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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-1004
------------------------
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-6154
ASSOCIATES FIRST CAPITAL CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<C> <C>
DELAWARE 06-0876639
(State or other jurisdiction of incorporation or (I.R.S. Employer Identification No.)
organization)
250 EAST CARPENTER FREEWAY 75062-2729
IRVING, TEXAS (Zip Code)
(Address of principal executive offices)
</TABLE>
Registrant's telephone number, including area code
972-652-4000
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- ---------------------
<C> <C>
Class A Common Stock, New York Stock Exchange
par value $0.01 per share
</TABLE>
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of the
registrant, based on the most recent New York Stock Exchange Composite
Transaction closing price of the Class A Common Stock ($46.75 per share), which
occurred on March 21, 1997, was $2,697,072,482.50. For purposes of this
computation, all officers, directors, and 5% beneficial owners of the registrant
are deemed to be affiliates. Such determination should not be deemed an
admission that such officers, directors, and beneficial owners are, in fact,
affiliates of the registrant. At March 21, 1997, 90,773,299 shares of the
Company's Class A Common Stock, par value $0.01 per share, were outstanding and
255,881,180 shares of the Company's Class B Common Stock, par value $0.01 per
share, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE*
<TABLE>
<CAPTION>
DOCUMENT WHERE INCORPORATED
-------- ------------------
<C> <C>
Proxy Statement for 1997 Part III (Items 10, 11, 12 and 13)
Annual Meeting of Stockholders
</TABLE>
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* As stated under various Items of this Report, only certain specified portions
of such document are incorporated by reference herein.
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<PAGE> 2
PART I
ITEM 1. BUSINESS.
Associates First Capital Corporation ("First Capital" or the "Company"), a
Delaware corporation, is a majority-owned subsidiary of Ford FSG, Inc. ("FFSG")
and a majority indirect-owned 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 ("AIC") is the
principal foreign-based operating subsidiary of First Capital.
On May 8, 1996, the Company made an initial public offering (the
"Offering") of 67 million shares of its Class A Common Stock representing a
19.3% interest in the Company. Immediately following the Offering, Ford
continued to own a controlling interest in the Company's common stock.
Prior to the Offering, Ford contributed to First Capital, for stock,
certain foreign finance operations that were managed by First Capital although
owned by other Ford subsidiaries (the "Associates International Group"). The
entities comprising Associates International Group had operations in Japan, the
United Kingdom, Canada, Puerto Rico, Bermuda, Netherlands and Mexico. The effect
of this contribution was retroactively included, on a fully consolidated basis,
in the supplemental combined financial statements of First Capital as part of
the Offering. These supplemental combined financial statements became the
historical consolidated financial statements of First Capital. The contribution
was accounted for in a manner similar to the pooling of interests method of
accounting in accordance with generally accepted accounting principles.
The Company is a leading, diversified consumer and commercial finance
organization which provides finance, leasing and related services to individual
consumers and businesses in the United States and internationally. At or for the
year ended December 31, 1996, the Company had aggregate net finance receivables
of $46.5 billion, total assets of $48.3 billion, totaled managed assets of $50.4
billion, net earnings of $857.0 million and stockholders' equity of $5.4
billion. The Company believes that it is the second largest independent finance
company in the United States based on aggregate net finance receivables
outstanding. The Company's operations outside the United States are conducted
principally in Japan ($2.4 billion of net finance receivables) but include
operations in other countries including the United Kingdom, Canada, Puerto Rico,
Bermuda, Netherlands and Mexico.
The Company has geographically dispersed finance receivables. At December
31, 1996, approximately 92% of the Company's total receivables were dispersed
across the United States and the remaining 8% were in foreign countries. Of the
total receivables, 11% were in California, 6% in Florida, 6% in Texas, 5% in
Japan, 4% in Georgia, 4% in Pennsylvania, 4% in North Carolina, 4% in Illinois,
4% in New York and 4% in Ohio; no other individual state or foreign country had
more than 4%.
The Company divides its diverse activities into consumer finance and
commercial finance. The Company's consumer finance operations consist of a
variety of specialized consumer financing products and services, including home
equity lending, personal lending, retail sales finance and credit card
receivables. The credit card receivables were originated principally by a
subsidiary, Associates National Bank (Delaware) ("ANB"). The Company's
commercial finance operations primarily provide retail financing, leasing and
wholesale financing for heavy-duty and medium-duty trucks and truck trailers,
construction, material handling and other industrial equipment, manufactured
housing and auto fleet leasing and other commercial products and services.
Although financial and statistical information relating to manufactured housing
financing presented herein is included with the consumer finance information,
the Company manages its manufactured housing financing as part of its commercial
finance operations. Accordingly, the manufactured housing financing operations
are described under "-- Commercial Finance" below.
As part of its consumer finance and commercial finance activities, the
Company makes available to its customers credit-related and other insurance
products. See NOTE 17 to the consolidated financial statements for financial
information by business segment.
At December 31, 1996, First Capital had approximately 2,150 offices
worldwide and employed approximately 18,980 persons. Corporate headquarters are
located in Irving, Texas.
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Certain prior year ratios presented herein have been restated to conform to
current year methodology.
CONSUMER FINANCE
GENERAL
The Company's consumer finance business consists of a variety of consumer
financing products and services and a credit card business. The Company
distributes its consumer finance products through multiple delivery systems,
which include (i) approximately 2,000 domestic and international consumer branch
offices; (ii) a centralized lending operation, principally home equity loans
sourced from third parties; and (iii) centralized credit card operations. Home
equity loans account for the largest portion of the Company's consumer finance
portfolio, and are distributed through domestic and international branch
delivery systems and a domestic centralized lending operation. The Company also
offers personal installment loans and purchases consumer retail sales finance
contracts through its domestic and international branch delivery systems. In
addition, the Company provides revolving credit financing through its domestic
and international credit card businesses, which consists of issuing VISA(R) and
MasterCard(R) bankcards and private label credit cards. The Company, through
certain domestic and international subsidiaries and others, also makes available
various credit-related and non-credit-related insurance products to its consumer
finance customers, including credit life, credit accident and health, accidental
death and dismemberment, involuntary unemployment and personal property
insurance. See "-- Related Insurance."
The Company's consumer finance customers span a wide range of income
levels, age groups and credit histories. These customers generally have a
history of using credit from a variety of sources and include homeowners,
purchasers of consumer durables (such as furniture, electronics and appliances)
and college students. In extending credit, the Company considers, among other
things, each customer's job stability, length of time at residence and, in many
cases, home ownership.
The following table shows net finance receivables outstanding attributable
to the various types of consumer financing products (in millions):
CONSUMER NET FINANCE RECEIVABLES OUTSTANDING
<TABLE>
<CAPTION>
AT DECEMBER 31
-------------------------------------------------------------------
1996 1995 1994 1993 1992
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Home Equity Lending....................... $16,696.0 $14,386.2 $12,349.9 $10,619.7 $ 9,630.1
Personal Lending/Sales Finance............ 7,307.2 6,117.6 5,304.2 4,354.2 3,640.2
Credit Card............................... 5,673.4 4,818.6 3,915.5 3,104.8 2,614.6
Manufactured Housing(1)................... 1,240.3 2,034.1 1,669.2 1,290.2 983.9
Accruals and Other........................ 486.1 218.8 389.0 543.5 543.9
--------- --------- --------- --------- ---------
Total Consumer............................ $31,403.0 $27,575.3 $23,627.8 $19,912.4 $17,412.7
========= ========= ========= ========= =========
</TABLE>
- ---------------
(1) Information concerning manufactured housing is set forth below under
"-- Commercial Finance". The Company considers its manufactured housing
activities to be a commercial business principally because the predominant
portion of its financing receivables is obtained from its relationships with
manufacturers and dealers, notwithstanding that the credit and related risks
typically are those of the consumer purchaser of the housing. During 1996,
the Company securitized and sold approximately $1.3 billion of manufactured
housing finance receivables.
During 1996, the finance charge yield (finance charge revenue divided by
average net receivables) on all types of consumer net finance receivables
averaged approximately 17% per annum. Variable rates were charged on 29% of the
consumer net finance receivables outstanding at such date. State laws often
establish maximum allowable finance charges for certain consumer loans;
approximately 92% of the outstanding consumer net finance receivables were
either not subject to such state maximums, or if subject, were not materially
restricted by such as to the interest rates charged. See "-- Additional
Information Regarding the Company -- Regulation".
2
<PAGE> 4
HOME EQUITY LENDING, PERSONAL LENDING AND RETAIL SALES FINANCE
Overview. At December 31, 1996, home equity loans accounted for the largest
share of the Company's consumer finance portfolio and were distributed through
its domestic and international branch delivery systems and a domestic
centralized lending operation. The Company offers personal installment loans and
purchases retail sales finance contracts from retailers through its domestic and
international branch delivery systems.
Home Equity Lending. The Company's home equity lending activities consist
of originating and servicing fixed and variable rate mortgage loans that are
primarily secured by single family residential properties. Such loans are made
to borrowers primarily for the purpose of debt consolidation, including the
refinancing of existing mortgage loans, home improvements and a variety of other
purposes. Relatively few of the Company's originations of home equity loans are
mortgages used for the acquisition of homes.
The following table shows certain information with respect to the Company's
home equity lending receivables:
HOME EQUITY LENDING
<TABLE>
<CAPTION>
AT DECEMBER 31
--------------------------------------------------------
1996 1995 1994 1993 1992
--------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C>
Net Receivables (in millions).......... $16,696.0 $14,386.2 $12,349.9 $10,619.7 $9,630.1
Average Account Balance................ $ 42,871 $ 41,356 $ 40,018 $ 36,018 $ 34,179
Number of Accounts..................... 389,451 347,864 308,607 294,848 281,752
</TABLE>
The Company's home equity loans typically have maturities of up to 180
months. Approximately 26% of the Company's home equity loans are variable rate
loans. While home equity loans may be secured by either first or second
mortgages, at December 31, 1996, approximately 77% of the aggregate net
outstanding balance of home equity lending receivables was secured by first
mortgages.
Personal Lending. The Company's personal lending business consists of
direct origination and servicing of secured and unsecured personal loans to
individuals. Personal loans are direct consumer loans that are generally not
secured by real estate. Such loans may be secured by existing personal property
(the realizable value of which may be less than the amount of the loan secured),
including automobiles, as well as consumer durables and/or guarantees by third
parties. Personal loans generally involve disbursements at the inception of the
loan with installment payments leading to full amortization by maturity, which
ranges up to 60 months. In general, personal loans are made for debt
consolidation, home improvement, education, vacation, taxes and major purchases
of appliances and other durable goods. The Company sources personal loan
customers through solicitation of existing retail sales finance customers,
direct mail, advertising and referrals.
Retail Sales Finance. Retail sales finance contracts are generally for the
purchase of items such as household electronic appliances, furniture and home
improvements. The Company generally purchases retail finance sales contracts
from retailers of such items. These activities provide an important source of
new loan customers, since, following the purchase of a retail sales finance
contract, the Company has a direct relationship with the borrower. The
newly-established relationship often leads to other types of financing for the
customer based on the individual's credit needs. As with personal loans, the
terms of retail sales finance contracts differ based on the amount financed and
the credit quality of the customer. Generally, retail sales finance contracts
have terms ranging from 24 to 36 months.
Statistical information for average personal loan and average retail sales
finance contract receivables is generally similar. For example, at December 31,
1996, the average balance of the Company's outstanding personal loans was
$2,543, and the average balance of the Company's outstanding retail sales
finance contracts was $1,829.
3
<PAGE> 5
The following table shows certain information with respect to the Company's
aggregate personal lending and retail sales finance contract receivables:
PERSONAL LENDING/RETAIL SALES FINANCE
<TABLE>
<CAPTION>
AT DECEMBER 31
--------------------------------------------------------------
1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net Receivables (in millions)..... $ 7,307.2 $ 6,117.6 $ 5,304.2 $ 4,354.2 $ 3,640.2
Average Account Balance........... $ 2,257 $ 2,213 $ 2,183 $ 2,111 $ 2,031
Number of Accounts................ 3,236,903 2,764,050 2,429,281 2,062,200 1,792,328
</TABLE>
Delivery of Home Equity Loans, Personal Loans and Retail Sales Financing.
The Company provides its home equity and personal loans and retail sales
financing through both domestic and international branch delivery systems and
through a centralized lending operation, which are further described as follows:
Domestic Branch System. At December 31, 1996, the Company's consumer
finance domestic branch system consisted of 1,475 geographically dispersed
locations in the United States. These locations operate under four different
nameplates -- Associates Financial Services, TranSouth Financial, First Family
Financial Services and Kentucky Finance. The Company retained the latter three
nameplates following their acquisitions by the Company in order to retain name
recognition and awareness, customer relationships and market niches.
International Branch System. At December 31, 1996, the Company's
international consumer finance branch system consisted of 488 locations. The
Company operates its international consumer finance business principally in
Japan, but also has operations in the United Kingdom, Puerto Rico, Canada and
Mexico. The Company's international branches employ similar operational
disciplines as the domestic branches. Set forth below is a description of the
Company's international consumer finance branch system at December 31, 1996.
- Japan. The Company operated 355 branches in Japan through its
wholly-owned subsidiary, AIC. AIC provides home equity and personal loans and
purchases retail sales finance contracts from retailers. In addition, AIC
recently introduced credit cards to its portfolio of products. AIC had $2.4
billion of consumer net finance receivables and employed approximately 1,600
individuals. At or for the year ended December 31, 1996, AIC's home equity loans
totaled $1.1 billion and had average original maturities of 159 months, average
account balance of $59,293 and average finance charge yield of 19.42%. At or for
the year ended December 31, 1996, personal loans and retail sales finance
contracts totaled $1.3 billion and had average original terms of 35 months,
average account balance of $3,505 and average finance charge yield of 34.89%.
AIC has been operating in Japan since 1978. At present, AIC operates in every
prefecture in Japan.
- United Kingdom. The Company had 66 consumer branches, with 196,434
accounts and $512.2 million of consumer net finance receivables. The operation
offers to consumers home equity and personal loans and purchases consumer retail
sales finance contracts from retailers.
- Other Consumer International Operations. The Company had 39 branches in
Puerto Rico, which make personal and home equity loans and purchase retail sales
finance contracts from retailers. The Company had 10 branches in Mexico, which
make personal loans. In Canada, the Company had 18 branches where the Company
purchases retail sales finance contracts from retailers and makes personal and
home equity loans.
Centralized Lending. The Company's centralized home equity lending
operation, conducted through Ford Consumer Finance Company ("FCFC"), a
subsidiary of Associates, extends both closed-end loans and lines of credit to
customers. A majority of the home equity loans at December 31, 1996 in the
Company's centralized home equity lending operation were originated through
financial institutions and mortgage brokers. Mortgage brokers are independent
agents who match their customers with a lender based on the customer's needs and
the credit profile requirements of the lender. The remainder of the home equity
loans in the centralized lending operation at December 31, 1996 were originated
as a result of existing customer relationships, direct mail and telemarketing
efforts or customer referrals. The Company's centralized lending
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<PAGE> 6
operation covers most of the United States through three regional service
centers and 49 district sales offices located in 27 states.
CREDIT CARDS
The Company's credit card business is originated principally by ANB and, to
a lesser extent, the Company's international credit card businesses. ANB's
credit card receivables consist primarily of VISA(R) and MasterCard(R) bankcards
and private label credit cards to consumers directly to the public and through
co-marketing programs. ANB issues its credit cards across a wide spectrum with
interest rates based on customer credit profiles. The private label credit card
business has principally consisted of a customized private label revolving
charge program for customers of Amoco Oil Company ("Amoco"), who utilize the
cards to purchase gasoline and other automotive products at Amoco gasoline
stations nationwide.
The Company has begun to offer bankcards to its customers in Japan and the
United Kingdom. In Japan, the Company is offering a MasterCard(R) bankcard,
which is directed primarily to existing customers of its consumer branch system.
In the United Kingdom, the Company acquired a retail credit card portfolio in
1994 and converted the portfolio to the VISA(R) brand.
The following table shows certain information regarding the Company's
credit card receivables:
CREDIT CARD
<TABLE>
<CAPTION>
AT DECEMBER 31
---------------------------------------------------------
1996 1995 1994 1993 1992
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net Receivables (in millions).......... $ 5,673.4 $ 4,818.6 $ 3,915.5 $ 3,104.8 $ 2,614.6
Average Account Balance(1)............. $ 877 $ 771 $ 694 $ 1,385 $ 1,522
Number of Accounts..................... 6,470,054 6,246,089 5,638,265 2,241,292 1,717,376
</TABLE>
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(1) In 1994, ANB acquired Amoco's private label gasoline credit card program,
which added 3.2 million accounts. These accounts generally carried smaller
balances than ANB's bankcard accounts, which had the effect of decreasing
the average balance for the Company's credit card receivables in 1994, 1995
and 1996.
The Company's revenues from its credit card business are derived from
finance charges on revolving accounts, the interchange fees derived from
merchant discounts, annual membership and other account fees and fees earned
from the sale of insurance and other fee-based products. The Company's credit
card receivables typically bear variable interest rates.
COMMERCIAL FINANCE
GENERAL
The Company's commercial finance business provides a variety of retail and
wholesale financing and leasing products and services for heavy-duty (Class 8)
and medium-duty (Classes 3 through 7) trucks and truck trailers, construction
and material handling equipment and other industrial equipment. The Company also
engages in a number of other commercial activities, including auto fleet leasing
and management, recreational vehicle financing, Small Business Administration
lending, employee relocation services and emergency roadside assistance and auto
club services. The Company, through certain subsidiaries and others, also makes
available various credit-related and non-credit-related insurance products to
its commercial finance customers, including commercial auto and dealers' open
lot physical damage, credit life and motor truck cargo insurance; the Company
has recently also started offering commercial auto liability insurance in
certain states. See "-- Related Insurance".
The Company provides truck and truck trailer financing and leasing services
from 41 branch offices in the United States and Canada. The Company provides
equipment financing and leasing services from 25 branch offices in the United
States, Mexico and the United Kingdom and, in the case of material handling and
certain other equipment, utilizes two centralized lending and service
operations. Fee-based services are provided from centralized locations. The
Company provides manufactured housing financing through five regional offices
and
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<PAGE> 7
16 sales purchase offices. The Company markets its insurance products to its
commercial finance customers through the same delivery systems used to market
its commercial finance products.
The following table shows net finance receivables outstanding attributable
to the various types of commercial financing products (in millions):
COMMERCIAL NET FINANCE RECEIVABLES OUTSTANDING
<TABLE>
<CAPTION>
AT DECEMBER 31
-------------------------------------------------------
1996 1995 1994 1993 1992
--------- --------- --------- -------- --------
<S> <C> <C> <C> <C> <C>
Truck and Truck Trailer..................... $ 8,486.9 $ 7,648.4 $ 6,681.5 $5,540.0 $4,350.7
Equipment................................... 4,528.4 3,827.2 2,987.4 2,464.5 2,290.6
Auto Fleet Leasing and Other(1)............. 1,658.4 416.3 336.5 345.3 324.7
Accruals and Other.......................... 436.2 235.3 52.5 32.5 (7.7)
--------- --------- --------- -------- --------
Total Commercial............................ $15,109.9 $12,127.2 $10,057.9 $8,382.3 $6,958.3
========= ========= ========= ======== ========
Manufactured Housing(2)..................... $ 1,240.3 $ 2,034.1 $ 1,669.2 $1,290.2 $ 983.9
========= ========= ========= ======== ========
</TABLE>
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(1) Includes auto fleet leasing, recreational vehicle financing, Small Business
Administration lending and fee-based businesses.
(2) Except as otherwise indicated, the dollar amount of manufactured housing
receivables is included in the dollar amount of total consumer net finance
receivables throughout this document, because the credit and related risks
of the manufactured housing business are similar to those of the Company's
consumer finance business. Manufactured housing receivables are included
with consumer net finance receivables in determining the percentage of total
net finance receivables which are consumer net finance receivables. However,
manufactured housing operations are described below under "-- Commercial
Finance -- Manufactured Housing" as part of the Company's commercial
activities because the marketing and management of manufactured housing
finance products are more closely related to commercial finance products.
During 1996, the Company securitized and sold approximately $1.3 billion of
manufactured housing finance receivables.
At December 31, 1996, the interest rates charged on approximately 20% of
the commercial net finance receivables were variable rates. Commercial finance
receivables are generally not subject to maximum finance charges established by
state law, and where such restrictions apply, at the present time, they do not
materially restrict the interest rates charged. See "-- Regulation". At December
31, 1996, the finance charge yield on all types of commercial finance
receivables averaged approximately 10% per annum, and original maturities of
such receivables averaged 51 months.
Except for lease or rental transactions in which the Company owns the
equipment, liens on the equipment financed secure the receivables. In certain
instances, the dealer and/or manufacturer provides some form of loss protection
to the Company.
TRUCK AND TRUCK TRAILER FINANCING AND LEASING
The Company believes that it is a leading independent source of financing
and leasing for heavy-duty trucks and truck trailers in the United States. The
Company provides retail financing and leasing for purchasers and users of
medium-duty through heavy-duty trucks and truck trailers, as well as wholesale
financing, accounts receivable financing and working capital loans to dealers
and trucking companies. The Company also provides financing and leasing for
truck and truck trailer purchases by truck leasing and rental companies. The
Company's customers are principally located in the United States and, to a
lesser extent, in Canada and other countries.
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The following table shows certain information regarding the Company's truck
and truck trailer financing and leasing receivables:
TRUCK AND TRUCK TRAILER
<TABLE>
<CAPTION>
AT DECEMBER 31
----------------------------------------------------------
1996 1995 1994 1993 1992
---------- ---------- ---------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Receivables (in millions)........ $ 8,486.9 $ 7,648.4 $ 6,681.5 $5,540.0 $4,350.7
Retail and Leasing Receivables
Average account balance............ $ 38,749 $ 37,127 $ 36,147 $ 32,544 $ 29,166
Number of accounts................. 197,070 177,789 164,076 152,638 138,210
Wholesale Receivables
Average balance per dealer......... $1,080,903 $1,427,384 $1,055,696 $822,557 $556,000
</TABLE>
The Company provides retail financing of new and used medium-duty through
heavy-duty trucks and truck trailers primarily on an indirect basis through
truck and truck trailer dealers. Under an installment sales contract, the dealer
and purchaser enter into a financing arrangement for the installment purchase of
a truck or truck trailer. Subject to credit approval by the Company, the dealer
assigns the installment contract to the Company. The Company funds the
transaction by a payment to the dealer for the net amount financed in the
contract. The Company also sources retail truck and truck trailer financing on a
direct basis with the truck or truck trailer purchaser.
Generally, retail financing transactions provide for terms up to 60 months
for trucks and up to 84 months for truck trailers at fixed rates of interest.
The interest rate varies depending on, among other things, the credit quality of
the purchaser, the transaction size, the term and down payment, and whether the
collateral is new or used.
The Company also provides fleet leasing for users of medium-duty through
heavy-duty trucks and truck trailers. Most of the Company's truck and truck
trailer leases are non-maintenance, net open-end leases. Under such leases, the
customer is responsible for the maintenance and residual value of the vehicle
and the Company retains the depreciation benefit.
The Company also provides new and used vehicle wholesale financing to truck
and truck trailer dealers throughout the United States and provides wholesale
financing for truck and truck trailer manufacturers' dealer organizations.
Generally, wholesale loans are short-term loans with variable rates (prime rate
based) and are secured by inventory.
EQUIPMENT FINANCING AND LEASING
The Company believes that it is a leading independent source of financing
and leasing of new and used construction, mining, forestry, industrial, machine
tool, material handling, communications and turf maintenance equipment and golf
cars in the United States. The Company offers wholesale and rental fleet
financing to dealers (who may either sell or rent the equipment to end-users)
and retail financing and leasing to end-users of equipment in niche markets.
7
<PAGE> 9
The following table shows certain information regarding the Company's
equipment financing and leasing receivables:
EQUIPMENT
<TABLE>
<CAPTION>
AT DECEMBER 31
----------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Receivables (in millions)............ $4,528.4 $3,827.2 $2,987.4 $2,464.5 $2,290.6
Retail and Leasing Receivables
Average account balance................ $ 23,482 $ 24,424 $ 20,979 $ 18,167 $ 16,506
Number of accounts..................... 164,248 129,276 116,019 112,584 112,756
Wholesale Receivables
Average balance per dealer............. $596,377 $674,522 $580,588 $449,411 $535,536
</TABLE>
The Company provides retail financing for the purchase of new and used
equipment through installment sales contracts purchased from dealers and
distributors, and through direct loans to purchasers. Generally, retail
financing transactions for equipment provide for maturities of up to 60 months
at fixed rates of interest. The interest rate varies depending on, among other
things, the credit quality of the purchaser, transaction size, term, down
payment and whether the collateral is new or used.
The Company also provides leasing for end-users of equipment, either
directly to the customer or through dealers. As part of residual risk
management, finance leases typically include an option for the lessee to acquire
the equipment at a set time before the termination of the lease for a specified
price (designed to offer the lessee an incentive to purchase) and typically
include an option for the lessee to acquire the equipment at the end of the
lease term for the fair market value.
The Company also provides wholesale and rental fleet financing for selected
dealers. Generally, wholesale loans are short-term loans with variable rates
(prime rate based) and are secured by inventory.
MANUFACTURED HOUSING
The Company believes that it is the third largest provider of financing to
dealers and purchasers of manufactured housing in the United States. The Company
purchases manufactured housing retail installment contracts originated by retail
dealers, originates and services direct loans to purchasers, and provides
wholesale financing to approved manufactured housing dealers. The Company also
offers commercial business loans to selected dealers to provide capital to build
new retail sales centers, update existing facilities or expand into community
park sales.
The following table sets forth certain information regarding the Company's
manufactured housing receivables:
MANUFACTURED HOUSING
<TABLE>
<CAPTION>
AT DECEMBER 31
----------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Receivables (in millions)(1)............ $1,240.3 $2,034.1 $1,669.2 $1,290.2 $ 983.9
Retail Receivables
Average account balance................... $ 25,548 $ 23,990 $ 22,134 $ 20,306 $ 19,045
Number of accounts(1)..................... 30,234 66,762 60,052 51,339 42,656
Wholesale Receivables
Average balance per dealer................ $477,157 $443,135 $354,906 $312,753 $283,471
</TABLE>
- ---------------
(1) During 1996, the Company securitized and sold approximately $1.3 billion of
manufactured housing finance receivables.
8
<PAGE> 10
Retail finance products provided by the Company include (i) the purchase of
a retail installment contract or a direct loan for the purchase of a
manufactured home only; (ii) a retail installment contract or loan on a
manufactured home and added amenities such as furnishings, air conditioning,
skirting, appliances and patios; and (iii) loans covering both a manufactured
home and the related real estate. Additionally, the Company purchases retail
loans from captive finance companies of manufacturers which normally carry some
form of loss protection. Retail financing products are generally secured by a
lien on the home and have varying maturities, down payments and interest rates.
Original loan terms range up to 25 years. Rates offered include fixed, variable
and graduated rate programs.
The Company also provides revolving lines of credit to approved
manufactured housing dealers in connection with their inventory purchases of
manufactured homes from pre-approved manufacturers. Generally, wholesale loans
are short-term loans with variable rates (prime rate based) and are secured by
inventory.
At December 31, 1996, the Company managed and serviced a securitized
portfolio of approximately $1.3 billion of manufactured housing finance
receivables.
AUTO FLEET LEASING AND OTHER COMMERCIAL ACTIVITIES
Auto Fleet Leasing. The Company believes it is a leading provider of auto
fleet leasing and management services for corporations and municipalities in the
United States that generally have auto and light truck fleets of 100 or more
vehicles. At December 31, 1996, the Company had $1.1 billion in auto fleet
leasing receivables outstanding. This has substantially increased from prior
periods principally due to the July 1996 acquisition of certain auto leasing
assets of USL Capital, an affiliate and Ford subsidiary. This acquisition is
further described in NOTE 3 to the consolidated financial statements.
The Company's other commercial activities principally include the following
products and services:
Recreational Vehicle Financing. The Company provides retail financing for
purchases of recreational vehicles as well as wholesale financing to dealers in
recreational vehicles. The Company entered this business through its May 1996
acquisition of Fleetwood Credit Corp., the former financing subsidiary of
Fleetwood Enterprises, Inc. At December 31, 1996, the Company had $490.5 million
of outstanding recreational vehicle finance receivables and managed a
securitized portfolio of $825.1 million of recreational vehicle finance
receivables.
Small Business Administration Lending. The Company extends credit to
individuals and businesses that is partially guaranteed by the federal
government under the Small Business Administration loan program.
Employee Relocation Services. The Company provides corporations and certain
agencies of the federal government with assistance in employee relocation,
origination of mortgages and management and disposition of residential real
estate.
Emergency Roadside Assistance and Auto Club Services. The Company offers
various emergency roadside assistance and related auto club services to
consumers through major corporations, primarily automobile manufacturers,
including Ford (the largest client of the Company's auto club).
RELATED INSURANCE
The Company, through certain subsidiaries and others, makes available
various credit and non-credit insurance products to its finance customers.
Insurance products offered to the Company's consumer finance customers include
credit life, credit accident and health, accidental death and dismemberment,
involuntary unemployment and personal property insurance. Insurance products
offered to the Company's commercial finance customers include commercial auto
and dealers' open lot physical damage, credit life, and motor truck cargo
insurance. In addition to insurance underwriting, the Company also receives
compensation for certain insurance programs underwritten by other companies. The
Company underwrites liability insurance in certain states for its commercial
auto physical damage customers.
9
<PAGE> 11
The purchase of insurance by a finance customer is optional with the
exception of physical damage insurance on loan collateral, which is required.
The customer can purchase such insurance either from the Company or an
alternative carrier. Premiums for insurance coverage are generally financed as
part of the insured's finance obligation.
The following tables set forth certain information relating to the
Company's insurance operations (in millions):
INSURANCE STATISTICAL DATA(1)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------------------------
1996 1995 1994 1993 1992
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net Written Premium
Credit life, accident and other related...... $282.2 $240.6 $242.4 $195.1 $148.3
Physical damage.............................. 186.2 180.3 168.7 138.9 107.7
Other casualty and liability................. 75.9 69.6 54.5 35.7 36.1
------ ------ ------ ------ ------
Total................................ $544.3 $490.5 $465.6 $369.7 $292.1
====== ====== ====== ====== ======
Premium Revenue(2)
Credit life, accident and other related...... $183.8 $164.8 $148.1 $123.6 $107.4
Physical damage.............................. 155.1 148.5 136.7 116.9 107.0
Other casualty and liability................. 63.2 57.3 44.2 30.4 35.7
------ ------ ------ ------ ------
Total................................ $402.1 $370.6 $329.0 $270.9 $250.1
====== ====== ====== ====== ======
Investment Income.............................. $ 71.7 $ 68.5 $ 47.3 $ 41.4 $ 47.5
====== ====== ====== ====== ======
Benefits Paid or Provided...................... $148.2 $142.5 $147.9 $118.9 $103.7
====== ====== ====== ====== ======
</TABLE>
- ---------------
(1) This table does not reflect any direct or indirect expenses that may be
associated with the Company's insurance operations. The Company markets its
insurance products through its consumer and commercial distribution systems
and, accordingly, does not allocate overhead and related expenses to its
insurance operations.
(2) Includes compensation for insurance proceeds underwritten by other
companies.
ADDITIONAL INFORMATION REGARDING THE COMPANY
ALLOWANCE FOR LOSSES, CREDIT LOSSES AND CONTRACTUAL DELINQUENCY
The Company maintains an allowance for losses on finance receivables at an
amount which it believes is sufficient to provide adequate protection against
anticipated 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. Additions to the
allowance are charged to the provision for losses on finance receivables. An
analysis of changes in the allowance for losses is contained in NOTE 4 to the
consolidated financial statements.
Finance receivables are charged to the allowance for losses when they are
deemed to be uncollectible. Additionally, Company policy generally provides for
charge-off of various types of accounts on a contractual basis. Consumer direct
and other installment and credit card receivables are charged to the allowance
for losses when they become 180 days delinquent. All other finance receivables
are charged to the allowance for losses when any of the following conditions
occur: (i) the related security has been converted or destroyed; (ii) the
related security has been repossessed and sold or held for sale for one year; or
(iii) the related security has not been repossessed and the receivable has
become contractually delinquent for one year. A delinquent account is one on
which the customer has not made payments as contractually agreed. Recoveries on
losses previously charged to the allowance are credited to the allowance at the
time recovery is collected.
10
<PAGE> 12
The following table sets forth information as of the dates shown regarding
net credit losses, allowance for losses and contractual delinquency. This
information should be read in conjunction with the discussion of the Company's
financial condition under the caption "Management's Discussion and Analysis of
Financial Condition and Results of Operations".
NET CREDIT LOSSES, ALLOWANCE FOR LOSSES TO NET FINANCE RECEIVABLES AND
60+DAYS CONTRACTUAL DELINQUENCY
<TABLE>
<CAPTION>
YEAR ENDED OR AT DECEMBER 31
------------------------------------------------
1996 1995 1994 1993 1992
-------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net Credit Losses
Amount (in millions)....................... $ 885.3 $624.2 $508.6 $441.2 $470.5
As a Percentage of Average Net Receivables
Consumer................................ 2.80% 2.35% 2.30% 2.24% 2.62%
Commercial.............................. 0.33 0.19 0.09 0.29 0.63
Total.............................. 2.03% 1.70% 1.64% 1.68% 2.04%
Allowance for Losses to Net Finance
Receivables................................ 3.36% 3.20% 3.15% 3.15% 3.14%
60+Days Contractual Delinquency
Amount (in millions)....................... $1,107.2 $755.4 $510.3 $454.6 $506.2
As a Percentage of Finance Receivables
Consumer................................ 2.77% 2.19% 1.80% 1.81% 2.25%
Commercial.............................. 1.05 0.64 0.28 0.52 0.82
Total.............................. 2.20% 1.71% 1.35% 1.43% 1.85%
</TABLE>
The Company's ten largest accounts at December 31, 1996 (all of which were
current at December 31, 1996) represented 0.9% of the Company's total gross
finance receivables outstanding. All ten of such accounts are commercial finance
accounts and are secured.
COMPETITION
The markets in which the Company operates are highly competitive. Many of
the competitors of the Company in different segments and regions are large
companies that have substantial capital, technological and marketing resources,
and some of these competitors are larger than the Company and may have access to
capital at a lower cost than the Company. The Company believes that the finance
charge rate is one of the primary competitive factors in many of its markets.
From time to time, competitors of the Company may seek to compete aggressively
on the basis of pricing, and the Company may lose market share to the extent it
is not willing to match competitor pricing, in order to maintain interest
margins.
Consumer Finance. Traditional competitors in the consumer finance business
include captive and independent finance companies, commercial banks and thrift
institutions, credit unions, industrial banks, credit card issuers, leasing
companies, manufacturers and vendors. On a local level, community banks and
smaller independent finance and/or mortgage companies are a competitive force.
Additionally, substantial national financial services networks have been formed
by insurance companies and bank holding companies. Some competitors have
substantial local market positions; others are part of large, diversified
organizations. Because of their longstanding insured deposit base, many banks
that compete with the Company are able to offer financial services on very
competitive terms.
Competition varies across products offered. While there is considerable
competition in the home equity loan market, the market is fragmented with no
single competitor claiming more than a 10% market share. The Company, as a
portfolio lender, maintains considerable product and delivery flexibility, which
the Company believes is a competitive advantage.
Competition in the credit card industry has been intense over the last
several years. Large money-center banks have been seeking to expand their
profitable credit card units through aggressive pricing and marketing.
11
<PAGE> 13
In addition, many non-bank competitors specialize in certain growth strategies,
such as partnership and database marketing. The Company addresses these
competitive pressures by focusing on targeted segments of the consumer market,
co-branding relationships and its private label credit card programs.
Competitors of the Company's branch system are distinct from the
competitors of the Company's centralized lending operation. In addition,
competition varies a great deal across geographic regions.
Commercial Finance. In its commercial finance business, the Company
competes with captive and independent finance companies, commercial banks,
thrift and other financial institutions, leasing companies, lease brokers,
manufacturers, vendors and others who extend or arrange credit for the
acquisition of truck and truck trailers and equipment.
The Company believes, based on its experience in the industry, that the
primary competitive factors in the commercial finance and leasing business are
price, product quality, risk management, new account marketing and retention of
customers through emphasis on superior customer service. In addition, the
Company believes that innovation is necessary to compete in the industry,
including enhanced customer service, specialization in certain types of
equipment, exploitation of alternative channels of distribution and, in certain
lines of business, optimization of tax treatment between owner and user.
Purchasers of equipment financed by the Company generally seek transactions that
are simple, flexible and customer responsive.
Insurance. Competitors in the insurance business include national, regional
and local insurance companies, as well as self-insurance programs and captive
insurers. Competition in the insurance business is based upon price, product
design and service levels rendered to producers and policyholders. The insurance
business is extremely competitive, in both price and services, and no single
insurer is dominant. The Company believes that its ability to market its
insurance products through its consumer and commercial distribution systems
gives it a distinct competitive advantage over its competitors who do not have
such ability.
REGULATION
The Company's operations are subject to extensive state and Federal
regulations including, but not limited to, the following Federal statutes and
regulations: the Consumer Credit Protection Act of 1968, as amended (including
certain provisions thereof, commonly known as the "Truth-in-Lending Act" or
"TILA"), the Equal Credit Opportunity Act of 1974, as amended (the "ECOA"), the
Fair Credit Reporting Act of 1970, as amended (the "FCRA") and the Real Estate
Settlement Procedures Act, as amended (the "RESPA"). In addition, the Company is
subject to state laws and regulations with respect to the amount of interest and
other charges which lenders can collect on loans.
In the judgment of the Company, existing statutes and regulations have not
had a materially adverse effect on the operations of the Company. However, it is
not possible to forecast the nature of future legislation, regulations, judicial
decisions, orders or regulatory interpretations or their impact on the future
business, financial condition or prospects of the Company.
Consumer Finance. The Company's consumer finance business, including its
credit card business, is subject to detailed supervision by Federal and state
authorities under legislation and regulations which generally require licensing
of the lender, limitations on the amount, duration and charges for various
categories of loans, adequate disclosure of certain contract terms and
limitations on collection practices and creditor remedies. Licenses are
renewable, and may be subject to revocation for violations of such laws and
regulations. In addition, most states have usury laws which limit interest
rates. Federal legislation preempts state interest rate ceilings on first
mortgage loans and state laws which restrict various types of alternative home
equity receivables, except in those states which have specifically opted out of
such preemption.
The Company is required to comply with TILA and Regulation Z promulgated
thereunder. TILA requires, among other things, disclosure of pertinent elements
of consumer credit transactions, including the finance charges and the
comparative costs of credit expressed in terms of an annual percentage rate. The
TILA disclosure requirements are designed to provide consumers with uniform,
understandable information with respect to the terms and conditions of loans and
credit transactions in order to enable them to compare credit terms. TILA also
guarantees consumers a three-day right to cancel certain credit transactions,
including
12
<PAGE> 14
refinanced mortgages and junior mortgage loans on a consumer's primary
residence. Section 32 of Regulation Z mandates that applicants for real estate
loans which contain certain rate and fee amounts be provided an additional three
days waiting period prior to signing loan documents.
In addition, the Company is required to comply with the ECOA which, in
part, prohibits credit discrimination on the basis of race, color, religion,
sex, marital status, national origin and age. Regulation B promulgated under
ECOA restricts the type of information that may be obtained by creditors in
connection with a credit application. It also requires certain disclosures by
the lender regarding consumer rights and requires lenders to advise applicants
who are denied credit of the reasons therefor. In instances where a loan
application is denied or the rate or charge on a loan is increased as a result
of information obtained from a consumer credit agency, the FCRA requires the
lender to supply the applicant with the name and address of the reporting
agency.
RESPA has been extended to cover real estate secured loans that are
subordinated to other mortgage loans. RESPA and Regulation X thereunder require
disclosure of certain information to customers within prescribed time frames and
regulate the receipt or payment of fees or charges for services performed.
ANB is under the supervision of, and subject to examination by, the Office
of the Comptroller of the Currency ("OCC"). ANB's charter limits its activities
to credit card operations. In addition, ANB is subject to the rules and
regulations of the Federal Reserve Board and the Federal Deposit Insurance
Corporation ("FDIC"). Associates Investment Corporation, a Utah industrial loan
company ("Associates Investment"), is regulated by the FDIC and the Utah
Department of Financial Institutions. ANB and Associates Investment are subject
to regulation relating to capital adequacy, leverage, loans, deposits, consumer
protection, community reinvestment, the payment of dividends, transactions with
affiliates and other aspects of operations. In addition, both ANB and Associates
Investment are subject to the provisions of the Community Reinvestment Act.
Federal and state legislation seeking to regulate the maximum interest rate
and/or other charges on consumer finance receivables has been introduced in the
past, and may from time to time be introduced in the future. However, it is not
possible to predict the nature of future legislation with respect to the
foregoing or its impact on the future business, financial condition or prospects
of the Company.
Commercial Finance. Although most states do not regulate commercial
finance, certain states do require licensing of lenders and financers,
limitations on interest rates and other charges, adequate disclosure of certain
contract terms and limitations on certain collection practices and creditor
remedies. The Company is also required to comply with certain provisions of the
ECOA which are applicable to commercial loans.
Small Business Administration loans made by the Company are governed by the
Small Business Act and the Small Business Investment Act of 1958, as amended,
and may be subject to the same regulations by certain states as are other
commercial finance operations. The federal statutes and regulations specify the
types of loans and loan amounts which are eligible for the Small Business
Administration's guaranty as well as the servicing requirements imposed on the
lender to maintain Small Business Administration guarantees.
Insurance. The insurance operations of the Company are subject to detailed
regulation and supervision in each state or other jurisdiction in which they
conduct business. The laws of the various jurisdictions establish supervisory
and regulatory agencies with broad administrative powers. Generally, such laws
cover, among other things, types of insurance that may be sold, policy forms,
reserve requirements, permissible investments, premiums charged, trade
practices, limitations on the amount of dividends payable by any insurance
company and guidelines and standards with respect to dealings between insurance
companies and affiliates.
Foreign Regulation. The Company is subject to regulation in those countries
in which the Company has operations and in most cases has been required to
obtain central governmental approval before commencing business.
13
<PAGE> 15
ITEM 2. PROPERTIES.
The furniture, equipment and other physical property owned by First Capital
and its subsidiaries represent less than 1% of total assets at December 31, 1996
and are therefore not significant in relation to total assets. The branch
finance operations are generally conducted on leased premises under short-term
operating leases normally not exceeding five years. At December 31, 1996, the
Company had approximately 2,150 offices worldwide. The Company owns its
administrative headquarters in Irving, Texas consisting of approximately 550,000
square feet and currently has under construction an additional owned facility of
approximately 400,000 square feet in size which is also located in Irving, Texas
and will be used principally as a credit card processing center.
ITEM 3. LEGAL PROCEEDINGS.
The Company is a defendant in various lawsuits arising in the ordinary
course of its business. The Company 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. While, 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, there can be no assurance that an adverse decision in one or more of
such lawsuits will not have such a material adverse effect. The outcome of
various individual lawsuits, however, may affect the manner in which the Company
conducts its business.
The Company and certain of its subsidiaries are defendants in a relatively
higher concentration of lawsuits in the State of Alabama than in the remainder
of the United States. Management believes that the aggregate number of lawsuits
instituted in Alabama represents additional exposure to the Company because of
the recent history of juries in Alabama awarding significant damages, both
compensatory and punitive, in civil cases. At December 31, 1996, there were
approximately 100 actions pending against the Company in Alabama.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not required.
14
<PAGE> 16
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Class A Common Stock of the Company presently is listed on the New York
Stock Exchange. The high and low sales prices for the Class A Common Stock and
the dividends paid per share of the Class A Common Stock for each full quarterly
period from May 8, 1996, the date the Class A Common Stock began trading on the
New York Stock Exchange, were as follows:
<TABLE>
<CAPTION>
1996 CLASS A COMMON STOCK PRICE PER SHARE*
------------------------------------------------------------------
FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER
------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
High.................................. N/A 39 1/8 41 5/8 48 1/2
--- ---- ----
Low................................... N/A 33 1/8 34 3/4 40 3/4
--- ---- ----
Dividends per share of Class A Common
Stock and Class B Common Stock...... -- -- $.10 $.10
</TABLE>
- ---------------
* Prices reflect New York Stock Exchange Composite Transactions. Initial public
offering price was $29.00 per share.
As of March 21, 1997, stockholders of record of the Company included 1,600
holders of the Class A Common Stock and one holder of the Class B Common Stock.
The Company relies primarily on dividends and other intercompany transfers
of funds from its subsidiaries for the payment of dividends to stockholders. The
terms of the agreements governing certain outstanding indebtedness of Associates
currently contain certain limitations on the payment of dividends and certain
other transfers of funds to the Company. The principal restriction, which is
contained in a certain issue of debt having a stated maturity of March 15, 1999,
generally limits payments of dividends on Associates common stock in any year to
not more than 50% of consolidated net earnings for such year, subject to certain
exceptions, plus increases in contributed capital and extraordinary gains. In
addition, the Company's banking subsidiaries, ANB and Associates Investment, and
the Company's insurance subsidiaries may pay dividends and make certain other
transfers of funds to the Company only up to amounts permitted by applicable
banking and insurance regulations, respectively, and the repatriation of funds
from the Company's foreign subsidiaries may be subject to withholding taxes or
other restrictions.
In connection with the reclassification of the Company's existing common
stock in connection with the Offering and Ford's contribution of Associates
International Group to the Company in May 1996, the Company issued 255,881,180
shares of its Class B Common Stock, par value $0.01 per share, to Ford FSG, Inc.
and 23,603,669 shares of its Class A Common Stock, par value $0.01 per share to
Ford Motor Company, respectively. Upon completion of the Offering under the
terms of the Company's Long-Term Equity Compensation Plan, the Company issued
169,630 shares of Class A Common Stock, par value $0.01 per share, to
approximately 20 employees of the Company. The Company awarded these shares to
such individuals contingent on their continued employment with the Company and
such shares vest on the fifth anniversary of the date of issuance. The Company
believes the issuance of the above shares of common stock was exempt from the
registration requirements of the Securities Act of 1933 (the "Act") under the
provisions of Section 4(2) of the Act.
15
<PAGE> 17
ITEM 6. SELECTED FINANCIAL DATA.
The following table sets forth selected consolidated financial information
regarding the Company's financial position and operating results which has been
extracted from the Company's consolidated financial statements for the five
years ended December 31, 1996. The information should be read in conjunction
with Item 7 -- Management's Discussion and Analysis of Financial Condition and
Results of Operations and the consolidated financial statements and accompanying
notes included elsewhere in this report (dollar amounts in millions):
<TABLE>
<CAPTION>
YEAR ENDED OR AT DECEMBER 31
-----------------------------------------------------
1996 1995 1994 1993 1992
--------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Results of Operations
Total revenue............................................. $ 7,098.2 $6,107.2 $4,925.8 $4,114.8 $3,696.2
Finance charge revenue.................................... 6,481.0 5,560.8 4,445.2 3,709.7 3,330.7
Interest expense.......................................... 2,456.0 2,177.9 1,657.3 1,421.7 1,352.1
Net interest margin....................................... 4,025.0 3,382.9 2,787.9 2,288.0 1,978.6
Operating expenses........................................ 2,002.9 1,754.7 1,456.1 1,216.8 1,007.2
Provision for losses...................................... 1,086.5 834.0 647.1 536.1 568.6
Insurance benefits paid................................... 148.2 142.5 147.9 118.9 103.7
Earnings before provision for income taxes and cumulative
effect of changes in accounting principles.............. 1,404.6 1,198.1 1,017.4 821.3 664.6
Provision for income taxes................................ 547.6 475.0 414.1 327.3 254.5
Net earnings.............................................. 857.0 723.1 603.3 494.0 410.1
Earnings per share(1)(2).................................. 2.47 2.09
Balance Sheet Data
Finance receivables, net of unearned finance income:
Consumer................................................ $31,403.0 $27,575.3 $23,627.8 $19,912.4 $17,412.7
Commercial.............................................. 15,109.9 12,127.2 10,057.9 8,382.3 6,958.3
--------- -------- -------- -------- --------
Total............................................... 46,512.9 39,702.5 33,685.7 28,294.7 24,371.0
========= ======== ======== ======== ========
Allowance for losses...................................... (1,563.1) (1,268.6) (1,061.6) (892.3) (764.7)
Total assets.............................................. 48,268.4 41,303.9 35,283.5 30,039.6 25,996.3
Short-term debt (notes payable)........................... 17,075.2 13,747.3 12,431.9 10,385.9 9,086.4
Long-term debt(3)......................................... 24,029.5 21,372.6 17,306.2 14,826.8 12,846.5
Stockholders' equity...................................... 5,437.5 4,801.1 4,436.8 3,774.3 3,231.1
Stockholders' equity per share(1)(2)...................... 15.69 13.85
Selected Data and Ratios
Net interest margin as a percentage of average net finance
receivables(4).......................................... 9.24% 9.22% 9.00% 8.69% 8.59%
Earnings to fixed charges................................. 1.57x 1.55x 1.61x 1.57x 1.49x
Total debt to equity...................................... 7.5:1 7.2:1 6.6:1 6.6:1 6.7:1
Total debt to tangible equity............................. 9.8:1 9.9:1 9.6:1 10.1:1 11.1:1
Return on average assets(4)............................... 1.89% 1.89% 1.85% 1.76% 1.66%
Return on average equity(4)............................... 18.31 15.66 14.70 14.10 13.04
Return on average tangible equity(4)...................... 24.98 21.90 21.71 22.31 22.15
60+days contractual delinquency........................... 2.20 1.71 1.35 1.43 1.85
Net credit losses to average net finance receivables...... 2.03 1.70 1.64 1.68 2.04
Allowance for losses to net finance receivables........... 3.36 3.20 3.15 3.15 3.14
Allowance for losses to net credit losses................. 1.77x 2.03x 2.09x 2.02x 1.63x
Number of employees....................................... 18,984 16,647 15,318 13,933 12,430
Number of consumer and commercial branch offices
Domestic................................................ 1,634 1,543 1,472 1,378 1,133
International........................................... 499 404 329 278 256
--------- -------- -------- -------- --------
Total............................................... 2,133 1,947 1,801 1,656 1,389
========= ======== ======== ======== ========
</TABLE>
- ---------------
(1) Based on 346.7 million shares outstanding.
(2) Due to the change in the Company's capital structure as a result of the
Offering, historical share and per share data will not be comparable to, or
meaningful in the context of, future periods.
(3) Includes current portion of long-term debt.
(4) During the first quarter of 1996, the Company paid a dividend to FFSG
totaling $1.85 billion of which $1.75 billion was in the form of an
intercompany interest bearing note. The Company repaid the $1.75 billion
intercompany note with FFSG during the second quarter of 1996 and received
$1.85 billion as a result of the Offering. Excluding the impact of these
transactions, the Company's net interest margin, return on average assets,
on average equity and on average tangible equity for the year ended December
31, 1996 would have been 9.29%, 1.93%, 17.15% and 21.01%, respectively.
16
<PAGE> 18
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
GENERAL
The Company is in the consumer and commercial finance business, providing
finance, leasing and related insurance products as well as other services. The
Company's revenues principally consist of finance charge income and, to a lesser
extent, insurance premiums and investment income. The Company's primary expenses
are interest expense from the funding of its finance business, provision for
loan losses and operating expenses. A principal factor determining the
profitability of the Company is the Company's finance charge revenue less
interest expense ("net interest margin").
The following discussion and analysis provides information that management
believes to be relevant to understanding the Company's consolidated financial
condition and results of operations. This discussion should be read in
conjunction with the consolidated financial statements of the Company and the
related notes thereto.
RESULTS OF OPERATIONS
SUMMARY OF RESULTS OF OPERATIONS
The following table summarizes the Company's net earnings and related data
(dollars in millions):
NET EARNINGS AND RELATED DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Net Earnings............................................. $857.0 $723.1 $603.3
Change in Net Earnings
Amount................................................. $133.9 $119.8 $109.3
Percent................................................ 18.5% 19.9% 22.1%
Return
On average assets...................................... 1.89% 1.89% 1.85%
On average equity...................................... 18.31% 15.66% 14.70%
</TABLE>
The Company derived approximately 15.0% of its net earnings in 1996 from
its foreign subsidiaries, principally Japan; See NOTE 17 to the Company's
consolidated financial statements. Management believes that the overall business
factors and trends affecting the profitability of the foreign subsidiaries were
substantially the same as those affecting the profitability of its analogous
businesses in the United States. However, because such net earnings are
denominated in foreign currencies, the value of such results as included in the
consolidated U.S. dollar denominated results, is influenced by the change in
foreign exchange rates, principally the Japanese yen. The impact of foreign
currency translation is further described below under "-- Liquidity/Capital
Resources".
The principal factors which influenced the changes in the Company's net
earnings in each period are finance charge revenue and interest expense,
operating expenses and provision for loan losses, all of which are described
below.
17
<PAGE> 19
FINANCE CHARGE REVENUE AND INTEREST EXPENSE
The Company's net interest margin was as follows (dollars in millions):
NET INTEREST MARGIN
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------------------------------------------
1996 1995 1994
------------------ ------------------ ------------------
PERCENT PERCENT PERCENT
AMOUNT (1) AMOUNT (1) AMOUNT (1)
-------- ------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Finance Charge Revenue........ $6,481.0 14.88% $5,560.8 15.15% $4,445.2 14.34%
Interest Expense.............. 2,456.0 6.32 2,177.9 6.72 1,657.3 6.03
-------- -------- --------
Net Interest Margin........... $4,025.0 9.29% $3,382.9 9.22% $2,787.9 9.00%
======== ======== ========
</TABLE>
- ---------------
(1) Finance charge revenue and net interest margin are expressed as a percent of
average net finance receivables outstanding for the indicated period;
interest expense is expressed as a percent of average debt outstanding for
the indicated period. The 1996 net interest margin excludes 0.05%
non-recurring interest costs related to the 1996 public offering of the
Company's Class A Common Stock.
Finance charge revenue increased on a dollar basis in each of the years in
both the Company's domestic and international operations. The increase in each
year principally resulted from growth in net finance receivables, which caused a
corresponding increase in the average net finance receivables outstanding
("ANR"). A decrease in the finance charge yield (finance charge revenue divided
by ANR) in 1996 partially offset some of the increase in finance charge revenue
caused by growth; correspondingly, an increase in the finance charge yield in
1995 and 1994 contributed to the overall increase in finance charge revenue for
those years. The components of the change in finance charge revenue attributable
to growth in receivables and changes in the finance charge yield are set forth
in the following table (in millions):
COMPONENTS OF CHANGES IN FINANCE CHARGE REVENUE
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------
1996 1995 1994
-------- -------- ------
<S> <C> <C> <C>
Change Due to:
Growth in receivables.............................. $1,020.9 $ 864.4 $668.0
Finance charge yield............................... (100.7) 251.2 67.5
-------- -------- ------
Total...................................... $ 920.2 $1,115.6 $735.5
======== ======== ======
</TABLE>
The finance charge yields to ANR for each of the Company's business
segments were as follows:
FINANCE CHARGE YIELDS TO ANR
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------
1996 1995 1994
----- ----- -----
<S> <C> <C> <C>
Consumer Segment........................................... 17.24% 17.48% 16.85%
Commercial Segment......................................... 10.15 10.11 9.67
Total Company............................................ 14.88% 15.15% 14.34%
</TABLE>
The principal factors which influence the trend of finance charge yields
are (i) the interest rate environment; (ii) the level of business competition;
and (iii) the varying composition of the finance receivable portfolios (i.e.,
"product mix"). Historically, the consumer segment composite finance charge
yield has been principally influenced by shifts in product mix between higher
yielding unsecured finance products and lower yielding secured finance products.
Change in product mix was the principal cause of the movements in finance charge
yield from 1994 to 1996. Additionally, in 1996, reductions in finance charge
rates on new loans principally in the real estate and manufactured housing
portfolios, both as a consequence of increased competition and generally lower
market interest rates, contributed to the overall reduction in the consumer
segment finance charge yield. The commercial segment composite finance charge
yield is principally influenced by the level of business competition and the
interest rate environment and not by the mix of
18
<PAGE> 20
secured and unsecured products, since substantially all commercial finance
receivables are secured. In spite of increased competition from other commercial
lenders and a generally lower market interest rate environment during the period
1994 through 1996, the commercial segment was able to increase its finance
charge rates through disciplined initiatives designed specifically to increase
pricing in substantially all of its portfolios.
Total dollars of interest expense increased in each of the three years
ended 1996. In each year the increase was principally due to higher average
outstanding debt as a result of the Company's growth in net finance receivables.
In 1996, the increase in expense as a result of growth was offset partially by a
decline in the Company's average borrowing rate (interest expense divided by
average outstanding debt). In 1995, the Company's average borrowing rate
increased from the prior year and contributed to the increase in interest
expense due to growth. In 1994, the Company's average borrowing rate was the
same as the previous year and therefore had no effect on the increase in
interest expense. Changes in the Company's average borrowing rate in each of the
years was principally caused by changes in market interest rates which varied
over the corresponding periods. Total interest expense and average short- and
long-term borrowing rates were as follows (dollars in millions):
INTEREST EXPENSE AND AVERAGE BORROWING RATES
<TABLE>
<CAPTION>
YEAR ENDED OR AT DECEMBER 31
------------------------------------------------------------------
1996 1995 1994
-------------------- -------------------- --------------------
AVERAGE AVERAGE AVERAGE
INTEREST BORROWING INTEREST BORROWING INTEREST BORROWING
EXPENSE RATE EXPENSE RATE EXPENSE RATE
-------- --------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Short-term Debt.......... -- 5.53% -- 5.98% -- 4.35%
Long-term Debt(1)........ -- 6.89 -- 7.21 -- 7.23
Total.......... $2,456.0 6.32% $2,177.9 6.72% $1,657.3 6.03%
======== ======== ========
</TABLE>
- ---------------
(1) Includes the current portion of long-term debt.
The short-term interest expense and average borrowing rate for short-term
debt relates principally to commercial paper issued by the Company, and to a
lesser extent, bank loans. Such borrowings typically are for a duration of 270
days or less. In contrast, the long-term interest expense and average borrowing
rate for long-term debt relate principally to debt issued by the Company with a
typical duration in the range of 3-7 years. The changes in short- and long-term
average borrowing rates from 1994 to 1996 are principally due to changes in
market interest rates for debt of a comparable term and credit quality.
Short-term interest rates generally increased during 1995 and 1994 and decreased
during 1996; long-term interest rates generally decreased over the three-year
period. Additionally, the Company's average long-term borrowing rate was reduced
in all years, in part, by refinancing maturing debt at lower prevailing market
rates.
For purposes of measuring business segment profitability, the Company
generally allocates the interest expense incurred to the business segments based
on ANR. Management believes that analysis of the principal components of change
in interest expense is only meaningful on a total Company basis. The change in
interest expense attributable to growth in average outstanding debt and changes
in average borrowing rates are set forth in the following table (in millions):
COMPONENTS OF CHANGES IN INTEREST EXPENSE
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
---------------------------
1996 1995 1994
------- ------ ------
<S> <C> <C> <C>
Change Due to:
Growth in debt........................................ $ 407.7 $332.7 $235.3
Borrowing rate........................................ (129.6) 187.9 0.3
------- ------ ------
Total......................................... $ 278.1 $520.6 $235.6
======= ====== ======
</TABLE>
As a result of the foregoing changes in finance charge revenue and interest
expense, the Company's net interest margin measured in dollars and as a
percentage of ANR increased in each of the three years ended
19
<PAGE> 21
December 31, 1996, 1995 and 1994, respectively. The increase as measured in
dollars was principally due to growth in net finance receivables. The increase
as measured as a percent of ANR was principally due to reduced borrowing costs.
INSURANCE PREMIUM REVENUE
Insurance premium revenue was $402.1 million, $370.6 million and $329.0
million for the years ended December 31, 1996, 1995 and 1994, respectively.
Insurance premium revenue, which is earned over the coverage term, increased
$31.5 million (8.5%) in 1996, $41.6 million (12.6%) in 1995, and $58.1 million
(21.5%) in 1994. The insurance operation is engaged in underwriting
credit-related and other specialized insurance products for customers of the
consumer and commercial finance businesses. Therefore, insurance sales, and
resulting revenue, are largely dependent on the business activities and volumes
of the consumer and commercial finance businesses. The increase in insurance
revenue in each of the years was caused principally by increased sales of
insurance products associated with the increase in net finance receivables
outstanding.
INVESTMENT AND OTHER INCOME
Investment and other income for the years ended December 31, 1996, 1995 and
1994 was $215.1 million, $175.8 million and $151.6 million, respectively.
Investment income is derived from realized or unrealized returns on the
Company's investments in equity securities and realized returns on investments
in debt securities, both of which are principally owned by the Company's
insurance operation. Other income is primarily derived from the Company's
revenue recorded on the securitization of assets, related excess servicing
income and revenue from fee-based services, such as employee relocation services
and emergency roadside assistance and auto club services. The increase in 1996
from 1995 was principally due to revenue recorded on the securitization and
servicing of approximately $2.1 billion of manufactured housing and recreational
vehicle finance receivables, related excess servicing income and other revenue
related to growth in fee-based businesses. The increase in the years 1995 and
1994 was principally due to increases in the Company's investments in debt and
equity securities and related returns and, to a lesser extent, increases in
other revenue related to the growth in fee-based businesses.
OPERATING EXPENSES
Operating expenses, which do not include interest expense, were as follows
(dollars in millions):
OPERATING EXPENSES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------------------------------
1996 1995 1994
---------------- ---------------- ----------------
AMOUNT % ANR AMOUNT % ANR AMOUNT % ANR
-------- ----- -------- ----- -------- -----
<S> <C> <C> <C> <C> <C> <C>
Salaries and Benefits...................... $ 946.0 2.17% $ 807.7 2.20% $ 700.8 2.26%
Occupancy, Data Processing and Other....... 1,056.9 2.43 947.0 2.58 755.3 2.44
-------- ----- -------- ----- -------- -----
Total................................. $2,002.9 4.60% $1,754.7 4.78% $1,456.1 4.70%
======== ===== ======== ===== ======== =====
Efficiency Ratio......................... 44.57% 46.34% 46.66%
===== ===== =====
</TABLE>
Total operating expenses on a dollar basis increased from 1994 to 1996,
principally due to higher levels of business volume and outstanding receivables
in each of the years. The increases in salaries and benefits in total dollars is
primarily due to increases in the number of employees to support the higher
business volume and outstanding receivables. As a percentage of ANR, total
operating expenses decreased from 1995 to 1996. This decrease reflects continued
reductions in the proportion of incremental expense required to support the
higher business volumes and outstanding net receivables and results from
improved operating efficiency. The Company's total operating efficiency, as
measured by the ratio of total operating expenses to revenues net of interest
expense and insurance benefits paid or provided (the "Efficiency Ratio")
improved from 1994 to 1996.
20
<PAGE> 22
ALLOWANCE FOR LOSSES, LOSSES AND ASSET QUALITY
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 its 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. For purposes of measuring
business segment profitability, each business segment establishes an allowance
for loan loss when a loan is made with a corresponding charge to the provision
for losses. The Company manages its allowance for losses on finance receivables
on a Company-wide basis taking into account actual and expected losses in each
business segment and the relationship of the allowance to net finance
receivables and total net credit losses; the resulting charge is included in the
provision for losses.
The balance of the allowance for losses was principally influenced by the
provision for losses and by net credit loss experience. Additions to the
allowance, principally due to growth in finance receivables, were charged to the
provision for losses at the time the growth occurred. Losses were charged to the
allowance as incurred and recoveries on losses previously charged to the
allowance were credited to the allowance at the time the recovery was collected.
The components of the changes in the allowance for losses were as follows
(dollars in millions):
COMPONENTS OF CHANGES IN THE ALLOWANCE FOR LOSSES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
---------------------------------
1996 1995 1994
--------- -------- --------
<S> <C> <C> <C>
Balance at Beginning of Period...................... $ 1,268.6 $1,061.6 $ 892.3
Provision for losses.............................. 1,086.5 834.0 647.1
Recoveries on receivables charged off............. 147.2 132.9 118.2
Losses sustained.................................. (1,032.5) (757.1) (626.8)
--------- -------- --------
Net credit loss experience................ (885.3) (624.2) (508.6)
--------- -------- --------
Reserves of acquired businesses and other......... 93.3 (2.8) 30.8
--------- -------- --------
Balance at End of Period............................ $ 1,563.1 $1,268.6 $1,061.6
========= ======== ========
Allowance for Losses to Net Finance Receivables..... 3.36% 3.20% 3.15%
Allowance for Losses to Net Credit Losses........... 1.77x 2.03x 2.09x
</TABLE>
The allowance for losses as a percent of net finance receivables (the
"allowance ratio") increased in each of the three years, reflecting management's
opinion that delinquency and net credit losses may increase. However, in spite
of the increase in the allowance ratio, the loss coverage ratio (allowance for
losses as a percent of net credit losses) decreased in 1996 and in 1995; the
loss coverage ratio increased in 1994. The decrease in the loss coverage ratio
in 1996 and 1995 principally resulted from losses growing at a faster rate than
the allowance for losses. Notwithstanding the decrease in the loss coverage
ratio in 1996, management believes the allowance for losses at December 31, 1996
is sufficient to provide adequate protection against losses in its portfolios.
Although the allowance for losses on finance receivables reflected in the
Company's consolidated balance sheet at December 31, 1996 is considered adequate
by the Company's management, there can be no assurance that this allowance will
prove to be adequate over time to cover ultimate losses in connection with the
Company's finance receivables. This allowance may prove to be inadequate due to
unanticipated adverse changes in the economy or discrete events adversely
affecting specific customers or industries. The Company's results of operations
and financial condition could be materially adversely affected to the extent
that the Company's allowance is insufficient to cover such changes or events.
21
<PAGE> 23
A principal component of the change in the balance of allowance for losses
in each year was the provision for losses. The following table summarizes the
components of the changes in the provision for losses (in millions):
COMPONENTS OF CHANGES IN THE PROVISION FOR LOSSES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Change Due to:
Change in net loss experience.......................... $144.5 $ 22.1 $(10.8)
Growth in receivables, change in reserves and other.... 108.0 164.8 121.8
------ ------ ------
Total.......................................... $252.5 $186.9 $111.0
====== ====== ======
</TABLE>
Net loss experience in 1996 increased 33 basis points to 2.03% of ANR from
1.70% of ANR in 1995. By comparison, net losses in 1995 increased 6 basis points
from 1.64% in 1994. Net loss experience in 1994 was less than 1993. The increase
in the year-over-year growth in net finance receivables was a principal cause of
the increase in the provision for losses in each of the years. Additionally, in
1996 and 1995 the increase in the allowance ratio also contributed to the change
in the provision for losses in those years.
The Company experienced an increase in net credit losses across
substantially all of its portfolios in 1996 and 1995 in contrast to its
experience in 1994 during which net credit losses declined from the prior year.
The Company's 60+days contractual delinquency and net credit losses for each of
these years are set forth in the following table (dollars in millions):
CONTRACTUAL DELINQUENCY AND NET CREDIT LOSSES
<TABLE>
<CAPTION>
YEAR ENDED OR AT DECEMBER 31
----------------------------
1996 1995 1994
-------- ------ ------
<S> <C> <C> <C>
60+Days Contractual Delinquency
Consumer.............................................. 2.77% 2.19% 1.80%
Commercial............................................ 1.05 0.64 0.28
Total......................................... 2.20% 1.71% 1.35%
Total dollars delinquent...................... $1,107.2 $755.4 $510.3
Net Credit Losses to ANR
Consumer.............................................. 2.80% 2.35% 2.30%
Commercial............................................ 0.33 0.19 0.09
Total......................................... 2.03% 1.70% 1.64%
Total dollars................................. $ 885.3 $624.2 $508.6
</TABLE>
Contractual delinquency and net credit losses generally improved, on a
ratio basis, across all portfolios domestically and internationally from 1993,
approaching historical lows in 1994, reflecting similar trends in overall
economic conditions. These trends reversed across all portfolios in 1995,
principally as a result of generally less favorable trends in economic
conditions, including rising consumer debt levels and decreased manufacturing
capacity utilization in areas of the commercial market served by the Company;
this trend continued throughout 1996.
INSURANCE BENEFITS PAID OR PROVIDED
Insurance benefits paid or provided were $148.2 million in 1996, $142.5
million in 1995 and $147.9 million in 1994. Benefits paid or provided are
influenced by the amount of insurance in force, underwriting standards, loss
experience, term of coverage and product mix. Benefits paid or provided
increased in 1996 compared to 1995 primarily as a result of more insurance in
force. For 1995, benefits paid or provided decreased when compared to 1994
primarily as a result of favorable loss experience.
22
<PAGE> 24
PROVISION FOR INCOME TAXES
The Company's provision for income taxes and effective tax rates were as
follows (dollars in millions):
PROVISION FOR INCOME TAXES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------------------------------------
1996 1995 1994
------------------ ------------------ ------------------
EFFECTIVE EFFECTIVE EFFECTIVE
TAX TAX TAX
AMOUNT RATE AMOUNT RATE AMOUNT RATE
------ --------- ------ --------- ------ ---------
<S> <C> <C> <C> <C> <C> <C>
U.S. Statutory Rate...................... $491.6 35.0% $419.4 35.0% $356.1 35.0%
State income taxes..................... 20.5 1.5 14.0 1.2 20.5 2.0
Non-deductible goodwill................ 7.1 0.5 10.9 0.9 11.7 1.2
Foreign rates in excess of U.S. rate
and other........................... 28.4 2.0 30.7 2.5 25.8 2.5
------ ---- ------ ---- ------ ----
Provision for Income Taxes............... $547.6 39.0% $475.0 39.6% $414.1 40.7%
====== ==== ====== ==== ====== ====
</TABLE>
The provision for state income taxes and state effective tax rate decreased
in 1995 principally due to a one-time benefit provided to the Company by Ford
under its state tax-sharing agreement. Had the Company not received such
benefit, the 1995 provision and resulting impact on the effective rate would
have been substantially the same as that in 1994.
A substantial portion of the Company's total goodwill is related to, and
has been recorded by, its operation in Japan. The decrease in the amount of
non-deductible goodwill and the related impact on the effective tax rate for
each year principally results from changes in the Company's estimate of the
amount of such goodwill that will ultimately be tax deductible in Japan.
The Company provides for income taxes on its foreign earnings at the
statutory tax rate in effect for the applicable country where such earnings
arise. The principal foreign earnings of the Company arise from its operation in
Japan, where the statutory tax rate is significantly higher than the U.S.
statutory tax rate. The increase in the provision resulting from foreign rates
in excess of the U.S. statutory rate and other, in years 1995 and 1994, were
principally due to increases in Japanese earnings, on a percentage basis
relative to total Company earnings, which are subject to a higher tax rate than
the U.S. rate. While earnings of the Company's foreign subsidiaries also
increased as a percentage of total Company earnings in 1996, the Company
utilized certain foreign benefits which caused the amount of tax and rate
attributable to such foreign operations to decrease from 1995.
NET EARNINGS
As a result of the foregoing, net earnings of the Company for the years
ended December 31, 1996, 1995 and 1994 increased $133.9 million (18.5%), $119.8
million (19.9%) and $109.3 million (22.1%), respectively.
23
<PAGE> 25
FINANCIAL CONDITION
GROWTH IN NET FINANCE RECEIVABLES
The Company experienced growth in its consumer and commercial finance
receivable portfolios in 1996 and 1995 as follows (dollars in millions):
GROWTH IN NET FINANCE RECEIVABLES
<TABLE>
<CAPTION>
AT DECEMBER 31
---------------------------------------------------------
1996 1995
--------------------------- ---------------------------
INCREASE FROM INCREASE FROM
PRIOR YEAR PRIOR YEAR
--------------- ---------------
BALANCE AMOUNT % BALANCE AMOUNT %
--------- -------- ---- --------- -------- ----
<S> <C> <C> <C> <C> <C> <C>
Owned Receivables
Consumer Finance.................. $31,403.0 $3,827.7 13.9% $27,575.3 $3,947.5 16.7%
Commercial Finance................ 15,109.9 2,982.7 24.6 12,127.2 2,069.3 20.6
--------- -------- --------- --------
Total..................... $46,512.9 $6,810.4 17.2% $39,702.5 $6,016.8 17.9%
========= ======== ========= ========
Managed Receivables................. $48,622.8 $8,920.3 22.5% $39,702.5 $6,016.8 17.9%
========= ======== ========= ========
</TABLE>
Approximately 41% of the growth in managed net finance receivables during
1996 resulted from the acquisition of finance receivables and companies;
acquisition growth in 1995 represented less than 10% of the total growth. A
substantial portion of growth in both years was generated from internal sources
principally through additional expansion of the Company's branch network system,
increased penetration in its existing markets and entry into new markets and
offering of new products. Additionally, in 1996 the Company acquired Fleetwood
Credit Corporation which finances recreational vehicles and sells such
receivables through securitized transactions. Further, in 1996, the Company
securitized and sold a portion of its outstanding loans secured by manufactured
homes. At December 31, 1996, the Company managed approximately $2.1 billion of
securitized assets, all of which had been acquired or originated by the Company.
While such securitized loans were not on the Company's balance sheet at December
31, 1996, management believes the amount securitized (shown as managed
receivables in the above chart) meaningful to understanding the Company's
earnings and growth performance during 1996. Securitized receivables were
included in the computation of ANR through the date that such receivables were
no longer carried on the Company's balance sheet.
DEBT
Total outstanding debt was $41.1 billion and $35.1 billion at December 31,
1996 and 1995, respectively. Such amounts of debt reflect net increases of $6.0
billion (17.0%) in 1996 and $5.4 billion (18.1%) in 1995. In both years, the
increase was primarily a result of the growth in net finance receivables. Debt
is the primary source of funding to support the Company's growth in net finance
receivables. At December 31, 1996 and 1995, short-term debt, including the
current portion of long-term debt, as a percent of total debt was 51% and 48%,
respectively. The current portion of long-term debt at December 31, 1996 and
1995 was $3.7 billion and $3.2 billion, respectively.
STOCKHOLDERS' EQUITY
Stockholders' equity increased to $5.4 billion in 1996 from $4.8 billion in
1995. In each year, the increase was principally as a result of the
aforementioned increase in net earnings. The increases in 1996 and 1995 due to
earnings were partially offset by unrealized foreign currency translation losses
of $107.8 million and $41.7 million, respectively, which principally resulted
from devaluations of the Japanese yen compared to the U.S. dollar which thereby
reduced the U.S. dollar translated value of the Company's net investment in
Japan. Stockholders' equity was also adjusted in 1996 and 1995 by unrealized
(losses)/gains of ($12.8) million and $29.8 million, respectively, related to
its insurance subsidiary's investments in marketable debt securities. During
1996, the Company paid cash dividends in the amount of $1,998.0 million of which
$1,928.7 million was paid to Ford. Of the total cash dividends paid in 1996,
$69.3 million represented dividends paid on its
24
<PAGE> 26
common stock outstanding after the Company's initial public offering. Also, as
referenced in NOTE 3 to these consolidated financial statements, in 1996 the
Company recorded an adjustment to equity in the amount of $31.4 million related
to its acquisition of certain assets from a Ford affiliate. The adjustment
represents the difference between the purchase price and historical value of the
net assets acquired. In 1995 the Company paid cash dividends to Ford in the
amount of $318.0 million and received capital contributions from Ford in the
amount of $200.0 million.
LIQUIDITY/CAPITAL RESOURCES
Through its asset and liability management function, the Company maintains
a disciplined approach to the management of liquidity, capital, interest rate
risk and foreign exchange risk. The Company has a formal process for managing
its liquidity in the U.S. and internationally to ensure that funds are available
at all times to meet the Company's commitments.
The Company's principal sources of cash are proceeds from the issuance of
short-term and long-term debt and cash provided from the Company's operations.
Prior to the Company's initial public offering of its Class A Common Stock, Ford
made periodic capital contributions to the Company. As a result of Ford's
decreased ownership interests in the Company after the Offering, Ford may not be
willing to make capital contributions to the Company in the future. In addition,
because Ford may seek to maintain its beneficial ownership percentage of the
Company, the Company may be constrained in its ability to raise equity capital
in the future. Nevertheless, the Company believes that it has available
sufficient liquidity, from a combination of cash provided from operations and
external borrowings, to support its operations.
A principal strength of the Company is its ability to access the global
debt markets in a cost-efficient manner. Continued access to the public and
private debt markets is critical to the Company's ability to continue to fund
its operations. The Company seeks to maintain a conservative liquidity position
and actively manage its liability and capital levels, debt maturities,
diversification of funding sources and asset liquidity to ensure that the
Company is able to meet its obligations. The Company's U.S. operations are
principally funded through domestic borrowings made by Associates and, to a
lesser extent, borrowings made directly by the Company. The Company's foreign
subsidiaries are principally financed through private debt borrowings made
directly by each foreign entity in its transactional currency and, to a lesser
extent, fully hedged intercompany borrowings.
At December 31, 1996, the Company had short-term debt outstanding of $17.1
billion. Short-term debt principally consists of commercial paper issued by
Associates and represents the Company's primary source of short-term liquidity.
Commercial paper is issued with maturities ranging from 1 to 270 days. The
average interest rate on short-term debt in 1996 and 1995 was 5.53% and 5.98%,
respectively. The change in average rates was principally due to the overall
changes in market rates during such years.
At December 31, 1996, the Company had long-term debt outstanding of $24.0
billion. Long-term debt principally consists of unsecured long-term debt issued
publicly and privately by Associates in the United States and abroad, and to a
lesser extent, private borrowings made by the Company's foreign subsidiaries.
During the years ended 1996 and 1995, the Company raised debt aggregating $6.0
billion and $6.3 billion, respectively, through public and private offerings at
weighted average effective interest rates and weighted average terms of 6.29%
and 4.8 years and 6.59% and 5.7 years, respectively. The change in effective
average interest rates was primarily caused by overall changes in market rates
during such years. A portion of the long-term debt raised was used to retire
outstanding indebtedness. For the years ended 1996 and 1995, the Company
replaced maturing long-term debt in the amount of $3.5 billion and $2.5 billion,
respectively.
Interest rate risk is measured and controlled through the use of two
different techniques: static gap analysis and financial forecasting, both of
which incorporate assumptions as to future events. The Company's gap position is
defined as the sum of floating rate asset balances and principal payments on
fixed rate assets, less the sum of floating rate liability balances and
principal payments on fixed rate liabilities. The Company measures its gap
position at various time horizons, ranging from three months to five years. The
Company seeks to maintain a positive one-year gap position within a range of 15%
of total earning assets, although the one-year gap position is not necessarily
illustrative of the gap position at shorter or longer time horizons. The
25
<PAGE> 27
Company's twelve-month gap indicates that a greater percentage of assets than
liabilities reprice within a one-year time frame. Generally, the combination of
a positive gap position and a rising rate environment will result in assets
repricing to higher rates more quickly than liabilities, thereby producing wider
lending spreads over a given time frame. Conversely, the combination of a
positive gap and a falling rate environment will generally result in narrowing
lending spreads over a given time frame. The Company believes that its portfolio
has repricing characteristics that mitigate the impact of rate movements over
both the short- and long-term. In addition to the gap analysis, the Company uses
financial forecasting to evaluate the impact on earnings under a variety of
scenarios that may incorporate changes in the absolute level of interest rates,
the shape of the yield curve, prepayments, interest rate spread relationships
and changes in the volumes and rates of various asset and liability categories.
The Company has entered into various support agreements on behalf of its
foreign subsidiaries. Under these support agreements, the Company has either
guaranteed specific issues of such subsidiaries' debt denominated in foreign
currency or agreed to supervise operations in a responsible manner and to
provide additional support on a lender's reasonable request. See NOTES 6, 7 and
15 to the Company's consolidated financial statements for a further description
of the Company's borrowings and currency hedging activities.
Substantial additional liquidity is available to the Company's domestic
operations through established credit facilities in support of its net
short-term borrowings. Such credit facilities provide a means of refinancing its
maturing short-term obligations as needed. At December 31, 1996, short-term bank
lines, revolving credit facilities and receivable purchase facilities totaled
$12.4 billion, none of which was in use at that date. These facilities
represented 75% of domestic net short-term indebtedness outstanding at December
31, 1996.
Additionally, the Company believes it has access to other sources of
liquidity, which to date it has either accessed only on a limited basis, such as
securitization of assets, or has not accessed, such as the issuance of
alternative forms of capital, including preferred stock.
Management believes that the Company has limited exposure to exchange rate
risk related to its foreign operations. For the year ended December 31, 1996,
approximately 9.1% of the Company's revenues and 11.8% of its net earnings were
derived from its operation in Japan, the Company's principal foreign operation.
Prior to 1995, the Japanese yen had generally appreciated against the U.S.
dollar, which had a positive impact on the translated value of the Company's
yen-denominated investment in Japan to its consolidated equity and translated
value of Japanese earnings to the Company's consolidated earnings. During 1996
and 1995, the value of the Japanese yen generally depreciated against the U.S.
dollar, which had the opposite impact on consolidated equity and earnings.
The Company has historically considered currency hedging as a tool to
manage foreign exchange risk on predictable cash flows between the U.S. and its
foreign subsidiaries. However, it has not been the historical practice of the
Company to hedge its net investment in such subsidiaries and therefore at
December 31, 1996 the Company was exposed to unrealized translation adjustments
that may arise from movements in foreign currencies, principally the yen.
Subsequent to December 31, 1996, the Company has taken measures to hedge a
portion of its net investment in its Japanese subsidiary.
YEAR 2000 COMPLIANCE
The Company has and will continue to make certain investments in its
software systems and applications to ensure the Company is year 2000 compliant.
The financial impact to the Company has not been and is not anticipated to be
material to its financial position or results of operations in any given year.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1996, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 125, "Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities" ("SFAS 125"). SFAS 125
establishes accounting and reporting standards for transfers of financial assets
effective for transactions occurring after December 31, 1996. While the new
standard will apply to the
26
<PAGE> 28
Company's periodic securitizations of manufactured housing and recreational
vehicle receivables, the Company does not believe that adoption of SFAS 125 will
have a material effect on the Company's consolidated financial position or
results of operations.
27
<PAGE> 29
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors
Associates First Capital Corporation
We have audited the accompanying consolidated balance sheets of Associates
First Capital Corporation (a majority indirect-owned subsidiary of Ford Motor
Company) as of December 31, 1996 and 1995, and the related consolidated
statements of earnings, changes in stockholders' equity, and cash flows for each
of the three years in the period ended December 31, 1996. Those 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, 1996 and 1995 and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1996, in conformity with generally accepted accounting
principles.
COOPERS & LYBRAND L.L.P.
Dallas, Texas
January 28, 1997
28
<PAGE> 30
ASSOCIATES FIRST CAPITAL CORPORATION
CONSOLIDATED STATEMENT OF EARNINGS
(IN MILLIONS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
REVENUE
Finance charges........................................... $6,481.0 $5,560.8 $4,445.2
Insurance premiums........................................ 402.1 370.6 329.0
Investment and other income............................... 215.1 175.8 151.6
-------- -------- --------
7,098.2 6,107.2 4,925.8
EXPENSES
Interest expense.......................................... 2,456.0 2,177.9 1,657.3
Operating expenses........................................ 2,002.9 1,754.7 1,456.1
Provision for losses on finance receivables -- NOTE 4..... 1,086.5 834.0 647.1
Insurance benefits paid or provided....................... 148.2 142.5 147.9
-------- -------- --------
5,693.6 4,909.1 3,908.4
-------- -------- --------
EARNINGS BEFORE PROVISION FOR INCOME TAXES.................. 1,404.6 1,198.1 1,017.4
PROVISION FOR INCOME TAXES -- NOTE 8........................ 547.6 475.0 414.1
-------- -------- --------
NET EARNINGS................................................ $ 857.0 $ 723.1 $ 603.3
======== ======== ========
EARNINGS PER SHARE*......................................... $ 2.47 $ 2.09 $ 1.74
======== ======== ========
</TABLE>
- ---------------
* Based on 346.7 million shares outstanding and in whole dollars.
See notes to consolidated financial statements.
29
<PAGE> 31
ASSOCIATES FIRST CAPITAL CORPORATION
CONSOLIDATED BALANCE SHEET
(IN MILLIONS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31
---------------------
1996 1995
--------- ---------
<S> <C> <C>
CASH AND CASH EQUIVALENTS................................... $ 446.9 $ 532.2
INVESTMENTS IN DEBT AND EQUITY SECURITIES -- NOTE 16........ 1,051.1 881.1
FINANCE RECEIVABLES, net of unearned finance income,
allowance for credit losses and insurance policy and
claims reserves -- NOTE 3................................. 44,236.9 37,808.5
OTHER ASSETS -- NOTE 13..................................... 2,533.5 2,082.1
--------- ---------
Total assets...................................... $48,268.4 $41,303.9
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
NOTES PAYABLE, unsecured short-term -- NOTE 6
Commercial Paper.......................................... $15,907.9 $12,902.9
Bank Loans................................................ 1,167.3 844.4
ACCOUNTS PAYABLE AND ACCRUALS............................... 1,726.2 1,382.9
LONG-TERM DEBT -- NOTES 7 and 9
Senior Notes.............................................. 23,604.0 21,230.8
Subordinated and Capital Notes............................ 425.5 141.8
--------- ---------
24,029.5 21,372.6
STOCKHOLDERS' EQUITY
Common Stock, no par value, 250 shares authorized, issued
and outstanding, at stated value....................... 47.0
Class A Common Stock, $0.01 par value, 1,150,000,000
shares authorized, 90,773,299 shares issued and
outstanding............................................ 0.9
Class B Common Stock, $0.01 par value, 400,000,000 shares
authorized, 255,881,180 shares issued and
outstanding............................................ 2.6
Paid-in Capital........................................... 4,007.5 2,066.0
Retained Earnings......................................... 1,204.3 2,345.3
Foreign Currency Translation Adjustments.................. 222.8 330.6
Unrealized (Loss) Gain on Available-for-Sale
Securities -- NOTES 2
and 16................................................. (0.6) 12.2
--------- ---------
Total stockholders' equity........................ 5,437.5 4,801.1
--------- ---------
Total liabilities and stockholders' equity........ $48,268.4 $41,303.9
========= =========
</TABLE>
See notes to consolidated financial statements.
30
<PAGE> 32
ASSOCIATES FIRST CAPITAL CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(IN MILLIONS)
<TABLE>
<CAPTION>
UNREALIZED
GAIN
FOREIGN (LOSS) ON
CURRENCY AVAILABLE- TOTAL
COMMON PAID-IN RETAINED TRANSLATION FOR-SALE STOCKHOLDERS'
STOCK CAPITAL EARNINGS ADJUSTMENTS SECURITIES EQUITY
------ -------- --------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
DECEMBER 31, 1993............... $47.0 $1,879.8 $ 1,625.0 $ 218.5 $ 4.0 $ 3,774.3
Net Earnings.................. 603.3 603.3
Contributions from Ford....... 215.1 215.1
Cash Dividends................ (288.1) (288.1)
Current Period Adjustment..... 153.8 (21.6) 132.2
------ -------- --------- ------- ------ ---------
DECEMBER 31, 1994............... 47.0 2,094.9 1,940.2 372.3 (17.6) 4,436.8
Net Earnings.................. 723.1 723.1
Contributions from Ford....... 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 2,066.0 2,345.3 330.6 12.2 4,801.1
Net Earnings.................. 857.0 857.0
Contributions from Ford....... 47.3 47.3
Sale of Class A Common
Stock...................... (43.5) 1,893.5 1,850.0
Cash Dividends to Ford........ (1,928.7) (1,928.7)
Cash Dividends on Common
Stock...................... (69.3) (69.3)
Current Period Adjustment..... 0.7 (107.8) (12.8) (119.9)
------ -------- --------- ------- ------ ---------
DECEMBER 31, 1996............... $ 3.5 $4,007.5 $ 1,204.3 $ 222.8 $ (0.6) $ 5,437.5
====== ======== ========= ======= ====== =========
</TABLE>
See notes to consolidated financial statements.
31
<PAGE> 33
ASSOCIATES FIRST CAPITAL CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN MILLIONS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
---------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net earnings............................................. $ 857.0 $ 723.1 $ 603.3
Adjustments to net earnings for noncash items:
Provision for losses on finance receivables........... 1,086.5 834.0 647.1
Increase in accounts payable and accruals............. 288.0 166.5 91.1
Depreciation and amortization......................... 224.9 193.8 187.4
Increase in insurance policy and claims reserves...... 87.5 59.7 118.9
Deferred income taxes................................. 1.2 101.1 (18.8)
Unrealized loss (gain) on trading securities.......... 1.7 (3.6) (1.6)
Purchases of trading securities.......................... (5.8) (23.8)
Sales and maturities of trading securities............... 0.6 38.7 17.4
Other.................................................... (6.8)
--------- --------- ---------
Net cash provided from operating activities...... 2,547.4 2,107.5 1,614.2
--------- --------- ---------
Cash Flows from Investing Activities
Finance receivables originated or purchased.............. (43,801.4) (37,051.1) (30,431.1)
Finance receivables liquidated........................... 36,539.0 30,689.1 24,942.8
Acquisitions of other finance businesses, net............ (165.6) (143.9) (484.9)
Proceeds from sale of investment in mortgage servicing
rights................................................ 97.1
Decrease (increase) in real estate loans held for sale... 13.5 (3.7) 51.9
Increase in other assets................................. (469.6) (176.5) (200.3)
Purchases of available-for-sale securities............... (554.1) (893.9) (306.0)
Sales and maturities of available-for-sale securities.... 360.7 635.9 318.1
--------- --------- ---------
Net cash used for investing activities........... (8,077.5) (6,944.1) (6,012.4)
--------- --------- ---------
Cash Flows from Financing Activities
Issuance of long-term debt............................... 5,980.3 6,327.8 4,837.2
Retirement of long-term debt............................. (3,454.1) (2,491.8) (2,357.7)
Increase in notes payable................................ 3,127.1 1,315.4 2,046.0
Cash contributions from Ford............................. 47.3 200.0 215.1
Cash dividends to Ford................................... (1,928.7) (318.0) (288.1)
Cash dividends paid on common stock...................... (69.3)
Sale of Class A Common Stock............................. 1,850.0
Capital distribution to Ford............................. (228.9)
Other.................................................... (20.7)
--------- --------- ---------
Net cash provided from financing activities...... 5,552.6 4,804.5 4,431.8
Effect of foreign currency translation adjustment on
cash..................................................... (107.8) (41.7) 153.8
--------- --------- ---------
(Decrease) increase in cash and cash equivalents........... (85.3) (73.8) 187.4
Cash and cash equivalents at beginning of period........... 532.2 606.0 418.6
--------- --------- ---------
Cash and cash equivalents at end of period................. $ 446.9 $ 532.2 $ 606.0
========= ========= =========
Cash paid for:
Interest................................................. $ 2,433.1 $ 2,175.8 $ 1,693.6
========= ========= =========
Income taxes............................................. $ 387.6 $ 399.7 $ 465.3
========= ========= =========
</TABLE>
See notes to consolidated financial statements.
32
<PAGE> 34
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 majority-owned subsidiary of Ford FSG, Inc. and a
majority indirect-owned 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 ("AIC") 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 and Consolidation
On May 8, 1996, the Company made an initial public offering (the
"Offering") of 67 million shares of its Class A Common Stock representing a
19.3% interest in the Company. Immediately following the Offering, Ford
continued to own a controlling interest in the Company's common stock.
Prior to the Offering, Ford contributed to First Capital, for stock,
certain foreign finance operations that were managed by First Capital although
owned by other Ford subsidiaries (the "Associates International Group"). The
entities comprising Associates International Group had operations in Japan,
United Kingdom, Canada, Puerto Rico, Bermuda, Netherlands and Mexico. Subsequent
to the consummation of the contribution, these supplemental combined financial
statements became the historical consolidated financial statements of First
Capital. The contribution was accounted for in a manner similar to the pooling
of interests method of accounting in accordance with generally accepted
accounting principles.
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 period 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, 1996 and 1995, net finance receivables on
which revenue was not accrued approximated $1.0 billion and $678.9 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.
33
<PAGE> 35
ASSOCIATES FIRST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 stockholders' 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.
Receivables Sold with Servicing Retained
Periodically, the Company has sold manufactured housing and recreational
vehicle receivables to trusts created as investment conduits and retained the
servicing. Any gains recognized at the time of the sale were determined by
present valuing the receivable servicing spread over the estimated life,
adjusted for prepayments and bad debts, and allowing for a normal servicing fee
in future periods. Deferred premium resulting from such gains is amortized
against servicing income over the life of the receivables, using a method that
approximates the interest 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.
Although the allowance for losses on finance receivables reflected in the
Company's consolidated balance sheet at December 31, 1996 is considered adequate
by the Company's management, there can be no assurance that this allowance will
prove to be adequate over time to cover ultimate losses in connection with the
Company's finance receivables. This allowance may prove to be inadequate due to
unanticipated adverse changes in the economy or discrete events adversely
affecting specific customers or industries. The Company's results of operations
and financial condition could be materially adversely affected to the extent
that the Company's allowance is insufficient to cover such changes or events.
Insurance Reserves
The reserves for future benefits and refunds upon cancellation of credit
life and health insurance and property and casualty insurance 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.
34
<PAGE> 36
ASSOCIATES FIRST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 stockholders' equity
section of the consolidated balance sheet. Foreign currency gains and losses
resulting from transactions are included in earnings. Such foreign currency
losses approximated $0.8 million, $0.6 million and $0.5 million during the years
ended December 31, 1996, 1995 and 1994, 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.
On May 6, 1996, the Company entered into a modified tax sharing agreement
with Ford which addressed the United States federal and state taxes as well as
taxes related to the foreign subsidiaries. This agreement is discussed further
in NOTE 8 to the consolidated financial statements.
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 has been limited to
instruments that hedge specific currency exchange and interest rate risks.
Accordingly, gains and losses on such hedges are deferred and recognized in
income or as adjustments of carrying amounts when the hedged transaction occurs.
It is the policy of the Company that each counterparty's public debt rating must
be Aa3, AA- or better by at least two nationally recognized 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 access credit risk,
because derivative transactions are not a significant part of its operations
activities and because the Company does not enter into complex derivative
transactions. See NOTE 15 to the consolidated financial statements for
additional information regarding the Company's use of derivative financial
instruments.
Earnings Per Share
Net earnings per share are determined by dividing net earnings during each
year by an assumed 346.7 million shares outstanding.
35
<PAGE> 37
ASSOCIATES FIRST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 3 -- FINANCE RECEIVABLES
Composition of Finance Receivables
At December 31, 1996 and 1995, finance receivables consisted of the
following (in millions):
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Consumer Finance
Home equity lending....................................... $16,691.4 $14,316.3
Personal lending and retail sales finance................. 7,425.1 6,225.1
Credit card............................................... 6,023.8 4,984.6
Manufactured housing(1)................................... 1,262.7 2,049.3
--------- ---------
31,403.0 27,575.3
--------- ---------
Commercial Finance
Truck and truck trailer................................... 8,598.3 7,724.0
Equipment................................................. 4,571.8 3,781.7
Auto fleet leasing and other.............................. 1,939.8 621.5
--------- ---------
15,109.9 12,127.2
--------- ---------
Finance receivables, net of unearned finance
income ("net finance receivables").............. 46,512.9 39,702.5
Allowance for losses on finance receivables................. (1,563.1) (1,268.6)
Insurance policy and claims reserves........................ (712.9) (625.4)
--------- ---------
Finance receivables, net of unearned finance
income, allowance for losses and insurance
policy and claims reserves...................... $44,236.9 $37,808.5
========= =========
</TABLE>
- ---------------
(1) During 1996, the Company securitized and sold approximately $1.3 billion of
manufactured housing finance receivables.
From time to time, subsidiaries of the Company have sold manufactured
housing and recreational vehicles receivables through securitizations and have
retained collection and administrative responsibilities as servicer for the
trust holding the home equity receivables. Receivables sold with servicing
retained were $2,109.9 million at December 31, 1996.
At December 31, 1996, 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>
1997............................................. $ 4,346.3 $ 5,920.3 $10,266.6
1998............................................. 3,633.9 3,870.9 7,504.8
1999............................................. 3,233.4 2,550.9 5,784.3
2000............................................. 2,918.0 1,423.4 4,341.4
2001 and thereafter.............................. 17,271.4 1,344.4 18,615.8
--------- --------- ---------
$31,403.0 $15,109.9 $46,512.9
========= ========= =========
</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.
36
<PAGE> 38
ASSOCIATES FIRST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Included in commercial finance receivables are direct financing leases as
follows (in millions):
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
1996 1995
-------- --------
<S> <C> <C>
Minimum lease rentals....................................... $4,438.0 $3,147.1
Unguaranteed residual values................................ 316.9 77.1
-------- --------
Future minimum lease rentals.............................. 4,754.9 3,224.2
Unearned finance income..................................... (638.0) (448.6)
-------- --------
Net investment in direct financing leases................. $4,116.9 $2,775.6
======== ========
</TABLE>
Future net minimum lease rentals on direct financing leases for each of the
years succeeding December 31, 1996 are as follows (in millions):
1997 -- $1,288.4; 1998 -- $1,083.4; 1999 -- $858.4; 2000 -- $530.4;
2001 -- $246.6 and 2002 and thereafter -- $109.7.
Estimated Fair Value of Net Finance Receivables
The estimated fair value of net finance receivables at December 31, 1996
and 1995 was $50.2 billion and $43.4 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, 1996, approximately 92% of the Company's total receivables were dispersed
across the United States, and the remaining 8% were in foreign countries. Of the
total receivables, 11% were in California, 6% in Florida, 6% in Texas, 5% in
Japan, 4% in Georgia, 4% in Pennsylvania, 4% in North Carolina, 4% in Illinois,
4% in New York and 4% in Ohio; no other individual state or foreign country had
more than 4%.
Acquisitions of Finance Businesses
During the years ended December 31, 1996, 1995 and 1994, the Company made
acquisitions of finance receivables and finance businesses, the most significant
of which were as follows:
In September 1996, First Capital acquired Teletech Financial
Corporation. The assets of Teletech Financial principally consist of
equipment telecommunications receivables. The fair market value of total
assets acquired and liabilities assumed was $116.8 million and $82.6
million, respectively. The transaction was accounted for as a purchase.
In August 1996, Associates acquired $1.2 billion of net finance
receivables, principally home equity and personal lending receivables and
other assets and liabilities, from Fleet Financial Group. The fair market
value of total assets acquired and liabilities assumed was $1.3 billion and
$1.0 million, respectively.
In July 1996, Associates acquired $837.6 million of certain assets of
USL Capital, an affiliate and Ford subsidiary. Such assets acquired
consisted principally of vehicle fleet leasing receivables. The transaction
was accounted for at historical cost. The excess of purchase price over the
historical value of assets acquired was $31.4 million which was recorded as
an adjustment to stockholders' equity.
37
<PAGE> 39
ASSOCIATES FIRST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In May 1996, First Capital acquired Fleetwood Credit Corp., which was
engaged in the financing of recreational vehicles. The fair market value of
total assets acquired and liabilities assumed was $473.5 million and $342.1
million, respectively.
In October 1995, Associates acquired the assets 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 January 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 December 1994, Associates acquired certain 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 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.
The pro forma effect of the above acquisitions, when taken in aggregate for
each reporting period, was not significant.
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
---------------------------------
1996 1995 1994
--------- -------- --------
<S> <C> <C> <C>
Balance at beginning of period...................... $ 1,268.6 $1,061.6 $ 892.3
Provision for losses.............................. 1,086.5 834.0 647.1
Recoveries on receivables charged off............. 147.2 132.9 118.2
Losses sustained.................................. (1,032.5) (757.1) (626.8)
Reserves of acquired businesses and other......... 93.3 (2.8) 30.8
--------- -------- --------
Balance at end of period............................ $ 1,563.1 $1,268.6 $1,061.6
========= ======== ========
</TABLE>
38
<PAGE> 40
ASSOCIATES FIRST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 5 -- CREDIT FACILITIES
At December 31, 1996, available credit facilities were as follows (in
millions):
<TABLE>
<CAPTION>
FACILITY
ENTITY CREDIT FACILITY DESCRIPTION AMOUNT
------ ---------------------------------- ---------
<S> <C> <C>
Associates Lines of Credit $ 4,128.2*
Revolving Lines 6,505.0*
Receivables Purchase Facilities 1,775.0
---------
$12,408.2
=========
Japan Lines of Credit $ 121.4
United Kingdom Lines of Credit 27.6
Canada Lines of Credit 32.9
---------
$ 181.9
=========
</TABLE>
- ---------------
* Included in Associates Lines of Credit and Revolving Lines are $90.0 million
and $2.6 billion 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, including, as to the credit
facilities of Associates identified above, failure to pay principal or interest
when due, breach of representation, warranties or covenants, default on other
debt, or bankruptcy or other insolvency-type proceedings. As to the credit
facilities of the foreign operations, in addition to the foregoing standard
conditions, certain facilities contain provisions which prohibit withdrawals as
a result of any material adverse changes in the financial conditions of such
operations. Associates principally pays fees for the availability of its credit
facilities. Bank fees incurred by Associates during 1996, 1995 and 1994 were
$10.8 million, $11.8 million and $11.4 million, respectively, and are .07 to .25
of 1% per annum of the amount of the facilities.
39
<PAGE> 41
ASSOCIATES FIRST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6 -- NOTES PAYABLE
Commercial paper notes are issued by Associates and First Capital in the
minimum amount of $100,000 with terms from 1 to 270 days. Bank loan terms range
from 3 to 101 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>
Domestic Notes Payable
Ending balance at December 31, 1996....................... $15,449.2 $1,001.8
Weighted average interest rate at December 31, 1996....... 5.80% 7.94%
Ending balance at December 31, 1995....................... $12,732.7 $ 787.0
Weighted average interest rate at December 31, 1995....... 5.73% 6.44%
Foreign Notes Payable
Ending balance at December 31, 1996....................... $ 458.7 $ 165.5
Weighted average interest rate at December 31, 1996....... 3.49% 6.98%
Ending balance at December 31, 1995....................... $ 170.2 $ 57.4
Weighted average interest rate at December 31, 1995....... 5.75% 7.00%
Total Notes Payable
Ending balance at December 31, 1996....................... $15,907.9 $1,167.3
Weighted average interest rate at December 31, 1996....... 5.74% 7.80%
Ending balance at December 31, 1995....................... $12,902.9 $ 844.4
Weighted average interest rate at December 31, 1995....... 5.73% 6.48%
</TABLE>
The amounts reported in the consolidated balance sheet approximate fair
value.
40
<PAGE> 42
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 MATURITIES
RATE RANGE THROUGH 1996 1995
------------ ---------- --------- ---------
<S> <C> <C> <C> <C>
Senior Debt
Domestic:
Notes............................ 3.63%-11.40% 2010 $20,921.5 $18,619.0
Investment notes................. 5.25%-8.15% 2001 288.4 429.1
--------- ---------
21,209.9 19,048.1
--------- ---------
Foreign:
Japan............................ 1.93%-8.90% 2003 1,786.7 1,682.9
All other foreign................ 4.92%-9.50% 2001 607.4 499.8
--------- ---------
2,394.1 2,182.7
--------- ---------
Total senior debt........... 23,604.0 21,230.8
--------- ---------
Subordinated and Capital Debt:
Domestic:
Subordinated..................... 6.88%-8.15% 2009 425.0 141.2
Capital.......................... 4.68%-9.00% 2002 0.5 0.6
--------- ---------
Total subordinated and
capital debt.............. 425.5 141.8
--------- ---------
Total long-term debt............. $24,029.5 $21,372.6
========= =========
</TABLE>
The weighted average interest rate for total long-term debt was 6.84% at
December 31, 1996 and 6.92% at December 31, 1995.
The estimated fair value of long-term debt at December 31, 1996 and 1995
was $24.6 billion and $22.5 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: 1997, $3,731.0 million;
1998, $4,213.3 million; 1999, $4,611.3 million; 2000, $2,950.2 million; 2001,
$2,904.1 million and 2002 and thereafter, $5,619.6 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, 1996, six warrants were outstanding to purchase $150
million aggregate principal amount of senior notes at par with an interest rate
of 7.00%. The warrants are exercisable at various dates through October 1, 1999
at a price of $25,000,000.
41
<PAGE> 43
ASSOCIATES FIRST CAPITAL CORPORATION
NOTES TO CONSOLIDATED 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, 1996
Current......................................... $ 358.8 $31.5 $156.1 $ 546.4
------- ----- ------ -------
Deferred:
Leasing transactions......................... 102.5 102.5
Finance revenue.............................. (6.9) (6.9)
Net operating loss utilized.................. 2.6 2.6
Goodwill amortization........................ (10.0) (10.0)
Provision for losses on finance receivables
and other.................................. (54.6) (32.4) (87.0)
------- ----- ------ -------
Total deferred.......................... 41.0 (39.8) 1.2
------- ----- ------ -------
$ 399.8 $31.5 $116.3 $ 547.6
======= ===== ====== =======
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
======= ===== ====== =======
</TABLE>
42
<PAGE> 44
ASSOCIATES FIRST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 1996 and 1995, the components of the Company's net deferred
tax asset and liability were as follows (in millions):
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Deferred tax assets:
Provision for losses on finance receivables and other..... $ 795.5 $ 744.0
Net operating loss........................................ 2.6
Postretirement and other employee benefits................ 69.2 56.0
------- -------
864.7 802.6
Deferred tax liabilities:
Leasing transactions...................................... (344.3) (241.8)
Unamortized tax deductible goodwill....................... (289.1) (339.0)
Finance revenue and other................................. (191.9) (261.7)
------- -------
(825.3) (842.5)
------- -------
Net deferred tax asset/(liability)................ $ 39.4 $ (39.9)
======= =======
</TABLE>
The Company is included in Ford's federal consolidated income tax group,
and the Company's federal income tax liability will be included in the
consolidated federal income tax liability of Ford and its subsidiaries.
In certain circumstances, certain of the Company's subsidiaries will also
be included with certain Ford subsidiaries in combined, consolidated or unitary
income tax groups for state and local tax purposes. On May 6, 1996, the Company
entered into a modified tax sharing agreement with Ford. Pursuant to this
agreement, the amount of taxes to be paid by the Company will be determined as
though the Company were to file separate federal, state and local income tax
returns as the common parent of an affiliate group of corporations filing
combined, consolidated or unitary (as applicable) federal, state and local
income tax returns. With respect to certain tax items, however, such as foreign
tax credits, the Company's right to reimbursement will be determined based on
the usage of such foreign tax credits and alternative minimum tax credits by the
Ford consolidated group.
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
-----------------------
1996 1995 1994
----- ----- -----
<S> <C> <C> <C>
Statutory tax rate.......................................... 35.0% 35.0% 35.0%
State income taxes.......................................... 1.5 1.2 2.0
Non-deductible goodwill..................................... 0.5 0.9 1.2
Foreign rates in excess of U.S. rate and other.............. 2.0 2.5 2.5
---- ---- ----
Effective tax rate................................ 39.0% 39.6% 40.7%
==== ==== ====
</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:
43
<PAGE> 45
ASSOCIATES FIRST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Limitation on Payment of Dividends
A restriction contained in one issue of Associates debt securities which
matures on March 15, 1999, 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, $274.7 million was available for dividends at December 31,
1996.
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, 1996, Associates tangible net worth was approximately
$4.7 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, 1996, 1995 and 1994 was $103.7 million, $92.6 million, and $75.4 million,
respectively. Minimum rental commitments as of December 31, 1996 for all
noncancelable leases (primarily office leases) for the years ending December 31,
1997, 1998, 1999, 2000 and 2001 are $83.2 million, $61.9 million, $41.4 million,
$23.2 million and $10.5 million, respectively, and $26.4 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 employees (except
temporary 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>
DECEMBER 31
--------------------------
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Service cost............................................. $ 18.8 $ 13.1 $ 13.7
Interest cost............................................ 26.4 23.1 21.3
Actual return on Plan assets............................. (49.3) (51.1) (0.4)
Net amortization......................................... 28.7 33.9 (10.9)
------ ------ ------
Net periodic pension cost.............................. $ 24.6 $ 19.0 $ 23.7
====== ====== ======
Assumed discount rate, beginning of year................. 7.00% 8.25% 7.00%
====== ====== ======
</TABLE>
44
<PAGE> 46
ASSOCIATES FIRST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The funded status of the Plan is as follows (in millions):
<TABLE>
<CAPTION>
DECEMBER 31
------------------------------------------------------
1996 1995
------------------------- -------------------------
QUALIFIED NONQUALIFIED QUALIFIED NONQUALIFIED
PLAN PLANS PLAN PLANS
--------- ------------ --------- ------------
<S> <C> <C> <C> <C>
Actuarial present value of benefit
obligation:
Vested................................ $275.0 $25.3 $255.9 $23.7
Nonvested............................. 12.1 0.3 11.5 0.3
------ ----- ------ -----
Accumulated benefit obligation.......... 287.1 25.6 267.4 24.0
Effect of projected future salary
increases............................. 77.5 10.6 76.1 9.3
------ ----- ------ -----
Projected benefit obligation............ 364.6 36.2 343.5 33.3
Plan assets at fair market value........ 376.1 322.0
------ ----- ------ -----
(Excess)/shortage of plan assets over
plan obligation....................... (11.5) 36.2 21.5 33.3
Unamortized transition obligation and
amendments............................ (3.6) (3.4) (5.1) (3.8)
Unamortized net loss.................... (15.0) (8.6) (53.0) (8.8)
Adjustment required to recognize minimum
liability............................. 1.4 3.3
------ ----- ------ -----
(Prepaid)/accrued pension liability... $(30.1) $25.6 $(36.6) $24.0
====== ===== ====== =====
Assumed discount rate................... 7.25% 7.25% 7.00% 7.00%
====== ===== ====== =====
Projected compensation increases........ 6.00% 6.00% 6.00% 6.00%
====== ===== ====== =====
Expected return......................... 9.00% 9.00% 9.00% 9.00%
====== ===== ====== =====
</TABLE>
Associates Savings and Profit-Sharing Plan
The Company sponsors a defined contribution plan that covers substantially
all employees (except temporary employees), other than those of the foreign
operations, who meet certain eligibility requirements, is 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. For the
years ended December 31, 1996, 1995 and 1994, the Company's pretax contributions
to the plan were $21.3 million, $18.2 million and $16.1 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 employees (except temporary employees), other than those of
the foreign operations, who meet certain eligibility requirements. The benefits
of such plans can be modified or terminated at the discretion of the Company.
The amount paid for postretirement nonpension benefits for the years ended
December 31, 1996, 1995 and 1994 was $2.7 million, $2.0 million and $1.8
million, respectively.
45
<PAGE> 47
ASSOCIATES FIRST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Net periodic postretirement benefit cost for 1996, 1995 and 1994 includes
the following components (in millions):
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Service cost................................................ $7.5 $5.5 $5.5
Interest cost............................................... 8.2 7.7 6.3
Net amortization............................................ (0.7) (1.3) (1.0)
---- ---- ----
Net periodic postretirement benefit cost.................. $15.0 $11.9 $10.8
==== ==== ====
Assumed discount rate, beginning of year.................... 7.25% 8.75% 7.50%
==== ==== ====
</TABLE>
Accrued postretirement benefit cost at December 31, 1996 and 1995 is
composed of the following (in millions):
<TABLE>
<CAPTION>
DECEMBER 31
--------------
1996 1995
----- -----
<S> <C> <C>
Accumulated postretirement benefit obligation ("APBO"):
Retired participants...................................... $45.2 $45.2
Fully eligible participants............................... 24.9 26.9
Other active participants................................. 45.1 45.7
----- -----
Total APBO........................................ 115.2 117.8
Unamortized amendments...................................... 3.9 5.4
Unrecognized actuarial loss................................. (7.9) (24.2)
----- -----
Accrued postretirement benefit cost....................... $111.2 $99.0
===== =====
Assumed discount rate....................................... 7.50% 7.25%
===== =====
</TABLE>
For measurement purposes, an 11.67% and 12.10% weighted average annual rate
of increase in per capita cost of covered health care benefits was assumed for
1996 and 1995, 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, 1996 and 1995 by $8.4 million
and $8.6 million, respectively, and the aggregate of the service and interest
cost components of the net periodic postretirement benefit cost by $1.2 million
and $1.0 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. The
size of the CAPP bonus pool is determined based on the performance of the
Company. The Long-Term Performance Plan ("LTPP") is a long-term cash incentive
plan. The size of the LTPP incentive pool is 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. Individual CAPP and LTPP
bonuses reflect individual participants' performances during the applicable
performance period. Amounts charged to expense under CAPP and LTPP amounted to
$23.3 million, $16.1 million and $16.2 million during the years ended December
31, 1996, 1995 and 1994, respectively.
46
<PAGE> 48
ASSOCIATES FIRST CAPITAL CORPORATION
NOTES TO CONSOLIDATED 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 extinguished, principally by cash payment, 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 by the Company under the PSAR
Plan amounted to zero, $30.1 million and $4.1 million during the years ended
December 31, 1996, 1995 and 1994, respectively. Upon termination of the PSAR
Plan, certain officers of the Company were required to defer one-half of the
amount payable in satisfaction of their respective PSARs granted in 1995. The
amounts so deferred are administered by the Company in accordance with the terms
of the Associates First Capital Corporation Equity Deferral Plan (the "EDP").
Stock-Based Compensation Plans
Equity Compensation Plan -- The Company sponsors one stock-based
compensation plan: the Long-Term Equity Compensation Plan (the "ECP"). The ECP
allows the Company to issue to employees up to 20,789,000 shares of its Common
Stock in the form of nonqualified and incentive stock options, stock
appreciation rights, restricted stock, performance shares and performance units.
The ECP was established in 1996. The Company had no outstanding grants
under any other stock-based compensation plan prior to 1996. In May 1996, the
Company granted 2,419,290 stock options pursuant to the ECP with an option price
per share equal to the fair market value of one share of Common Stock on the
date of grant ($29.00 per share in 1996), and with a term of 10 years. In July
and October 1996, the Company granted a total of 17,000 stock options pursuant
to the ECP with an option price per share equal to the fair market value of one
share of Common Stock on the date of grant. The weighted-average exercise price
of all stock options granted in 1996 pursuant to the ECP was $29.07 (range of
exercise price of $29.00-$41.38) with a weighted average remaining contractual
term of 9.35 years. Approximately 471,580 of the ECP stock options will vest on
the fifth anniversary of the date of grant with the remainder vesting one-third
per year on each of the first three anniversaries of the dates of grant. None of
the options was exercisable in 1996, and 61,850 options were forfeited during
1996. The forfeited options had a weighted average exercise price of $29.00. The
weighted average fair value of all options granted during 1996 was $9.32. The
fair value was determined at the date of each grant using an option-pricing
model which assumed a dividend yield range of 0.97%-1.38%, expected volatility
of 30.44%, a risk free interest rate range of 6.30%-6.66% and an expected option
life range of 4-6 years.
Restricted Stock -- In May 1996, the Company issued 169,630 shares of
restricted Common Stock under the ECP, all of which awards were outstanding at
December 31, 1996. Such shares were issued at fair market value, which was
$29.00 per share on the issue date. These shares vest on the fifth anniversary
of the date of issuance.
Deemed Investment in Stock -- In 1996 under the EDP, the Company retained
compensation amounts deferred by selected employees in unfunded accounts that
are deemed to be invested in shares of Common Stock. Dividends paid on Common
Stock are deemed to be reinvested in Common Stock. Amounts deferred in 1996 are
fully vested and payable in May 2001, subject to earlier distribution upon a
participant's death, disability, retirement or termination of employment, in
cash and/or shares of Common Stock. Approximately 131,890 deemed shares were
issued during 1996, including 608 shares related to the reinvestment of
dividends, all of which were outstanding at December 31, 1996. The value of all
such shares at year end based on $44.125 per common share was $5.8 million.
47
<PAGE> 49
ASSOCIATES FIRST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Accounting for Stock-Based Compensation Plans -- The Company has elected to
apply Accounting Principles Board Opinion 25 ("APB 25") rather than the optional
provisions of Statement of Financial Accounting Standards No. 123 ("SFAS 123")
in accounting for its stock-based compensation plans. Had the compensation cost
of the Company's stock-based compensation plans been determined based on the
optional provisions of SFAS 123, the Company's net income for 1996 and earnings
per share would have been $854.3 million and $2.46, respectively.
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 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. While, 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, there can be no assurance that an adverse decision in one or more of
such lawsuits will not have such a material adverse effect. The outcome of
various individual lawsuits, however, may affect the manner in which the Company
conducts its business.
The Company and certain of its subsidiaries are defendants in a relatively
higher concentration of lawsuits in the State of Alabama than in the remainder
of the United States. Management believes that the aggregate number of lawsuits
instituted in Alabama represents additional exposure to the Company because of
the recent history of juries in Alabama awarding significant damages, both
compensatory and punitive, in civil cases. At December 31, 1996, there were
approximately 100 actions pending against the Company in Alabama.
NOTE 13 -- OTHER ASSETS
The components of Other Assets at December 31, 1996 and 1995 were as
follows (in millions):
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
1996 1995
-------- --------
<S> <C> <C>
Goodwill.................................................... $1,282.5 $1,278.9
Property and equipment...................................... 261.3 184.5
Collateral held for resale.................................. 169.1 120.4
Other....................................................... 820.6 498.3
-------- --------
Total other assets................................ $2,533.5 $2,082.1
======== ========
</TABLE>
Additions to goodwill due to acquisitions were $143.2 million in 1996;
there were no additions to goodwill in 1995. Reductions as a result of
amortization to goodwill were $18.0 million and $17.5 million for 1996 and 1995,
respectively. Other changes in the amount of goodwill from 1994 to 1995 and 1995
to 1996 were principally due to changes in foreign exchange rates which impact
the translation of yen denominated goodwill carried on the books of the
Company's Japan subsidiary.
NOTE 14 -- TRANSACTIONS AND BALANCES WITH RELATED PARTIES
The Company paid cash dividends to Ford of $1,928.7 million, $318.0 million
and $288.1 million during the years ended December 31, 1996, 1995 and 1994,
respectively. Of the 1996 cash dividend paid on common stock, $55.9 million was
paid to Ford after the initial public offering. In 1996, 1995, and 1994, Ford
made cash capital contributions to the Company of $47.3 million, $200.0 million
and $215.1 million, respectively.
The Company provides certain emergency roadside assistance and auto club
services and employee relocation services to Ford. Revenues related to these
services were $33.4 million, $29.7 million and $19.4 million for the years ended
December 31, 1996, 1995 and 1994, respectively.
48
<PAGE> 50
ASSOCIATES FIRST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company pays fees for certain administrative services provided by its
Ford-affiliated parent. Such fees were $9.7 million, $8.8 million and $5.0
million for the years ended December 31, 1996, 1995 and 1994, respectively.
At December 31, 1996 and 1995, First Capital's current income taxes payable
to its Ford-affiliated parent amounted to $77.4 million and $45.1 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.
The Company's derivative activity at December 31, 1996 is limited to
yen-denominated forward currency exchange contracts designed to hedge the
currency risk on certain yen-denominated fees to be paid to the Company by its
Japan subsidiary in future periods and to a series of interest rate swaps
acquired as part of its 1996 acquisition of a Canadian company which hedge
certain interest rate risk by converting floating rate debt to fixed rate debt.
At December 31, 1995, the Company's derivative activity was limited to currency
swap contracts designed to hedge its currency risk on specific foreign
currency-denominated assets denominated in British Sterling and one interest
rate swap acquired as part of an acquisition designed to hedge certain interest
rate risk. The Company is a buyer in each of the 1996 and 1995 derivative
positions.
The Company's derivative transactions are not material to its consolidated
balance sheet and do not represent a material exposure to its consolidated net
earnings. The notional amounts under currency and interest rate swap contracts
at December 31, 1996 and 1995 were $108.7 million and $55.7 million,
respectively. The fair value of such amounts at December 31, 1996 and 1995 was
$7.4 million and $1.1 million, respectively. The fair value was determined based
on the foreign currency exchange rates/ interest rates for similar transactions
in effect at the balance sheet date. In both periods, the Company was at market
risk should the counterparty fail to meet the terms of the contracts. At
December 31, 1996 and 1995, the Company's estimated exposure to loss in the
event of nonperformance by certain counterparties was $7.4 million and $1.1
million, respectively.
The consumer finance business grants revolving lines of credit to certain
of its credit card and other revolving customers. At December 31, 1996 and 1995,
the unused portion of these lines aggregated $21.8 billion and $18.4 billion,
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, 1996
and 1995, the unused portion of these lines aggregated $1.4 billion and $1.3
billion, 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, the Company classifies its
investments in debt securities as available-for-sale and adjusts its recorded
value to market. During 1996, gross realized gains and losses on sales amounted
to $3.5 million and $0.1 million, respectively. Gross realized gains on sales
during 1995 amounted to $0.2 million. Unrealized gains or losses are reported as
a component of stockholders' equity, net of tax. The following tables set forth,
by type of security issuer, the amortized cost, gross unrealized
49
<PAGE> 51
ASSOCIATES FIRST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
holding gains, gross unrealized holding losses, and estimated market value at
December 31, 1996 and 1995 (in millions):
<TABLE>
<CAPTION>
1996
-----------------------------------------------
GROSS GROSS
UNREALIZED UNREALIZED ESTIMATED
AMORTIZED HOLDING HOLDING MARKET
COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
U.S. Government obligations................. $ 267.1 $ 4.8 $(1.2) $ 270.7
Corporate obligations....................... 282.6 1.2 (4.3) 279.5
Mortgage-backed............................. 475.2 1.3 (2.7) 473.8
Other....................................... 16.7 0.1 16.8
-------- ----- ----- --------
Total debt securities............. $1,041.6 $ 7.4 $(8.2) $1,040.8
======== ===== ===== ========
</TABLE>
<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>
The amortized cost and estimated market value of debt securities at
December 31, 1996 and 1995, by contractual maturity, are shown below (in
millions):
<TABLE>
<CAPTION>
1996 1995
---------------------- --------------------
ESTIMATED ESTIMATED
AMORTIZED MARKET AMORTIZED MARKET
COST VALUE COST VALUE
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Due in one year or less................... $ 61.3 $ 61.8 $ 159.0 $ 159.6
Due after one year through five years..... 422.5 424.2 379.9 390.4
Due after five years through ten years.... 269.8 268.1 187.5 194.6
Due after ten years....................... 288.1 286.7 123.4 123.9
-------- -------- --------- ---------
$1,041.7 $1,040.8 $ 849.8 $ 868.5
======== ======== ========= =========
</TABLE>
Equity Securities
Equity security investments are recorded at market value. The Company
classifies its investments in equity securities as trading securities and
includes in earnings unrealized gains or losses on such securities. The
estimated market value at December 31, 1996 and 1995 was $10.3 million and $12.6
million, respectively. Historical cost at December 31, 1996 and 1995 was $7.8
million and $8.5 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
50
<PAGE> 52
ASSOCIATES FIRST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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, recreational vehicle financing, Small Business
Administration lending, employee relocation services and emergency roadside
assistance and auto club 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(1)
----------------------
CONSUMER COMMERCIAL FOREIGN
FINANCE FINANCE(2) COMBINED OPERATIONS(1)
--------- ---------- --------- -------------
<S> <C> <C> <C> <C>
Year Ended or at December 31, 1996
Revenue.............................. $ 5,302.1 $ 1,796.1 $ 7,098.2 $ 873.6
========= ========= ========= ========
Operating income
From segment...................... $ 1,176.3 $ 377.3 $ 1,553.6 $ 340.1
Corporate and other(3)............ (112.8) (36.2) (149.0) (94.9)
--------- --------- --------- --------
Total........................ $ 1,063.5 $ 341.1 $ 1,404.6 $ 245.2
========= ========= ========= ========
Total assets......................... $32,208.0 $16,060.4 $48,268.4 $4,858.0
========= ========= ========= ========
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) (86.6)
--------- --------- --------- --------
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) (83.9)
--------- --------- --------- --------
Total........................ $ 753.1 $ 264.3 $ 1,017.4 $ 133.9
========= ========= ========= ========
Total assets......................... $23,322.9 $11,960.6 $35,283.5 $3,649.7
========= ========= ========= ========
</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 73% of total foreign
operations) and, to a lesser extent, its consumer and commercial operations
in the United Kingdom, Canada, Puerto Rico and Mexico (the "Other Foreign
Operations"). Total revenue, operating income and total assets,
respectively, for Japan were: 1996 -- $643.9 million, $204.3 million and
$3.2 billion, respectively; 1995 -- $587.7 million, $164.8 million and $3.0
billion, respectively; 1994 -- $448.1 million, $129.5 million and $2.8
billion, respectively. Total revenue, operating income and total assets,
respectively, for the Other Foreign Operations were: 1996 -- $229.8 million,
$40.9 million and $1.7 billion, respectively; 1995 -- $177.6 million, $33.0
million and $1.1 billion, respectively; 1994 -- $139.4 million, $4.4 million
and $849.7 million, 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.
51
<PAGE> 53
ASSOCIATES FIRST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Capital expenditures and depreciation and amortization expense are not
significant.
NOTE 18 -- SUBSEQUENT EVENTS
Subsequent to year end, the Company acquired a portfolio of approximately
$800 million in credit card receivables from The Bank of New York. J. Carter
Bacot, a director of the Company, is Chairman and Chief Executive Officer of The
Bank of New York. The Bank of New York and the Company are not otherwise
affiliated. In addition, in the first quarter of 1997 the Company signed an
agreement with Texaco Refining and Marketing, Inc. and its affiliate, Star
Enterprise, to purchase proprietary credit card receivables and stock in the
amount of approximately $700 million. The Company also signed an agreement with
J.C. Penney, Inc. in the first quarter of 1997 to purchase approximately $740
million in bankcard receivables. Both the Texaco and J.C. Penney transactions
are expected to close in the second quarter of 1997 after receipt of all
regulatory approvals.
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>
1996
-----------------------------------------
FOURTH THIRD SECOND FIRST
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Finance charges.............................. $1,727.7 $1,680.7 $1,567.6 $1,505.0
======== ======== ======== ========
Interest expense............................. $ 644.3 $ 637.7 $ 593.5 $ 580.5
======== ======== ======== ========
Earnings before provision for income taxes... $ 378.9 $ 381.3 $ 327.6 $ 316.8
Provision for income taxes................... 144.6 151.1 127.4 124.5
-------- -------- -------- --------
Net earnings................................. $ 234.3 $ 230.2 $ 200.2 $ 192.3
======== ======== ======== ========
Net earnings per share*...................... $ .68 $ .66 $ .58 $ .55
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
1995
-----------------------------------------
FOURTH THIRD SECOND FIRST
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Finance charges.............................. $1,467.4 $1,426.6 $1,377.9 $1,288.9
======== ======== ======== ========
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................... 129.8 130.0 109.7 105.5
-------- -------- -------- --------
Net earnings................................. $ 194.8 $ 197.6 $ 162.4 $ 168.3
======== ======== ======== ========
Net earnings per share*...................... $ .56 $ .57 $ .47 $ .49
======== ======== ======== ========
</TABLE>
- ---------------
* Based on 346.7 million shares outstanding and in whole dollars.
52
<PAGE> 54
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, 1996, 1995 and 1994 were
as follows (in millions):
CONDENSED STATEMENT OF EARNINGS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Revenue
Interest and other income................................ $ 20.6 $ 10.2 $ 8.7
Dividends from subsidiaries.............................. 370.4 284.0 270.5
------ ------ ------
391.0 294.2 279.2
Expenses
Interest expense......................................... 99.7 66.0 54.8
Operating expenses....................................... 24.9 23.3 16.2
------ ------ ------
124.6 89.3 71.0
------ ------ ------
Income before credit for federal income taxes and equity in
net earnings of subsidiaries............................. 266.4 204.9 208.2
Credit for federal income taxes resulting from tax
agreements with subsidiaries............................. 36.3 28.0 21.7
------ ------ ------
Earnings before equity in undistributed earnings of
subsidiaries............................................. 302.7 232.9 229.9
Equity in undistributed earnings of subsidiaries........... 554.3 490.2 373.4
------ ------ ------
Net earnings............................................... $857.0 $723.1 $603.3
====== ====== ======
</TABLE>
See notes to condensed financial information.
53
<PAGE> 55
ASSOCIATES FIRST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31
-------------------
1996 1995
-------- --------
<S> <C> <C>
Assets
Investment in and advances to subsidiaries, eliminated in
consolidation, and other............................... $6,857.6 $5,774.5
-------- --------
Total assets...................................... $6,857.6 $5,774.5
======== ========
Liabilities and Stockholders' Equity
Accounts payable and accruals............................. $ 45.1 $ 52.5
Bank lines................................................ 736.6 85.0
Notes payable and long-term debt.......................... 638.4 835.9
Stockholders' equity...................................... 5,437.5 4,801.1
-------- --------
Total liabilities and stockholders' equity........ $6,857.6 $5,774.5
======== ========
</TABLE>
The estimated fair value of notes payable and long-term debt at December
31, 1996 and 1995 was $501.8 million and $878.6 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.
54
<PAGE> 56
ASSOCIATES FIRST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED STATEMENT OF CASH FLOWS
(IN MILLIONS)
<TABLE>
<CAPTION>
1996 1995 1994
--------- ------- -------
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net earnings.............................................. $ 857.0 $ 723.1 $ 603.3
Adjustments to net earnings for noncash items:
Depreciation and amortization.......................... 0.1 0.1
(Decrease) increase in accounts payable and accruals... (7.4) 19.5 13.1
Equity in undistributed earnings of subsidiaries....... (554.3) (490.2) (373.4)
Other..................................................... (16.8) 29.5 (20.9)
--------- ------- -------
Net cash provided from operating activities............ 278.5 282.0 222.2
--------- ------- -------
Cash Flows from Investing Activities
Cash dividends from subsidiaries.......................... 370.4 284.0 270.5
Increase in investments in and advances to subsidiaries... (894.6) (492.6) (737.5)
--------- ------- -------
Net cash used for investing activities................. (524.2) (208.6) (467.0)
--------- ------- -------
Cash Flows from Financing Activities
Increase in notes payable and long-term debt.............. 853.0 438.9 352.7
Sale of Class A common stock.............................. 1,850.0
Cash contributions from Ford.............................. 47.3 200.0 215.1
Cash dividends to Ford.................................... (1,928.7) (318.0) (288.1)
Cash dividends paid on common stock....................... (69.3)
Retirement of long-term debt.............................. (395.2) (354.4) (188.9)
--------- ------- -------
Net cash provided from (used for) financing
activities........................................... 357.1 (33.5) 90.8
Effect of foreign currency translation adjustment on cash... (107.8) (41.7) 153.8
--------- ------- -------
Increase (decrease) in cash and cash equivalents............ 3.6 (1.8) (0.2)
Cash and cash equivalents at beginning of period............ (2.9) (1.1) (0.9)
--------- ------- -------
Cash and cash equivalents at end of period.................. $ 0.7 $ (2.9) $ (1.1)
========= ======= =======
</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 5.25% to
8.58%. The estimated maturities of the notes outstanding, at December 31, 1996,
during subsequent years were as follows (in millions):
<TABLE>
<S> <C>
1997........................................................ $212.4
1998........................................................ 142.8
1999........................................................ 129.9
2000........................................................ 92.9
2001........................................................ 60.4
------
$638.4
======
</TABLE>
55
<PAGE> 57
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information called for by Item 10 is incorporated by reference from the
information under the caption "Election of Directors" and "Executive Officers
and Compensation" in the Company's Proxy Statement for its 1997 annual meeting
of stockholders.
ITEM 11. EXECUTIVE COMPENSATION.
The information called for by Item 11 is incorporated by reference from the
information under the caption "Executive Officers and Compensation" in the
Company's Proxy Statement for its 1997 annual meeting of stockholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information called for by Item 12 is incorporated by reference from the
information under the caption "Security Ownership" in the Company's Proxy
Statement for its 1997 annual meeting of stockholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information called for by Item 13 is incorporated by reference from the
information under the caption "Certain Relationships and Related Transactions"
in the Company's Proxy Statement for its 1997 annual meeting of stockholders.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K.
(a) Financial Statements
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants........................... 28
Consolidated Statement of Earnings for the years ended
December 31, 1996, 1995 and 1994.......................... 29
Consolidated Balance Sheet at December 31, 1996 and 1995.... 30
Consolidated Statement of Changes in Stockholders' Equity
for the years ended December 31, 1996, 1995 and 1994...... 31
Consolidated Statement of Cash Flows for the years ended
December 31, 1996,
1995 and 1994............................................. 32
Notes to consolidated financial statements.................. 33
</TABLE>
(b) Reports on Form 8-K
During the quarter ended December 31, 1996, First Capital filed a
Current Report on Form 8-K dated October 15, 1996.
56
<PAGE> 58
(c) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
-------
<C> <S>
3.1 Restated Certificate of Incorporation.(3.1)*
3.2 By-laws.
4. Instruments with respect to issues of long-term debt have
not been filed as exhibits to this annual report on Form
10-K as the authorized principal amount of any one of such
issues does not exceed 10% of the total assets of the
registrant and its consolidated subsidiaries. Registrant
agrees to furnish to the Commission a copy of each such
instrument upon its request.
10.1 Corporate Agreement between the Company and Ford(10.1)*
10.2 Tax-Sharing Agreement between the Company and Ford(10.2)*
10.3 Management Services Agreement between the Company and
Ford(10.3)*
10.4 Trademark License Agreement between the Company and
Ford(10.4)*
10.5 Form of Employment Agreement(10.5(a))*
10.6 Form of Amended and Restated Employment Agreement(10.5(b))*
10.7 Company's Equity Deferral Plan(10.7)*
10.8 Company's Long-Term Equity Compensation Plan(10.8)*
10.9 The Company's Phantom Stock Appreciation Right Plan
(1990-1993)(10.10)*
10.10 The Company's Phantom Stock Appreciation Right Plan
(1993-1995)(10.10)*
10.11 The Company's Corporate Annual Performance Plan(10.11)*
10.12 The Company's Long-Term Performance Plan(10.12)*
10.13 The Company's Executive Deferred Salary Plan(10.13)*
10.14 The Company's Deferred Compensation Unit Plan
Agreement(10.14)*
10.15 The Company's Executive Incentive Plan(10.15)*
10.16 The Company's Supplemental Retirement Plan(10.16)*
10.17 The Company's Excess Benefits Plan(10.17)*
10.18 Ford Motor Company 1990 Long-Term Incentive Plan(10.18)*
10.19 The Company's Long-Term Equity Compensation Plan Stock
Option Award Agreement -- IPO.
10.20 The Company's Long-Term Equity Compensation Plan Stock
Option Award Agreement -- 1996.
12. Computation of Ratio of Earnings to Fixed Charges.
21. Subsidiaries of the Registrant.
23. Consent of Independent Accountants.
24. Powers of Attorney.
27. Financial Data Schedule.
</TABLE>
- ---------------
* Incorporated by reference to the exhibit listed in parenthesis contained in
the Company's registration statement on Form S-1 filed with the Securities and
Exchange Commission on February 8, 1996.
57
<PAGE> 59
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ASSOCIATES FIRST CAPITAL CORPORATION
By /s/ KEVIN P. HEGARTY
------------------------------------
Senior Vice President and
Comptroller
March 25, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ KEITH W. HUGHES* Chairman of the Board, Principal
- ----------------------------------------------------- Executive Officer and Director
(Keith W. Hughes)
/s/ J. CARTER BACOT* Director
- -----------------------------------------------------
(J. Carter Bacot)
/s/ JOHN DEVINE* Director
- -----------------------------------------------------
(John Devine)
/s/ HAROLD D. MARSHALL* Director
- -----------------------------------------------------
(Harold D. Marshall)
/s/ JOSEPH M. MCQUILLAN* Director
- -----------------------------------------------------
(Joseph M. McQuillan)
/s/ H. JAMES TOFFEY* Director
- -----------------------------------------------------
(H. James Toffey)
/s/ KENNETH WHIPPLE* Director
- -----------------------------------------------------
(Kenneth Whipple)
/s/ ROY A. GUTHRIE* Executive Vice President and
- ----------------------------------------------------- Principal Financial Officer
(Roy A. Guthrie)
/s/ KEVIN P. HEGARTY Senior Vice President, Comptroller
- ----------------------------------------------------- and Principal Accounting Officer
(Kevin P. Hegarty)
</TABLE>
March 25, 1997
By signing his name hereto, Kevin P. Hegarty signs this document on behalf
of himself and each of the other persons indicated above pursuant to powers of
attorney duly executed by such persons.
*By /s/ KEVIN P. HEGARTY
------------------------------------
Attorney-in-fact
58
<PAGE> 60
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER EXHIBIT PAGE
------- ------- ------------
<C> <S> <C>
3.1 Restated Certificate of Incorporation.(3.1)*
3.2 By-laws.
4. Instruments with respect to issues of long-term debt have
not been filed as exhibits to this annual report on Form
10-K as the authorized principal amount of any one of such
issues does not exceed 10% of the total assets of the
registrant and its consolidated subsidiaries. Registrant
agrees to furnish to the Commission a copy of each such
instrument upon its request.
10.1 Corporate Agreement between the Company and Ford(10.1)*
10.2 Tax-Sharing Agreement between the Company and Ford(10.2)*
10.3 Management Services Agreement between the Company and
Ford(10.3)*
10.4 Trademark License Agreement between the Company and
Ford(10.4)*
10.5 Form of Employment Agreement(10.5(a))*
10.6 Form of Amended and Restated Employment Agreement(10.5(b))*
10.7 Company's Equity Deferral Plan(10.7)*
10.8 Company's Long-Term Equity Compensation Plan(10.8)*
10.9 The Company's Phantom Stock Appreciation Right Plan (1990-
1993)(10.10)*
10.10 The Company's Phantom Stock Appreciation Right Plan (1993-
1995)(10.10)*
10.11 The Company's Corporate Annual Performance Plan(10.11)*
10.12 The Company's Long-Term Performance Plan(10.12)*
10.13 The Company's Executive Deferred Salary Plan(10.13)*
10.14 The Company's Deferred Compensation Unit Plan
Agreement(10.14)*
10.15 The Company's Executive Incentive Plan(10.15)*
10.16 The Company's Supplemental Retirement Plan(10.16)*
10.17 The Company's Excess Benefits Plan(10.17)*
10.18 Ford Motor Company 1990 Long-Term Incentive Plan(10.18)*
10.19 The Company's Long-Term Equity Compensation Plan Stock
Option Award Agreement -- IPO.
10.20 The Company's Long-Term Equity Compensation Plan Stock
Option Award Agreement -- 1996.
12. Computation of Ratio of Earnings to Fixed Charges.
21. Subsidiaries of the Registrant.
23. Consent of Independent Accountants.
24. Powers of Attorney.
27. Financial Data Schedule.
</TABLE>
- ---------------
* Incorporated by reference to the exhibit listed in parenthesis contained
in the Company's registration statement on Form S-1 filed with the
Securities and Exchange Commission on February 8, 1996.
59
<PAGE> 1
EXHIBIT 3.2
BY-LAWS
OF
ASSOCIATES FIRST CAPITAL CORPORATION
(THE "COMPANY")
ADOPTED APRIL 30, 1996
AS AMENDED SEPTEMBER 25, 1996
ARTICLE I.
OFFICES
The registered office of the Company shall be in the City of Wilmington,
County of New Castle, State of Delaware. The Company may also have one or more
offices at such other places, either inside or outside of the State of
Delaware, as the Board of Directors may from time to time determine or as the
business of the Company may require. The books and records of the Company may
be kept (subject to the provisions of the laws of the State of Delaware) at any
place, either inside or outside of the State of Delaware, as from time to time
may be determined by the Board of Directors.
ARTICLE II.
STOCKHOLDERS
SECTION 1. PLACE OF MEETING.
Meetings of stockholders (whether annual or special) shall be held at such
place, either inside or outside of the State of Delaware, as the Board of
Directors shall from time to time determine.
SECTION 2. ANNUAL MEETING.
The annual meeting of stockholders shall be held on the last Thursday of
May of each year or at such other time as shall be determined by the Board of
Directors. Should said day be a legal holiday, such annual meeting shall be
held on the preceding regular business day. If, for any reason, the annual
meeting be not held at the time aforesaid, the directors shall fix another date
for such meeting.
SECTION 3. SPECIAL MEETINGS.
Unless otherwise prescribed by law or by the Company's Restated
Certificate of Incorporation, as amended from time to time (the "Charter"),
special meetings of stockholders may be held at any time on call of the
Chairman of the Board of Directors, a Vice Chairman of the Board of Directors,
the President, or, at the request in writing of a majority of the Board of
Directors, any officer. Such request shall state the purpose or purposes of the
proposed meeting.
SECTION 4. NOTICE OF MEETINGS.
Except as otherwise provided by law, at least twenty (20) days' notice of
stockholders' meetings stating the time and place and the objects thereof shall
be given by the Chairman of the Board of Directors, a Vice Chairman of the
Board of Directors, the President, the Secretary or an Assistant Secretary to
each stockholder of record having voting power in respect of the business to be
transacted thereat. Subject to Section 5 of this Article II, no business other
than that stated in the notice shall be transacted at any meeting.
SECTION 5. NOTICE OF STOCKHOLDER BUSINESS AND NOMINATIONS.
(A) Annual Meetings of Stockholders.
(1) Nominations of persons for election to the Board of Directors and
the proposal of business to be considered by the stockholders may be
<PAGE> 2
made at an annual meeting of stockholders (a) pursuant to the Company's
notice of meeting delivered pursuant to Section 4 of this Article II,
(b) by or at the direction of the Board of Directors or (c) by any
stockholder of the Company who is entitled to vote at the meeting, who
complied with the notice procedures set forth in paragraphs (A)(2) and
(A)(3) of this Section 5 and who was a stockholder of record at the
time such notice is delivered to the Secretary of the Company.
(2) For nominations or other business to be properly brought before an
annual meeting by a stockholder pursuant to clause (c) of paragraph
(A)(1) of this Section 5, the stockholder must have given timely notice
thereof in writing to the Secretary of the Company and such business
must be a proper subject for stockholder action under the General
Corporation Law of the State of Delaware. To be timely, a stockholder's
notice shall be delivered to the Secretary at the principal executive
offices of the Company not less than sixty (60) days nor more than
ninety (90) days prior to the first anniversary of the preceding year's
annual meeting; provided, however, that in the event that the date of
the annual meeting is advanced by more than thirty (30) days or delayed
by more than sixty (60) days from such anniversary date, notice by the
stockholder to be timely must be so delivered not earlier than the
ninetieth day prior to such annual meeting and not later than the close
of business on the later of the sixtieth day prior to such annual
meeting or the tenth day following the day on which public announcement
of the date of such meeting is first made. Such stockholder's notice
shall set forth (a) as to each person whom the stockholder proposes to
nominate for election or reelection as a director all information
relating to such person that is required to be disclosed in
solicitations of proxies for election of directors, or is otherwise
required, in each case pursuant to Regulation 14A under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), (including such
person's written consent to being named in the proxy statement as a
nominee and to serving as a director if elected); (b) as to any other
business that the stockholder proposes to bring before the meeting, a
brief description of the business desired to be brought before the
meeting, the reasons for conducting such business at the meeting and
any material interest in such business of such stockholder and the
beneficial owner, if any, on whose behalf the proposal is made; and (c)
as to the stockholder giving the notice and the beneficial owner, if
any, on whose behalf the nomination or proposal is made (i) the name
and address of such stockholder, as they appear on the Company's books,
and of such beneficial owner and (ii) the class and number of shares of
the Company which are owned beneficially and of record by such
stockholder and such beneficial owner.
(3) Notwithstanding anything in the second sentence of paragraph (A)(2)
of this Section 5 to the contrary, in the event that the number of
directors to be elected to the Board of Directors is increased and
there is no public announcement naming all of the nominees for director
or specifying the size of the increased Board of Directors made by the
Company at least seventy (70) days prior to the first anniversary of
the preceding year's annual meeting, a stockholders's notice required
by this Section 5 shall also be considered timely, but only with
respect to nominees for any new positions created by such increase, if
it shall be delivered to the Secretary at the principal executive
offices of the Company not later than the close of business on the
tenth day following the day on which such public announcement is first
made by the Company.
(B) Special Meetings of Stockholders. Only such business shall be conducted
at a special meeting of stockholders as shall have been brought before the
meeting pursuant to the Company's notice of meeting pursuant to Section 4 of
this Article II. Nominations of persons for election to the Board of Directors
may be made at a special meeting of stockholders at which directors are to be
elected pursuant to the Company's notice of meeting (a) by or at the direction
of the Board of Directors or (b) by any stockholder of the Company who is
entitled to vote at the meeting, who complies with the notice procedures set
<PAGE> 3
forth in this Section 5 and who is a stockholder of record at the time such
notice is delivered to the Secretary of the Company. Nominations by
stockholders of persons for election to the Board of Directors may be made at
such a special meeting of stockholders if the stockholder's notice required by
paragraph (A)(2) of this Section 5 shall be delivered to the Secretary at the
principal executive offices of the Company not earlier than the ninetieth day
prior to such special meeting and not later than the close of business on the
later of the sixtieth day prior to such special meeting or the tenth day
following the day on which public announcement is first made of the date of the
special meeting and of the nominees proposed by the Board of Directors to be
elected at such meeting.
(C) General.
(1) Only persons who are nominated in accordance with the procedures
set forth in this Section 5 shall be eligible to serve as directors and
only such business shall be conducted at a meeting of stockholders as
shall have been brought before the meeting in accordance with the
procedures set forth in this Section 5. Except as otherwise provided by
law, the Charter or these By-laws, the chairman of the meeting shall
have the power and duty to determine whether a nomination or any
business proposed to be brought before the meeting was made in
accordance with this Section 5 and, if any proposed nomination or
business is not in compliance with this Section 5, to declare that such
defective proposal or nomination shall be disregarded.
(2) For purposes of this Section 5, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service or in a document
publicly filed by the Company with the Securities and Exchange
Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act.
(3) Notwithstanding the foregoing provisions of this Section 5, a
stockholder shall also comply with all applicable requirements of the
Exchange Act and the rules and regulations thereunder with respect to
the matters set forth in this Section 5. Nothing in this Section 5
shall be deemed to affect any rights of stockholders to request
inclusion of proposals in the Company's proxy statement pursuant to
Rule 14a-8 under the Exchange Act.
SECTION 6. QUORUM.
At any meeting of stockholders, the number of shares the holders of which
shall be present or represented by proxy in order to constitute a quorum
for,and the votes that shall be necessary for, the transaction of any business
shall be as expressly provided in Article 4 of the Charter. At any meeting of
stockholders at which a quorum is not present, the person serving as chairman
of the meeting or the holders of shares entitled to cast a majority of all of
the votes which could be cast at such meeting by the holders of outstanding
shares of stock of the Company who are present in person or by proxy and who
are entitled to vote on every matter that is to be voted on without regard to
class at such meeting may adjourn the meeting from time to time.
SECTION 7. ORGANIZATION AND CONDUCT OF BUSINESS.
The Chairman of the Board of Directors shall act as chairman of meetings of
the stockholders. The Board of Directors may designate any other officer or
director of the Company to act as chairman of any meeting in the absence of the
Chairman of the Board of Directors, and the Board of Directors may further
provide for determining who shall act as chairman of any stockholders' meeting
in the absence of the Chairman of the Board of Directors and such designee. The
person serving as chairman of any meeting of stockholders shall determine the
order of business and the procedure at the meeting, including such regulation
of the manner of voting and the conduct of discussion as seem to him or her in
order.
The Secretary of the Company shall act as secretary of all meetings of the
stockholders, but in the absence of the Secretary the presiding officer may
appoint any other person to act as secretary of any meeting.
<PAGE> 4
SECTION 8. PROXIES AND VOTING.
At any meeting of stockholders, every stockholder entitled to vote may
vote in person or by proxy authorized by an instrument in writing or by a
transmission permitted by law filed in accordance with the procedure
established for the meeting. Any copy, facsimile telecommunication or other
reliable reproduction of the writing or transmission created pursuant to this
paragraph may be substituted or used in lieu of the original writing or
transmission for any and all purposes for which the original writing or
transmission could be used, provided that such copy, facsimile
telecommunication or other reproduction shall be a complete reproduction of the
entire original writing or transmission.
All voting, including on the election of directors but excepting where
otherwise required by law, may be a voice vote; provided, however, that upon
demand therefor by a stockholder entitled to vote or by his or her proxy, a
stock vote shall be taken. Every stock vote shall be taken by ballots, each of
which shall state the name of the stockholder or proxy voting and such other
information as may be required under the procedure established for the meeting.
SECTION 9. STOCK LISTS.
A complete list of stockholders entitled to vote at any meeting of
stockholders, arranged in alphabetical order for each class of stock and
showing the address of each such stockholder and the number of shares
registered in his or her name, shall be open to the examination of any such
stockholder, for any purpose germane to the meeting, during ordinary business
hours for a period of at least ten (10) days prior to the meeting, either at a
place within the city where the meeting is to be held, which place shall be
specified in the notice of the meeting, or if not so specified, at the place
where the meeting is to be held.
The stock list shall also be kept at the place of the meeting during the
whole time thereof and shall be open to the examination of any such stockholder
who is present. This list shall presumptively determine the identity of the
stockholders entitled to vote at the meeting and the number of shares held by
each of them.
SECTION 10. RATIFICATION.
Any transaction questioned in any stockholders' derivative suit, or any
other suit to enforce alleged rights of the Company or any of its stockholders,
on the ground of lack of authority, defective or irregular execution, adverse
interest of any director, officer or stockholder, nondisclosure, miscomputation
or the application of improper principles or practices of accounting may be
approved, ratified and confirmed before or after judgment by the Board of
Directors or by the holders of the Company's Class A Common Stock, par value
$.01 per share ("Class A Common Stock") and the holders of the Company's Class
B Common Stock, par value $.01 per share ("Class B Common Stock") voting as
provided in paragraph (g) of Article 4 of the Charter, and, if so approved,
ratified or confirmed, shall have the same force and effect as if the
questioned transaction had been originally duly authorized, and said approval,
ratification or confirmation shall be binding upon the Company and all of its
stockholders and shall constitute a bar to any claim or execution of any
judgment in respect of such questioned transaction.
SECTION 11. INSPECTORS OF ELECTION.
The Board of Directors may, and to the extent required by law, shall, in
advance of any meeting of stockholders, appoint one or more inspectors to act
at the meeting, decide upon the qualification of voters, count the votes,
decide the results and make a written report thereof in accordance with the
General Corporation Law of the State of Delaware. The Board of Directors may
designate one or more persons as alternate inspectors to replace any inspector
who fails to act. If no inspector or alternate is able to act at a meeting of
stockholders, the person presiding at the meeting may, and to the extent
<PAGE> 5
required by law, shall, appoint one or more inspectors to act at the meeting.
Each inspector, before entering upon the discharge of his or her duties, shall
take and sign an oath faithfully to execute the duties of inspector with strict
impartiality and according to the best of his or her ability. Every vote taken
by ballots hall be counted by an inspector or inspectors appointed by the
chairman of the meeting.
ARTICLE III.
BOARD OF DIRECTORS
SECTION 1. NUMBER, TERM OF OFFICE AND ELIGIBILITY.
Subject to any rights of holders of Preferred Stock to elect additional
directors under specified circumstances, as provided in Article 5 of the
Charter, the number of directors of the Company shall be fixed from time to
time exclusively by resolution of the Board of Directors adopted by the
affirmative vote of directors constituting not less than a majority of the
total number of directors that the Company would have it there were no
vacancies on the Company's Board of Directors, but shall consist of not more
than twelve (12) nor less than three (3) directors. Each director shall be
elected annually by ballot by the holders of Class A Common Stock and the
holders of Class B Common Stock voting as provided in paragraph (g) of Article
4 of the Charter at the annual meeting of stockholders, to serve until his or
her successor shall have been elected and shall have qualified, except as
provided in this Section 1. No person may be elected or re-elected a director
of the Company if at the time of his or her election or re-election he or she
shall have attained the age of seventy years, and the term of any director who
shall have attained such age while serving as a director shall terminate as of
the time of the first annual meeting of stockholders following his or her
seventieth birthday; provided, however, that the Board of Directors by
resolution may waive such age limitation in any year and from year to year with
respect to any director or directors. Subject to any rights of holders of
Preferred Stock, and unless the Board of Directors otherwise determines, any
vacancy occurring in the Board of Directors caused by death, resignation,
increase in number of directors or otherwise may be filled by the affirmative
vote of a majority of the remaining members of the Board of Directors, though
less than a quorum, or by a sole remaining director, and except as otherwise
provided by law, any such vacancy may not be filled by the stockholders of the
Company, and any director so elected shall hold office until the next election
of directors and until his or her successor is duly elected and qualified, or
until his or her earlier death, resignation or removal.
SECTION 2. MEETINGS.
Meetings of the Board of Directors may be held at such place, either inside
or outside of the State of Delaware, as may from time to time be designated by
the Chairman of the Board of Directors, a Vice Chairman of the Board of
Directors, the President or resolution of the Board of Directors or as may be
specified in the call of any meeting. In the absence of any such designation,
the meetings shall be held at the principal office of the Company in Irving,
Texas.
An annual meeting of the Board of Directors shall be held on the same day
as, and as soon as practicable following the annual meeting of stockholders or
at such other time or place as shall be determined by the Board of Directors at
its regular meeting next preceding said annual meeting of stockholders. Regular
meetings of the Board of Directors shall be held on the last Thursday of
February, May, August and November of each year or at such other time as shall
be determined by the Board of Directors. Should said day be a legal holiday,
such regular meeting shall be held on the next Thursday that is not a legal
holiday.
Special meetings of the Board of Directors may be held at any time on the
call of the Chairman of the Board of Directors, a Vice Chairman of the Board of
Directors, the President or the Board of Directors. Meetings may be held at any
<PAGE> 6
time or place without notice if all the directors are present or if those not
present waive notice of the meeting in writing.
SECTION 3. NOTICE OF MEETINGS.
The Secretary or an Assistant Secretary shall give notice of the time and
place of meetings of the Board of Directors (excepting the annual meeting of
directors) by (i) mailing or sending via courier such notice not later than
during the second day preceding the day on which such meeting is to be held, or
(ii) by (a) sending a facsimile transmission or other form of electronic
communication containing such notice or (b) delivering such notice personally
or by telephone, in each case, not later than during the first day preceding
the day on which such meeting is to be held to each director. Unless otherwise
stated in the notice thereof any and all business may be transacted at any
meeting.
SECTION 4. QUORUM AND ORGANIZATION OF MEETINGS.
One-third of the total number of members of the Board of Directors as
constituted from time to time, but in no event less than three, shall
constitute a quorum for the transaction of business; but if at any meeting of
the Board of Directors there shall be less than a quorum present, a majority of
those present may adjourn the meeting from time to time, and the meeting may be
held as adjourned without further notice or waiver. Except as otherwise
provided by law or by the Charter or these By-laws, a majority of the directors
present at any duly constituted meeting may decide any question brought before
such meeting.
Meetings shall be presided over by the Chairman of the Board of Directors
or, in his or her absence, by such other person as the Board of Directors may
designate or the members present may select.
SECTION 5. POWERS.
In addition to the powers and authorities by these By-laws expressly
conferred upon them, the Board of Directors shall have and may exercise all
such powers of the Company and do all such lawful acts and things that are not
by statute, the Charter or these By-laws directed or required to be exercised
or done by the stockholders. Without prejudice to or limitation of such general
powers and any other powers conferred by statute, the Charter or these Bylaws,
the Board of Directors shall have the following powers:
(1) To determine, subject to the requirements of law and of
paragraph (c)(2) of Article 4 of the Charter, what, if any, dividends shall be
declared and paid to the stockholders out of net profits, current or
accumulated, or out of surplus or other assets of the Company available for
dividends.
(2) To fix, and from time to time to vary, the amount of working
capital of the Company, and to set aside from time to time out of net profits,
current or accumulated, or surplus of the Company such amount or amounts as
they in their discretion may deem necessary and proper as, or as a safeguard to
the maintenance of working capital, as a reserve for contingencies, as a
reserve for repairs, maintenance, or rehabilitation, as a reserve for
revaluation of profits of the Company or for such other proper purpose as may
in the opinion of the directors be in the best interests of the Company, and in
their sole discretion to abolish or modify any such provision for working
capital or any such reserve, and to credit the amount thereof to net profits,
current or accumulated, or to the surplus of the Company.
(3) To purchase, or otherwise acquire for the Company, any
business, property, rights or privileges which the Company may at the time be
authorized to acquire, at such price or consideration and generally on such
terms and conditions as they think fit; and at their discretion to pay therefor
either wholly or partly in money, stock, bonds, debentures or other securities
of the Company.
(4) To create, make and issue mortgages, bonds, deeds of trust,
trust agreements or negotiable or transferable instruments or securities,
secured by mortgage or otherwise, and to do every other act and thing necessary
to effect the same.
<PAGE> 7
(5) To appoint any person or corporation to accept and hold in
trust for the Company any property belonging to the Company, or in which it is
interested, or for any other purpose, and to execute such deeds and do all
things requisite in relation to any such trust.
(6) To remove any officer of the Company with or without cause,
and from time to time to devolve the powers and duties of any officer upon any
other person for the time being.
(7) To confer upon any officer of the Company the power to
appoint, remove and suspend subordinate officers, agents and employees.
(8) To determine who shall be authorized on the Company's behalf,
either generally or specifically, to make and sign bills, notes, acceptances,
endorsements, checks, releases, receipts, contracts, conveyances, and all other
written instruments executed on behalf of the Company.
(9) To make and change regulations, not inconsistent with these
By-laws, for the management of the Company's business and affairs.
(10) To adopt and, unless otherwise provided therein, to amend and
repeal, from time to time, bonus and supplemental compensation plans for
employees (including employees who are officers or directors) of the Company or
any subsidiary. Power to construe, interpret, administer, modify or suspend any
such plan shall be vested in the Board of directors or a committee thereof.
(11) To adopt a retirement plan, or plans, for the purpose of
making retirement payments to employees (including employees who are officers
or directors) of the Company or of any subsidiary thereof; and to adopt a group
insurance plan, or plans, for the purpose of enabling employees (including
employees who are officers or directors) of the Company or of any subsidiary
thereof to acquire insurance protection; any such retirement plan or insurance
plan, unless otherwise provided therein, shall be subject to amendment or
revocation by the Board of Directors.
(12) To delegate any of the powers of the Board of Directors in the
course of the business of the Company to any officer, employee or agent, and to
appoint any person the agent of the Company, with such powers (including the
power to subdelegate) and upon such terms as the Board of Directors may think
fit.
SECTION 6. RELIANCE UPON BOOKS, REPORTS AND RECORDS.
Each director, each member of any committee designated by the Board of
Directors and each officer, in the performance of his or her duties, shall be
fully protected in relying in good faith upon such information, opinions,
reports or statements presented to the Company by any of its officers or
employees, or by committees of the Board of Directors, or by any other person,
as to matters such director, member or officer, as the case may be, reasonably
believes are within such person's professional or expert competence and who has
been selected with reasonable care by the Board of Directors or by any such
committee, or in relying in good faith upon other records of the Company.
SECTION 7. COMPENSATION OF DIRECTORS.
Directors, as such, may receive, pursuant to resolution of the Board of
Directors, fixed fees and other compensation for their services as directors,
including, without limitation, services as members of committees of the Board
of Directors; provided, however, that nothing herein contained shall be
construed to preclude any director from serving the Company in any other
capacity and receiving compensation therefor.
SECTION 8. MEETINGS BY MEANS OF CONFERENCE TELEPHONE.
Unless otherwise provided by the Charter or these By-laws, members of the
Board of Directors, or any committee designated by the Board of Directors, may
participate in a meeting of the Board of Directors or such committee by means
of a conference telephone or similar communications equipment by means of which
all persons participating in the meeting can hear each other, and participation
in
<PAGE> 8
a meeting pursuant to this Section 8 shall constitute presence in person at
such meeting.
ARTICLE IV.
COMMITTEES
SECTION 1. COMMITTEES OF THE BOARD OF DIRECTORS.
There are hereby established as committees of the Board of Directors an
Audit Committee, a Compensation Committee and a Nominating Committee, each of
which shall have the powers and functions set forth in Sections 2, 3 and 4
hereof, respectively, and such additional powers as may be delegated to it by
the Board of Directors. The Board of Directors may from time to time establish
additional standing committees or special committees of the Board of Directors,
each of which shall have such powers and functions as may be delegated to it by
the Board of Directors. The Board of Directors may abolish any committee
established by or pursuant to this Section 1 as it may deem advisable. Each
such committee shall consist of two or more directors, the exact number being
determined from time to time by the Board of Directors. Designations of the
chairman and members of each such committee, and, if desired, a vice chairman
and alternates for members, shall be made by the Board of Directors. In the
absence or disqualification of any member of any committee and any alternate
member in his or her place, the member or members of the committee present at
the meeting and not disqualified from voting whether or not he or she or they
constitute a quorum, may by unanimous vote appoint another member of the Board
of Directors to act at the meeting in the place of the absent or disqualified
member. Each committee shall have a secretary who shall be designated by its
chairman. A vice chairman of a committee shall act as the chairman of the
committee in the absence or disability of the chairman.
SECTION 2. AUDIT COMMITTEE.
The Audit Committee shall select and engage, on behalf of the Company,
independent public accountants to (1) audit the books of account and other
corporate records of the Company and (2) perform such other duties as the Audit
Committee may from time to time prescribe. The Audit Committee shall transmit
financial statements certified by such independent public accountants to the
Board of Directors after the close of each fiscal year. The selection of
independent public accountants for each fiscal year shall be made in advance of
the annual meeting of stockholders in such fiscal year and shall be submitted
for ratification or rejection at such meeting. The Audit Committee shall confer
with such accountants and review and approve the scope of the audit of the
books of account and other corporate records of the Company. The Audit
Committee shall have the power to confer with and direct the officers of the
Company to the extent necessary to review the internal controls, accounting
practices, financial structure and financial reporting of the Company. From
time to time the Audit Committee shall report to and advise the Board of
Directors concerning the results of its consultation and review and such other
matters relating to the internal controls, accounting practices, financial
structure and financial reporting of the Company as the Audit Committee
believes merit review by the Board of Directors. The Audit Committee also shall
perform such other functions and exercise such other powers as may be delegated
to it from time to time by the Board of Directors.
SECTION 3. COMPENSATION COMMITTEE.
The Compensation Committee shall fix from time to time the compensation of
members of the Board of Directors who are officers or employees of the Company
and of all members of the Management Committee of the Company who are officers
or employees of the Company. The Compensation Committee shall also perform such
functions as may be delegated to it under the provisions of any bonus,
supplemental compensation, special compensation or stock option plan of the
Company.
<PAGE> 9
SECTION 4. NOMINATING COMMITTEE.
The Nominating Committee from time to time shall consider and make
recommendations to the Board of Directors with respect to nominations or
elections of directors and officers of the Company and the appointments of such
other employees of the Company as shall be referred to the Nominating
Committee.
The Nominating Committee from time to time shall consider the size and
composition of the Board of Directors and make recommendations to the Board of
Directors with respect to such matters. Prior to the annual meeting of
stockholders each year, and prior to any special meeting of stockholders at
which a director is to be elected, the Nominating Committee shall recommend to
the Board of Directors persons proposed to constitute the nominees whose
election at such meeting will be recommended by the Board of Directors.
The authority vested in the Nominating Committee by this Section 4 shall
not derogate from the power of individual members of the Board of Directors to
recommend or place in nomination persons other than those recommended by the
Nominating Committee.
The Nominating Committee also shall perform such other functions and
exercise such other powers as may be delegated to it from time to time by the
Board of Directors.
SECTION 5. OTHER COMMITTEES.
The Board of Directors, or any committee, officer or employee of the
Company may establish additional standing committees or special committees to
serve in an advisory capacity or in such other capacities as may be permitted
by law, the Charter and these By-laws. The members of any such committee need
not be members of the Board of Directors. Any committee established pursuant to
this Section 5 may be abolished by the Board of Directors or by the person or
body by whom it was established as he, she or it may deem advisable. Each such
committee shall consist of two or more members, the exact number being
determined from time to time by such person or body. Designations of members of
each such committee and, if desired, alternates for members, shall be made by
such person or body, at whose will all such members and alternates shall serve.
The chairman of each such committee shall be designated by such person or body.
Each such committee shall have a secretary who shall be designated by the
chairman.
SECTION 6. RULES AND PROCEDURES.
Each committee may fix its own rules and procedures and shall meet at such
times and places as may be provided by such rules, by resolution of the
committee or by call of the chairman or vice chairman. Notice of meeting of
each committee, other than of regular meetings provided for by its rules or
resolutions, shall be given to committee members. The presence of one-third of
its members, but not less than two, shall constitute a quorum of any committee,
and all questions shall be decided by a majority vote of the members present at
the meeting. All action taken at each committee meeting shall be recorded in
minutes of the meeting.
SECTION 7. APPLICATION OF ARTICLE.
Whenever any provision of any other document relating to any committee of
the Company named therein shall be in conflict with any provision of this
Article IV, the provisions of this Article IV shall govern, except that if such
other document shall have been approved by the stockholders, voting as provided
in the Charter, or by the Board of Directors, the provisions of such other
document shall govern.
<PAGE> 10
ARTICLE V.
OFFICERS
SECTION 1. OFFICERS.
The Officers of the Company shall include a Chairman of the Board of
Directors and may include one or more Vice Chairmen of the Board of Directors,
each of whom shall be chosen from among the directors, a President and a
Secretary, each of whom shall be elected by the Board of Directors to hold
office until his or her successor shall have been chosen and shall have
qualified. The Chairman of the Board of Directors or the President may elect or
appoint one or more Senior Executive Vice Presidents, one or more Executive
Vice Presidents, one or more Senior Vice Presidents, one or more Vice
Presidents, a Treasurer, a Comptroller, a General Counsel, one or more
Assistant Vice Presidents, one or more Assistant Treasurers, one or more
Assistant Comptrollers, one or more Assistant General Counsels, one or more
Assistant Secretaries, and the Chairman of the Board of Directors or President
may elect or appoint such other officers as such officer may deem necessary, or
desirable, each of whom shall have such authority, shall perform such duties
and shall hold office for such term as may be prescribed by the Board of
Directors from time to time. Any person may hold at one time more than one
office, excepting that the duties of the President and Secretary shall not be
performed by one person.
SECTION 2. CHAIRMAN OF THE BOARD OF DIRECTORS.
The Chairman of the Board of Directors shall be the Chief Executive
Officer of the Company. Subject to the provisions of these By-laws and to the
direction of the Board of Directors, he or she shall have ultimate authority
for decisions relating to the general management and control of the affairs and
business of the Company and shall perform all other duties and exercise all
other powers commonly incident to the position of Chief Executive Officer or
which are or from time to time may be delegated to him or her by the Board of
Directors, or which are or may at any time be authorized or required by law. He
or she shall preside at all meetings of the Board of Directors. He or she may
redelegate from time to time and to the full extent permitted by law, in
writing, to officers or employees of the Company any or all of such duties and
powers, and any such redelegation may be either general or specific. Whenever
he or she so shall delegate any of his or her authority, he or she shall file a
copy of the redelegation with the Secretary of the Company.
SECTION 3. VICE CHAIRMEN OF THE BOARD OF DIRECTORS.
Subject to the provisions of these By-laws and to the direction of the
Board of Directors and of the Chief Executive Officer, the Vice Chairmen of the
Board of Directors shall have such powers and shall perform such duties as from
time to time may be delegated to them by the Board of Directors or by the Chief
Executive Officer, or which are or may at any time be authorized or required by
law.
SECTION 4. PRESIDENT.
Subject to the provisions of these By-laws and to the direction of the
Board of Directors and of the Chief Executive Officer, the President shall have
such powers and shall perform such duties as from time to time may be delegated
to him or her by the Board of Directors or by the Chief Executive Officer, or
which are or may at any time be authorized or required by law.
SECTION 5. SENIOR EXECUTIVE VICE PRESIDENTS, EXECUTIVE VICE PRESIDENTS, SENIOR
VICE PRESIDENTS AND VICE PRESIDENTS.
Each of the Senior Executive Vice Presidents, each of the Executive Vice
Presidents, each of the Senior Vice Presidents and each of the other Vice
Presidents shall have such powers and shall perform such duties as may be
delegated to him or her by the Board of Directors, the Chairman of the Board of
Directors, the President or such other officer or officers to whom he or she is
directly responsible.
<PAGE> 11
SECTION 6. TREASURER AND ASSISTANT TREASURER.
The Treasurer, subject to the direction of the Board of Directors, shall
have the care and custody of all funds and securities of the Company which may
come into his or her hands. When necessary or proper he or she shall endorse on
behalf of the Company, for collection, checks, notes and other obligations, and
shall deposit all funds of the Company in such banks or other depositaries as
may be designated by the Board of Directors or by such officers or employees as
may be authorized by the Board of Directors so to designate. He or she shall
perform all acts incident to the office of Treasurer, subject to the control of
the Board of Directors and such other officer or officers to whom he or she is
directly responsible. He or she may be required to give a bond for the faithful
discharge of his or her duties, in such sum and upon such conditions as the
Board of Directors may require.
At the request and direction of the Treasurer or, in the case of his or
her absence or inability to act, any Assistant Treasurer may act in his or her
place.
In the case of the death of the Treasurer, or in the case of his or her
absence or inability to act without having designated an Assistant Treasurer to
act temporarily in his or her place, the Assistant Treasurer so to perform the
duties of the Treasurer shall be designated by the Chairman of the Board of
Directors, a Vice Chairman of the Board of Directors, the President or an
Executive Vice President.
SECTION 7. SECRETARY AND ASSISTANT SECRETARY.
The Secretary shall keep full and accurate minutes of the meetings of the
stockholders and of the Board of Directors in the proper record book of the
Company provided therefor, and, when required, the minutes of meetings of the
committees, and shall be responsible for the custody of all such minutes.
Subject to the direction of the Board of Directors, the Secretary shall have
custody of the stock ledgers and documents of the Company. He or she shall have
custody of the corporate seal of the Company and shall affix and attest such
seal to any instrument whose execution under seal shall have been duly
authorized. He or she shall give due notice of meetings and, subject to the
direction of the Board of Directors, shall perform all other duties commonly
incident to his or her office or as properly required of him or her by the
Chairman of the Board of Directors and such other officer or officers to whom
he or she is directly responsible and shall enjoy all other powers commonly
incident to his or her office.
At the request and direction of the Secretary or, in the case of his or
her absence or inability to act, any Assistant Secretary may act in his or her
place.
In the case of the death of the Secretary, or in the case of his or her
absence or inability to act without having designated an Assistant Secretary to
act temporarily in his or her place, the Assistant Secretary or other person so
to perform the duties of the Secretary shall be designated by the Chairman of
the Board of Directors, a Vice Chairman of the Board of Directors, the
President or an Executive Vice President.
SECTION 8. ASSISTANT VICE PRESIDENTS AND OTHER OFFICERS.
Each assistant vice president and other officers shall perform such duties
commonly incident to his or her office or as properly required of him or her by
the Chairman of the Board of Directors and such other officer or officers to
whom he or she is directly responsible.
SECTION 9. GENERAL COUNSEL.
The General Counsel shall have general supervision of all matters of a
legal nature concerning the Company. He or she shall perform all such duties
commonly incident to his or her office or as properly required of him or her by
<PAGE> 12
the Chairman of the Board of Directors and such other officer or officers to
whom he or she is directly responsible.
SECTION 10. COMPTROLLER.
The Comptroller shall keep and maintain the books of account of the
Company in such manner that they fairly present the financial condition of the
Company and its subsidiaries. The Comptroller shall have such powers and shall
perform such duties as may be delegated to him or her by the Board of
Directors, the Chairman of the Board of Directors, the President or the
appropriate Executive Vice President, Senior Vice President or Vice President
or such other officer or officers to whom he or she is directly responsible.
SECTION 11. SALARIES.
Salaries of officers, agents or employees shall be fixed from time to time
by the Board of Directors or by such committee or committees, or person or
persons, if any, to whom such power shall have been delegated by the Board of
Directors. An employment contract, whether with an officer, agent or employee,
if expressly approved or specifically authorized by the Board of Directors, may
fix a term of employment thereunder; and such contract, if so approved or
authorized, shall be valid and binding upon the Company in accordance with the
terms thereof, provided that this provision shall not limit or restrict in any
way the right of the Company at any time to remove from office, discharge or
terminate the employment of any such officer, agent or employee prior to the
expiration of the term of employment under any such contract.
SECTION 12. VACANCIES.
A vacancy in any office filled by election of the Board of Directors may
be filled by the Board of Directors by the election of a new officer who shall
hold office, subject to the provisions of this Article V, until the regular
meeting of the directors following the next annual meeting of the stockholders
and until his or her successor is elected.
SECTION 13. REMOVAL OR DISCHARGE.
Any officer may be removed or discharged by the Chairman of the Board of
Directors at any time excepting an officer who is also a director. Any officer
who also is a director may be discharged at any time by the Board of
Directors.
ARTICLE VI.
RESIGNATIONS
Any director, officer or agent of the Company, or any member of any
committee, may resign at any time by giving written notice to the Board of
Directors, the Chairman of the Board of Directors, a Vice Chairman of the Board
of Directors, the President or the Secretary of the Company. Any such
resignation shall take effect at the time specified therein, or if the time be
not specified therein, then upon receipt thereof. The acceptance of such
resignation shall not be necessary to make it effective.
ARTICLE VII.
CAPITAL STOCK - DIVIDENDS - SEAL
SECTION 1. CERTIFICATES OF SHARES.
The certificates for shares of the capital stock of the Company shall be
in such form, not inconsistent with the Charter, as shall be approved by the
Board of Directors. The certificates shall be numbered and signed by the
Chairman of the Board of Directors, a Vice Chairman of the Board of Directors,
the President, an Executive Vice President, a Senior Vice President or a Vice
President, and also by the Treasurer or an Assistant Treasurer, or the
Secretary
<PAGE> 13
or an Assistant Secretary. Any and all signatures may be facsimiles.
All certificates shall bear the name of the persons owning the shares
represented thereby, shall state the number of shares represented by such
certificate and the date of issue; and such information shall be entered in the
Company's original stock ledger.
SECTION 2. ADDRESSES OF STOCKHOLDERS.
It shall be the duty of every stockholder to notify the Company of his or
her post office address and of any change therein. The latest address furnished
by each stockholder shall be entered on the original stock ledger of the
Company and the latest address appearing on such original stock ledger shall be
deemed conclusively to be the post office address and the last-known post
office address of such stockholder. If any stockholder shall fail to notify the
Company of his or her post office address, it shall be sufficient to send
corporate notices to such stockholder at the address, if any, understood by the
Secretary to be his or her post office address, or in the absence of such
address, to such stockholder, at the General Post Office in the City of
Wilmington, State of Delaware.
SECTION 3. LOST, DESTROYED OR STOLEN CERTIFICATE.
Any person claiming a stock certificate in lieu of one lost, destroyed or
stolen, shall give the Company an affidavit as to his, her or its ownership of
the certificate and of the facts which go to prove that it has been lost,
destroyed or stolen. If required by the Board of Directors, he, she or it also
shall give the Company a bond, in such form as may be approved by the Board of
Directors, sufficient to indemnify the Company against any claim that may be
made against it on account of the alleged loss of the certificate or the
issuance of a new certificate. A new certificate shall be issued upon receipt
of such an affidavit and, if required, upon the giving of such a bond.
SECTION 4. RECORD OF HOLDER OF SHARES.
The Company shall be entitled to treat the holder of record of any share
or shares as the holder in fact thereof, and accordingly shall not be bound to
recognize any equitable or other claims to or interest in such shares on the
part of any other person, whether or not it shall have express or other notice
thereof, save as expressly provided by the General Corporation Law of the State
of Delaware. The Company shall be entitled to recognize the exclusive right of
a person registered on its books as the owner of shares to receive dividends
and to vote as such owner.
SECTION 5. RECORD DATE.
In order that the Company may determine the stockholders entitled to
notice of or to vote at any meeting of stockholders, or to receive payment of
any dividend or other distribution or allotment of any rights or to exercise
any rights in respect of any change, conversion or exchange of stock (other
than conversions or exchanges pursuant to Article 4 of the Charter) or for the
purpose of any other lawful action, the Board of Directors may fix a record
date, which record date shall not precede the date on which the resolution
fixing the record date is adopted and which record date shall not be more than
sixty (60) nor less than ten (10) days before the date of any meeting of
stockholders, nor more than sixty (60) days prior to the time for such other
action as hereinbefore described; provided, however, that if no record date is
fixed by the Board of Directors, the record date for determining stockholders
entitled to notice of or to vote at a meeting of stockholders shall be at the
close of business on the day next preceding the day on which notice is given
or, if notice is waived, at the close of business on the day next preceding the
day on which the meeting is held, and, for determining stockholders entitled to
receive payment of any dividend or other distribution or allotment of rights or
to exercise any rights of change,
<PAGE> 14
conversion or exchange of stock (other than conversions or exchanges pursuant
to Article 4 of the Charter) or for any other purpose, the record date shall be
at the close of business on the day on which the Board of Directors adopts a
resolution relating thereto.
A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for
the adjourned meeting.
If stockholders are entitled to consent to corporate action in writing
without a meeting in accordance with the General Corporation Law of the State
of Delaware and the Charter, in order that the Company may determine the
stockholders entitled to so consent, the Board of Directors may fix a record
date, which shall not precede the date upon which the resolution fixing the
record date is adopted by the Board of Directors, and which record date shall
be not more than ten (10) days after the date upon which the resolution fixing
the record date is adopted and no record date has been fixed by the Board of
Directors and if no prior action by the Board of Directors is required by the
General Corporation Law of the State of Delaware, the record date shall be the
first date on which a signed written consent setting forth the action taken or
proposed to be taken is delivered to the Company in the manner prescribed by
Article 12 of the Charter. If stockholders are entitled to consent to corporate
action in writing without a meeting in accordance with the General Corporation
Law of the State of Delaware and the Charter, and no record date has been fixed
by the Board of Directors and prior action by the Board of Directors is
required by the General Corporation Law of the State of Delaware with respect
to the proposed action by written consent of the stockholders, the record date
for determining stockholders entitled to consent to corporate action in writing
shall be at the close of business on the day on which the Board of Directors
adopts the resolution taking such prior action.
SECTION 6. REGULATIONS.
The Board of Directors shall have power and authority to make all such
rules and regulations not inconsistent with any of the provisions of Article 4
of the Charter, as it may deem expedient, concerning the issue, transfer and
registration of certificates for shares of the stock of the Company.
SECTION 7. CORPORATE SEAL.
The corporate seal shall be in such form as shall from time to time be
approved by the Board of Directors. If and when so authorized by the Board of
Directors, a duplicate of the seal may be kept and used by the Secretary or
Treasurer or by any Assistant Secretary or Assistant Treasurer.
ARTICLE VIII.
EXECUTIVE OF CONTRACTS AND OTHER DOCUMENTS
SECTION 1. CONTRACTS, ETC.
Except as otherwise prescribed in these By-laws, such officers, employees
or agents of the Company as shall be specified by the Board of Directors shall
sign, in the name and on behalf of the Company, all deeds, bonds, contracts,
mortgages and other instruments or documents, the execution of which shall be
authorized by the Board of Directors; and such authority may be general or
confined to specific instances. Except as so authorized by the Board of
Directors, no officer, agent or employee of the Company shall have power or
authority to bind the Company by any contract or engagement or to pledge,
mortgage, sell or otherwise dispose of its credit or any of its property or to
render it pecuniarily liable for any purpose or in any amount.
SECTION 2. CHECKS, DRAFTS, ETC.
Except as otherwise provided in these By-laws, all checks, drafts, notes,
bonds, bills of exchange or other orders, instruments or obligations for the
<PAGE> 15
payment of money shall be signed by such officer or officers, employee or
employees, or agent or agents, as the Board of Directors shall by resolution
direct. The Board of Directors may, in its discretion, also provide by
resolution for the countersignature or registration of any or all such orders,
instruments or obligations for the payment of money.
ARTICLE IX.
FISCAL YEAR
The fiscal year of the Company shall begin the first day of January in
each year.
ARTICLE X.
MISCELLANEOUS
SECTION 1. ORIGINAL STOCK LEDGER.
As used in these By-laws and in the Charter, the words "original stock
ledger" shall mean the record maintained by the Secretary of the Company of the
name and address of each of the holders of shares of any class of stock of the
Company, and the number of shares and the numbers of the certificates for such
shares held by each of them, taking into account transfers at the time made by
and recorded on the transfer sheets of each of the Transfer Agents of the
Company although such transfers may not have been posted in the record
maintained by the Secretary.
SECTION 2. NOTICES AND WAIVERS THEREOF.
Whenever any notice whatever is required by these By-laws, the Charter or
any of the laws of the State of Delaware to be given to any stockholder,
director or officer, such notice, except as otherwise provided by the laws of
the State of Delaware, may be given personally or by telephone or be given by
facsimile transmission or other form of electronic communication, addressed to
such stockholder at the address set forth as provided in Section 2 of Article
VII of these By-laws, or to such director or officer at his or her Company
location, if any, or at such address as appears on the books of the Company, or
the notice may be given in writing by depositing the same in a post office, or
in a regularly maintained letter box, or by sending it via courier in a
postpaid, sealed wrapper addressed to such stockholder at the address set forth
in Section 2 of Article VII of these By-laws, or to such director or officer at
his or her Company location, if any, or such address as appears on the books of
the Company.
Any notice given by facsimile transmission or other form of electronic
communication shall be deemed to have been given when it shall have been
transmitted. Any notice given by mail or courier shall be deemed to have been
given when it shall have been mailed or delivered to the courier.
A waiver of any such notice in writing, including by facsimile
transmission, signed or dispatched by the person entitled to such notice or by
his or her duly authorized attorney, whether before or after the time stated
therein, shall be deemed equivalent to the notice required to be given, and the
presence at any meeting of any person entitled to notice thereof shall be
deemed a waiver of such notice as to such person.
SECTION 3. VOTING UPON STOCKS.
The Board of Directors (whose authorization in this connection shall be
necessary in all cases) may from time to time appoint an attorney or attorneys
or agent or agents of the Company, or may at any time or from time to time
authorize the Chairman of the Board of Directors, any Vice Chairman of the
Board of Directors, the President, any Senior Executive Vice President, any
Executive Vice President, any Senior Vice President, any Vice President, the
Treasurer or the Secretary to appoint an attorney or attorneys or agent or
agents of the Company, in the name and on behalf of the Company, to cast the
votes which the
<PAGE> 16
Company may be entitled to cast as a stockholder or otherwise in any other
corporation or association, any of the stock or securities of which may be held
by the Company, at meetings of the holders of the stock or other securities of
such other corporation or association, or to consent in writing to any action
by any such other corporation or association and the Board of Directors or any
aforesaid officer so authorized may instruct the person or persons so appointed
as to the manner of casting such votes or giving such consent, and the Board of
Directors or any aforesaid officer so authorized may from time to time
authorize the execution and delivery, on behalf of the Company and under its
corporate seal, or otherwise, of such written proxies, consents, waivers or
other instruments as may be deemed necessary or proper in the premises.
ARTICLE XI.
AMENDMENTS
These By-laws may be altered, amended or repealed at any meeting of the
Board of Directors or of the stockholders, provided that notice of such
alteration, amendment or repeal be contained in the notice of such meeting of
the Board of Directors or stockholders (subject, in the case of meetings of
stockholders, to the provisions of Article II of these By-laws), as the case
may be. All such amendments must be approved by the affirmative vote of the
holders of at least 75% of the total voting power of all classes of outstanding
capital stock, voting together as a single class (if effected by action of the
stockholders), or by the affirmative vote of directors constituting not less
than a majority of the total number of directors that the Company would have if
there were no vacancies on the Company's Board of Directors (if effected by
action of the Board of Directors).
<PAGE> 1
EXHIBIT 10.19
ASSOCIATES FIRST CAPITAL CORPORATION
LONG-TERM EQUITY COMPENSATION PLAN
STOCK OPTION AWARD AGREEMENT - IPO
You have been selected to be a Participant in the Associates First Capital
Corporation Long-Term Equity Compensation Plan (the "Plan") for 1996, through
this grant of nonqualified stock options/tandem stock appreciation rights
(hereinafter for purposes of this Agreement referred to as "Stock Options" or
"Options"), subject to completion of the initial public offering of Shares, as
specified below:
PARTICIPANT:
--------------------------------
ADDRESS:
--------------------------------------------------------
--------------------------------------------------------
OPTION NO.:
---------------------------------
DATE OF GRANT:
------------------------------
NUMBER OF SHARES COVERED BY THIS AGREEMENT:
---------------------
OPTION PRICE:
-------------------------------
DATE OF EXPIRATION:
-------------------------
EXCEPT AS HEREINAFTER PROVIDED, THIS OPTION MAY BE EXERCISED AFTER:
. -------------
THIS AGREEMENT, effective commencing as of the morning of, but prior
to, commencement of trading on the New York Stock Exchange on the Date of Grant
set forth above, represents the grant of a stock option by Associates First
Capital Corporation, a Delaware corporation (the "Company"), to the Participant
named above, pursuant to the provisions of the Plan.
The Plan provides a description of certain terms and conditions
governing the Option. If there is any inconsistency between the terms of this
Agreement and the terms of the Plan, the Plan's terms shall completely
supersede and replace the conflicting terms of this Agreement. All capitalized
terms shall have the meanings ascribed to them in the Plan, unless specifically
set forth otherwise herein. The parties hereto agree as follows:
1. GRANT OF STOCK OPTION. The Company hereby grants to the Participant an
Option to exercise the number of Shares set forth above, at the stated
Option Price, which is 100 percent of the
<PAGE> 2
Fair Market Value of a Share on the Date of Grant, in the manner and
subject to the applicable terms and conditions of the Plan and this
Agreement.
2. EXERCISE OF STOCK OPTION. Except as hereinafter provided, the
Participant may exercise this Option as provided in Article 3 of this
Agreement and according to the vesting schedule set forth on page 1 of
this Agreement, provided that no exercise may occur prior to the end
of one (1) year following the Date of Grant or subsequent to the close
of business on the Date of Expiration (shown on page 1 of this
Agreement).
This Option may be exercised in whole or in part, but not for less
than 50 Shares at any one time, unless fewer than 50 Shares then
remain subject to the Option, and the Option is then being exercised
as to all such remaining Shares. Options may be exercised only for
full Shares; no option is exercisable for fractional Shares.
3. PROCEDURE FOR EXERCISE OF OPTION. This Option may be exercised only
during a "Window Period" (as defined below), by delivery of the Notice
of Exercise to the Company, addressed to the attention of its
Compensation Committee, c/o John Lee. "Window Period" means the period
beginning on the third (3rd) business day following the date of public
release of the Company's quarterly sales and earnings information, and
ending on the twelfth (12th) business day following such date.
Notwithstanding the foregoing and except with respect to Insiders as
specified below, the Company may at any time in its sole discretion,
change, extend, or eliminate a window period or otherwise. The
Participant shall elect on the Notice of Exercise whether the stock
option or the stock appreciation rights portion of the award is being
exercised. Exercise of the stock option portion shall cancel the
corresponding portion represented by stock appreciation rights, and
exercise of the stock appreciation rights portion shall cancel the
corresponding portion represented by stock options.
(a) Exercise of stock appreciation rights portion of award. If
the stock appreciation rights portion of the Option is
exercised, the Participant shall elect one of the two
following alternatives:
(i) Payout in cash: If this alternative is elected, the
Company shall pay to the Participant in cash (or by
check) an amount equal to (A) the excess of the Fair
Market Value of a Share on the date of exercise (as
determined by the Committee or its designee), over
the Option Price, multiplied by (B) the number of
Shares under the Option being exercised. Applicable
taxes shall be withheld from the cash payout.
Participants who are notified by the Company that
they are Insiders may elect this alternative,
subject to Committee approval, only within a Window
Period.
(ii) Payout in Stock: If this alternative is elected, the
Company shall deliver to the Participant the number
of Shares of Company Stock necessary to deliver to
the Participant value equal to (A) the excess of the
Fair Market Value of a Share on the date of exercise
(as determined by the Committee or its
2
<PAGE> 3
designee), over the Option Price, multiplied by (B) the
number of Shares under the Option being exercised, minus (C)
the withholding taxes.
(b) Exercise of Stock Option portion of award. If the Stock
Option portion of the Option is exercised, the Participant
shall deliver to the Company the Option Price in full either:
(i) in cash or its equivalent; (ii) by tendering previously
acquired Shares having an aggregate Fair Market Value at the
time of exercise equal to the Option Price (provided that the
Shares so tendered must have been held by the Participant for
at least six months prior to their tender); or (iii) by a
combination of (i) and (ii). As soon as practicable following
exercise, the Company shall deliver to the Participant
certificates for the Shares purchased, net of tax withholding
as provided below, if applicable.
The Company shall have the right to deduct or withhold, or
have the Participant remit to the Company, an amount
sufficient to satisfy Federal, state, and local taxes
(including the Participant's FICA obligation) required by law
to be withheld with respect to such exercise. The Participant
may elect in connection with an exercise under this Section
3(b), subject to the approval of the Committee, to satisfy
the withholding requirement, in whole or in part, by having
the Company withhold Shares having an aggregate Fair Market
Value on the date of exercise equal to the amount required to
be withheld. All elections shall be irrevocable and in
writing, and shall be signed by the Participant in advance of
the date the transaction becomes taxable. In addition, any
such election by Participants who have been notified by the
Company that they are Insiders must be either:
(i) Delivered to the Committee at least six (6) months
prior to the date specified by the Participant on
which the exercise of the Option is to occur; or
(ii) Be made pursuant to an exercise of an Option which
occurs during a Window Period.
4. TERMINATION OF EMPLOYMENT:
(a) By Retirement, Disability or death: In the event of a
Participant's Retirement, Disability or death, the Option
shall continue in effect and shall become fully vested and
exercisable during the applicable periods in accordance with
the provisions hereof. In the event of the Participant's
death, the beneficiary designated pursuant to Article 8
hereof, or if no such beneficiary is designated or deemed to
be designated or if none survives such Participant, the
executor or administrator of the estate of the decedent or
the person or persons to whom the Option shall have been
validly transferred by the executor or the administrator
pursuant to will or the laws of descent and distribution,
shall have the right to exercise the Option, when vested, in
accordance with the provisions hereof.
3
<PAGE> 4
(b) By transfer to Ford or Ford Subsidiaries: In the event the
Participant transfers to Ford Motor Company ("Ford") or a
Ford Subsidiary (as hereinafter defined) the Option shall
continue in effect and shall become fully vested and
exercisable during the applicable periods in accordance with
the provisions hereof. The term "Ford Subsidiary" when used
herein shall mean any corporation a majority of the voting
stock of which is owned directly or indirectly by Ford.
(c) By termination for Cause or resignation: In the event of the
resignation of employment by the Participant or termination
of the Participant's employment by the Company for Cause, the
Option shall be forfeited effective as of the date of such
resignation or termination and the Participant's right to
exercise this Option shall cease. For purposes of the Plan, a
termination by the Company for Cause shall include
termination resulting from (a) action by the Participant
involving willful malfeasance, (b) the Participant's
unreasonable neglect or refusal to perform the executive
duties assigned to the Participant, (c) the Participant's
being convicted of a felony, (d) the Participant's engaging
in any activity that is directly or indirectly in competition
with the Company or any affiliate or in any activity that is
inimical to the best interests of the Company or any
affiliate, or (e) the Participant's violation of Company
policy covering standards of corporate conduct. If the
Company terminates the Participant's employment for Cause,
all of the Company's obligations under this Agreement shall
thereupon cease and terminate.
(d) By termination other than for Cause or within 12 months of a
Change in Control: In the event that the Participant's
employment is terminated by the Company other than for Cause,
or a Change in Control occurs that results in termination of
the Participant's employment by the Company other than for
Cause within 12 months of a Change in Control, the Option
shall become vested upon the date of that termination and
shall be exercisable to the extent permitted under provisions
hereof until the Date of Expiration (as shown on page 1 of
this Agreement). For purposes of this Article, "Change in
Control" means any of the following:
(i) Any merger, consolidation or similar combination
with or involving the Company, as of the date of
the conclusion of such event, other than a merger,
consolidation or similar combination of the
Company with Ford or any of its affiliates;
(ii) Any transaction or series of transactions that
results in the sale or divestiture of all or
substantially all of the Company's assets, as of
the conclusion of such transaction or series of
transactions;
(iii) Any capital reorganization, transaction or series
of transactions that results in Ford and its
affiliates owning common stock of the Company
having less than 50% of the combined voting power
of the outstanding capital stock of the Company,
as of the date of the
4
<PAGE> 5
conclusion of such reorganization, transaction or
series of transactions; or
(iv) The successful completion of a public offering, or
distribution to the public by dividend or spinoff,
that results in Ford and its affiliates owning
common stock of the Company having less than 50%
of the combined voting power of the outstanding
capital stock of the Company.
For purposes of section (d) of this Article, termination
shall include "Constructive Termination," which shall be
deemed to have occurred if any of the following result from a
Change in Control:
(i) The assignment to the Participant of any duties
inconsistent in any respect with the Participant's
position (including status, offices, titles and
reporting requirements), authority, duties or
responsibilities or any other action which results
in a substantial diminution in such position,
authority, duties or responsibilities, excluding
for this purpose an isolated, insubstantial and
inadvertent action not taken in bad faith and
which is remedied by the employer promptly after
receipt of notice thereof given by the
Participant;
(ii) Any failure to (x) continue to provide the
Participant with the opportunity to participate,
on terms substantially comparable in the aggregate
to those in effect immediately prior to the Change
in Control, in substantially the same benefit or
compensation plans and programs, including the
Company's life, disability, health and retirement
plans in which the Participant was participating
immediately prior to the date of the Change in
Control, or their equivalent, or (y) provide the
Participant with all other fringe benefits (or
their equivalent) from time to time in effect for
the benefit of any executive, management or
administrative group of the Company which
customarily includes a person holding the
employment position with the Company then held by
the Participant; or
(iii) Without the Participant's express written consent,
a substantial reduction, without good business
reasons, of the facilities and perquisites
available to the Participant immediately prior to
such reduction.
(e) Termination for reasons not listed above: In the event of a
termination of the Holder's employment for reasons other than
Disability, death, Retirement, transfer to Ford or a Ford
Subsidiary, resignation or termination by the Company for
Cause, the Portion of the Option which is vested as of the
date of termination of employment
5
<PAGE> 6
are exercisable to the extent permitted under Articles 2 and
7 hereof until the earlier of (i) the Date of Expiration (as
defined on page 1 of this Agreement) or (ii) the end of the
90th day following the date of termination of employment. No
other rights under this Agreement will continue in effect or
continue to accrue from the date of termination forward.
5. EFFECT OF COMPETITIVE ACTIVITY OR INIMICAL CONDUCT. Anything contained
herein to the contrary notwithstanding, the right of the Participant
to exercise the Option shall remain effective only if, during the
entire period from the Date of Grant to the date of such exercise, the
Participant shall have earned the Option by refraining from engaging
in any activity that is directly or indirectly in competition with any
activity of the Company or any subsidiary or affiliate thereof. The
term "subsidiary" shall mean any corporation a majority of the voting
stock of which is owned directly or indirectly by the Company.
In the event of the Participant's nonfulfillment of the condition set
forth in the immediately preceding paragraph, the Participant's right
to exercise such Option shall cease; provided, however, that the
nonfulfillment of such condition may at any time be waived by the
Committee upon its determination that in its sole judgment there shall
not have been and will not be any substantial adverse effect upon the
Company or any subsidiary or affiliate thereof by reason of the
nonfulfillment of such condition.
The right of the Participant to exercise the Option shall cease on and
as of the date on which it has been determined by the Committee that
the Participant at any time acted in a manner inimical to the best
interests of the Company or any subsidiary or affiliate thereof.
Conduct which constitutes engaging in an activity that is directly or
indirectly in competition with any activity of the Company or any
subsidiary or affiliate thereof shall be governed by the preceding
paragraphs of this Article 5 and shall not be subject to any
determination under this paragraph.
6. RESTRICTIONS ON TRANSFER. This Option may not be sold, transferred,
pledged, assigned, or otherwise alienated or hypothecated, other than
by will or by the laws of descent and distribution. Further, this
Option shall be exercisable during the Participant's lifetime only by
the Participant or the Participant's legal representative.
7. RECAPITALIZATION. In the event there is any change in the Company's
Shares through the declaration of stock dividends or through
recapitalization resulting in stock split-ups or through merger,
consolidation, exchange of Shares, or otherwise, the number and class
of Shares subject to this Option, as well as the Option Price may be
equitably adjusted by the Committee, in its sole discretion, to
prevent dilution or enlargement of rights.
8. BENEFICIARY DESIGNATION. The Participant may, from time to time, name
any beneficiary or beneficiaries (who may be named contingently or
successively) to whom any benefit under this Agreement is to be paid
in case of such Participant's death before he or she receives any or
all of such benefit. Each such designation shall revoke all prior
designations by the
6
<PAGE> 7
Participant, shall be in a form prescribed by the Company, and will be
effective only when filed by the Participant in writing with the
Company during the Participant's lifetime. In the absence of any such
designation, the Participant's beneficiary shall be deemed to be the
Person or Persons who receive the Participant's life insurance
proceeds under the Company-paid life insurance plan.
9. RIGHTS AS A STOCKHOLDER. The Participant shall have no rights as a
stockholder of the Company with respect to the Shares subject to this
Option Agreement until such time as the Option Price has been paid,
and the Shares have been issued and delivered to him or her.
10. NO RIGHT OF EMPLOYMENT. This Agreement shall not confer upon the
Participant any right to continuation of employment by the Company,
nor shall this Option Agreement interfere in any way with the
Company's right to terminate the Participant's employment at any time.
11. MISCELLANEOUS.
(a) This Agreement and the rights of the Participant hereunder
are subject to all the terms and conditions of the Plan, as
the same may be amended from time to time, as well as to such
rules and regulations as the Committee may adopt for
administration of the Plan. The Committee shall have the
right to impose such restrictions on any Shares acquired
pursuant to the exercise of this Option, as it may deem
advisable, including, without limitation, restrictions under
applicable federal securities laws, under the requirements of
any stock exchange or market upon which such Shares are then
listed and/or traded, and under any blue sky or state
securities laws applicable to such Shares. It is expressly
understood that the Committee is authorized to administer,
construe, and make all determinations necessary or
appropriate to the administration of the Plan and this
Agreement, all of which shall be binding upon the
Participant.
(b) With the approval of the Board, the Committee may, subject to
the terms of the Plan, terminate, amend, or modify the Plan;
provided, however, that no such termination, amendment, or
modification of the Plan may in any way adversely affect the
Participant's vested rights under this Agreement, without the
written consent of the Participant.
(c) The Participant agrees to take all steps necessary to comply
with all applicable provisions of federal and state
securities law in exercising his or her rights under this
Agreement.
(d) This Agreement shall be subject to all applicable laws,
rules, and regulations, and to such approvals by any
governmental agencies or national securities exchanges as may
be required.
7
<PAGE> 8
(e) All obligations of the Company under the Plan and this
Agreement, with respect to this Option, shall be binding on
any successor to the Company, whether the existence of such
successor is the result of a direct or indirect purchase,
merger, consolidation, or otherwise, of all or substantially
all of the business and/or assets of the Company.
(f) To the extent not preempted by federal law, this Agreement
shall be governed by, and construed in accordance with, the
laws of the State of Texas.
(g) The grant of the Option to the Participant is completely
discretionary and does not create any rights to receive
future stock option grants.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed as of the Date of Grant.
Associates First Capital Corporation
By:
---------------------------------
James B. Watts, Executive Vice President
The foregoing Option hereby is accepted on the terms and conditions set forth
herein and in the Plan.
Participant's Signature: Date:
-------------------------- -----------------------
Note: Please sign one copy of this Agreement and send it to:
Compensation Committee
c/o John W. Lee
Associates First Capital Corporation
P.O. Box 660237
Dallas, TX 75266-0237
Keep the other copy for your records.
8
<PAGE> 1
EXHIBIT 10.20
ASSOCIATES FIRST CAPITAL CORPORATION
LONG-TERM EQUITY COMPENSATION PLAN
STOCK OPTION AWARD AGREEMENT - 1996
You have been selected to be a Participant in the Associates First Capital
Corporation Long-Term Equity Compensation Plan (the "Plan") for 1996, through
this grant of nonqualified stock options/tandem stock appreciation rights
(hereinafter for purposes of this Agreement referred to as "Stock Options" or
"Options"), as specified below:
PARTICIPANT:
--------------------------------
ADDRESS:
-------------------------------------------------------
-------------------------------------------------------
OPTION NO.:
---------------------------------
DATE OF GRANT:
------------------------------
NUMBER OF SHARES COVERED BY THIS AGREEMENT:
--------------------
OPTION PRICE:
-------------------------------
DATE OF EXPIRATION:
-------------------------
Except as hereinafter provided, you may exercise this Option in accordance with
the following vesting schedule:
NUMBER OF SHARES SUBJECT TO CUMULATIVE NUMBER OF SHARES
DATE OPTION WHICH BECOMES AVAILABLE FOR EXERCISE
EXERCISABLE ON THIS DATE
- ------------ ------------------------------ ----------------------------
- ------------ ------------------------------ ----------------------------
- ------------ ------------------------------ ----------------------------
THIS AGREEMENT, effective commencing as of the morning of, but
prior to, commencement of trading on the New York Stock Exchange on the Date of
Grant set forth above, represents the grant of a stock option by Associates
First Capital Corporation, a Delaware corporation (the "Company"), to the
Participant named above, pursuant to the provisions of the Plan.
<PAGE> 2
The Plan provides a description of certain terms and
conditions governing the Option. If there is any inconsistency between the terms
of this Agreement and the terms of the Plan, the Plan's terms shall completely
supersede and replace the conflicting terms of this Agreement. All capitalized
terms shall have the meanings ascribed to them in the Plan, unless specifically
set forth otherwise herein. The parties hereto agree as follows:
1. GRANT OF STOCK OPTION. The Company hereby grants to the Participant an
Option to exercise the number of Shares set forth above, at the stated
Option Price, which is 100 percent of the Fair Market Value of a Share
on the Date of Grant, in the manner and subject to the applicable
terms and conditions of the Plan and this Agreement.
2. EXERCISE OF STOCK OPTION. Except as hereinafter provided, the
Participant may exercise this Option as provided in Article 3 of this
Agreement and according to the vesting schedule set forth on page 1 of
this Agreement, provided that no exercise may occur prior to the end
of one (1) year following the Date of Grant or subsequent to the close
of business on the Date of Expiration (shown on page 1 of this
Agreement).
This Option may be exercised in whole or in part, but not for less
than 50 Shares at any one time, unless fewer than 50 Shares then
remain subject to the Option, and the Option is then being exercised
as to all such remaining Shares. Options may be exercised only for
full Shares may; no Option is exercisable for fractional Shares.
3. PROCEDURE FOR EXERCISE OF OPTION. This Option may be exercised only
during a "Window Period" (as defined below), by delivery of the Notice
of Exercise to the Company, addressed to the attention of its
Compensation Committee, c/o John Lee. "Window Period" means the
period beginning on the third (3rd) business day following the date of
public release of the Company's quarterly sales and earnings
information, and ending on the twelfth (12th) business day following
such date. Notwithstanding the foregoing and except with respect to
Insiders as specified below, the Company may at any time in its sole
discretion, change, extend, or eliminate a window period or otherwise
designate the times at which the Option may be exercised. The
Participant shall elect on the Notice of Exercise whether the stock
option or the stock appreciation rights portion of the award is being
exercised. Exercise of the stock option portion shall cancel the
corresponding portion represented by stock appreciation rights, and
exercise of the stock appreciation rights portion shall cancel the
corresponding portion represented by stock options.
(a) Exercise of stock appreciation rights portion of award. If
the stock appreciation rights portion of the Option is
exercised, the Participant shall elect one of the two
following alternatives:
(i) Payout in cash: If this alternative is elected, the
Company shall pay to the Participant in cash (or by
check) an amount equal to (A) the excess of the Fair
Market Value of a Share on the date of exercise (as
determined by the Committee or its designee), over
the Option Price, multiplied by (B) the
2
<PAGE> 3
number of Shares under the Option being exercised.
Applicable taxes shall be withheld from the cash
payout. Participants who are notified by the Company
that they are Insiders may elect this alternative,
subject to Committee approval, only within a Window
Period.
(ii) Payout in Stock: If this alternative is elected, the
Company shall deliver to the Participant the number
of whole Shares of Company Stock necessary to deliver
to the Participant value equal to (A) the excess of
the Fair Market Value of a Share on the date of
exercise (as determined by the Committee or its
designee), over the Option Price, multiplied by (B)
the number of Shares under the Option being
exercised, minus (C) the withholding taxes.
(b) Exercise of Stock Option portion of award. If the Stock
Option portion of the Option is exercised, the Participant
shall deliver to the Company the Option Price in full either:
(i) in cash or its equivalent; (ii) by tendering previously
acquired Shares having an aggregate Fair Market Value at the
time of exercise equal to the Option Price (provided that the
Shares so tendered must have been held by the Participant for
at least six months prior to their tender); or (iii) by a
combination of (i) and (ii). As soon as practicable following
exercise, the Company shall deliver to the Participant
certificates for the Shares purchased, net of tax withholding
as provided below, if applicable.
The Company shall have the right to deduct or withhold, or
have the Participant remit to the Company, an amount
sufficient to satisfy Federal, state, and local taxes
(including the Participant's FICA obligation) required by law
to be withheld with respect to such exercise. The Participant
may elect in connection with an exercise under this Section
3(b), subject to the approval of the Committee, to satisfy the
withholding requirement, in whole or in part, by having the
Company withhold Shares having an aggregate Fair Market Value
on the date of exercise equal to the amount required to be
withheld. All elections shall be irrevocable and in writing,
and shall be signed by the Participant in advance of the date
the transaction becomes taxable. In addition, any such
election by Participants who have been notified by the Company
that they are Insiders must be either:
(i) Delivered to the Committee at least six (6) months
prior to the date specified by the Participant on
which the exercise of the Option is to occur; or
(ii) Be made pursuant to an exercise of an Option which
occurs during a Window Period.
4. TERMINATION OF EMPLOYMENT:
(a) By Retirement, Disability or death: In the event of a
Participant's Retirement, Disability or death, the Option
shall continue in effect and shall become fully vested
3
<PAGE> 4
and exercisable during the applicable periods in accordance
with the provisions hereof. In the event of the Participant's
death, the beneficiary designated pursuant to Article 8 hereof,
or if no such beneficiary is designated or deemed to be
designated or if none survives such Participant, the executor
or administrator of the estate of the decedent or the person or
persons to whom the Option shall have been validly transferred
by the executor or the administrator pursuant to will or the
laws of descent and distribution, shall have the right to
exercise the Option, when vested, in accordance with the
provisions hereof.
(b) By transfer to Ford or Ford Subsidiaries: In the event the
Participant transfers to Ford Motor Company ("Ford") or a Ford
Subsidiary (as hereinafter defined) the Option shall continue
in effect and shall become fully vested and exercisable during
the applicable periods in accordance with the provisions
hereof. The term "Ford Subsidiary" when used herein shall
mean any corporation a majority of the voting stock of which
is owned directly or indirectly by Ford.
(c) By termination for Cause or resignation: In the event of the
resignation of employment by the Participant or termination of
the Participant's employment by the Company for Cause, the
Option shall be forfeited effective as of the date of such
resignation or termination and the Participant's right to
exercise this Option shall cease. For purposes of the Plan, a
termination by the Company for Cause shall include termination
resulting from (a) action by the Participant involving willful
malfeasance, (b) the Participant's unreasonable neglect or
refusal to perform the executive duties assigned to the
Participant, (c) the Participant's being convicted of a
felony, (d) the Participant's engaging in any activity that is
directly or indirectly in competition with the Company or any
affiliate or in any activity that is inimical to the best
interests of the Company or any affiliate, or (e) the
Participant's violation of Company policy covering standards
of corporate conduct. If the Company terminates the
Participant's employment for Cause, all of the Company's
obligations under this Agreement shall thereupon cease and
terminate.
(d) By termination other than for Cause or within 12 months of a
Change in Control: In the event that the Participant's
employment is terminated by the Company other than for Cause,
or a Change in Control occurs that results in termination of
the Participant's employment by the Company other than for
Cause within 12 months of a Change in Control, the Option
shall become vested upon the date of that termination and
shall be exercisable to the extent permitted under the
provisions hereof until the Date of Expiration (as shown on
page 1 of this Agreement). For purposes of this Article,
"Change in Control" means any of the following:
(i) Any merger, consolidation or similar
combination with or involving the Company, as
of the date of the conclusion of such event,
other than a merger, consolidation or similar
combination of the Company with Ford or any
of its affiliates;
4
<PAGE> 5
(ii) Any transaction or series of transactions
that results in the sale or divestiture of
all or substantially all of the Company's
assets, as of the conclusion of such
transaction or series of transactions;
(iii) Any capital reorganization, transaction or
series of transactions that results in Ford
and its affiliates owning common stock of the
Company having less than 50% of the combined
voting power of the outstanding capital stock
of the Company, as of the date of the
conclusion of such reorganization,
transaction or series of transactions; or
(iv) The successful completion of a public
offering, or distribution to the public by
dividend or spinoff, that results in Ford and
its affiliates owning common stock of the
Company having less than 50% of the combined
voting power of the outstanding capital stock
of the Company.
For purposes of section (d) of this Article, termination shall
include "Constructive Termination," which shall be deemed to
have occurred if any of the following result from a Change in
Control:
(i) The assignment to the Participant of any
duties inconsistent in any respect with the
Participant's position (including status,
offices, titles and reporting requirements),
authority, duties or responsibilities or any
other action which results in a substantial
diminution in such position, authority,
duties or responsibilities, excluding for
this purpose an isolated, insubstantial and
inadvertent action not taken in bad faith and
which is remedied by the employer promptly
after receipt of notice thereof given by the
Participant;
(ii) Any failure to (x) continue to provide the
Participant with the opportunity to
participate, on terms substantially
comparable in the aggregate to those in
effect immediately prior to the Change in
Control, in substantially the same benefit or
compensation plans and programs, including
the Company's life, disability, health and
retirement plans in which the Participant was
participating immediately prior to the date
of the Change in Control, or their
equivalent, or (y) provide the Participant
with all other fringe benefits (or their
equivalent) from time to time in effect for
the benefit of any executive, management or
administrative group of the Company which
customarily includes a person holding the
employment position with the Company then
held by the Participant; or
5
<PAGE> 6
(iii) Without the Participant's express written
consent, a substantial reduction, without
good business reasons, of the facilities
and perquisites available to the Participant
immediately prior to such reduction.
(e) Termination for reasons not listed above: In the event of a
termination of the Holder's employment for reasons other than
Disability, death, Retirement, transfer to Ford or a Ford
Subsidiary, resignation or termination by the Company for
Cause, the portion of the Option which is vested as of the
date of termination of employment are exercisable to the
extent permitted under Articles 2 and 7 hereof until the
earlier of (i) the Date of Expiration (as defined on page 1 of
this Agreement) or (ii) the end of the 90th day following the
date of termination of employment. No other rights under this
Agreement will continue in effect or continue to accrue from
the date of termination forward.
5. EFFECT OF COMPETITIVE ACTIVITY OR INIMICAL CONDUCT. Anything
contained herein to the contrary notwithstanding, the right of the
Participant to exercise the Option shall remain effective only if,
during the entire period from the Date of Grant to the date of such
exercise, the Participant shall have earned the Option by refraining
from engaging in any activity that is directly or indirectly in
competition with any activity of the Company or any subsidiary or
affiliate thereof. The term "subsidiary" shall mean any corporation a
majority of the voting stock of which is owned directly or indirectly
by the Company.
In the event of the Participant's nonfulfillment of the condition set
forth in the immediately preceding paragraph, the Participant's right
to exercise such Option shall cease; provided, however, that the
nonfulfillment of such condition may at any time be waived by the
Committee upon its determination that in its sole judgment there shall
not have been and will not be any substantial adverse effect upon the
Company or any subsidiary or affiliate thereof by reason of the
nonfulfillment of such condition.
The right of the Participant to exercise the Option shall cease on and
as of the date on which it has been determined by the Committee that
the Participant at any time acted in a manner inimical to the best
interests of the Company or any subsidiary or affiliate thereof.
Conduct which constitutes engaging in an activity that is directly or
indirectly in competition with any activity of the Company or any
subsidiary or affiliate thereof shall be governed by the preceding
paragraphs of this Article 5 and shall not be subject to any
determination under this paragraph.
6. RESTRICTIONS ON TRANSFER. This Option may not be sold, transferred,
pledged, assigned, or otherwise alienated or hypothecated, other than
by will or by the laws of descent and distribution. Further, this
Option shall be exercisable during the Participant's lifetime only by
the Participant or the Participant's legal representative.
6
<PAGE> 7
7. RECAPITALIZATION. In the event there is any change in the Company's
Shares through the declaration of stock dividends or through
recapitalization resulting in stock split-ups or through merger,
consolidation, exchange of Shares, or otherwise, the number and class
of Shares subject to this Option, as well as the Option Price may be
equitably adjusted by the Committee, in its sole discretion, to prevent
dilution or enlargement of rights.
8. BENEFICIARY DESIGNATION. The Participant may, from time to time, name
any beneficiary or beneficiaries (who may be named contingently or
successively) to whom any benefit under this Agreement is to be paid
in case of such Participant's death before he or she receives any or
all of such benefit. Each such designation shall revoke all prior
designations by the Participant, shall be in a form prescribed by the
Company, and will be effective only when filed by the Participant in
writing with the Company during the Participant's lifetime. In the
absence of any such designation, the Participant's beneficiary shall
be deemed to be the Person or Persons who receive the Participant's
life insurance proceeds under the Company-paid life insurance plan.
9. RIGHTS AS A STOCKHOLDER. The Participant shall have no rights as a
stockholder of the Company with respect to the Shares subject to this
Option Agreement until such time as the Option Price has been paid,
and the Shares have been issued and delivered to him or her.
10. NO RIGHT OF EMPLOYMENT. This Agreement shall not confer upon the
Participant any right to continuation of employment by the Company,
nor shall this Option Agreement interfere in any way with the
Company's right to terminate the Participant's employment at any time.
11. MISCELLANEOUS.
(a) This Agreement and the rights of the Participant hereunder are
subject to all the terms and conditions of the Plan, as the
same may be amended from time to time, as well as to such
rules and regulations as the Committee may adopt for
administration of the Plan. The Committee shall have the right
to impose such restrictions on any Shares acquired pursuant to
the exercise of this Option, as it may deem advisable,
including, without limitation, restrictions under applicable
federal securities laws, under the requirements of any stock
exchange or market upon which such Shares are then listed
and/or traded, and under any blue sky or state securities laws
applicable to such Shares. It is expressly understood that the
Committee is authorized to administer, construe, and make all
determinations necessary or appropriate to the administration
of the Plan and this Agreement, all of which shall be binding
upon the Participant.
(b) With the approval of the Board, the Committee may, subject to
the terms of the Plan, terminate, amend, or modify the Plan;
provided, however, that no such termination, amendment, or
modification of the Plan may in any way adversely affect the
Participant's vested rights under this Agreement, without the
written consent of the Participant.
7
<PAGE> 8
(c) The Participant agrees to take all steps necessary to comply
with all applicable provisions of federal and state securities
law in exercising his or her rights under this Agreement.
(d) This Agreement shall be subject to all applicable laws, rules,
and regulations, and to such approvals by any governmental
agencies or national securities exchanges as may be required.
(e) All obligations of the Company under the Plan and this
Agreement, with respect to this Option, shall be binding on
any successor to the Company, whether the existence of such
successor is the result of a direct or indirect purchase,
merger, consolidation, or otherwise, of all or substantially
all of the business and/or assets of the Company.
(f) To the extent not preempted by federal law, this Agreement
shall be governed by, and construed in accordance with, the
laws of the State of Texas.
(g) The grant of the Option to the Participant is completely
discretionary and does not create any rights to receive future
stock option grants.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed as of the Date of Grant.
Associates First Capital Corporation
By:
----------------------------------
James B. Watts, Executive Vice President
The foregoing Option hereby is accepted on the terms and conditions set forth
herein and in the Plan.
Participant's Signature: Date:
-------------------------- ----------------------
Note: Please sign one copy of this Agreement and send it to:
Compensation Committee
c/o John W. Lee
Associates First Capital Corporation
P.O. Box 660237
Dallas, TX 75266-0237
Keep the other copy for your records.
8
<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
----------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Fixed Charges(a)
Interest expense......................... $2,456.0 $2,177.9 $1,657.3 $1,421.7 $1,352.1
Implicit interest in rent................ 17.1 13.8 11.7 10.8 10.2
-------- -------- -------- -------- --------
Total fixed charges.............. $2,473.1 $2,191.7 $1,669.0 $1,432.5 $1,362.3
======== ======== ======== ======== ========
Earnings(b)................................ $1,404.6 $1,198.1 $1,017.4 $ 821.3 $ 664.6
Fixed Charges.............................. 2,473.1 2,191.7 1,669.0 1,432.5 1,362.3
-------- -------- -------- -------- --------
Earnings, as defined............. $3,877.7 $3,389.8 $2,686.4 $2,253.8 $2,026.9
======== ======== ======== ======== ========
Ratio of Earnings to Fixed Charges......... 1.57 1.55 1.61 1.57 1.49
======== ======== ======== ======== ========
</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
EXHIBIT 21
<TABLE>
<CAPTION>
STATE OR PLACE
NAME OF CORPORATION(1) OF INCORPORATION
- ------------------- -----------------
<S> <C>
A. Associates National Bank (Delaware) National Association
A. Associates World Capital Corporation Delaware
A. Associates Corporation of North America Delaware
B. Associates Corporation of North America
(A Texas Corporation) Texas
B. AFC Securities Inc. Delaware
B. Associates Investment Corporation Utah
B. Associates Insurance Group, Inc. Delaware
B. Associates Life Insurance Group, Inc. Delaware
B. Associates Financial Life Insurance Company Tennessee
C. Associates Insurance Company Indiana
D. Commercial Guaranty Insurance
Company Delaware
C. Associates Financial Life Insurance
Company of Texas Texas
B. Associates National Mortgage Corporation Delaware
B. Associates Investment Company Delaware
SUBSIDIARIES
------------
C. Associates Diversified Services, Inc. Delaware
C. Associates Financial Services
Company, Inc. Delaware
B. Associates Commercial Corporation Delaware
A. Associates Capital Corporation of Canada Canada
A. AIC Associates Canada Holdings Inc. Canada
B. AIC Japan
</TABLE>
- ---------------
(1) The names of 149 additional direct and indirect subsidiaries in the
consumer and commercial finance business are omitted pursuant to Rule
601(b)(21)(ii).
<PAGE> 1
EXHIBIT 23
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 28, 1997, on our audits of the consolidated financial
statements of Associates First Capital Corporation and Subsidiaries as of
December 31, 1996 and 1995, and for the years ended December 31, 1996, 1995, and
1994, which report is included in this Annual Report on Form 10-K.
COOPERS & LYBRAND L.L.P.
Dallas, Texas
March 25, 1997
<PAGE> 1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned, an officer and/or
a director of ASSOCIATES FIRST CAPITAL CORPORATION (the "Company"), has made,
constituted and appointed and by these presents does hereby make, constitute
and appoint ROY A. GUTHRIE, TIMOTHY M. HAYES, KEVIN P. HEGARTY, KEITH W. HUGHES
and CHESTER D. LONGENECKER, and each of them, his true and lawful attorneys, for
him and in his name, place and stead, and in his office and capacity as
aforesaid, to sign and file the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996, and any and all amendments thereto and any
and all other documents to be signed and filed with the Securities and Exchange
Commission in connection therewith, hereby granting to said ROY A. GUTHRIE,
TIMOTHY M. HAYES, KEVIN P. HEGARTY, KEITH W. HUGHES and CHESTER D. LONGENECKER,
and each of them, full power and authority to do and perform each and every
act and thing whatsoever requisite and necessary to be done in the premises, as
fully, to all intents and purposes, as he might or could do if personally
present, hereby ratifying and confirming in all respects that said ROY A.
GUTHRIE, TIMOTHY M. HAYES, KEVIN P. HEGARTY, KEITH W. HUGHES and CHESTER D.
LONGENECKER, or any of them, as said attorneys, may or shall lawfully do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, each of the undersigned has subscribed his or her name,
this 20th day of February, 1997.
Signature: /s/ KEITH W. HUGHES CDL Signature: /s/ HAROLD D. MARSHALL
------------------------- --------------------------
Name: Keith W. Hughes Name: Harold D. Marshall
Title: Chairman of the Board, Title: President and Director
Principal Executive Officer
and Director
Signature: /s/ J. CARTER BACOT Signature: /s/ JOSEPH M. McQUILLAN
------------------------- --------------------------
Name: J. Carter Bacot Name: Joseph M. McQuillan
Title: Director Title: Vice Chairman of the Board
and Director
Signature: /s/ JOHN M. DEVINE Signature: /s/ H. JAMES TOFFEY, JR.
------------------------- --------------------------
Name: John M. Devine Name: H. James Toffey, Jr.
Title: Director Title: Director
Signature: /s/ ROY A. GUTHRIE Signature: /s/ KENNETH WHIPPLE
------------------------- --------------------------
Name: Roy A. Guthrie Name: Kenneth Whipple
Title: Executive Vice President Title: Director
and Chief Financial Officer
Signature: /s/ KEVIN P. HEGARTY
-------------------------
Name: Kevin P. Hegarty
Title: Senior Vice President,
Comptroller and Principal
Accounting Officer
<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, 1996 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-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 447
<SECURITIES> 1,051
<RECEIVABLES> 46,513
<ALLOWANCES> 1,563
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 48,268
<CURRENT-LIABILITIES> 0
<BONDS> 41,105
0
0
<COMMON> 4
<OTHER-SE> 5,434
<TOTAL-LIABILITY-AND-EQUITY> 48,268
<SALES> 7,098
<TOTAL-REVENUES> 7,098
<CGS> 0
<TOTAL-COSTS> 5,693
<OTHER-EXPENSES> 2,151
<LOSS-PROVISION> 1,086
<INTEREST-EXPENSE> 2,456
<INCOME-PRETAX> 1,405
<INCOME-TAX> 548
<INCOME-CONTINUING> 857
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 857
<EPS-PRIMARY> 2.47
<EPS-DILUTED> 0
</TABLE>
