivative financial instruments for trading
purposes. The Company's derivative activity is limited to currency swap
transactions designed to hedge its currency risk on specific foreign
currency-denominated assets denominated in British Sterling. One interest rate
swap transaction for $40.0 million, assumed in 1993 as part of a business
acquisition, matured in April 1995 and is no longer outstanding. The Company is
a buyer in each transaction.
The Company's currency swap transactions are not material to its
supplemental combined balance sheet and do not represent a material exposure to
its supplemental combined net earnings. Amounts under currency and interest rate
swap contracts at December 31, 1995 and 1994 were $55.7 million and $95.7
million, respectively. At December 31, 1995, the Company was at market risk for
any currency differential should a counterparty to these contracts fail to meet
the terms of the contracts. The contracts expire in October 1996. At December
31, 1995, the Company's estimated exposure to loss resulting from currency
differentials, in the event of nonperformance by certain counterparties, was
$1.1 million; the Company estimates its benefit resulting from currency
differentials, in the event of nonperformance by certain counterparties, was
$0.2 million. The estimated fair value of amounts under contract approximated
$0.9 million and $0.7 million at December 31, 1995 and 1994, respectively. Such
value was determined based on the foreign currency exchange rates/interest rate
for similar transactions in effect at the balance sheet date. It is the
Company's policy that each counterparty's public debt rating must be rated Aa3,
AA- or better by at least two nationally recognized rating agencies at the time
any such contract is entered into. The Company monitors such ratings on an
ongoing basis. The Company does not employ other methods to assess credit risk,
because swap transactions are not a significant part of its operating activities
and because the Company does not enter into complex derivative transactions.
Subsidiaries of First Capital make available credit lines to holders of
their credit cards. The unused portion of the available credit is revocable by
the bank under specified conditions. The unused portion of the available credit
at December 31, 1995 and 1994 was $12.8 billion and $9.4 billion, respectively.
The potential risk associated with, and the estimated fair value of, the unused
credit lines are not considered to be significant.
Associates Investment Corporation, an indirect subsidiary of First Capital,
makes available credit lines to holders of their private label credit cards. The
unused portion of the available credit is revocable by Associates Investment
Corporation under specified conditions. The unused portion of the available
credit at December 31, 1995 and 1994 was $4.8 billion and $5.1 billion,
respectively. The potential risk associated with, and the estimated fair value
of, the unused credit lines are not considered to be significant.
The consumer finance business grants revolving lines of credit to certain
of its customers. At December 31, 1995 and 1994, the unused portion of these
lines aggregated $783.9 million and
F-20
<PAGE> 21
ASSOCIATES FIRST CAPITAL CORPORATION
NOTES TO SUPPLEMENTAL COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
$543.3 million, respectively. The potential risk associated with, and the
estimated fair value of, the unused credit lines are not considered to be
significant.
The commercial finance business grants lines of credit to certain dealers
of truck, construction equipment and manufactured housing. At December 31, 1995
and 1994, the unused portion of these lines aggregated $1.3 billion and $881.7
million, respectively. The potential risk associated with, and the estimated
fair value of, the unused credit lines are not considered to be significant.
NOTE 16 -- INVESTMENTS IN DEBT AND EQUITY SECURITIES
Debt Securities
The Company invests in debt securities, principally bonds and notes held by
the Company's insurance subsidiaries, with the intention of holding them to
maturity. However, if market conditions change, the Company may sell these
securities prior to maturity. Accordingly, concurrent with the adoption of SFAS
No. 115 in 1994, 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.
During 1995, gross realized gains on sales amounted to $0.2 million. Gross
realized gains and losses on sales during 1994 amounted to $2.1 million and $0.3
million, respectively. Unrealized gains or losses are reported as a component of
stockholder's equity, net of tax. The following tables set forth, by type of
security issuer, the amortized cost, gross unrealized holding gains, gross
unrealized holding losses, and estimated market value at December 31, 1995 and
1994 (in millions):
<TABLE>
<CAPTION>
1995
--------------------------------------------------
GROSS GROSS
UNREALIZED UNREALIZED ESTIMATED
AMORTIZED HOLDING HOLDING MARKET
COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
U.S. Government obligations............. $ 400.2 $ 14.4 $ $ 414.6
Corporate obligations................... 222.3 3.5 225.8
Mortgage-backed......................... 215.6 0.8 216.4
Other................................... 11.7 11.7
------- ------ ------ -------
Total debt securities......... $ 849.8 $ 18.7 $ $ 868.5
======= ====== ====== =======
</TABLE>
<TABLE>
<CAPTION>
1994
--------------------------------------------------
GROSS GROSS
UNREALIZED UNREALIZED ESTIMATED
AMORTIZED HOLDING HOLDING MARKET
COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
U.S. Government obligations............. $ 422.4 $0.7 $(25.2) $ 397.9
Corporate obligations................... 66.8 0.2 (0.5) 66.5
Mortgage-backed......................... 96.3 (2.3) 94.0
Other................................... 4.8 4.8
------- ------ ------- -------
Total debt securities......... $ 590.3 $0.9 $(28.0) $ 563.2
======= ====== ======= =======
</TABLE>
F-21
<PAGE> 22
ASSOCIATES FIRST CAPITAL CORPORATION
NOTES TO SUPPLEMENTAL COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The amortized cost and estimated market value of debt securities at
December 31, 1995 and 1994, by contractual maturity, are shown below (in
millions):
<TABLE>
<CAPTION>
1995 1994
---------------------- ----------------------
ESTIMATED ESTIMATED
AMORTIZED MARKET AMORTIZED MARKET
COST VALUE COST VALUE
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Due in one year or less................ $ 159.0 $ 159.6 $ 93.2 $ 92.1
Due after one year through five
years................................ 379.9 390.4 384.3 369.6
Due after five years through ten
years................................ 187.5 194.6 110.8 99.6
Due after ten years.................... 123.4 123.9 2.0 1.9
------- ------- ------- -------
$ 849.8 $ 868.5 $ 590.3 $ 563.2
======= ======= ======= =======
</TABLE>
Equity Securities
Equity security investments are recorded at market value. Concurrent with
the adoption of SFAS No. 115 in 1994, 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 December 31, 1995 and 1994 was $12.6 million and $41.9
million, respectively. Historical cost at December 31, 1995 and 1994 was $8.5
million and $38.9 million, respectively.
Estimated market values of debt and equity securities are based on quoted
market prices.
NOTE 17 -- BUSINESS SEGMENT INFORMATION
First Capital's primary business activities are consumer finance and
commercial finance. The consumer finance operation is engaged in making and
investing in home equity, personal lending and sales finance receivables, credit
card receivables, primarily through a wholly-owned credit card bank, and
providing sales financing of manufactured housing. The commercial finance
operation is principally engaged in financing sales of transportation and
industrial equipment and leasing, and sales of other financial services,
including auto fleet leasing and management, relocation services and auto club
and roadside assistance services. The Company has an insurance operation which
is engaged in underwriting credit life, credit accident and health, property and
casualty, and accidental death and dismemberment insurance, principally for
customers of the finance operations. Such insurance activity is conducted by the
company's licensed insurance agents and managed as a separate activity.
Insurance sales are dependent on the business activities and volumes of the
consumer and commercial business. Accordingly, insurance revenues and related
claims are included in the consumer and commercial business to which they
relate.
F-22
<PAGE> 23
ASSOCIATES FIRST CAPITAL CORPORATION
NOTES TO SUPPLEMENTAL COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The following table sets forth information by business segment (in
millions):
<TABLE>
<CAPTION>
BUSINESS SEGMENT(1)
-----------------------
CONSUMER COMMERCIAL FOREIGN
FINANCE FINANCE(2) COMBINED OPERATIONS(1)
--------- ---------- --------- -------------
<S> <C> <C> <C> <C>
Year Ended or at December 31, 1995
Revenue.................................. $ 4,595.6 $ 1,511.6 $ 6,107.2 $ 765.3
========= ========= ========= =========
Operating income:
From segment.......................... $ 1,010.2 $ 313.7 $ 1,323.9 $ 284.4
Corporate and other(3)................ (95.6) (30.2) (125.8) (90.7)
--------- --------- --------- ---------
Total............................ $ 914.6 $ 283.5 $ 1,198.1 $ 197.8
========= ========= ========= =========
Total assets............................. $27,128.2 $14,175.7 $41,303.9 $ 4,102.8
========= ========= ========= =========
Year Ended or at December 31, 1994
Revenue.................................. $ 3,691.3 $ 1,234.5 $ 4,925.8 $ 587.5
========= ========= ========= =========
Operating income:
From segment.......................... $ 823.7 $ 288.2 $ 1,111.9 $ 217.8
Corporate and other(3)................ (70.6) (23.9) (94.5) (88.4)
--------- --------- --------- ---------
Total............................ $ 753.1 $ 264.3 $ 1,017.4 $ 133.9
========= ========= ========= =========
Total assets............................. $23,322.9 $11,960.6 $35,283.5 $ 3,649.7
========= ========= ========= =========
Year Ended or at December 31, 1993
Revenue.................................. $ 3,039.2 $ 1,075.6 $ 4,114.8 $ 467.7
========= ========= ========= =========
Operating income:
From segment.......................... $ 649.8 $ 261.9 $ 911.7 $ 137.9
Corporate and other(3)................ (65.1) (25.3) (90.4) (68.4)
--------- --------- --------- ---------
Total............................ $ 584.7 $ 236.6 $ 821.3 $ 72.5
========= ========= ========= =========
Total assets............................. $19,884.3 $10,155.3 $30,039.6 $ 2,971.5
========= ========= ========= =========
</TABLE>
- ---------------
(1) The revenues, operating income and total assets of the Company's foreign
operations are included in the business segments of the Company as set forth
above. The foreign operations of the Company consist principally of its
consumer finance operation in Japan (more than 70% of total foreign
operations) and, to a lesser extent, its consumer and commercial operations
in the United Kingdom, Canada, Puerto Rico and Mexico. Total revenue,
operating income and total assets, respectively, for Japan were:
1995 -- $587.7 million, $164.8 million and $3.0 billion, respectively;
1994 -- $448.1 million, $129.5 million and $2.8 billion, respectively; and
1993 -- $345.1 million, $78.7 million and $2.2 billion, respectively.
(2) Includes information pertaining to the financing of manufactured housing
purchases which are managed by the commercial finance operation.
(3) Includes operating income pertaining to the Company's non-operating
subsidiaries.
Capital expenditures and depreciation and amortization expense are not
significant.
F-23
<PAGE> 24
ASSOCIATES FIRST CAPITAL CORPORATION
NOTES TO SUPPLEMENTAL COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 18 -- SUBSEQUENT EVENT
On February 8, 1996, the Company paid a dividend in the amount of $1.75
billion to its Ford-affiliated parent in the form of an intercompany note.
NOTE 19 -- UNAUDITED QUARTERLY FINANCIAL DATA
The following table sets forth the unaudited quarterly results of
operations (in millions, except earnings per share):
<TABLE>
<CAPTION>
1995
-----------------------------------------
FOURTH THIRD SECOND FIRST
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Finance charges............................. $1,467.4 $1,426.6 $1,377.8 $1,289.0
======== ======== ======== ========
Interest expense............................ $ 570.9 $ 557.5 $ 540.3 $ 509.2
======== ======== ======== ========
Earnings before provision for income
taxes..................................... $ 324.6 $ 327.6 $ 272.1 $ 273.8
Provision for income taxes.................. 129.7 130.1 109.7 105.5
-------- -------- -------- --------
Net earnings................................ $ 194.9 $ 197.5 $ 162.4 $ 168.3
======== ======== ======== ========
Net earnings per share...................... $ $ $ $
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
1994
-----------------------------------------
FOURTH THIRD SECOND FIRST
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Finance charges............................. $1,235.4 $1,135.9 $1,053.7 $1,020.2
======== ======== ======== ========
Interest expense............................ $ 468.6 $ 429.1 $ 393.1 $ 366.5
======== ======== ======== ========
Earnings before provision for income
taxes..................................... $ 280.8 $ 272.0 $ 232.0 $ 232.6
Provision for income taxes.................. 117.5 109.3 95.0 92.3
-------- -------- -------- --------
Net earnings................................ $ 163.3 $ 162.7 $ 137.0 $ 140.3
======== ======== ======== ========
Net earnings per share...................... $ $ $ $
======== ======== ======== ========
</TABLE>
F-24
<PAGE> 25
ASSOCIATES FIRST CAPITAL CORPORATION
NOTES TO SUPPLEMENTAL COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 20 -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT (PARENT COMPANY ONLY)
Condensed unconsolidated financial information of Associates First Capital
Corporation as of or for the years ended December 31, 1995, 1994 and 1993 were
as follows (in millions):
CONDENSED STATEMENT OF EARNINGS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------------
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Revenue
Interest and other income...................................... $ 10.2 $ 8.7 $ 6.7
Dividends from subsidiaries.................................... 284.0 270.5 242.7
------- ------- -------
294.2 279.2 249.4
Expenses
Interest expense............................................... 66.0 54.8 51.1
Operating expenses............................................. 23.3 16.2 15.3
------- ------- -------
89.3 71.0 66.4
------- ------- -------
Income before credit for Federal income taxes and equity in net
earnings of subsidiaries....................................... 204.9 208.2 183.0
Credit for Federal income taxes resulting from tax agreements
with subsidiaries.............................................. 28.0 21.7 21.2
------- ------- -------
Earnings before equity in undistributed earnings of
subsidiaries................................................... 232.9 229.9 204.2
Equity in undistributed earnings of subsidiaries................. 490.2 373.4 289.8
------- ------- -------
Net earnings..................................................... $ 723.1 $ 603.3 $ 494.0
======= ======= =======
</TABLE>
See notes to condensed financial information.
F-25
<PAGE> 26
ASSOCIATES FIRST CAPITAL CORPORATION
NOTES TO SUPPLEMENTAL COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31
---------------------
1995 1994
-------- --------
<S> <C> <C>
Assets
Investment in and advances to subsidiaries, eliminated in
consolidation, and other......................................... $5,774.5 $5,306.3
-------- --------
Total assets................................................ $5,774.5 $5,306.3
======== ========
Liabilities and Stockholder's Equity
Accounts payable and accruals....................................... $ 52.5 $ 33.0
Bank lines.......................................................... 85.0
Notes payable and long-term debt(2)................................. 835.9 836.5
Stockholder's equity(1)............................................. 4,801.1 4,436.8
-------- --------
Total liabilities and stockholder's equity.................. $5,774.5 $5,306.3
======== ========
</TABLE>
The estimated fair value of notes payable and long-term debt at December
31, 1995 and 1994 was $878.6 million and $829.4 million, respectively. 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.
F-26
<PAGE> 27
CONDENSED STATEMENT OF CASH FLOWS
(IN MILLIONS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net earnings................................................ $ 723.1 $ 603.3 $ 494.0
Adjustments to net earnings for noncash items:
Amortization and depreciation............................ 0.1 0.1 0.1
Increase (decrease) in accounts payable and accruals..... 19.5 13.1 (6.5)
Equity in undistributed earnings of subsidiaries......... (490.2) (373.4) (289.8)
Other....................................................... 29.5 (20.9) (0.6)
-------- -------- --------
Net cash provided from operating activities......... 282.0 222.2 197.2
-------- -------- --------
Cash Flows from Investing Activities
Cash dividends from subsidiaries(1)......................... 284.0 270.5 242.7
Increase in investments in and advances to subsidiaries..... (492.6) (737.5) (477.6)
-------- -------- --------
Net cash used for investing activities.............. (208.6) (467.0) (234.9)
-------- -------- --------
Cash Flows from Financing Activities
Increase in notes payable and long-term debt(2)............. 438.9 352.7 231.6
Capital contribution from parent............................ 200.0 215.1 200.0
Cash dividends paid......................................... (318.0) (288.1) (226.0)
Retirement of long-term debt................................ (354.4) (188.9) (244.2)
-------- -------- --------
Net cash (used for) provided from financing
activities........................................ (33.5) 90.8 (38.6)
Effect of foreign currency translation adjustments on cash.... (41.7) 153.8 74.9
-------- -------- --------
Decrease in cash and cash equivalents......................... (1.8) (0.2) (1.4)
Cash and cash equivalents at beginning of period.............. (1.1) (0.9) 0.5
-------- -------- --------
Cash and cash equivalents at end of period.................... $ (2.9) $ (1.1) $ (0.9)
======== ======== ========
</TABLE>
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 operating
subsidiary, Associates Corporation of North America. See NOTE 9 to the
supplemental combined financial statements for a summary of the most
significant of these restrictions.
(2) Notes payable and long-term debt bear interest at rates from 4.79% to
13.75%. The estimated maturities of the notes outstanding, at December 31,
1995, during subsequent years were as follows (in millions):
<TABLE>
<S> <C>
1996................................................ $ 279.5
1997................................................ 208.1
1998................................................ 142.2
1999................................................ 113.9
2000................................................ 92.2
--------
$ 835.9
========
</TABLE>
F-27
