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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, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 2-44197
ASSOCIATES FIRST CAPITAL CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <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
------------------- ---------------------
<S> <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 ($73.375 per share), which
occurred on February 12, 1998, was $4,908,277,104. 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 February 12, 1998, 90,688,220 shares of the
Company's Class A Common Stock, par value $0.01 per share, were outstanding and
225,881,180 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
-------- ------------------
<S> <C>
Proxy Statement for 1998 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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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"), with
operations in Japan, is the principal foreign-based operating subsidiary of
First Capital.
INITIAL PUBLIC OFFERING AND PROPOSED SPIN-OFF
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. Since the Offering, Ford has continued to own a
controlling interest in the Company's common stock. On October 8, 1997, Ford
announced plans to spin off its interest in the Company in the form of a
distribution to its stockholders (the "Spin-Off"), subject to a ruling from the
United States Internal Revenue Service that the transaction will be tax-free to
Ford and its stockholders. The ruling process is expected to be completed in the
first half of 1998. Subsequent to the Spin-Off, the Company will no longer be a
majority indirect-owned subsidiary of Ford Motor Company.
Management believes that the Spin-Off will allow the Company to pursue its
growth strategy more effectively as a stand-alone entity, providing greater
funding flexibility and improving its ability to compete effectively for
acquisition candidates.
COMPANY OVERVIEW
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, 1997, the Company had aggregate net finance receivables
of $55.2 billion, total assets of $57.2 billion, total managed assets of $60.1
billion, net earnings of $1.0 billion and stockholders' equity of $6.3 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 ($2.7 billion of net finance receivables) but also include operations in
Canada, the United Kingdom, Puerto Rico, Mexico, Costa Rica, and Taiwan.
The Company has geographically dispersed finance receivables. At December
31, 1997, approximately 91% of the Company's total receivables were dispersed
across the United States and the remaining 9% 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 North Carolina, 4% in New York, 4% in Pennsylvania,
4% in Illinois and 4% in Ohio; no other individual state or foreign country had
4% or more.
The Company divides its diverse activities into consumer finance and
commercial finance. The Company's consumer finance operations provide a variety
of consumer financing products and services, including home equity lending,
personal lending, retail sales finance and credit cards. Credit card receivables
are originated principally by a subsidiary, Associates National Bank (Delaware)
("ANB"). The Company's commercial finance operations provide retail financing,
leasing and wholesale financing for heavy-duty and medium-duty trucks and truck
trailers, construction, material handling and other industrial and
communications equipment, manufactured housing, recreational vehicle, 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 activities as part of its commercial finance
operations. Accordingly, the manufactured housing financing operations are
described under the "-- Commercial Finance" section.
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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, 1997, First Capital had 2,265 offices worldwide and
employed approximately 22,600 persons. Corporate headquarters are located in
Irving, Texas.
Certain prior year amounts 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) 2,148 domestic and international consumer branch offices; (ii)
domestic and international centralized consumer lending operations; and (iii)
domestic and international centralized credit card operations. Home equity loans
account for the largest portion of the Company's consumer finance portfolio, and
are distributed through the branch delivery systems and centralized lending
operations. The Company also offers personal installment and revolving loans and
purchases consumer retail sales finance contracts through its branch delivery
and centralized lending systems. In addition, the Company provides revolving
credit financing which consists of 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
the "-- Related Insurance" section. The Company also provides emergency roadside
assistance and auto club services.
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, the customer's capacity to repay (e.g., income, debt ratio, and
employment stability), credit history and available collateral for secured loans
(including home ownership). In addition, the Company makes extensive use of
credit scoring models to evaluate risk.
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
---------------------------------------------------------
1997 1996 1995 1994 1993
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Home Equity Lending................... $18,796.0 $16,691.4 $14,316.3 $12,449.9 $10,848.4
Personal Lending/Sales Finance........ 8,731.6 7,425.1 6,225.1 5,420.3 4,485.0
Credit Card........................... 8,211.7 6,023.8 4,984.6 4,076.5 3,278.5
Manufactured Housing(1)............... 1,669.4 1,262.7 2,049.3 1,681.1 1,300.5
--------- --------- --------- --------- ---------
Total Consumer........................ $37,408.7 $31,403.0 $27,575.3 $23,627.8 $19,912.4
========= ========= ========= ========= =========
</TABLE>
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(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 through its relationships
with manufacturers and dealers, notwithstanding the fact that the credit and
related risks typically are those of the consumer purchaser of the housing.
During 1997 and 1996, the Company securitized and sold approximately $800
million and $1.3 billion, respectively, of manufactured housing retail
finance receivables.
During 1997, 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
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charged on 26% of the consumer net finance receivables outstanding at December
31, 1997. Applicable 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 the "-- Additional Information Regarding the Company -- Regulation"
section.
HOME EQUITY LENDING, PERSONAL LENDING AND RETAIL SALES FINANCE
Home Equity Lending. At December 31, 1997, home equity loans accounted for
the largest share of the Company's consumer finance portfolio. 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. Typically, such loans are not used for the acquisition
of homes, but 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.
The following table shows certain information with respect to the Company's
home equity lending receivables:
HOME EQUITY LENDING
<TABLE>
<CAPTION>
AT DECEMBER 31
---------------------------------------------------------
1997 1996 1995 1994 1993
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net Receivables (in millions)......... $18,796.0 $16,691.4 $14,316.3 $12,449.9 $10,848.4
Average Account Balance............... $ 44,712 $ 42,859 $ 41,155 $ 40,342 $ 36,793
Number of Accounts.................... 420,384 389,451 347,864 308,607 294,848
</TABLE>
The Company's home equity loans typically have initial maturities of 180
months. Approximately 15% of the Company's home equity loans are variable rate
loans. Home equity loans may be secured by either first or second mortgages. At
December 31, 1997, approximately 79% 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, and consumer durables. Personal loan contract terms range
up to 60 months and generally require payments on an installment basis. In
general, personal loans are made for debt consolidations, home improvements,
education, vacations, taxes and major purchases of automobiles, 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 electronics and appliances, furniture and
home improvements. The Company generally purchases retail sales finance
contracts from retailers of such items. Such purchases provide an important
source of new loan customers. The newly-established relationship often leads to
other types of financing for the customer based on the individual's credit
needs. 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,
1997, the average balance of the Company's outstanding personal loans was
$2,621, and the average balance of the Company's outstanding retail sales
finance contracts was $2,182.
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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
--------------------------------------------------------------
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net Receivables (in millions)..... $ 8,731.6 $ 7,425.1 $ 6,225.1 $ 5,420.3 $ 4,485.0
Average Account Balance........... $ 2,450 $ 2,294 $ 2,252 $ 2,231 $ 2,175
Number of Accounts................ 3,564,612 3,236,903 2,764,050 2,429,281 2,062,200
</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 and
centralized lending operations, which are further described as follows:
Domestic Branch System. At December 31, 1997, the Company's domestic
consumer finance branch system consisted of 1,464 geographically dispersed
office 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 acquisition by the Company in order to
retain name recognition and awareness, customer relationships and
market niches.
International Branch System. At December 31, 1997, the Company's
international consumer finance branch system consisted of 684 locations. The
Company operates its international consumer finance business principally in
Japan, but also has operations in the United Kingdom, Canada, Puerto Rico,
Mexico, Costa Rica and Taiwan. The Company's international branches employ
operational disciplines similar to those of the domestic branches. Set forth
below is a description of the Company's international consumer finance branch
system at December 31, 1997.
- Japan. The Company operated 429 branches in Japan through its
wholly-owned subsidiary, AIC. AIC provides home equity and personal loans,
credit cards and purchases retail sales finance contracts. AIC had $2.7 billion
of consumer net finance receivables and employed approximately 2,000
individuals. At or for the year ended December 31, 1997, AIC's home equity loans
totaled $1.1 billion, personal loans and retail sales finance contracts totaled
$1.5 billion and credit cards totaled $0.1 billion (as included in the credit
card discussion that follows).
- United Kingdom. The Company had 62 consumer branches, one centralized
lending operation and $776.7 million of consumer net finance receivables in the
United Kingdom. The operation offers home equity and personal loans, credit
cards, and purchases consumer retail sales finance contracts from retailers.
- Canada. The Company operated 113 branches in Canada and had 2 centralized
lending operations through which the Company purchases retail sales finance
contracts and makes personal and home equity loans. The Canadian consumer
operation was expanded through the purchase of Superior Acceptance Corporation
Limited ("Superior") in September 1997. Superior had 93 locations in Canada at
December 31, 1997.
- Other Consumer International Operations. The Company had 39 consumer
branches in Puerto Rico, which make personal and home equity loans and purchases
retail sales finance contracts from retailers; 38 in Mexico, which provide home
equity and personal loans; 2 in Costa Rica, which provide home equity and
personal loans and purchase retail sales finance contracts; and one in Taiwan,
which purchases retail sales finance contracts.
Centralized Lending. The Company's centralized home equity lending
operation is conducted through Associates Home Equity Services, Inc. ("AHES"), a
subsidiary of Associates. AHES extends both fixed and variable rate closed-end
loans and lines of credit, secured by residential property, to customers. Prior
to January 1, 1998, AHES was known as Ford Consumer Finance Company, Inc. A
majority of the home equity loans at December 31, 1997 in the Company's
centralized home equity lending operation were originated
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through mortgage brokers and financial institutions. 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, 1997 were originated as a result of existing customer
relationships, direct mail and telemarketing efforts. The Company's centralized
home equity lending operation covers most of the United States through three
regional service centers and 47 district sales offices located in 26 states.
The Company also conducts a centralized lending operation through
Associates Capital Bank, Inc. ("ACB"), a Federal Deposit Insurance Corporation
("FDIC") insured Utah chartered industrial loan company. ACB offers loans by
mail on a nationwide basis and operates a number of private label retail credit
card programs throughout the United States.
CREDIT CARDS
The Company's credit card receivables in the United States are principally
originated by ANB. ANB's credit card receivables consist primarily of VISA(R)
and MasterCard(R) bankcards and private label credit cards which are marketed
directly to the public and through co-operative 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 customized revolving charge programs for customers of Amoco and
Texaco. Customers use the cards to make purchases at Amoco and Texaco gasoline
stations or to receive cash advances. The Company also offers bankcards to its
customers in Japan and the United Kingdom.
The following table shows certain information regarding the Company's
credit card receivables:
CREDIT CARD
<TABLE>
<CAPTION>
AT DECEMBER 31
---------------------------------------------------------------
1997 1996 1995 1994 1993
----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net Receivables (in millions)... $ 8,211.7 $ 6,023.8 $ 4,984.6 $ 4,076.5 $ 3,278.5
Average Account Balance(1)...... $ 763 $ 931 $ 798 $ 723 $ 1,463
Number of Accounts.............. 10,767,237 6,470,054 6,246,089 5,638,265 2,241,292
</TABLE>
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(1) In 1994, ANB acquired Amoco's private label gasoline credit card program,
which added 3.2 million active accounts. These accounts generally carried
smaller balances than ANB's bankcard accounts, as did the 3.9 million active
accounts of the Texaco private label credit card program acquired in 1997.
These private label acquisitions have had the effect of decreasing the
average balance for the Company's credit card receivables on an ongoing
basis.
The Company's revenues from its credit card business are derived from
finance charges on revolving accounts, the interchange fees resulting from
merchant discounts, annual membership and other account fees, as well as, fees
earned from the sale of insurance and other fee-based products. The Company's
credit card receivables typically bear variable interest rates.
OTHER CONSUMER SERVICES
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). The agreement
between the Company and Ford which covers the roadside assistance services
provided to Ford contains a change in control provision which would be engaged
at the proposed Spin-Off date. At such time the agreement would be cancelable on
30 days notice. Should the contract be terminated, such termination would be on
a prospective basis and would not have a material affect on the Company's
results of operations.
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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 and
construction, material handling and other industrial and communications
equipment. The Company also provides a wide range of retail and wholesale
financing products and services to the manufactured housing sector. In addition,
the Company engages in a number of other commercial activities, including auto
fleet leasing and fleet management services, recreational vehicle financing,
Small Business Administration lending, employee relocation services and
municipal finance. The Company, through certain subsidiaries and other third
parties, 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 also offers commercial auto liability insurance in
certain states. See the "-- Related Insurance" section.
The Company provides truck and truck trailer financing and leasing services
from branch offices in the United States, Canada, Puerto Rico, Mexico, and the
United Kingdom. The Company provides equipment financing and leasing services
from branch offices in the United States, Canada, Puerto Rico, Japan, Mexico and
the United Kingdom. The Company utilizes two centralized lending and service
operations for distributing products and services for material handling and
other industrial and communications equipment. Fee-based services are also
provided from centralized locations. The Company provides manufactured housing
financing through five regional offices and 17 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
--------------------------------------------------------
1997 1996 1995 1994 1993
--------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C>
Truck and Truck Trailer................ $ 9,688.9 $ 8598.3 $ 7,724.0 $ 6,739.7 $5,598.4
Equipment.............................. 5,300.5 4,571.8 3,781.7 2,947.1 2,486.1
Auto Fleet Leasing..................... 1,551.1 1,090.8 330.8 303.2 278.6
Recreational Vehicles(1)............... 444.0 490.5
Warehouse Lending and Other(2)......... 822.4 358.5 290.7 67.9 19.2
--------- --------- --------- --------- --------
Total Commercial....................... $17,806.9 $15,109.9 $12,127.2 $10,057.9 $8,382.3
========= ========= ========= ========= ========
Manufactured Housing(3)................ $ 1,669.4 $ 1,262.7 $ 2,049.3 $ 1,681.1 $1,300.5
========= ========= ========= ========= ========
</TABLE>
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(1) During 1997 and 1996, the Company securitized and sold approximately $533
million and $200 million, respectively, of recreational vehicle retail
finance receivables.
(2) Includes warehouse lending, Small Business Administration lending and
municipal finance (prior to 1997, municipal finance was included in truck
and truck trailer and equipment net finance receivables).
(3) 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. 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 1997 and 1996, the Company
securitized and sold approximately $800 million and $1.3 billion,
respectively, of manufactured housing retail finance receivables.
At December 31, 1997, the interest rates charged on approximately 21% 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 the "-- Regulation" section.
At December 31, 1997, the finance charge
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yield on all types of commercial finance receivables averaged approximately 10%
per annum, and original maturities of such receivables averaged 58 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 trucks, 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.
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,
--------------------------------------------------------------
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net Receivables (in millions).... $ 9,688.9 $ 8,598.3 $ 7,724.0 $ 6,739.7 $ 5,598.4
Retail and Leasing Receivables
Average account balance........ $ 39,228 $ 39,314 $ 37,552 $ 36,502 $ 32,927
Number of accounts............. 223,236 197,070 177,789 164,076 152,638
Wholesale Receivables............
Average balance per dealer..... $1,235,942 $1,080,940 $1,427,384 $1,055,696 $ 822,557
</TABLE>
The Company provides retail financing of new and used medium-duty trucks,
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
directly 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 provides fleet leasing for users of medium-duty trucks,
heavy-duty trucks and truck trailers. Most of the Company's truck and truck
trailer leases are non-maintenance, open-end leases. Under such leases, the
customer is responsible for the maintenance and residual value of the vehicle
and the Company generally retains the tax depreciation benefit.
The Company also provides truck trailer rental services. These are
represented by short-term operating leases. Under these leases, the Company is
the owner of the equipment and the lessee enjoys the use of the equipment for
periods of a few days or up to several months.
In addition, the Company provides new and used vehicle wholesale financing
to truck and truck trailer dealers throughout the United States. Generally,
wholesale loans are short-term loans with variable rates (prime rate based) and
are secured by inventory.
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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 and, to a lesser extent in other countries. 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.
The following table shows certain information regarding the Company's
equipment financing and leasing receivables:
EQUIPMENT
<TABLE>
<CAPTION>
AT DECEMBER 31
----------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Receivables (in millions)............ $5,300.5 $4,571.8 $3,781.7 $2,947.1 $2,486.1
Retail and Leasing Receivables
Average account balance................ $ 25,668 $ 23,713 $ 24,072 $ 20,632 $ 18,358
Number of accounts..................... 176,919 164,476 129,276 116,019 112,584
Wholesale Receivables
Average balance per dealer............. $641,301 $596,359 $674,522 $580,693 $449,411
</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. 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 as part of residual risk management) and typically include
an option for the lessee to acquire the equipment at the end of the lease term
for the fair market value.
In addition, the Company 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, and it
recently entered the Canadian market. 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 certain manufactured housing dealers to provide capital to
build new retail sales centers, update existing facilities or expand into
community park sales.
8
<PAGE> 10
The following table sets forth certain information regarding the Company's
manufactured housing receivables:
MANUFACTURED HOUSING
<TABLE>
<CAPTION>
AT DECEMBER 31
----------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Receivables (in millions)(1)........ $1,669.4 $1,262.7 $2,049.3 $1,681.1 $1,300.5
Retail Receivables
Average account balance............... $ 36,904 $ 26,288 $ 24,217 $ 22,332 $ 20,507
Number of accounts(1)................. 31,999 30,234 66,762 60,052 51,339
Wholesale Receivables
Average balance per dealer............ $548,821 $477,106 $443,135 $354,906 $312,753
</TABLE>
- ---------------
(1) During 1997 and 1996, the Company securitized and sold approximately $800
million and $1.3 billion, respectively, of manufactured housing retail
finance receivables.
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, 1997 and 1996, the Company also managed and serviced
portfolios of approximately $1.9 billion and $1.3 billion, respectively, of
manufactured housing retail finance receivables which have been securitized and
sold.
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
with auto and light truck fleets of 100 or more vehicles. At December 31, 1997
and 1996, the Company had $1.6 billion and $1.1 billion, respectively, 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 and the
acquisition of the U.S. and Canada based commercial auto fleet operation of AT&T
Capital Corporation in December 1997. These acquisitions are further described
in NOTE 4 to the consolidated financial statements.
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, 1997 and 1996, the Company had $444.0 million and $490.5 million,
respectively, of outstanding wholesale recreational vehicle finance receivables
and managed securitized portfolios of $1.1 billion and $825.1 million,
respectively, of retail recreational vehicle finance receivables. The Company
typically has securitized substantially all retail recreational vehicle finance
receivables; accordingly, at December 31, 1997, $156.8 million in retail
recreational vehicle receivables are included in other assets as receivables
held for sale in the consolidated financial statements.
9
<PAGE> 11
WAREHOUSE LENDING AND OTHER COMMERCIAL ACTIVITIES
The Company's other commercial activities principally include the following
products and services:
Warehouse Lending. The Company provides short-term financing, secured by
real estate mortgages, to mortgage companies and other mortgage lenders.
Small Business Administration Lending. The Company extends credit to
individuals and businesses that is partially guaranteed by the United States
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.
Municipal Finance. The Company provides financing for the acquisition of
real and personal property by state and local government entities, non-profit
(sec.501(c)(3)) corporations and qualified industrial companies in the United
States.
RELATED INSURANCE
The Company, through certain of its subsidiaries and other third party
insurance providers, 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.
The purchase of insurance by a finance customer is optional with the
exception of physical damage insurance on loan collateral, which is required in
most instances. The customer can purchase such insurance either from the Company
or an alternative carrier chosen by the customer. Premiums for insurance
coverage are generally financed as part of the insured's finance obligation.
The following table sets forth certain information relating to the
Company's insurance operations (in millions):
INSURANCE STATISTICAL DATA(1)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------------------
1997 1996 1995 1994 1993
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net Written Premium
Credit life, accident and other related............. $307.1 $282.2 $240.6 $242.4 $195.1
Physical damage..................................... 210.3 186.2 180.3 168.7 138.9
Other casualty and liability........................ 91.3 75.9 69.6 54.5 35.7
------ ------ ------ ------ ------
Total....................................... $608.7 $544.3 $490.5 $465.6 $369.7
====== ====== ====== ====== ======
Premium Revenue(2)
Credit life, accident and other related............. $201.4 $183.8 $164.8 $148.1 $123.6
Physical damage..................................... 152.9 155.1 148.5 136.7 116.9
Other casualty and liability........................ 66.4 63.2 57.3 44.2 30.4
------ ------ ------ ------ ------
Total....................................... $420.7 $402.1 $370.6 $329.0 $270.9
====== ====== ====== ====== ======
Investment Income..................................... $ 82.6 $ 71.7 $ 68.5 $ 47.3 $ 41.4
====== ====== ====== ====== ======
Benefits Paid or Provided............................. $145.7 $148.2 $142.5 $147.9 $118.9
====== ====== ====== ====== ======
</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 policies underwritten by other
companies.
10
<PAGE> 12
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 generally charged to the provision for losses on finance
receivables. An analysis of changes in the allowance for losses is contained in
NOTE 5 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 contractually delinquent. All other finance
receivables are charged to the allowance for losses when any of the following
conditions occur: (i) the related security has been converted or destroyed; (ii)
the related security has been repossessed and sold or held for sale for one
year; or (iii) the related security has not been repossessed and the receivable
has become contractually delinquent for one year. A contractually delinquent
account is one on which the customer has not made payments as contractually
agreed. Recoveries on losses previously charged to the allowance are credited to
the allowance at the time recovery is collected.
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
----------------------------------------------
1997 1996 1995 1994 1993
-------- -------- ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net Credit Losses
Amount (in millions)......................... $1,229.1 $ 885.3 $624.2 $508.6 $441.2
As a Percentage of Average Net Receivables
Consumer.................................. 3.38% 2.80% 2.35% 2.30% 2.24%
Commercial................................ 0.27 0.33 0.19 0.09 0.29
Total................................ 2.40% 2.03% 1.70% 1.64% 1.68%
Allowance for Losses to Net Finance
Receivables.................................. 3.53% 3.36% 3.20% 3.15% 3.15%
Allowance for Losses to Net Credit Losses...... 1.59x 1.77x 2.03x 2.09x 2.02x
60+Days Contractual Delinquency
Amount (in millions)......................... $1,319.6 $1,107.2 $755.4 $510.3 $454.6
As a Percentage of Finance Receivables
Consumer.................................. 2.84% 2.77% 2.19% 1.80% 1.81%
Commercial................................ 1.00 1.05 0.64 0.28 0.52
Total................................ 2.23% 2.20% 1.71% 1.35% 1.43%
</TABLE>
The Company's ten largest accounts at December 31, 1997 (all of which were
current at December 31, 1997) represented 1% of the Company's total gross
finance receivables outstanding. All ten of such accounts are commercial finance
accounts and are secured.
11
<PAGE> 13
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.
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.
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 credit
card units through, among other things, aggressive pricing, marketing and
acquisitions. 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.
Competition also varies, depending on the operating divisions of the
Company. For example, 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,
thrifts and other financial institutions, leasing companies, lease brokers,
manufacturers, vendors and others.
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 in the United States are subject to extensive
state and federal regulation including, but not limited to, the following
federal statutes and regulations: The Consumer Credit Protection
12
<PAGE> 14
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.
The Company is subject to regulation in most of those countries in which
the Company has operations, and often is required to obtain governmental
licensing or approval before commencing business.
Consumer Finance. The Company's consumer finance business, including its
credit card business, is generally subject to detailed supervision by
governmental 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 in the United States have usury laws which
limit interest rates. Federal legislation in the United States 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 subject to the TILA and Regulation Z promulgated thereunder
in the United States. The 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. The TILA also guarantees consumers a three-day right to cancel
certain credit transactions, including 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 subject to 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 FDIC. ACB (formerly Associates Investment Corporation) is
regulated by the FDIC and the Utah Department of Financial Institutions. ANB and
ACB 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 ACB 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.
13
<PAGE> 15
Commercial Finance. Although most jurisdictions do not regulate commercial
finance, certain jurisdictions 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
United States Small Business Act and the Small Business Investment Act of 1958,
as amended, and may be subject to the same regulations by certain states in the
United 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.
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, 1997
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, 1997, the
Company had 2,265 offices worldwide. The Company owns its administrative
headquarters in Irving, Texas consisting of approximately 550,000 square feet
and a centralized processing center also located in Irving, Texas consisting of
approximately 440,000 square feet.
ITEM 3. LEGAL PROCEEDINGS.
Various legal actions, governmental investigations and proceedings and
claims are pending or may be instituted or asserted in the future against the
Company and its subsidiaries. Certain of the pending legal actions are, or
purport to be, class actions. Some of the foregoing matters involve or may
involve compensatory, punitive, or other treble damage claims which, if
adversely held against the Company, would require large expenditures or could
affect the manner in which the Company conducts its business.
Litigation is subject to many uncertainties, and the outcome of individual
litigated matters is not predictable with assurance. Some of the matters
discussed in the foregoing paragraph could be decided unfavorably to the Company
or the subsidiary involved and could require the Company or such subsidiary to
pay damages or make other expenditures in amounts or a range of amounts that
cannot be estimated at December 31, 1997. The Company does not reasonably
expect, based on its analysis, that any adverse outcome from such matters would
have a material effect on future consolidated financial statements for a
particular year, although such an outcome is possible.
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 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>
CLASS A COMMON STOCK PRICE PER SHARE*
---------------------------------------------------------------
FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER
------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
1997
High...................................... 52 5/8 59 3/8 66 1/4 72 9/16
Low....................................... 42 1/2 42 1/8 55 1/4 58 3/4
Dividends per share of Class A Common
Stock and Class B Common Stock.......... $0.10 $0.10 $0.10 $0.10
1996
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.......... $0.10 $0.10
</TABLE>
- ---------------
* Prices reflect New York Stock Exchange Composite Transactions. Initial public
offering price was $29.00 per share.
As of February 12, 1998, stockholders of record of the Company included
1,458 holders of the Class A Common Stock and one holder of the Class B Common
Stock. See NOTE 18 of the consolidated financial statements regarding Ford's
Spin-Off of its interest in the Company.
The Company relies primarily on dividends and other intercompany fees from
its subsidiaries for the payment of dividends to holders of its Class A and B
Common Stock. The terms of the agreements governing certain outstanding
indebtedness of Associates 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 cash 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 ACB, 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 Initial Public 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.
In 1996, upon completion of the Offering under the terms of the Company's
Incentive 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 "Restricted Stock"). In 1997, the Company issued 42,000 shares of
Restricted Stock to 11 employees. 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, 1997. 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
---------------------------------------------------------
1997 1996 1995 1994 1993
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Results of Operations
Total revenue............................................ $ 8,278.6 $ 7,098.2 $ 6,107.2 $ 4,925.8 $ 4,114.8
Finance charge revenue................................... 7,560.2 6,481.0 5,560.8 4,445.2 3,709.7
Interest expense......................................... 2,775.2 2,456.0 2,177.9 1,657.3 1,421.7
Net interest margin...................................... 4,785.0 4,025.0 3,382.9 2,787.9 2,288.0
Operating expenses....................................... 2,339.6 2,002.9 1,754.7 1,456.1 1,216.8
Provision for losses..................................... 1,378.1 1,086.5 834.0 647.1 536.1
Insurance benefits paid.................................. 145.7 148.2 142.5 147.9 118.9
Earnings before provision for income taxes............... 1,640.0 1,404.6 1,198.1 1,017.4 821.3
Provision for income taxes............................... 608.3 547.6 475.0 414.1 327.3
Net earnings............................................. 1,031.7 857.0 723.1 603.3 494.0
Basic earnings per share(1).............................. 2.98 2.47 2.09
Diluted earnings per share(1)............................ 2.97 2.47 2.09
Balance Sheet Data
Finance receivables, net of unearned finance income:
Consumer............................................... $37,408.7 $31,403.0 $27,575.3 $23,627.8 $19,912.4
Commercial............................................. 17,806.9 15,109.9 12,127.2 10,057.9 8,382.3
--------- --------- --------- --------- ---------
Total.............................................. 55,215.6 46,512.9 39,702.5 33,685.7 28,294.7
========= ========= ========= ========= =========
Total managed receivables.......................... 58,406.5 48,622.8 39,702.5 33,685.7 28,294.7
Allowance for losses..................................... 1,949.9 1,563.1 1,268.6 1,061.6 892.3
Total assets............................................. 57,232.7 48,268.4 41,303.9 35,283.5 30,039.6
Short-term debt (notes payable).......................... 20,970.6 17,075.2 13,747.3 12,431.9 10,385.9
Long-term debt(3)........................................ 28,228.0 24,029.5 21,372.6 17,306.2 14,826.8
Stockholders' equity..................................... 6,268.6 5,437.5 4,801.1 4,436.8 3,774.3
Stockholders' equity per share(1)(2)..................... 18.09 15.69 13.85
Selected Data and Ratios
Net interest margin as a percentage of average net
finance receivables(4)................................. 9.36% 9.29% 9.22% 9.00% 8.69%
Earnings to fixed charges................................ 1.59x 1.57x 1.55x 1.61x 1.57x
Total debt to equity..................................... 7.8:1 7.5:1 7.2:1 6.6:1 6.6:1
Total debt to adjusted equity(5)......................... 8.8:1 8.8:1 9.0:1 8.5:1 8.7:1
Total debt to tangible equity............................ 9.5:1 9.7:1 9.9:1 9.6:1 10.1:1
Return on average assets(4).............................. 1.95% 1.93% 1.89% 1.85% 1.76%
Return on average equity(4).............................. 17.78 17.09 15.66 14.70 14.10
Return on average adjusted equity(4)(5).................. 21.10 20.94 20.26 19.66 19.25
Return on average tangible equity(4)..................... 22.21 22.63 21.90 21.71 22.31
60+days contractual delinquency.......................... 2.23 2.20 1.71 1.35 1.43
Net credit losses to average net finance receivables..... 2.40 2.03 1.70 1.64 1.68
Allowance for losses to net finance receivables.......... 3.53 3.36 3.20 3.15 3.15
Allowance for losses to net credit losses................ 1.59x 1.77x 2.03x 2.09x 2.02x
Number of employees...................................... 22,582 18,984 16,647 15,318 13,933
Number of consumer and commercial branch offices
Domestic............................................... 1,568 1,634 1,543 1,472 1,378
International.......................................... 697 499 404 329 278
--------- --------- --------- --------- ---------
Total.............................................. 2,265 2,133 1,947 1,801 1,656
========= ========= ========= ========= =========
</TABLE>
- ---------------
(1) Due to the change in the Company's capital structure as a result of the
Initial Public Offering, share and per share data for 1994 or 1993 are not
comparable to, or meaningful in the context of, future periods.
(2) Based on 346.5 million shares outstanding in 1997 and 346.7 million shares
outstanding in 1996 and 1995.
(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 initial public offering. The amounts
presented above exclude the effect of these transactions. Including the
impact of these transactions, the Company's net interest margin, return on
average assets, on average equity, on average adjusted equity and on average
tangible equity for the year ended December 31, 1996 would have been 9.24%,
1.89%, 18.31%, 22.86% and 24.98%, respectively.
(5) Excludes the push-down goodwill created by Ford's acquisition of foreign
affiliates of the Company in 1989.
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 and other fee 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
------------------------------
1997 1996 1995
-------- ------ --------
<S> <C> <C> <C>
Net Earnings........................................ $1,031.7 $857.0 $ 723.1
Change in Net Earnings
Amount............................................ $ 174.7 $133.9 $ 119.8
Percent........................................... 20.4% 18.5% 19.9%
Return
On average assets(1).............................. 1.95% 1.93% 1.89%
On average equity(1).............................. 17.78% 17.09% 15.66%
On average adjusted equity(1)(2).................. 21.10% 20.94% 20.26%
</TABLE>
- ---------------
(1) 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 initial public offering. The amounts
presented above exclude the effect of these transactions. Including the
impact of these transactions, the Company's return on average assets, on
average equity and on average adjusted equity for the year ended December
31, 1996 would have been 1.89%, 18.31% and 22.86%, respectively.
(2) Excludes the push-down goodwill created by Ford's acquisition of foreign
affiliates of the Company in 1989.
Net earnings increased in each of the years ended December 31, 1997, 1996
and 1995. Net earnings for 1997 increased $174.7 million or 20.4% over 1996,
resulting in a return on average assets of 1.95% and a return on average equity
of 17.78%. Net earnings for 1996 increased $133.9 million or 18.5% over 1995,
resulting in a return on average assets of 1.93% and a return on average equity
of 17.09%.
The Company derived approximately 15.1% of its net earnings in 1997 from
its foreign subsidiaries, principally Japan; see NOTE 17 to the Company's
consolidated financial statements. Management believes that the overall business
factors and economic trends affecting the profitability of the foreign
subsidiaries have not materially affected the profitability of the Company taken
as a whole. See the discussion of the impact of foreign currency translation in
the "-- Market Risk" section that follows and in NOTE 16 to the Company's
consolidated financial statements.
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
--------------------------------------------------------------
1997 1996 1995
------------------ ------------------ ------------------
PERCENT PERCENT PERCENT
AMOUNT (1) AMOUNT (1)(2) AMOUNT (1)
-------- ------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Finance Charge Revenue...... $7,560.2 14.79% $6,481.0 14.88% $5,560.8 15.15%
Interest Expense............ 2,775.2 6.14 2,456.0 6.32 2,177.9 6.72
-------- -------- --------
Net Interest Margin......... $4,785.0 9.36% $4,025.0 9.29% $3,382.9 9.22%
======== ======== ========
</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.
(2) The 1996 net interest margin excludes 0.05% of non-recurring interest costs
related to the 1996 public offering of the Company's Class A Common Stock.
Finance charge revenue increased in each of the years presented in both the
Company's domestic and international operations. The increase in each year
principally resulted from growth in average net finance receivables outstanding
("ANR"). The 1997 and 1996 decreases in finance charge yield (finance charge
revenue divided by ANR) partially offset increases in finance charge revenue
caused by growth. The components of the change in finance charge revenue are set
forth in the following table (in millions):
COMPONENTS OF CHANGES IN FINANCE CHARGE REVENUE
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Change Due to:
Growth in receivables.............................. $1,117.6 $1,020.9 $ 864.4
Finance charge yield............................... (38.4) (100.7) 251.2
-------- -------- --------
Total...................................... $1,079.2 $ 920.2 $1,115.6
======== ======== ========
</TABLE>
The finance charge yields to ANR for the Company's business segments were
as follows:
FINANCE CHARGE YIELDS TO ANR
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
Consumer Segment............................................ 17.23% 17.24% 17.48%
Commercial Segment.......................................... 10.00 10.15 10.11
Total Company............................................. 14.79% 14.88% 15.15%
</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 composition of the finance receivable portfolios (i.e., "product
mix"). A generally declining rate environment, changes in product mix and
increased competition were the primary causes of the movements in finance charge
yield from 1995 to 1997.
Total dollars of interest expense increased in each of the three years
ended 1997. 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.
The increase in interest expense as a result of growth in 1997 and 1996 was
partially offset by a decline, compared to 1995 levels, in the Company's average
borrowing rate (interest expense divided by average outstanding debt). Declines
in the Company's average borrowing rate were primarily caused by
18
<PAGE> 20
changes in market interest rates, which varied over the corresponding periods,
and by a modest shift toward a higher percentage of floating rate debt as a
percentage of total debt. Floating rate debt rates were lower than long-term
debt rates in each period. Average short- and long-term borrowing rates were as
follows:
AVERAGE BORROWING RATES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
Short-term Debt............................................. 5.48% 5.53% 5.98%
Long-term Debt(1)........................................... 6.62 6.89 7.21
Total Debt........................................ 6.14% 6.32% 6.72%
</TABLE>
- ---------------
(1) Includes the current portion of long-term debt and certain long-term debt
issues which bear interest on a floating rate basis.
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 maturity in the range of 3-7 years. The changes in short- and long-term
average borrowing rates from 1995 to 1997 are principally due to changes in
market interest rates for debt of a comparable term and credit quality.
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,
as well as by issuing larger amounts of long-term debt which bear interest on a
floating rate basis.
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
--------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Interest Expense..................................... $2,775.2 $2,456.0 $2,177.9
Change Due to:
Growth in debt..................................... $ 389.2 $ 407.7 $ 332.7
Borrowing rate..................................... (70.0) (129.6) 187.9
-------- -------- --------
Total...................................... $ 319.2 $ 278.1 $ 520.6
======== ======== ========
</TABLE>
As a result of the forgoing 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 December 31, 1997.
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 $420.7 million, $402.1 million and $370.6
million for the years ended December 31, 1997, 1996 and 1995, respectively.
Insurance premium revenue, which is earned over the coverage term, increased
$18.6 million (4.6%) in 1997, $31.5 million (8.5%) in 1996, and $41.6 million
(12.6%) in 1995. 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
19
<PAGE> 21
commercial finance businesses. The increase in insurance revenue in each of the
years was principally caused 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, 1997, 1996 and
1995 was $297.7 million, $215.1 million and $175.8 million, respectively.
Investment income is derived from realized or unrealized returns on the
Company's investments in trading securities and realized returns on investments
in available for sale securities, both of which are principally owned by the
Company's insurance operation. Other income is primarily derived from service
fees under master servicing agreements related to certain securitized assets and
from fee-based services, such as employee relocation services and emergency
roadside assistance and auto club services. The increase in other income from
1995 through 1997 was principally due to increases in service fees and other
revenue related to 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
------------------------------------------------------
1997 1996 1995
---------------- ---------------- ----------------
AMOUNT % ANR AMOUNT % ANR AMOUNT % ANR
-------- ----- -------- ----- -------- -----
<S> <C> <C> <C> <C> <C> <C>
Salaries and Benefits...................... $1,110.5 2.17% $ 946.0 2.17% $ 807.7 2.20%
Occupancy, Data Processing and Other....... 1,229.1 2.41 1,056.9 2.43 947.0 2.58
-------- ----- -------- ----- -------- -----
Total................................. $2,339.6 4.58% $2,002.9 4.60% $1,754.7 4.78%
======== ===== ======== ===== ======== =====
Efficiency Ratio........................... 43.7% 44.6% 46.3%
===== ===== =====
</TABLE>
Total operating expenses on a dollar basis increased from 1995 to 1997,
principally due to increased levels of business volume and outstanding
receivables in each year. The increases in salaries and benefits in total
dollars is primarily due to increases in the number of employees to support the
increased levels of business volume and outstanding receivables. As a percentage
of ANR, total operating expenses decreased from 1995 to 1997. In addition, 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 in each year.
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 unit profitability, each business unit establishes an allowance for
loan loss when a loan is made through a 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 unit, the relationship of the allowance for losses to net finance
receivables outstanding and the relationship of the allowance for losses to
total net credit losses. The resulting charge is included in the provision for
losses.
20
<PAGE> 22
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, due to growth in finance receivables, were generally 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
-----------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Balance at Beginning of Period.................... $ 1,563.1 $ 1,268.6 $ 1,061.6
Provision for losses............................ 1,378.1 1,086.5 834.0
Recoveries on receivables charged off........... 224.9 147.2 132.9
Losses sustained................................ (1,454.0) (1,032.5) (757.1)
--------- --------- ---------
Net credit loss experience.............. (1,229.1) (885.3) (624.2)
--------- --------- ---------
Reserves for acquired businesses and other...... 237.8 93.3 (2.8)
--------- --------- ---------
Balance at End of Period.......................... $ 1,949.9 $ 1,563.1 $ 1,268.6
========= ========= =========
Allowance for Losses to Net Finance Receivables... 3.53% 3.36% 3.20%
Allowance for Losses to Net Credit Losses......... 1.59x 1.77x 2.03x
</TABLE>
The allowance for losses as a percent of net finance receivables (the
"allowance ratio") increased in each year, reflecting management's opinion that
delinquencies and net credit losses may increase primarily due to higher
consumer debt levels and increased bankruptcies. 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 each year. Notwithstanding the
decrease in the loss coverage ratio, management believes the allowance for
losses at December 31, 1997 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, 1997 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.
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 PROVISION FOR LOSSES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Change Due to:
Change in net loss experience.......................... $190.4 $144.5 $ 22.1
Growth in receivables, change in reserves and other.... 101.2 108.0 164.8
------ ------ ------
Total.......................................... $291.6 $252.5 $186.9
====== ====== ======
</TABLE>
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 1997, 1996 and 1995 the increase in the allowance ratio
also contributed to the change in the provision for losses in those years.
21
<PAGE> 23
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
------------------------------
1997 1996 1995
-------- -------- ------
<S> <C> <C> <C>
60+Days Contractual Delinquency
Consumer............................................ 2.84% 2.77% 2.19%
Commercial.......................................... 1.00 1.05 0.64
Total....................................... 2.23% 2.20% 1.71%
Total dollars delinquent.................... $1,319.6 $1,107.2 $755.4
Net Credit Losses to ANR
Consumer............................................ 3.38% 2.80% 2.35%
Commercial.......................................... 0.27 0.33 0.19
Total....................................... 2.40% 2.03% 1.70%
Total dollars............................... $1,229.1 $ 885.3 $624.2
</TABLE>
Consumer contractual delinquency levels and net credit losses increased
from 1995 through 1997, reflecting higher consumer debt levels and increased
bankruptcies. In addition, commercial delinquency levels and net credit losses
increased in 1996 compared to 1995, reflecting generally unfavorable trends in
economic conditions. Commercial delinquency levels and net credit losses
declined slightly in 1997.
INSURANCE BENEFITS PAID OR PROVIDED
Insurance benefits paid or provided were $145.7 million in 1997, $148.2
million in 1996 and $142.5 million in 1995. 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 1997 and 1996 as compared to 1995, primarily as a result of more
insurance in force.
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
------------------------------------------------------------
1997 1996 1995
------------------ ------------------ ------------------
EFFECTIVE EFFECTIVE EFFECTIVE
TAX TAX TAX
AMOUNT RATE AMOUNT RATE AMOUNT RATE
------ --------- ------ --------- ------ ---------
<S> <C> <C> <C> <C> <C> <C>
U.S. Statutory Rate...................... $574.0 35.0% $491.6 35.0% $419.4 35.0%
State income taxes..................... 22.6 1.4 20.5 1.5 14.0 1.2
Non-deductible goodwill................ 6.1 0.4 7.1 0.5 10.9 0.9
Foreign rates in excess of U.S. rate
and other........................... 5.6 0.3 28.4 2.0 30.7 2.5
------ ---- ------ ---- ------ ----
Provision for Income Taxes............... $608.3 37.1% $547.6 39.0% $475.0 39.6%
====== ==== ====== ==== ====== ====
</TABLE>
The effective tax rate decreased in 1997 principally due to an increase in
the foreign tax credits available to the Company under its tax sharing agreement
with Ford. The available foreign tax credits primarily related to estimated
taxes paid or accrued by the Company on its Japan-based earnings.
The Company provides 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. While
22
<PAGE> 24
earnings of the Company's foreign subsidiaries increased as a percentage of
total Company earnings in 1997 and 1996, the Company utilized certain foreign
tax credits which caused the amount of tax and tax rate attributable to such
foreign operations to decrease from 1995.
FINANCIAL CONDITION
GROWTH IN NET FINANCE RECEIVABLES
The Company experienced growth in its consumer and commercial finance
receivable portfolios in 1997 and 1996 as follows (dollars in millions):
GROWTH IN NET FINANCE RECEIVABLES
<TABLE>
<CAPTION>
YEAR ENDED OR AT DECEMBER 31
---------------------------------------------------------
1997 1996
--------------------------- ---------------------------
INCREASE FROM INCREASE FROM
PRIOR YEAR PRIOR YEAR
--------------- ---------------
BALANCE AMOUNT % BALANCE AMOUNT %
--------- -------- ---- --------- -------- ----
<S> <C> <C> <C> <C> <C> <C>
Owned Receivables
Consumer Finance.................... $37,408.7 $6,005.7 19.1% $31,403.0 $3,827.7 13.9%
Commercial Finance.................. 17,806.9 2,697.0 17.8 15,109.9 2,982.7 24.6
--------- -------- --------- --------
Total....................... $55,215.6 $8,702.7 18.7% $46,512.9 $6,810.4 17.2%
========= ======== ========= ========
Managed Receivables................... $58,406.5 $9,783.7 20.1% $48,622.8 $8,920.3 22.5%
========= ======== ========= ========
</TABLE>
Approximately 63% and 50% of the growth in managed net finance receivables
during 1997 and 1996, respectively, resulted from internal sources, principally
through additional expansion of the Company's branch network system, increased
penetration in its existing markets, entry into new markets and offering of new
products. The remaining growth portion, in both years, was from the acquisition
of finance receivables and companies.
At December 31, 1997 and 1996, the Company managed approximately $2.9
billion and $2.1 billion, respectively, 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, management believes the amount securitized
(shown as part of managed receivables in the above table) is meaningful to
understand the Company's earnings and growth performance. Securitized
receivables were included in the computation of ANR through the date that such
receivables were sold.
DEBT
Total outstanding debt was $49.2 billion and $41.1 billion at December 31,
1997 and 1996, respectively. Such amounts of debt reflect net increases of $8.1
billion (19.7%) in 1997 and $6.0 billion (17.0%) in 1996. In both years, the
increase was primarily a result of the growth in net finance receivables. At
December 31, 1997 and 1996, short-term debt, including the current portion of
long-term debt, as a percent of total debt was 52% and 51%, respectively. The
current portion of long-term debt at December 31, 1997 and 1996 was $4.7 billion
and $3.7 billion, respectively.
STOCKHOLDERS' EQUITY
Stockholders' equity increased to $6.3 billion in 1997 from $5.4 billion in
1996. In each year, the increase was principally as a result of the
aforementioned increase in net earnings. The increases in 1997 and 1996 due to
net earnings were partially offset by unrealized foreign currency translation
losses of $54.6 million and $107.8 million, respectively, which principally
resulted from a decline in the value of the yen compared to the United States
dollar. The weakened yen reduced the United States dollar translated value of
the Company's net investment in Japan. The effects of the weakened yen were
partially offset through the Company's use of
23
<PAGE> 25
derivative financial instruments as described in NOTE 16 to the consolidated
financial statements. Stockholders' equity was also adjusted in 1997 and 1996 by
unrealized gains/(losses)of $5.0 million and ($12.8) million, respectively,
related to its investments in marketable debt and asset backed securities.
During 1997 and 1996, the Company paid cash dividends in the amount of $138.6
million and $1,998.0 million, respectively, ($69.3 million of the 1996 dividends
on common stock were paid after the Offering). Also, as referenced in NOTE 4 to
the 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.
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 United States 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- and long-term debt and cash provided from the Company's operations.
Management believes that the Company 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 it is able
to meet its obligations as they mature. The Company's United States operations
are principally funded through domestic and international 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 and
public debt borrowings in the transactional currency and, to a lesser extent,
fully hedged intercompany borrowings.
At December 31, 1997, the Company had short-term debt outstanding of $21.0
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 1997 and 1996 was 5.48% and 5.53%,
respectively. The change in average rates was principally due to the overall
decline in market rates.
At December 31, 1997, the Company had long-term debt outstanding of $28.2
billion. Long-term debt principally consists of senior unsecured long-term debt
issued publicly and privately by Associates in the United States and abroad, and
to a lesser extent, private and public borrowings made by the Company's foreign
subsidiaries. During the years ended 1997 and 1996, the Company raised debt
aggregating $8.2 billion and $6.0 billion, respectively, through public and
private offerings at weighted average effective interest rates and weighted
average terms of 6.02% and 6.5 years and 6.29% and 4.8 years, respectively. The
change in effective average interest rates was primarily caused by overall
changes in market rates during such years and a slight shift in debt mix to
include more floating rate debt instruments. A portion of the long-term debt
raised was used to retire outstanding indebtedness. For the years ended 1997 and
1996, the Company replaced maturing long-term debt in the amount of $3.8 billion
and $3.5 billion, respectively.
Substantial additional liquidity is available to the Company's 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, 1997, these short-term bank
lines, revolving credit facilities and receivable purchase facilities totaled
$15.2 billion. This aggregate facility was allocated as short-term debt for
purposes of providing 75% backup coverage for Associates of $13.7 billion and
First Capital of $1.2 billion. First Capital's foreign subsidiaries were
attributed the remaining $300 million of which $140 million was available.
24
<PAGE> 26
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 capital,
including preferred stock and, after the proposed spin-off of the Company by
Ford, common stock.
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 9, 10,
and 16 to the Company's consolidated financial statements for a further
description of these borrowings and currency hedging activities.
MARKET RISK
The risk management discussion and the estimated amounts generated from the
analysis that follows are forward-looking statements of market risk assuming
certain adverse market conditions occur. Actual results in the future may differ
materially from these projected results due to changes in the Company's product
and debt mix and developments in the global financial markets. The analytical
methods used by the Company to assess and mitigate these risks should not be
considered projections of future events or operating performance.
The Company is exposed to a variety of market risks, including the effects
of movements in interest rates and foreign currency. Interest rate and foreign
exchange rate exposures are monitored and managed by the Company as an integral
part of its overall risk management program. The principal goal of the Company's
risk management program is to reduce the potential impact of interest rate and
foreign exchange exposures on the Company's financial position and operating
performance. The Company utilizes derivative instruments, including foreign
currency forward exchange and currency swaps as well as interest rate swap and
treasury lock agreements, as part of its overall risk management program. See
NOTES 2 and 16 of the consolidated financial statements for a further discussion
of the Company's use of derivative financial instruments. The Company also
believes that its overall balance sheet structure has repricing and cash flow
characteristics that mitigate the impact of interest rate movements.
INTEREST RATE RISK
Interest rate risk is measured and controlled through the use of 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
negative three- and six-month gap, and a positive one-year gap. The Company
targets a one year gap in a range of 5% to 15% of total earning assets. At
December 31, 1997 the one year gap was a positive 8%. The Company's positive one
year gap target range indicates that a greater percentage of assets than
liabilities reprice within a one-year time frame.
In addition to the gap analysis, the Company uses a simulation model to
evaluate the impact on earnings under a variety of scenarios. These scenarios
may include a change 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. For an immediate 1%
increase in rates, projected annual after-tax earnings would decline less than
$1 million. An immediate 1% rise in interest rates is a hypothetical rate
scenario, used to calibrate risk, and does not currently represent management's
view of future market developments.
For purposes of the new United States Securities and Exchange Commission
disclosure requirements, the Company has also performed an enterprise-wide value
at risk ("VAR") analysis of the Company's financial assets and liabilities and
their exposure to changes in interest rates. The VAR was calculated using an
historical simulation risk model to calculate changes in earnings due to changes
in interest rates on all significant on- and off-balance sheet exposures. The
simulation generates monthly interest rate scenarios over a forecast horizon of
12 months. The VAR analysis calculates the potential after-tax earnings at risk
associated from changes in interest rates, within a 95% confidence level. The
model assumes interest rates are
25
<PAGE> 27
normally distributed and draws volatilities from various market sources. At
December 31, 1997, interest rate movements would affect annual after-tax
earnings by less than $11 million, as calculated under the VAR methodology.
FOREIGN CURRENCY RISK
The Company is exposed to foreign currency risk from changes in the value
of underlying assets and liabilities of its non-United States denominated
foreign investments, principally its Japan based operations. The Company has
employed a variety of risk management tools such as borrowing and lending in the
local currencies as well as using derivative instruments to hedge its investment
in foreign subsidiaries, principally yen based. The Company has also performed a
VAR analysis on the Company's exposure to changes in foreign currency exchange
rates. The VAR is calculated using an historical simulation model to calculate
changes in earnings from foreign currency risk on all significant on- and
off-balance sheet exposures. The simulation generates interest rate scenarios
over a 12-month horizon and calculates the potential after-tax earnings at risk
associated with foreign currency fluctuations, with a 95% confidence level (as
required under applicable United States Securities and Exchange Commission
rules). The model assumes currency prices are normally distributed and draws
volatility and cross currency correlation data from JP Morgan Risk Metrics(TM).
At December 31, 1997, currency volatility would affect annual after-tax earnings
by less than $4 million, as calculated under the VAR methodology.
The Company utilizes a wide variety of risk management methods, including
those discussed above, and believes that no single risk model provides a
reliable method of monitoring and controlling risk. While these models are
relatively sophisticated, the quantitative risk information generated is limited
by the model parameters. Therefore, such models do not substitute for the
experience or judgment of Company management to adjust positions and revise
strategies as deemed necessary.
YEAR 2000 COMPLIANCE
The inability of computers, software and other equipment utilizing
microprocessors to recognize and properly process date fields containing a 2
digit year is commonly referred to as the Year 2000 Compliance issue. As the
year 2000 approaches, such systems may be unable to accurately process certain
date-based information.
The Company has identified all significant applications that will require
modification to ensure Year 2000 Compliance. Internal and external resources are
being used to make the required modifications and test Year 2000 Compliance. The
modification process of all significant applications is substantially complete.
The Company plans on completing the testing process of all significant
applications by December 31, 1998.
In addition, the Company has communicated with others with whom it does
significant business to determine their Year 2000 Compliance readiness and the
extent to which the Company is vulnerable to any third party Year 2000 issues.
However, there can be no guarantee that the systems of other companies on which
the Company's systems rely will be timely converted, or that a failure to
convert by another company, or a conversion that is incompatible with the
Company's systems, would not have a material adverse effect on the Company.
The total cost to the Company of these Year 2000 Compliance activities has
not been and is not anticipated to be material to its financial position or
results of operations in any given year. These costs and the date on which the
Company plans to complete the Year 2000 modification and testing processes are
based on management's best estimates, which were derived utilizing numerous
assumptions of future events including the continued availability of certain
resources, third party modification plans and other factors. However, there can
be no guarantee that these estimates will be achieved and actual results could
differ from those plans.
RECENT ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards No. 130 ("SFAS 130"),
"Reporting Comprehensive Income", was issued by the Financial Accounting
Standards Board in June 1997. This Statement requires that
26
<PAGE> 28
all items that are required to be recognized under accounting standards as
components of comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements. The Company
will adopt SFAS 130 beginning January 1, 1998.
Statement of Financial Accounting Standards No. 131 ("SFAS 131"),
"Disclosures about Segments of an Enterprise and Related Information", was
issued by the Financial Accounting Standards Board in June 1997. This Statement
establishes standards for reporting information about operating segments in
annual financial statements and requires reporting of selected information about
operating segments in interim financial reports issued to stockholders. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. The Company is in the process of
finalizing its determination of its reportable segments under SFAS 131 and plans
to adopt SFAS 131 in the year ending December 31, 1998.
FORWARD-LOOKING STATEMENTS UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995
The Company desires to take advantage of the "safe harbor" provisions of
the Private Securities Litigation Reform Act of 1995 (the "1995 Act"). The 1995
Act provides a "safe harbor" for forward-looking statements to encourage
companies to provide information without fear of litigation so long as those
statements are identified as forward-looking and are accompanied by meaningful
cautionary statements identifying important factors that could cause actual
results to differ materially from those projected. Although the Company does not
anticipate that it will make forward-looking statements as a general policy, the
Company will make forward-looking statements as required by law or regulation,
and from time to time may make such statements with respect to management's
estimation of the future operating results and business of the Company.
The following is a summary of the factors the Company believes important
and that could cause actual results to differ from the Company's expectations.
The Company is publishing these factors pursuant to the 1995 Act. Such factors
should not be construed as exhaustive or as an admission regarding the adequacy
of disclosure made by the Company prior to the effective date of the 1995 Act.
Readers should understand that many factors govern whether any forward-looking
statement will be or can be achieved. Any one of those factors could cause
actual results to differ materially from those projected. No assurance is or can
be given that any important factor set forth below will be realized in a manner
so as to allow the Company to achieve the desired or projected results. The
words "believe," "expect," "anticipate," "intend," "aim," "will" and similar
words identify forward-looking statements. The Company cautions readers that the
following important factors, among others, could affect the Company's actual
results and could cause the Company's actual consolidated results to differ
materially from those expressed in any forward-looking statements made by or on
behalf of the Company.
- Rapid changes in interest rates, limiting the Company's ability to
generate new finance receivables and decreasing the Company's net
interest margins.
- Increase in non-performing loans and credit losses.
- Rapid changes in receivable prepayment rates.
- The inability of the Company to access capital and financing on terms
acceptable to the Company.
- Changes in any domestic or foreign governmental regulation affecting the
Company's ability to declare and pay dividends, conduct business, the
manner in which it conducts business or the level of the interest rates
charged by the Company.
- Heightened competition, including the intensification of price
competition, the entry of new competitors and the introduction of new
products by new and existing competitors.
- Adverse publicity and news coverage about the Company or about any of its
proposed products or services.
- Adverse results in litigation matters involving the Company.
27
<PAGE> 29
- General economic and inflationary conditions affecting consumer debt
levels and credit losses and overall increases in the cost of doing
business.
- Changes in social and economic conditions such as increasing consumer
bankruptcies, inflation and monetary fluctuations, foreign currency
exchange rate fluctuations and changes in tax rates or tax laws.
- Changes in accounting policies and practices, and the application of such
policies and practices to the Company.
- Loss or retirement of key executives, employees or technical personnel.
- The effect of changes within the Company's organization or in
compensation and benefit plans and the ability of the Company to attract
and retain experienced and qualified management personnel.
- Natural events and acts of God such as earthquakes, fires or floods.
- Adverse changes, or any announcement relating to a possible or
contemplated adverse change, in the ratings obtained from any of the
independent rating agencies relating to the Company's debt securities or
other financial instruments.
28
<PAGE> 30
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, 1997 and 1996, 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, 1997. 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, 1997 and 1996 and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1997, in conformity with generally accepted accounting
principles.
COOPERS & LYBRAND L.L.P.
Dallas, Texas
January 20, 1998
29
<PAGE> 31
ASSOCIATES FIRST CAPITAL CORPORATION
CONSOLIDATED STATEMENT OF EARNINGS
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
REVENUE
Finance charges........................................... $7,560.2 $6,481.0 $5,560.8
Insurance premiums........................................ 420.7 402.1 370.6
Investment and other income............................... 297.7 215.1 175.8
-------- -------- --------
8,278.6 7,098.2 6,107.2
EXPENSES
Interest expense.......................................... 2,775.2 2,456.0 2,177.9
Operating expenses........................................ 2,339.6 2,002.9 1,754.7
Provision for losses on finance receivables -- NOTE 5..... 1,378.1 1,086.5 834.0
Insurance benefits paid or provided....................... 145.7 148.2 142.5
-------- -------- --------
6,638.6 5,693.6 4,909.1
-------- -------- --------
EARNINGS BEFORE PROVISION FOR INCOME TAXES.................. 1,640.0 1,404.6 1,198.1
PROVISION FOR INCOME TAXES -- NOTE 11....................... 608.3 547.6 475.0
-------- -------- --------
NET EARNINGS................................................ $1,031.7 $ 857.0 $ 723.1
======== ======== ========
NET EARNINGS PER SHARE -- NOTE 3
Basic..................................................... $ 2.98 $ 2.47 $ 2.09
======== ======== ========
Diluted................................................... $ 2.97 $ 2.47 $ 2.09
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
30
<PAGE> 32
ASSOCIATES FIRST CAPITAL CORPORATION
CONSOLIDATED BALANCE SHEET
(DOLLARS IN MILLIONS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31
----------------------
1997 1996
--------- ---------
<S> <C> <C>
CASH AND CASH EQUIVALENTS................................... $ 433.2 $ 446.9
INVESTMENTS IN DEBT AND EQUITY SECURITIES -- NOTE 6......... 1,242.4 1,097.5
FINANCE RECEIVABLES, net of unearned finance income,
allowance for credit losses and insurance policy and
claims reserves -- NOTE 4................................. 52,482.1 44,236.9
OTHER ASSETS -- NOTE 7...................................... 3,075.0 2,487.1
--------- ---------
Total assets...................................... $57,232.7 $48,268.4
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
NOTES PAYABLE, unsecured short-term -- NOTE 9
Commercial Paper.......................................... $19,483.5 $15,907.9
Bank Loans................................................ 1,487.1 1,167.3
ACCOUNTS PAYABLE AND ACCRUALS............................... 1,765.5 1,726.2
LONG-TERM DEBT -- NOTE 10
Senior Notes.............................................. 27,802.6 23,604.0
Subordinated and Capital Notes............................ 425.4 425.5
--------- ---------
28,228.0 24,029.5
STOCKHOLDERS' EQUITY
Class A Common Stock, $0.01 par value, 1,150,000,000
shares authorized, 90,773,299 shares issued............ 0.9 0.9
Class B Common Stock, $0.01 par value, 400,000,000 shares
authorized, 255,881,180 shares issued and
outstanding............................................ 2.6 2.6
Paid-in Capital........................................... 4,004.6 4,007.5
Retained Earnings......................................... 2,097.4 1,204.3
Foreign Currency Translation Adjustments.................. 168.2 222.8
Unrealized Gain (Loss) on Available-for-Sale Securities
-- NOTES 2 and 6....................................... 4.4 (0.6)
Less 156,526 shares of Class A Common Stock held in
Treasury in 1997, at cost.............................. (9.5)
--------- ---------
Total stockholders' equity........................ 6,268.6 5,437.5
--------- ---------
Total liabilities and stockholders' equity........ $57,232.7 $48,268.4
========= =========
</TABLE>
See notes to consolidated financial statements.
31
<PAGE> 33
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 TREASURY STOCKHOLDERS'
STOCK CAPITAL EARNINGS ADJUSTMENTS SECURITIES STOCK EQUITY
------ -------- --------- ------------ ---------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
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
Net Earnings................. 1,031.7 1,031.7
Cash Dividends on Common
Stock...................... (138.6) (138.6)
Current Period Adjustment.... (54.6) 5.0 (49.6)
Treasury Stock and other..... (2.9) (9.5) (12.4)
------ -------- --------- ------- ------ ----- ---------
DECEMBER 31, 1997.............. $ 3.5 $4,004.6 $ 2,097.4 $ 168.2 $ 4.4 $(9.5) $ 6,268.6
====== ======== ========= ======= ====== ===== =========
</TABLE>
See notes to consolidated financial statements.
32
<PAGE> 34
ASSOCIATES FIRST CAPITAL CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN MILLIONS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net earnings........................................... $ 1,031.7 $ 857.0 $ 723.1
Adjustments to reconcile net earnings to net cash
provided from operating activities:
Provision for losses on finance receivables....... 1,378.1 1,086.5 834.0
Depreciation and amortization..................... 322.6 224.9 193.8
Unrealized (gain) loss on trading securities...... (3.1) 1.7 (3.6)
Increase in insurance policy and claims
reserves....................................... 70.7 87.5 59.7
Sales and maturities of trading securities........ 56.3 0.6 38.7
Increase in accounts payable and accruals......... 21.6 288.0 166.5
Deferred income taxes............................. (31.7) 1.2 101.1
Purchases of trading securities................... (174.0) (5.8)
---------- ---------- ----------
Net cash provided from operating activities.... 2,672.2 2,547.4 2,107.5
---------- ---------- ----------
Cash Flows from Investing Activities
Finance receivables originated or purchased............ (52,136.8) (43,801.4) (37,051.1)
Finance receivables liquidated......................... 40,715.6 35,008.3 30,689.1
Finance receivables sold............................... 1,345.9 1,530.7
Acquisitions of other finance businesses, net.......... (39.7) (165.6) (143.9)
(Increase) decrease in real estate loans held for
sale................................................ (21.8) 13.5 (3.7)
Purchases of available-for-sale securities............. (319.3) (600.5) (893.9)
Sales and maturities of available-for-sale
securities.......................................... 301.9 360.7 635.9
Increase in other assets............................... (772.5) (423.2) (176.5)
---------- ---------- ----------
Net cash used for investing activities......... (10,926.7) (8,077.5) (6,944.1)
---------- ---------- ----------
Cash Flows from Financing Activities
Issuance of long-term debt............................. 8,183.5 5,980.3 6,327.8
Retirement of long-term debt........................... (3,773.3) (3,454.1) (2,491.8)
Increase in notes payable.............................. 3,903.1 3,127.1 1,315.4
Cash dividends......................................... (138.6) (1,998.0) (318.0)
Treasury stock and other............................... (12.4)
Sale of Class A Common Stock........................... 1,850.0
Capital contributions.................................. 47.3 200.0
Capital distribution to Ford........................... (228.9)
---------- ---------- ----------
Net cash provided from financing activities.... 8,162.3 5,552.6 4,804.5
Effect of foreign currency translation adjustment on
cash................................................... 78.5 (107.8) (41.7)
---------- ---------- ----------
Decrease in cash and cash equivalents.................... (13.7) (85.3) (73.8)
Cash and cash equivalents at beginning of period......... 446.9 532.2 606.0
---------- ---------- ----------
Cash and cash equivalents at end of period............... $ 433.2 $ 446.9 $ 532.2
========== ========== ==========
Cash paid for:
Interest............................................... $ 2,741.5 $ 2,433.1 $ 2,175.8
========== ========== ==========
Income taxes........................................... $ 712.2 $ 387.6 $ 399.7
========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
33
<PAGE> 35
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"), with operations
in Japan, is the principal foreign-based operating subsidiary of First Capital.
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. As described
in NOTE 18, on October 8, 1997, Ford announced plans to spin off its 80.7%
interest in the Company in the form of a distribution of its First Capital
shares to Ford common and class B stockholders.
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,
Canada, the United Kingdom, Puerto Rico 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 year presentation.
The preparation of these consolidated financial statements in conformity
with generally accepted accounting principles requires the use of management
estimates. These estimates are subjective in nature and involve matters of
judgment. Actual results could differ from these estimates.
Revenue Recognition
Finance charges on receivables are recognized as revenue using the interest
(actuarial) method. Premiums and discounts on purchased receivables are
considered as yield adjustments. The unamortized balance is included in finance
receivables and the associated amortization is included in finance charge
revenue. Finance charge accruals are suspended on accounts when they become 60
days contractually delinquent. The accrual is resumed when the loan becomes
contractually current. At December 31, 1997 and 1996, net finance receivables on
which revenue was not accrued approximated $1.2 billion and $1.0 billion,
respectively.
34
<PAGE> 36
ASSOCIATES FIRST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Insurance premiums are recorded as unearned premiums when collected or when
written and are subsequently amortized into income based on the nature and term
of the underlying insurance contracts. The methods of amortization used are pro
rata, sum-of-the-years-digits and a combination thereof.
Gains or losses on sales of securities classified as available for sale are
included in investment and other income when realized. Unrealized gains or
losses on securities classified as available for sale are reported as a
component of stockholders' equity, net of tax. Realized and unrealized gains or
losses on trading securities (principally preferred stock) are included in
investment and other income as incurred. The cost basis of securities sold is
determined by the specific identification method.
Receivables Sold with Servicing Retained
As required, the Company adopted Statement of Financial Accounting
Standards No. 125 ("SFAS 125"), -- Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities, on January 1, 1997.
Periodically, the Company securitizes and sells receivables, principally those
secured by manufactured housing units and recreational vehicles. These
transactions are recorded in accordance with SFAS 125. Under SFAS 125, a sale is
recognized when control over the securitized receivable is relinquished. The
difference between the net proceeds received and the carrying amount of the
receivable sold is recognized as a gain or loss on sale. To date, no significant
securitization related gains or losses have been recorded by the Company.
SFAS 125 requires the amounts carried previously as excess servicing assets
be reclassified between a servicing asset or liability and an interest-only
strip with the difference recognized as unrealized loss on securities, net of
tax. On January 1, 1997, in connection with the above reclassification, the
Company recharacterized the excess service asset as an interest-only strip. No
servicing asset or liability was recorded related to the reclassification.
The Company retains a subordinated interest in the finance receivables sold
in the form of a residual or interest-only strip. The residual or interest-only
strip represents the present value of future excess cash flows resulting from
the difference between the finance charge income received from the obligors on
the finance receivables and the interest paid to the investors in the
asset-backed securities, net of credit losses, servicing fees and other
expenses. The allocated basis of the interests retained, including the residual
or interest-only strip is included in other assets. Since such assets can be
contractually prepaid or otherwise settled in such a way that the holder would
not recover all of its recorded investment, the asset is classified as available
for sale and is measured at fair value. Unrealized holding gains are reported
net of income tax effects as a separate component of stockholders' equity until
realized. If a decline in fair value were deemed other than temporary, the
assets would be adjusted to their net realizable value through a charge to
operations.
Receivables which are expected to be securitized and sold are included in
other assets as receivables held for sale and recorded at the lower of cost or
market. The aggregate method is used in determining the lower of cost or market
of receivables held for sale.
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
generally charged to the provision for losses on finance receivables.
35
<PAGE> 37
ASSOCIATES FIRST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Finance receivables are charged to the allowance for losses when they are
deemed to be uncollectible. Additionally, Company policy provides for charge-off
of various types of accounts on a contractual basis described as follows:
Consumer direct and other installment and credit card receivables are charged to
the allowance for losses when they become 180 days contractually delinquent. All
other finance receivables are charged to the allowance for losses when any of
the following conditions occur: (i) the related security has been converted or
destroyed; (ii) the related security has been repossessed and sold or held for
sale for one year; or (iii) the related security has not been repossessed and
the receivable has become one year contractually delinquent. A contractually
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, 1997 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.
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 balance sheet translation adjustments are reflected in the stockholders'
equity section of the consolidated balance sheet while the impact of foreign
currency changes on income and expense items are included in earnings. Such
foreign currency changes resulted in losses of approximately $2.1 million, $0.8
million and $0.6 million during the years ended December 31, 1997, 1996 and
1995, 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 11.
36
<PAGE> 38
ASSOCIATES FIRST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 No. 107 ("SFAS 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 uses derivative financial instruments for the purpose of
hedging specific exposures as part of its risk management program and holds all
derivatives for purposes other than trading. Deferral (hedge) accounting is
applied only if the derivative reduces the risk of the underlying hedged item
and is designated at inception as a hedge with respect to the underlying hedged
item. Additionally, the derivative must result in cash flows that are expected
to be inversely correlated to those of the underlying hedged item. Such
instruments to date have been limited to foreign currency forward exchange,
currency swap, interest rate swap and treasury lock agreements. See NOTE 16 to
the consolidated financial statements for additional information related to
derivative financial instruments.
Forward currency exchange agreements are used to hedge the Company's net
investment in AIC. Accordingly, unrealized translation gains and losses on these
agreements are recorded, net of tax, as a separate component of stockholders'
equity. The economic discount on such agreements is recognized over the
agreement life on a straight-line basis as an adjustment to interest expense.
Foreign currency swap and interest rate swap agreements are used to hedge
specific debt obligations and financing transactions. Accordingly, the
differential paid or received by the Company on these agreements is recognized
as an adjustment to interest expense over the term of the underlying
transaction.
Treasury lock agreements are used to hedge specific anticipated asset
securitization transactions or debt issuances of the Company. Accordingly, the
differential paid or received by the Company on maturity of a treasury lock
agreement is recognized as an adjustment to interest expense over the term of
the underlying financing transaction.
Recent Accounting Pronouncements
Statement of Financial Accounting Standards No. 130 ("SFAS 130"),
"Reporting Comprehensive Income", was issued by the Financial Accounting
Standards Board in June 1997. This Statement requires that all items that are
required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements. The Company will adopt SFAS
130 beginning January 1, 1998.
Statement of Financial Accounting Standards No. 131 ("SFAS 131"),
"Disclosures about Segments of an Enterprise and Related Information", was
issued by the Financial Accounting Standards Board in June 1997. This Statement
establishes standards for reporting information about operating segments in
annual financial statements and requires reporting of selected information about
operating segments in interim
37
<PAGE> 39
ASSOCIATES FIRST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
financial reports issued to stockholders. It also establishes standards for
related disclosures about products and services, geographic areas and major
customers. The Company is in the process of finalizing its determination of its
reportable segments under SFAS 131 and plans to adopt SFAS 131 in the year
ending December 31, 1998.
NOTE 3 -- EARNINGS PER SHARE
Earnings per share on a basic and diluted basis as required by Statement of
Financial Accounting Standards No. 128 ("SFAS 128"), "Earnings Per Share" is
calculated as follows (in millions, except per share amounts):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------
1997 1996 1995
-------- ------ ------
<S> <C> <C> <C>
Basic net earnings per share
Net earnings.......................................... $1,031.7 $857.0 $723.1
Weighted average shares outstanding................... 346.5 346.7 346.7
-------- ------ ------
$ 2.98 $ 2.47 $ 2.09
======== ====== ======
Diluted net earnings per share
Net earnings.......................................... $1,031.7 $857.0 $723.1
Weighted average shares outstanding plus assumed
conversions........................................ 347.9 347.5 346.7
-------- ------ ------
$ 2.97 $ 2.47 $ 2.09
======== ====== ======
Calculation of weighted average shares outstanding plus
assumed conversions
Weighted average shares outstanding................... 346.5 346.7 346.7
Effect of dilutive securities options -- NOTE 13...... 1.4 0.8
-------- ------ ------
347.9 347.5 346.7
======== ====== ======
</TABLE>
38
<PAGE> 40
ASSOCIATES FIRST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4 -- FINANCE RECEIVABLES
Composition of Finance Receivables
At December 31, 1997 and 1996, net finance receivables consisted of the
following (in millions):
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Consumer Finance
Home equity lending....................................... $18,796.0 $16,691.4
Personal lending and retail sales finance................. 8,731.6 7,425.1
Credit card............................................... 8,211.7 6,023.8
Manufactured housing(1)................................... 1,669.4 1,262.7
--------- ---------
37,408.7 31,403.0
--------- ---------
Commercial Finance
Truck and truck trailer................................... 9,688.9 8,598.3
Equipment................................................. 5,300.5 4,571.8
Auto fleet leasing........................................ 1,551.1 1,090.8
Recreational vehicles(1).................................. 444.0 490.5
Warehouse lending and other(2)............................ 822.4 358.5
--------- ---------
17,806.9 15,109.9
--------- ---------
Finance receivables, net of unearned finance
income ("net finance receivables").............. 55,215.6 46,512.9
Allowance for losses on finance receivables................. (1,949.9) (1,563.1)
Insurance policy and claims reserves........................ (783.6) (712.9)
--------- ---------
Finance receivables, net of unearned finance
income, allowance for losses and insurance
policy and claims reserves...................... $52,482.1 $44,236.9
========= =========
</TABLE>
- ---------------
(1) During 1997 and 1996, the Company securitized and sold approximately $800
million and $1.3 billion, respectively of manufactured housing retail
finance receivables and approximately $533 million and $200 million,
respectively of recreational vehicle retail finance receivables.
(2) Includes warehouse lending, Small Business Administration lending and
municipal finance (in 1996, municipal finance receivables were included in
truck and truck trailer and equipment net 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 receivables. Receivables sold with servicing retained were
$2.9 billion and $2.1 billion at December 31, 1997 and 1996, respectively. No
significant gains or losses were recorded on these securitization transactions.
At December 31, 1997 and 1996, total managed receivables were $58.4 billion and
$48.6 billion, respectively.
39
<PAGE> 41
ASSOCIATES FIRST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 1997, contractual maturities of net finance receivables
were as follows (in millions):
<TABLE>
<CAPTION>
CONSUMER COMMERCIAL
YEAR DUE FINANCE FINANCE TOTAL
-------- --------- ---------- ---------
<S> <C> <C> <C>
1998............................................. $ 6,132.2 $ 6,905.6 $13,037.8
1999............................................. 4,205.9 4,479.1 8,685.0
2000............................................. 3,731.2 2,862.1 6,593.3
2001............................................. 3,481.9 1,747.6 5,229.5
2002 and thereafter.............................. 19,857.5 1,812.5 21,670.0
--------- --------- ---------
$37,408.7 $17,806.9 $55,215.6
========= ========= =========
</TABLE>
It is the Company's experience that a substantial portion of the consumer
loan portfolio generally is renewed or repaid prior to contractual maturity
dates. The above maturity schedule should not be regarded as a forecast of
future cash collections.
Included in commercial finance receivables are direct financing leases as
follows (in millions):
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
1997 1996
-------- --------
<S> <C> <C>
Minimum lease rentals....................................... $5,953.7 $4,438.0
Unearned finance income..................................... (826.9) (638.0)
-------- --------
Net investment in direct financing leases................. $5,126.8 $3,800.0
======== ========
</TABLE>
Future net minimum lease rentals on direct financing leases for each of the
years succeeding December 31, 1997 are as follows (in millions):
1998 -- $1,608.1; 1999 -- $1,351.9; 2000 -- $1,066.0; 2001 -- $656.8;
2002 -- $307.7 and 2003 and thereafter -- $136.3.
Estimated Fair Value of Net Finance Receivables
The estimated fair value of net finance receivables at December 31, 1997
and 1996 was $59.1 billion and $50.2 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, 1997, approximately 91% of the Company's total receivables were dispersed
across the United States, and the remaining 9% 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 North Carolina, 4% in New York, 4% in Pennsylvania ,
4% in Illinois and 4% in Ohio; no other individual state or foreign country had
4% or more.
40
<PAGE> 42
ASSOCIATES FIRST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Acquisitions of Finance Businesses
During the years ended December 31, 1997, 1996 and 1995, the Company made
acquisitions of finance receivables and finance businesses, the most significant
of which were as follows:
In December 1997, the Company acquired the United States and Canada
based commercial auto fleet leasing operation of AT&T Capital Corporation.
The fair market value of the assets acquired was approximately $369
million. The transaction was accounted for as a purchase.
In September 1997, the Company acquired Superior Acceptance
Corporation Limited, a consumer finance company with 91 offices in Canada.
The fair market value of total assets acquired and liabilities assumed was
approximately $136 million and $129 million, respectively. The transaction
was accounted for as a purchase.
In May 1997, the Company acquired a portfolio of proprietary credit
card receivables and stock from Texaco Refining and Marketing, Inc. and its
affiliate, Star Enterprise. The fair market value of the assets acquired
was approximately $704 million. The transaction was accounted for as a
purchase.
In April 1997, the Company acquired a portfolio of bankcard credit
card receivables from J. C. Penney, Inc. The fair market value of the
assets acquired was approximately $700 million. The transaction was
accounted for as a purchase.
In March 1997, the Company acquired a portfolio of bankcard credit
card receivables from The Bank of New York. The fair market value of such
assets acquired totaled approximately $800 million. The transaction was
accounted for as a purchase. A director of the Company was chairman and
chief executive officer of The Bank of New York during 1997. The Bank of
New York and the Company are not otherwise affiliated.
In September 1996, the Company acquired Teletech Financial
Corporation. The assets of Teletech Financial principally consisted 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.
In May 1996, the Company 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.
41
<PAGE> 43
ASSOCIATES FIRST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The pro forma effect of the above acquisitions, when taken in aggregate for
each reporting period, was not significant.
NOTE 5 -- 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
--------------------------------
1997 1996 1995
--------- --------- --------
<S> <C> <C> <C>
Balance at beginning of period....................... $ 1,563.1 $ 1,268.6 $1,061.6
Provision for losses............................... 1,378.1 1,086.5 834.0
Recoveries on receivables charged off.............. 224.9 147.2 132.9
Losses sustained................................... (1,454.0) (1,032.5) (757.1)
Reserves of acquired businesses and other.......... 237.8 93.3 (2.8)
--------- --------- --------
Balance at end of period............................. $ 1,949.9 $ 1,563.1 $1,268.6
========= ========= ========
</TABLE>
NOTE 6 -- INVESTMENTS IN DEBT AND EQUITY SECURITIES
Available for Sale Securities
The Company invests in debt and asset backed 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 these securities as available-for-sale and adjusts its recorded
value to market. During 1997 and 1996, gross realized gains and losses on sales
amounted to $2.4 million and $0.2 million, and $3.5 million and $0.1 million,
respectively. 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 holding gains, gross
unrealized holding losses, and estimated market value at December 31, 1997 and
1996 (in millions):
<TABLE>
<CAPTION>
1997
-----------------------------------------------
GROSS GROSS
UNREALIZED UNREALIZED ESTIMATED
AMORTIZED HOLDING HOLDING MARKET
COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
U.S. Government obligations................. $ 182.6 $2.4 $(0.8) $ 184.2
Corporate obligations....................... 219.5 1.1 (1.1) 219.5
Mortgage-backed............................. 598.4 5.4 (0.3) 603.5
Other....................................... 104.1 0.1 104.2
-------- ---- ----- --------
Total available for sale
securities...................... $1,104.6 $9.0 $(2.2) $1,111.4
======== ==== ===== ========
</TABLE>
<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....................................... 63.1 0.1 63.2
-------- ---- ----- --------
Total available for sale
securities...................... $1,088.0 $7.4 $(8.2) $1,087.2
======== ==== ===== ========
</TABLE>
42
<PAGE> 44
ASSOCIATES FIRST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The amortized cost and estimated market value of available for sale
securities at December 31, 1997 and 1996, by contractual maturity, are shown
below (in millions):
<TABLE>
<CAPTION>
1997 1996
--------------------- ---------------------
ESTIMATED ESTIMATED
AMORTIZED MARKET AMORTIZED MARKET
COST VALUE COST VALUE
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Due in one year or less...................... $ 169.7 $ 170.2 $ 107.6 $ 108.2
Due after one year through five years........ 383.7 386.6 422.5 424.2
Due after five years through ten years....... 195.5 195.7 269.8 268.1
Due after ten years.......................... 355.7 358.9 288.1 286.7
-------- -------- -------- --------
$1,104.6 $1,111.4 $1,088.0 $1,087.2
======== ======== ======== ========
</TABLE>
Trading Securities
Trading securities, principally preferred stock, are recorded at market
value. Unrealized gains or losses on trading securities are included in
earnings. The estimated market value at December 31, 1997 and 1996 was $131.0
million and $10.3 million, respectively. Historical cost at December 31, 1997
and 1996 was $126.7 million and $7.8 million, respectively.
Estimated market values of debt and equity securities are based on quoted
market prices.
NOTE 7 -- OTHER ASSETS
The components of other assets at December 31, 1997 and 1996 were as
follows (in millions):
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Goodwill.................................................... $1,104.0 $1,206.4
Property and equipment...................................... 383.2 261.3
Finance receivables held for sale........................... 268.8
Collateral held for resale.................................. 225.3 169.1
Relocation client advances.................................. 140.6 159.3
Operating agreements........................................ 107.5 97.8
Other....................................................... 845.6 593.2
-------- --------
Total other assets................................ $3,075.0 $2,487.1
======== ========
</TABLE>
Additions to goodwill due to acquisitions were $39.5 million and $143.2
million in 1997 and 1996, respectively. Reductions as a result of amortization
to goodwill were $42.7 million and $43.6 million for 1997 and 1996,
respectively. Other changes in the amount of goodwill were principally due to
changes in foreign exchange rates which impact the translation of yen
denominated goodwill carried on the books of AIC.
43
<PAGE> 45
ASSOCIATES FIRST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 8 -- CREDIT FACILITIES
At December 31, 1997, the Company had the following domestic credit
facilities (in millions):
<TABLE>
<CAPTION>
FACILITY
CREDIT FACILITY DESCRIPTION AMOUNT
- ---------------------------------- ---------
<S> <C>
Lines of Credit $ 5,635.9*
Revolving Lines 7,505.0*
Receivables Purchase Facilities 1,775.0
---------
$14,915.9
=========
</TABLE>
- ---------------
* Included in the Company's lines of credit and revolving lines are $210 million
and $2.6 billion of lines of credit and revolving lines, respectively, that
are available to First Capital.
In addition, at December 31, 1997, the Company's foreign subsidiaries
available credit facilities totaled $139.5 million.
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 pays fees for the availability of its credit facilities
ranging from .06 to .17 of 1% per annum of the facility amount.
NOTE 9 -- 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, 1997....................... $18,625.4 $1,202.1
Weighted average interest rate at December 31, 1997....... 5.91% 7.51%
Ending balance at December 31, 1996....................... $15,449.2 $1,001.8
Weighted average interest rate at December 31, 1996....... 5.80% 7.94%
Foreign Notes Payable
Ending balance at December 31, 1997....................... $ 858.1 $ 285.0
Weighted average interest rate at December 31, 1997....... 4.66% 7.80%
Ending balance at December 31, 1996....................... $ 458.7 $ 165.5
Weighted average interest rate at December 31, 1996....... 3.49% 6.98%
Total Notes Payable
Ending balance at December 31, 1997....................... $19,483.5 $1,487.1
Weighted average interest rate at December 31, 1997....... 5.85% 7.56%
Ending balance at December 31, 1996....................... $15,907.9 $1,167.3
Weighted average interest rate at December 31, 1996....... 5.74% 7.80%
</TABLE>
The amounts reported in the consolidated balance sheet approximate fair
value.
44
<PAGE> 46
ASSOCIATES FIRST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 10 -- LONG-TERM DEBT
Outstanding balances of long-term debt at December 31 were as follows (in
millions):
<TABLE>
<CAPTION>
INTEREST MATURITIES
RATE RANGE THROUGH 1997 1996
------------ ---------- --------- ---------
<S> <C> <C> <C> <C>
Senior Notes:
Domestic:
Notes............................ 5.96%-8.55% 2037 $25,067.8 $20,921.5
Investment notes................. 6.10%-7.38% 2001 179.4 288.4
--------- ---------
25,247.2 21,209.9
--------- ---------
Foreign:
Japan............................ 1.67%- 5.15% 2004 1,707.0 1,786.7
All other foreign................ 5.75%-15.42% 2002 848.4 607.4
--------- ---------
2,555.4 2,394.1
--------- ---------
Total senior notes.......... 27,802.6 23,604.0
--------- ---------
Subordinated and Capital Notes:
Domestic:
Subordinated..................... 6.88%-8.15% 2009 425.0 425.0
Capital.......................... 6.73%-6.73% 2002 0.4 0.5
--------- ---------
Total subordinated and
capital notes............. 425.4 425.5
--------- ---------
Total long-term debt............. $28,228.0 $24,029.5
========= =========
</TABLE>
The weighted average interest rate for total long-term debt was 6.58% at
December 31, 1997 and 6.84% at December 31, 1996.
The estimated fair value of long-term debt at December 31, 1997 and 1996
was $24.2 billion and $24.6 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: 1998, $4,685.2 million;
1999, $5,875.3 million; 2000, $4,023.6 million; 2001, $3,848.2 million; 2002,
$4,555.2 million and 2003 and thereafter, $5,240.5 million. Certain debt issues
are subject to put or call redemption provisions whereby repayment may be prior
to the maturity date. As applicable, the amount of the option premium received
by the Company is deferred and amortized over the expected life of the debt
obligation.
Associates, First Capital's principal operating subsidiary, is subject to
various limitations under the provisions of its outstanding debt and credit
facilities. The most significant of these limitations are summarized as follows:
Limitation on Payment of Dividends
A restriction contained in one 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, $781.1 million was available for dividends at December 31,
1997.
45
<PAGE> 47
ASSOCIATES FIRST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Limitation on Minimum Tangible Net Worth
A restriction contained in certain revolving credit agreements requires
Associates to maintain a minimum tangible net worth, as defined, of $2.0
billion. At December 31, 1997, Associates tangible net worth was approximately
$5.7 billion.
NOTE 11 -- 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, 1997
Current.......................................... $443.5 $34.8 $161.8 $ 640.1
------ ----- ------ -------
Deferred:
Leasing transactions.......................... 52.8 52.8
Finance revenue............................... (37.1) (37.1)
Goodwill amortization......................... (7.8) (7.8)
Provision for losses on finance receivables
and other................................... (30.2) (9.5) (39.7)
------ ----- ------ -------
Total deferred........................... (14.5) (17.3) (31.8)
------ ----- ------ -------
$429.0 $34.8 $144.5 $ 608.3
====== ===== ====== =======
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
====== ===== ====== =======
</TABLE>
46
<PAGE> 48
ASSOCIATES FIRST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 1997 and 1996, the components of the Company's net deferred
tax asset and liability were as follows (in millions):
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Deferred tax assets:
Provision for losses on finance receivables and other..... $ 714.9 $ 795.5
Foreign tax credits....................................... 34.4
Postretirement and other employee benefits................ 57.3 69.2
------- -------
806.6 864.7
Deferred tax liabilities:
Leasing transactions...................................... (397.1) (344.3)
Unamortized tax deductible goodwill....................... (167.8) (289.1)
Finance revenue and other................................. (178.8) (191.9)
------- -------
(743.7) (825.3)
------- -------
Net deferred tax asset............................ $ 62.9 $ 39.4
======= =======
</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 affiliated 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.
The effective tax rate differed from the statutory United States federal
income tax rate as follows:
<TABLE>
<CAPTION>
% OF PRETAX INCOME
YEAR ENDED DECEMBER 31
-----------------------
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
Statutory tax rate.......................................... 35.0% 35.0% 35.0%
State tax rate.............................................. 1.4 1.5 1.2
Non-deductible goodwill..................................... 0.4 0.5 0.9
Foreign rates in excess of United States rate and other..... 0.3 2.0 2.5
---- ---- ----
Effective tax rate................................ 37.1% 39.0% 39.6%
==== ==== ====
</TABLE>
On October 8, 1997, Ford announced its intention to distribute shares of
the Company pursuant to the tax-free spin-off provisions of the Internal Revenue
Code, subject to receiving a favorable ruling from the Internal Revenue Service.
Ford and the Company plan to enter into a separation agreement which, among
other matters, will determine how Ford and the Company will settle certain tax
matters related to open year tax returns subject to the existing tax sharing
agreement; accordingly, the related amounts due to or from Ford have not been
finalized.
NOTE 12 -- LEASE COMMITMENTS
Leases on the Company's branch and operating center facilities are
primarily short-term and generally provide for renewal options not exceeding the
initial term. Total rent expense for the years ended
47
<PAGE> 49
ASSOCIATES FIRST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
December 31, 1997, 1996 and 1995 was $123.8 million, $103.7 million, and $92.6
million, respectively. Minimum rental commitments as of December 31, 1997 for
all noncancelable leases (primarily office leases) for the years ending December
31, 1998, 1999, 2000, 2001 and 2002 are $83.9 million, $63.4 million, $42.3
million, $25.6 million and $12.6 million, respectively, and $36.3 million
thereafter.
NOTE 13 -- EMPLOYEE BENEFITS
Defined Benefit Plans
The Company sponsors various qualified and nonqualified pension plans (the
"Plan" or "Plans"), which together cover substantially all United States based
employees who meet certain eligibility requirements.
Net periodic pension cost for the years indicated includes the following
components (in millions):
<TABLE>
<CAPTION>
DECEMBER 31
--------------------------
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Service cost............................................. $ 20.1 $ 18.8 $ 13.1
Interest cost............................................ 29.4 26.4 23.1
Actual return on Plan assets............................. (76.7) (49.3) (51.1)
Net amortization......................................... 50.0 28.7 33.9
------ ------ ------
Net periodic pension cost.............................. $ 22.8 $ 24.6 $ 19.0
====== ====== ======
Assumed discount rate, beginning of year................. 7.25% 7.00% 8.25%
====== ====== ======
</TABLE>
The funded status of the Plan is as follows (in millions):
<TABLE>
<CAPTION>
DECEMBER 31
------------------------------------------------------
1997 1996
------------------------- -------------------------
QUALIFIED NONQUALIFIED QUALIFIED NONQUALIFIED
PLAN PLANS PLAN PLANS
--------- ------------ --------- ------------
<S> <C> <C> <C> <C>
Actuarial present value of benefit
obligation:
Vested................................ $344.4 $ 34.0 $275.0 $25.3
Nonvested............................. 15.9 2.7 12.1 0.3
------ ------ ------ -----
Accumulated benefit obligation.......... 360.3 36.7 287.1 25.6
Effect of projected future salary
increases............................. 84.6 11.1 77.5 10.6
------ ------ ------ -----
Projected benefit obligation............ 444.9 47.8 364.6 36.2
Plan assets at fair market value........ 473.5 376.1
------ ------ ------ -----
(Excess)/shortage of plan assets over
plan obligation....................... (28.6) 47.8 (11.5) 36.2
Unamortized transition obligation and
amendments............................ (2.2) (2.9) (3.6) (3.4)
Unamortized net loss.................... (12.8) (17.1) (15.0) (8.6)
Adjustment required to recognize minimum
liability............................. 8.9 1.4
------ ------ ------ -----
(Prepaid)/accrued pension liability... $(43.6) $ 36.7 $(30.1) $25.6
====== ====== ====== =====
Assumed discount rate................... 6.75% 6.75% 7.25% 7.25%
====== ====== ====== =====
Projected compensation increases........ 5.00% 5.00% 6.00% 6.00%
====== ====== ====== =====
Expected return......................... 9.00% 9.00% 9.00% 9.00%
====== ====== ====== =====
</TABLE>
48
<PAGE> 50
ASSOCIATES FIRST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Associates Savings and Profit-Sharing Plan
The Company sponsors a defined contribution plan that covers substantially
all United States based employees, who meet certain eligibility requirements, is
intended to provide assistance in accumulating personal savings for retirement
and is designed to qualify for favorable tax treatment under Sections 401(a) and
401(k) of the United States Internal Revenue Code of 1986, as amended. For the
years ended December 31, 1997, 1996 and 1995, the Company's pretax contributions
to the plan were $25.6 million, $21.3 million and $18.2 million, respectively.
Employers' Accounting for Postretirement Benefits Other Than Pensions
The Company provides certain postretirement benefits through unfunded plans
sponsored by the Company. These benefits are currently provided to substantially
all United States based employees who meet certain eligibility requirements. The
benefits of such plans can be modified or terminated at the discretion of the
Company. The amount paid for postretirement nonpension benefits for the years
ended December 31, 1997, 1996 and 1995 was $2.8 million, $2.7 million and $2.0
million, respectively.
49
<PAGE> 51
ASSOCIATES FIRST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Net periodic postretirement benefit cost for 1997, 1996 and 1995 includes
the following components (in millions):
<TABLE>
<CAPTION>
DECEMBER 31
------------------------
1997 1996 1995
------ ----- -----
<S> <C> <C> <C>
Service cost............................................... $ 7.1 $ 7.5 $ 5.5
Interest cost.............................................. 8.2 8.2 7.7
Net amortization........................................... (1.4) (0.7) (1.3)
------ ----- -----
Net periodic postretirement benefit cost................. $ 13.9 $15.0 $11.9
====== ===== =====
Assumed discount rate, beginning of year................... 7.50% 7.25% 8.75%
====== ===== =====
</TABLE>
Accrued postretirement benefit cost at December 31, 1997 and 1996 is
composed of the following (in millions):
<TABLE>
<CAPTION>
DECEMBER 31
----------------
1997 1996
------ ------
<S> <C> <C>
Accumulated postretirement benefit obligation ("APBO"):
Retired participants...................................... $ 48.3 $ 45.2
Fully eligible participants............................... 30.0 24.9
Other active participants................................. 51.5 45.1..
------ ------
Total APBO........................................ 129.8 115.2
Unamortized amendments...................................... 2.5 3.9
Unrecognized actuarial loss................................. (9.8) (7.9)
------ ------
Accrued postretirement benefit cost....................... $122.5 $111.2
====== ======
Assumed discount rate 7.00% 7.50%
====== ======
</TABLE>
For measurement purposes, an 11.27% and 11.67% weighted average annual rate
of increase in per capita cost of covered health care benefits was assumed for
1997 and 1996, 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, 1997 and 1996 by $9.5 million
and $8.4 million, respectively, and the aggregate of the service and interest
cost components of the net periodic postretirement benefit cost by $1.1 million
and $1.2 million, respectively.
INCENTIVE COMPENSATION PROGRAMS
The Company sponsors various compensation plans covering certain officers
and employees.
Incentive Compensation Plan and Long-Term Performance Plan
The Company sponsors the Incentive Compensation Plan (the "ICP"), which
beginning in 1997 provided, among other types of compensation, for corporate
annual performance pay bonuses. The size of the ICP bonus pools is determined
based, in part, on the performance of the Company. Prior to 1997, corporate
annual performance bonuses were provided for by the Corporate Annual Performance
Plan (the "CAPP"). 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, in part, on the success of the Company in achieving a
target level of profits established for each year of the performance period,
with such annual performance then averaged for the performance period. Bonuses
reflect individual participants' performances during the applicable performance
period. Amounts charged to expense for these bonus plans amounted to
50
<PAGE> 52
ASSOCIATES FIRST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$25.1 million, $23.3 million and $16.1 million during the years ended December
31, 1997, 1996 and 1995, respectively.
Phantom Stock Appreciation Right Plan
The Company sponsored a long-term cash plan, the Phantom Stock Appreciation
Right Plan (the "PSAR Plan"). The Company terminated the PSAR Plan as of
December 1995 and extinguished, principally by cash payment, all outstanding
phantom stock appreciation rights ("PSARs") prior to completion of the Company's
initial public offering in 1996. 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 $30.1 million during the year ended
December 31, 1995. No amounts were charged to expense in 1997 and 1996. 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 in accordance with the
terms of the Equity Deferral Plan (the "EDP"), sponsored by the Company.
Stock-Based Compensation Plans
Incentive Compensation Plan -- The Company sponsors the ICP, formerly known
as the Long-Term Equity Compensation Plan, which was established in 1996,
amended and renamed effective January 1, 1997. The Company had no outstanding
grants under any other stock-based compensation plan prior to 1996. The ICP
allows the Company to issue to employees awards of up to 20,799,268 shares of
its Class A Common Stock ("Common Stock"). Awards may be made as nonqualified or
incentive stock options, stock appreciation rights, restricted stock,
performance units or performance shares.
A summary of the activity of option grants by First Capital under the ICP
for the years ended December 31, 1997 and 1996 is presented below:
<TABLE>
<CAPTION>
1997 1996
---------------------------- ----------------------------
WEIGHTED-AVERAGE WEIGHTED-AVERAGE
OPTIONS EXERCISE PRICE OPTIONS EXERCISE PRICE
--------- ---------------- --------- ----------------
<S> <C> <C> <C> <C>
Outstanding at beginning of
year.......................... 2,374,440 $29.07 $
Granted......................... 2,386,025 43.59 2,436,290 29.07
Exercised....................... (216,604) 30.10
Forfeited....................... (349,010) 36.96 (61,850) 29.00
--------- ---------
Outstanding at end of year...... 4,194,851 $36.62 2,374,440 $29.07
========= ======= ========= =======
Options exercisable at year
end........................... 520,419 $29.09
========= =======
Weighted-average fair value of
options granted during the
year.......................... $ 11.24 $ 9.32
========= =========
</TABLE>
The fair value was determined at the date of grant using the Black-Scholes
option-pricing model which assumed a 1997 and 1996 dividend yield range of
0.65%-0.92% and 0.97%-1.38%, expected volatility of 22.00% and 30.44%, risk free
interest rate range of 5.90%-6.81% and 6.30%-6.66%, respectively, and an
expected option life range of 4-6 years.
51
<PAGE> 53
ASSOCIATES FIRST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The weighted average remaining life and weighted average exercise price for
total options outstanding and exercisable options outstanding at December 31,
1997 is summarized below:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------- ------------------------
RANGE OF WEIGHTED-AVG. WEIGHTED-AVG. WEIGHTED-AVG.
EXERCISE PRICES OPTIONS REMAINING LIFE EXERCISE PRICE OPTIONS EXERCISE PRICE
--------------- --------- -------------- -------------- ------- --------------
(YEARS)
<S> <C> <C> <C> <C> <C>
$29.00 to $39.99......... 2,010,881 8.35 $29.02 517,755 $29.03
40.00 to 62.19......... 2,183,970 9.02 43.61 2,664 41.38
--------- -------
29.00 to 62.19......... 4,194,851 8.70 36.62 520,419 29.09
========= =======
</TABLE>
Under the ICP, in 1997 and 1996, the Company issued 42,000 and 169,630
shares of restricted Common Stock to employees, of which 200,500 were
outstanding at December 31, 1997.
Deemed Investment in Stock -- In 1997 and 1996 under the EDP, the Company
credited PSAR amounts deferred by selected employees to unfunded accounts that
are deemed to be invested in shares of Common Stock. Accounts are created with
amounts that reflect dividends paid on Common Stock, which amounts are then
deemed to be reinvested in Common Stock. Amounts deferred are fully vested and
payable beginning 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 860 and 131,890 deemed shares
were issued during 1997 and 1996, respectively, including 860 and 608 respective
shares related to the reinvestment of dividends, 104,257 of which were
outstanding at December 31, 1997. The value of all such shares at year end based
on $71 3/16 per common share was $7.4 million.
Accounting for Stock-Based Compensation Plans -- The Company has elected to
apply Accounting Principles Board Opinion 25 ("APB 25") rather than the optional
provisions of Statement of Financial Accounting Standards No. 123 ("SFAS 123")
in accounting for its stock-based compensation plans. Had the compensation cost
of the Company's stock-based compensation plans been determined based on the
optional provisions of SFAS 123, in the years ended December 31, 1997 and 1996
the Company's net income, basic earnings per share and diluted earnings per
share would have been $1,022.9 million, $2.95 and $2.94; and $854.3 million,
$2.46 and $2.46, respectively.
NOTE 14 -- COMMITMENTS, CONTINGENCIES AND LEGAL PROCEEDINGS
Various legal actions, governmental investigations and proceedings and
claims are pending or may be instituted or asserted in the future against the
Company and its subsidiaries. Certain of the pending legal actions are, or
purport to be, class actions. Some of the foregoing matters involve or may
involve compensatory, punitive, or other treble damage claims which, if
adversely held against the Company, would require large expenditures or could
affect the manner in which the Company conducts its business.
Litigation is subject to many uncertainties, and the outcome of individual
litigated matters is not predictable with assurance. Some of the matters
discussed in the foregoing paragraph could be decided unfavorably to the Company
or the subsidiary involved and could require the Company or such subsidiary to
pay damages or make other expenditures in amounts or a range of amounts that
cannot be estimated at December 31, 1997. The Company does not reasonably
expect, based on its analysis, that any adverse outcome from such matters would
have a material effect on future consolidated financial statements for a
particular year, although such an outcome is possible.
NOTE 15 -- TRANSACTIONS AND BALANCES WITH RELATED PARTIES
The Company paid cash dividends to Ford of $111.8 million, $1,928.7 million
and $318.0 million during the years ended December 31, 1997, 1996 and 1995,
respectively. Of the 1996 cash dividend paid on common
52
<PAGE> 54
ASSOCIATES FIRST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
stock, $55.9 million was paid to Ford after the Offering. In 1996 and 1995, Ford
made cash capital contributions to the Company of $47.3 million and $200.0
million, respectively. No capital contributions were made by Ford in 1997.
The Company provides certain emergency roadside assistance and auto club
services and employee relocation services to Ford. Revenues related to these
services were $36.0 million, $33.4 million and $29.7 million for the years ended
December 31, 1997, 1996 and 1995, respectively. The agreement between the
Company and Ford which covers the roadside assistance services provided to Ford
contains a change in control provision which would be engaged at the proposed
spin-off date. At such time the agreement would be cancelable on 30 days notice.
Should the contract be terminated, such termination would be on a prospective
basis and would not have a material affect on the Company's results of
operations.
The Company pays fees for certain administrative services provided by its
Ford-affiliated parent. Such fees were $8.0 million, $9.7 million and $8.8
million for the years ended December 31, 1997, 1996 and 1995, respectively.
At December 31, 1997 and 1996, the Company's current income taxes payable
to its Ford-affiliated parent amounted to $24.7 million and $77.4 million,
respectively. In connection with the spin-off, Ford and the Company plan to
enter into a separation agreement which, among other matters, will determine how
Ford and the Company will settle certain tax matters related to open year tax
returns subject to the existing tax sharing agreement; accordingly, the related
amounts due to or from Ford have not been finalized.
In March 1997, the Company acquired a portfolio of approximately $800
million in credit card receivables from The Bank of New York. A director of the
Company was Chairman and Chief Executive officer of The Bank of New York during
1997. The Bank of New York and the Company are not otherwise affiliated.
NOTE 16 -- 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 uses derivative financial instruments for the purpose of
hedging specific exposures as part of its risk management program. Such
instruments to date have been limited to foreign currency forward exchange,
currency swap, interest rate swap and treasury lock agreements.
The Company manages its exposure to counterparty credit risk by limiting
its total position with any single counterparty and monitoring the financial
condition of each counterparty. In the unlikely event that a counterparty fails
to meet the terms of an agreement, the Company's financial exposure is limited
to the fair value of the agreement. Estimated fair values of such agreements are
determined by the Company using available market information and present
value-based valuation methods.
At December 31, 1997, the Company had foreign currency forward exchange
agreements wherein the Company is obligated to deliver yen in exchange for
United States dollars at varying times over the next 3 years. The aggregate
notional amount of these agreements at December 31, 1997 was $921.8 million. The
fair value of such agreements at December 31, 1997 was $97.6 million. At
December 31, 1996, the Company had one agreement in the notional amount of $68.5
million, with a fair value of $5.7 million. Such agreements are held for
purposes other than trading and have been designated for accounting purposes as
a hedge of the Company's net investment in AIC.
53
<PAGE> 55
ASSOCIATES FIRST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 1997, the Company had foreign currency swap agreements
wherein the Company is obligated to deliver or receive a specific foreign
currency in exchange for United States dollars at varying times over the next 5
years. The aggregate notional amount of these agreements at December 31, 1997
was $1,083.7 million. The fair value of such agreements at December 31, 1997 was
$28.8 million. The Company had no currency swap agreements at December 31, 1996.
Such agreements have been designated by the Company for accounting purposes as
hedges of specific debt obligations and are held for purposes other than
trading.
Interest rate swap and treasury lock agreements are held for purposes other
than trading and are used by the Company to hedge the effect of interest rate
movements on existing debt and anticipated debt and asset securitization
transactions. Such agreements are executed as an integral element of specific or
anticipated financing transactions. The aggregate notional amount of interest
rate swap and treasury lock agreements at December 31, 1997 was $2.0 billion.
The fair value of such agreements at December 31, 1997 was $(7.3) million.
Interest rate swap and treasury lock agreements mature on varying dates over the
next 4 years and 9 months, respectively. The Company had $40.2 million of
interest rate swap agreements at December 31, 1996 with a fair value of $1.7
million.
The consumer finance business grants revolving lines of credit to certain
of its credit card and other revolving customers. At December 31, 1997, the
unused portion of these lines aggregated $43.4 billion. 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, 1997,
the unused portion of these lines aggregated $1.5 billion. The potential risk
associated with, and the estimated fair value of, the unused credit lines are
not considered to be significant.
NOTE 17 -- BUSINESS SEGMENT INFORMATION
The Company's primary business activities are consumer finance and
commercial finance. The consumer finance operation is engaged in home equity,
personal loan and sales finance lending. Credit card and certain related credit
activities are conducted primarily through a wholly-owned credit card bank and
industrial loan company. The consumer finance operation also provides emergency
roadside assistance and auto club services. The commercial finance operation is
principally engaged in the financing and leasing of transportation, industrial
and communication equipment, auto fleet leasing and fleet management services,
recreational vehicle financing, financing of manufactured homes, warehouse
lending, Small Business Administration lending, municipal finance and employee
relocation 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.
54
<PAGE> 56
ASSOCIATES FIRST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table sets forth information by business segment (in
millions):
<TABLE>
<CAPTION>
BUSINESS SEGMENT(1)
----------------------
CONSUMER COMMERCIAL FOREIGN
FINANCE FINANCE(2) COMBINED OPERATIONS(1)
--------- ---------- --------- -------------
<S> <C> <C> <C> <C>
Year Ended or at December 31, 1997
Revenue................................. $ 6,328.5 $ 1,950.1 $ 8,278.6 $1,054.7
========= ========= ========= ========
Operating income
From segment......................... $ 1,156.8 $ 439.5 $ 1,596.3 $ 403.2
Corporate and other(3)............... 31.7 12.0 43.7 (102.5)
--------- --------- --------- --------
Total........................... $ 1,188.5 $ 451.5 $ 1,640.0 $ 300.7
========= ========= ========= ========
Total assets............................ $37,273.5 $19,959.2 $57,232.7 $6,000.7
========= ========= ========= ========
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
========= ========= ========= ========
</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 68% of total foreign
operations) and, to a lesser extent, its consumer and commercial operations
in the United Kingdom, Canada, Puerto Rico, Mexico, Costa Rica and Taiwan
(the "Other Foreign Operations"). Total revenue, operating income and total
assets, respectively, for Japan were: 1997 -- $721.4 million, $249.1 million
and $3.3 billion, respectively; 1996 -- $643.9 million, $204.3 million and
$3.2 billion, respectively; 1995 -- $587.7 million, $164.8 million and $3.0
billion, respectively. Total revenue, operating income and total assets,
respectively, for the Other Foreign Operations were: 1997 -- $333.3 million,
$51.6 million and $2.4 billion, respectively; 1996 -- $229.8 million, $40.9
million and $1.7 billion, respectively; 1995 -- $177.6 million, $33.0
million and $1.1 billion, respectively.
(2) Includes information pertaining to the financing of manufactured housing
purchases which are managed by the commercial finance operation.
(3) Includes operating income pertaining to the Company's non-operating
subsidiaries.
Capital expenditures and depreciation and amortization expense are not
significant.
NOTE 18 -- SUBSEQUENT EVENT
On October 8, 1997, Ford announced plans to spin off its 80.7% interest in
the Company in the form of a distribution of its First Capital shares to Ford
common and class B stockholders. The transaction is subject to a ruling from the
United States Internal Revenue Service that the transaction will be tax-free to
Ford and its stockholders. The ruling process is expected to be completed in the
first half of 1998.
55
<PAGE> 57
ASSOCIATES FIRST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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>
1997
-----------------------------------------
FOURTH THIRD SECOND FIRST
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Finance charges.............................. $1,990.8 $1,935.3 $1,872.4 $1,761.7
======== ======== ======== ========
Interest expense............................. $ 739.4 $ 718.8 $ 679.6 $ 637.4
======== ======== ======== ========
Earnings before provision for income taxes... $ 440.4 $ 433.1 $ 389.0 $ 377.5
Provision for income taxes................... 162.4 162.2 144.0 139.7
-------- -------- -------- --------
Net earnings................................. $ 278.0 $ 270.9 $ 245.0 $ 237.8
======== ======== ======== ========
Net earnings per share
Basic...................................... $ 0.80 $ 0.78 $ 0.71 $ 0.69
======== ======== ======== ========
Diluted.................................... $ 0.80 $ 0.78 $ 0.71 $ 0.68
======== ======== ======== ========
</TABLE>
<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 (Basic and Diluted)... $ 0.68 $ 0.66 $ 0.58 $ 0.55
======== ======== ======== ========
</TABLE>
56
<PAGE> 58
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 First Capital as of or
for the years ended December 31, 1997, 1996 and 1995 was as follows (in
millions):
CONDENSED STATEMENT OF EARNINGS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------
1997 1996 1995
-------- ------ ------
<S> <C> <C> <C>
Revenue
Interest and other income............................... $ 58.8 $ 20.6 $ 10.2
Dividends from subsidiaries............................. 52.5 370.4 284.0
-------- ------ ------
111.3 391.0 294.2
Expenses
Interest expense........................................ 44.4 99.7 66.0
Operating expenses...................................... 34.9 24.9 23.3
-------- ------ ------
79.3 124.6 89.3
-------- ------ ------
Income before credit for federal income taxes and equity
in net earnings of subsidiaries......................... 32.0 266.4 204.9
Credit for federal income taxes resulting from tax
agreements with subsidiaries............................ 40.2 36.3 28.0
-------- ------ ------
Earnings before equity in undistributed earnings of
subsidiaries............................................ 72.2 302.7 232.9
Equity in undistributed earnings of subsidiaries.......... 959.5 554.3 490.2
-------- ------ ------
Net earnings.............................................. $1,031.7 $857.0 $723.1
======== ====== ======
</TABLE>
See notes to condensed financial information.
CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
1997 1996
-------- --------
<S> <C> <C>
Assets
Investment in subsidiaries................................ $7,167.8 $6,277.6
Advances to subsidiaries, eliminated in consolidation, and
other.................................................. 1,185.6 580.0
-------- --------
Total assets...................................... $8,353.4 $6,857.6
======== ========
Liabilities and Stockholders' Equity
Accounts payable and accruals............................. $ 32.2 $ 45.1
Short-term notes payable.................................. 1,628.2 736.6
Notes payable and long-term debt.......................... 424.4 638.4
Stockholders' equity...................................... 6,268.6 5,437.5
-------- --------
Total liabilities and stockholders' equity........ $8,353.4 $6,857.6
======== ========
</TABLE>
The estimated fair value of notes payable and long-term debt at December
31, 1997 and 1996 was $631.0 million and $501.8 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.
57
<PAGE> 59
ASSOCIATES FIRST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED STATEMENT OF CASH FLOWS
(IN MILLIONS)
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- -------
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net earnings............................................. $ 1,031.7 $ 857.0 $ 723.1
Adjustments to net earnings for non-cash items:
Depreciation and amortization......................... 0.1
(Decrease) increase in accounts payable and
accruals............................................ (12.9) (7.4) 19.5
Equity in undistributed earnings of subsidiaries...... (959.5) (554.3) (490.2)
Other.................................................... 1.2 (16.8) 29.5
--------- --------- -------
Net cash provided from operating activities........... 60.5 278.5 282.0
--------- --------- -------
Cash Flows from Investing Activities
Cash dividends from subsidiaries......................... 52.5 370.4 284.0
Increase in investments in and advances to
subsidiaries.......................................... (584.5) (894.6) (492.6)
--------- --------- -------
Net cash used for investing activities................ (532.0) (524.2) (208.6)
--------- --------- -------
Cash Flows from Financing Activities
Increase in notes payable and long-term debt............. 891.6 853.0 438.9
Sale of Class A common stock............................. 1,850.0
Cash contributions from Ford............................. 47.3 200.0
Cash dividends to Ford................................... (1,928.7) (318.0)
Cash dividends paid on common stock...................... (138.6) (69.3)
Retirement of long-term debt............................. (214.0) (395.2) (354.4)
Treasury stock and other................................. (12.4)
--------- --------- -------
Net cash provided from (used for) financing
activities.......................................... 526.6 357.1 (33.5)
Effect of foreign currency translation adjustments on
cash..................................................... (54.6) (107.8) (41.7)
--------- --------- -------
Increase (decrease) in cash and cash equivalents........... 0.5 3.6 (1.8)
Cash and cash equivalents at beginning of period........... 0.7 (2.9) (1.1)
--------- --------- -------
Cash and cash equivalents at end of period................. $ 1.2 $ 0.7 $ (2.9)
========= ========= =======
</TABLE>
NOTES TO CONDENSED FINANCIAL INFORMATION:
(1) The ability of the Company's subsidiaries to transfer funds to the
Company in the form of cash dividends is restricted pursuant to the terms of
certain debt agreements entered into by the Company's principal operating
subsidiary, Associates Corporation of North America. See NOTE 10 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 5.65% to
8.40%. The estimated maturities of the notes outstanding, at December 31, 1997,
during subsequent years were as follows (in millions):
<TABLE>
<S> <C>
1998........................................................ $142.5
1999........................................................ 128.6
2000........................................................ 92.9
2001........................................................ 60.4
------
$424.4
======
</TABLE>
58
<PAGE> 60
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 1998 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 1998 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 1998 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 1998 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........................... 29
Consolidated Statement of Earnings for the years ended
December 31, 1997, 1996 and 1995.......................... 30
Consolidated Balance Sheet at December 31, 1997 and 1996.... 31
Consolidated Statement of Changes in Stockholders' Equity
for the years ended December 31, 1997, 1996 and 1995...... 32
Consolidated Statement of Cash Flows for the years ended
December 31, 1997, 1996 and 1995.......................... 33
Notes to consolidated financial statements.................. 34
</TABLE>
(b) Reports on Form 8-K
During the quarter ended December 31, 1997, First Capital filed Current
Reports on Form 8-K dated October 8, 1997 (related to the announcement
of Ford's planned spin-off of the Company) and October 14, 1997
(related to the release of third quarter earnings).
59
<PAGE> 61
(c) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
-------
<C> <S>
3.1 Restated Certificate of Incorporation. (3.1)*
3.2 By-laws. (3.2)**
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.
10.6 Omitted.
10.7 The Company's Equity Deferral Plan. (10.7)*
10.8 The Company's Incentive Compensation Plan.
10.9 Omitted.
10.10 Omitted.
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 Income 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.**
10.21 The Company's Long-Term Equity Compensation Plan Stock
Option Award Agreement -- 1997.**
10.22 The Company's Incentive Compensation Plan Stock Option Award
Agreement -- 1998.
10.23 Form of Restricted Stock Award Agreement.
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.
** Incorporated by reference to the exhibit listed in parenthesis contained
in the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996.
60
<PAGE> 62
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/ JOHN F. STILLO
-------------------------------------
John F. Stillo
Senior Vice President and Comptroller
February 17, 1998
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
(Keith W. Hughes) and Director
/s/ J. CARTER BACOT* Director
- -----------------------------------------------------
(J. Carter Bacot)
/s/ JOHN DEVINE* Director
- -----------------------------------------------------
(John Devine)
Director
- -----------------------------------------------------
(Eric S. Dobkin)
Director
- -----------------------------------------------------
(William M. Isaac)
/s/ HAROLD D. MARSHALL* President and Director February 17, 1998
- -----------------------------------------------------
(Harold D. Marshall)
/s/ H. JAMES TOFFEY* Director
- -----------------------------------------------------
(H. James Toffey)
/s/ KENNETH WHIPPLE* Director
- -----------------------------------------------------
(Kenneth Whipple)
/s/ ROY A. GUTHRIE* Director, Senior Executive
- ----------------------------------------------------- Vice President and Chief
(Roy A. Guthrie) Financial Officer
/s/ JOHN F. STILLO Senior Vice President,
- ----------------------------------------------------- Comptroller and Principal
(John F. Stillo) Accounting Officer
</TABLE>
By signing his name hereto, John F. Stillo 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/ JOHN F. STILLO
----------------------------------
Attorney-in-fact
61
<PAGE> 63
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
------- -------
<C> <S>
3.1 Restated Certificate of Incorporation. (3.1)*
3.2 By-laws. (3.2)**
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.
10.6 Omitted.
10.7 The Company's Equity Deferral Plan. (10.7)*
10.8 The Company's Incentive Compensation Plan.
10.9 Omitted.
10.10 Omitted.
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 Income 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.**
10.21 The Company's Long-Term Equity Compensation Plan Stock
Option Award Agreement -- 1997.**
10.22 The Company's Incentive Compensation Plan Stock Option Award
Agreement -- 1998.
10.23 Form of Restricted Stock Award Agreement.
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.
** Incorporated by reference to the exhibit listed in parenthesis contained
in the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996.
62
<PAGE> 1
Exhibit 10.5
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT, dated as of the 15th day of October, 1997
(the "Agreement"), between ASSOCIATES CORPORATION OF NORTH AMERICA (A Texas
Corporation), a corporation existing under the laws of the State of Texas (the
"Company"), and ___________________________________________ (the "Executive"),
WITNESSETH:
WHEREAS, the Company and the Executive desire to enter into an agreement
relating to the employment of the Executive;
NOW, THEREFORE, in consideration of the covenants and agreements
hereinafter set forth, the parties hereto agree as follows:
1. EMPLOYMENT
1.1 Effective on the date of the Agreement (the "Effective Date"),
the Executive hereby agrees to serve, upon the terms and conditions herein
contained, as an executive of the Company, an indirect subsidiary of Ford Motor
Company ("Ford"). The Executive shall have such duties as the Board of
Directors of the Company may determine.
1.2 Unless automatically renewed, the Agreement and the term of
employment hereunder shall commence on the Effective Date and, subject to the
terms hereof, shall terminate on the day prior to the third anniversary of such
date. This Agreement and the three-year term of employment shall automatically
renew each month, beginning on the first day of the first month immediately
following the Effective Date and thereafter on the first day of each subsequent
month, unless either party provides written notice of non-renewal prior to the
first day of each such month. The original three-year term and any renewals
thereof are referred to as the "Employment Term."
1.3 During the Executive's employment hereunder, the Executive shall
devote the Executive's best efforts and substantially all the Executive's
business time and services to the business and affairs of the Company.
2. SALARY
2.1 During the Executive's employment hereunder, the Executive shall
be entitled to receive a base salary at the rate of $_______________ per annum,
payable in accordance with the Company's payroll policy from time to time in
effect.
2.2 The Company may, in its sole discretion, increase the Executive's
per annum base salary.
3. BONUSES
During the Executive's employment hereunder, the Executive shall be
eligible to receive bonuses on the terms specified in any bonus plan applicable
to executives of the Company. In the event that a Change in Control as defined
in Sections 4.5A(i), 4.5A(ii), 4.5A(iii), or 4.5A(v) occurs during the
Employment Term, then for the remaining Employment Term, the Executive shall
receive (a) an annual award of corporate annual performance pay ("CAPP") under
the Associates First Capital Corporation Incentive Compensation Plan (or any
predecessor or successor plan) (the "ICP") at least equal to 80% of the norm
award for the Executive for the year and (b) an annual award of long-term
performance pay ("LTPP") under the Associates First Capital Corporation Long-
Term Performance Plan at least equal to 80% of the norm award for the Executive
for the year. Any such cash incentive compensation shall be payable at the
same time and in the same
1
<PAGE> 2
manner as such awards are generally payable to other executives of the Company
and subject to the terms and conditions of the applicable plan, program or
arrangement.
4. TERMINATION
4.1 The employment of the Executive hereunder may be terminated by
the Company by fifteen (15) days' written notice given at any time, with or
without Cause. As used herein, the term "Cause" shall be limited to (a) action
by the Executive involving willful malfeasance, (b) the Executive's
unreasonable neglect or refusal to perform the executive duties assigned to the
Executive under this Agreement, (c) the Executive being convicted of a felony,
(d) the Executive 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
Executive's violation of Company policy covering standards of corporate
conduct; provided that the determination of Cause shall be made by the
Company's Board of Directors. If the Company terminates the Executive's
employment for Cause, all of the Company's obligations under this Agreement
shall thereupon cease and terminate.
4.2 The Executive may voluntarily terminate the Agreement and his
employment hereunder at any time by written notice to the Company. If the
Executive voluntarily terminates his employment hereunder for any reason
whatsoever, including without limitation by retirement, subject to any benefit
continuation requirements of applicable laws, all obligations of the Company
under the Agreement shall cease as of the effective date of the termination,
except to the extent that applicable law requires payment of any compensation
or benefits earned or accrued but unpaid through such date.
4.3 In the event that the Executive's employment is terminated by the
Company other than for Cause or a Change in Control occurs that results in
termination other than for Cause during the period beginning 6 months prior to
and ending 15 months after a Change in Control, including "Constructive
Termination," the Executive shall be entitled, in lieu of any other
compensation and benefits provided for herein, (i) to receive a lump sum in an
amount equal to (x) [two/three] times the sum of the Executive's then-current
annual base salary and an amount equal to the average of the CAPP amounts paid
to the Executive during each of the three years immediately preceding the year
of termination (or, if the Executive has not been employed by the Company for
at least three years immediately preceding the year of termination, during such
years as the Executive has been employed by the Company immediately preceding
the year of termination; provided, however, that if the Executive is terminated
prior to receiving any CAPP payments, any CAPP payment amount guaranteed to
such Executive pursuant to his engagement letter with the Company shall be
taken into account for purposes of this Section 4.3), plus (y) a pro rata
amount, based on the portion of the current performance year preceding
termination, equal to the average of the CAPP and LTPP amounts paid to the
Executive during each of the three years immediately preceding the year of
termination (or, if the Executive has not been employed by the Company for at
least three years immediately preceding the year of termination, during such
years as the Executive has been employed by the Company immediately preceding
the year of termination; provided, however, that if the Executive is terminated
prior to receiving any CAPP or LTPP payments, any CAPP and LTPP payment amounts
guaranteed to such Executive pursuant to his engagement letter with the Company
shall be taken into account for purposes of this Section 4.3); (ii)
2
<PAGE> 3
to be immediately vested in full as of the termination date in any outstanding
stock options granted under the ICP and to have all restrictions lapse as of
the termination date on any restricted stock awarded to the Executive under the
ICP; and (iii) to continue to receive, for [two/three] years from the date of
termination, at the Company's expense, life insurance and medical, dental,
disability and other welfare benefits at least comparable to those provided by
the Company to the Executive on the date of termination of employment, provided
that such benefits shall cease if the Executive obtains other employment with
comparable benefits.
4.4 Notwithstanding any other provision, the right of the Executive
to any benefits provided in this Agreement shall cease if the Board of
Directors of the Company determines that the Executive has violated Sections
8.2 or 8.3 herein, or has engaged in any activity that is inimical to the best
interests of the Company or any affiliate.
4.5A "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
outstanding capital stock of the Company (other than any transaction
described in Section 4.5A(iv)), as of the date of the conclusion of such
reorganization, transaction or series of transactions;
(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; or
(v) Any transaction or series of transactions that results in
the transfer of management control of the Company to any third party
unaffiliated with the Company or Ford, regardless of whether Ford and
its affiliates continue to own common stock of the Company having 50% or
more of the combined voting power of the Company's outstanding capital
stock, as of the date such transfer of management control becomes
effective.
4.5B If a Change in Control as defined in Sections 4.5A(i), 4.5A(ii),
4.5A(iii), or 4.5A(v) occurs during the Employment Term, as of the date of such
Change in Control, (a) the Executive shall become immediately 100% vested in
any outstanding stock options granted under the ICP, (b) any restrictions shall
lapse immediately on any restricted stock awarded to the Executive under the
ICP, and (c) the Executive's rights and interests shall become immediately 100%
vested and nonforfeitable in any accounts or benefits payable under any of the
Company's nonqualified plans in which the Executive participates or has
participated prior to the Change in Control.
4.5C In the event that a Change in Control as defined in Sections
4.5A(i), 4.5A(ii), 4.5A(iii), or 4.5A(v) occurs during the Employment Term, the
Company shall fund a trust with sufficient funds to guarantee payment of all
benefits payable to the Executive under
3
<PAGE> 4
any of the Company's nonqualified plans in which the Executive participates or
has participated prior to the Change in Control.
4.6 Unless consented to in writing by the Executive, "Constructive
Termination" shall occur if any of the following results from a Change in
Control as defined in Sections 4.5A(i), 4.5A(ii), 4.5A(iii), or 4.5A(v):
(i) The assignment to the Executive of any duties inconsistent
in any respect with the Executive's position (including status, offices,
titles and reporting requirement), 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 Executive;
(ii) Any failure to (x) continue to provide the Executive 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 Executive was participating immediately prior to the date of
the Change in Control, or their equivalent, or (y) provide the Executive
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 Executive; or
(iii) Without the Executive's express written consent, a
substantial reduction, without good business reasons, of the facilities
and perquisites available to the Executive immediately prior to such
reduction.
4.7 Notwithstanding any provision herein to the contrary, total
compensation paid to the Executive under this Agreement as a result of a Change
in Control that constitutes a change in control for purposes of Section 280G of
the Internal Revenue Code of 1986, as amended, as determined by Ford, shall not
exceed 2.99 times the Executive's Compensation. "Executive's Compensation"
for purposes of this Section 4.7 shall have the same meaning as the meaning
given to the term "annualized includible compensation for the base period" in
Section 280G(d)(1) of the Internal Revenue Code of 1986, as amended.
5. PERMANENT DISABILITY OR DEATH
In the event of the Executive's permanent disability, as defined in the
long-term disability plan applicable to employees of the Company on the date
hereof ("Permanent Disability"), while employed hereunder during the Employment
Term, the Executive shall receive monthly for a period of six months after the
determination of Permanent Disability an amount equal to the Executive's then-
current monthly base salary plus one-twelfth of the average of the CAPP amounts
paid to the Executive during each of the three years immediately preceding the
year of Permanent Disability (or, if the Executive has not been employed by the
Company for at least three years immediately preceding the year of Permanent
Disability, during such years as the Executive has been employed by the Company
immediately preceding the year of Permanent Disability; provided, however, that
if the Executive is terminated prior to receiving any CAPP payments, any CAPP
payment
4
<PAGE> 5
amount guaranteed to such Executive pursuant to his engagement letter with the
Company shall be taken into account for purposes of this Section 5), less any
amounts received through any disability or salary continuation plan provided
pursuant to Section 7 hereof. In the event of the Executive's death while
employed hereunder during the Employment Term, the Executive's estate or
designated beneficiaries shall receive a lump sum equal to the Executive's
then-current annual base salary plus the average of the CAPP amounts paid to
the Executive during each of the three years immediately preceding the year of
death (or, if the Executive has not been employed by the Company for at least
three years immediately preceding the year of death, during such years as the
Executive has been employed by the Company immediately preceding the year of
death; provided, however, that if the Executive is terminated prior to
receiving any CAPP payments, any CAPP payment amount guaranteed to such
Executive pursuant to his engagement letter with the Company shall be taken
into account for purposes of this Section 5). In the event of the Executive's
Permanent Disability or death as specified in this Section 5, the employment of
the Executive and all obligations of the Company hereunder (other than the
obligation (i) for the compensation specified in this Section 5, and (ii) to
pay amounts for which the Company is responsible under applicable benefit
plans, policies and practices in the event of death or Permanent Disability)
shall terminate.
6. EXPENSES
During the Executive's employment hereunder, the Executive is authorized
to incur reasonable expenses for promoting the business of the Company,
including expenses for travel and similar items, in accordance with the
Company's policy as in effect from time to time. The Company will reimburse
the Executive for all such reasonable expenses as determined by management in
accordance with Company policy upon presentation by the Executive from time to
time of an itemized account of such expenditures.
7. EXECUTIVE BENEFITS
7.1 During the Executive's employment hereunder, the Executive shall
be included in any and all plans providing benefits for (a) the Company's
employees generally and (b) the Company's executives of comparable status. In
furtherance and not in limitation of the foregoing, throughout the Employment
Term, the Company shall provide to the Executive life insurance, medical,
dental, disability and other employee welfare benefits and defined benefit
pension plan benefits that, on an overall basis, shall be no less favorable to
the Executive than those in effect for employees (of comparable pay grade or
status) of the Company from time to time.
7.2 During the Executive's employment hereunder, the Executive shall
remain eligible to participate in all incentive, profit sharing, bonus, stock
option, or other similar or comparable plans applicable to Company executives
of a similar class and station, in accordance with the terms thereof in effect
from time to time.
8. RESTRICTIVE COVENANTS
8.1 The Executive agrees to execute and deliver from time to time the
Company's standard confidentiality, conflict of interest and proprietary
information agreements.
8.2 The Executive and the Executive's agents will not, during the 12-
month period following any termination of employment hereunder, or in
contemplation of termination of employment, induce, entice or solicit any
employee of the Company or its affiliates, to leave employment with the Company
or its affiliates.
5
<PAGE> 6
8.3 If the Executive receives benefits or compensation of any kind
from the Company pursuant to Section 4.3, the Executive will not, either
directly or indirectly, for a period of one year following termination of
employment, compete with the Company, in any manner or capacity (e.g., as an
employee, advisor, principal, agent, partner, officer or director) in any phase
of the business which the Company or any of its subsidiaries conduct during the
Employment Term. The obligations of this covenant not to compete ("Covenant")
shall apply to any geographic area in which the Company and its subsidiaries
have engaged in business during the Employment Term. The Executive agrees and
acknowledges that it would be difficult to fully compensate the Company for the
damages resulting from a breach of this Covenant, and that the Company will,
therefore, be entitled to temporary and permanent injunctive relief in the
event of any actual or threatened breach. Such relief may be granted without
the necessity of proving actual damages, but this provision does not diminish
the Company's right to recover damages in addition to injunctive relief.
9. NOTICE
All notices or communications hereunder shall be in writing, addressed
as follows:
To the Company:
Associates Corporation of North America (A Texas Corporation)
250 East Carpenter Freeway
Irving, Texas 75062
Attention: General Counsel
To the Executive:
Any notice or communication shall be sent certified or registered mail, return
receipt requested, postage prepaid, addressed as above (or to such other
address as a party may designate in writing from time to time), and the actual
date of receipt, as shown by the receipt therefor, shall determine the time at
which notice was given.
10. SEPARABILITY
If any provision of this Agreement shall be declared to be invalid or
unenforceable, in whole or in part, such provision shall be modified, to the
extent practical, consistent with the intent of the parties, in order to render
it enforceable, but such invalidity or unenforceability shall not affect the
remaining provisions hereof, which shall remain in full force and effect.
11. ASSIGNMENT
This Agreement shall be binding upon and inure to the benefit of the
heirs and representatives of the Executive and the assigns and successors of
the Company. Neither this Agreement nor any rights hereunder shall be
assignable or otherwise subject to hypothecation by the Executive, and any such
attempted assignment or hypothecation shall be void. This Agreement shall be
assignable by the Company in connection with any transfer of all or
substantially all of the Company's business or any transfer of a portion of the
Company's business for which the Executive has responsibility; provided,
however, that the Company shall remain responsible for all the obligations of
the Company set forth herein for the remainder of the initial period of the
Employment Term or the remainder of the then-current renewal period, as
applicable.
6
<PAGE> 7
12. ENTIRE AGREEMENT; AMENDMENT
This Agreement represents the entire agreement of the parties relating
to its subject matter and shall supersede any and all previous written or oral
employment agreements between the Company or any of its affiliates and the
Executive. This Agreement may be modified or amended only by a writing signed
by both parties hereto.
13. DISPUTE RESOLUTION.
13.1 Any dispute between the Executive and the Company under this
Agreement shall be resolved (except as provided otherwise in this Section 13)
through binding arbitration conducted by the American Arbitration Association,
pursuant to the American Arbitration Association Employment Arbitration rules,
or other mutually agreeable arbitration service or rules. The arbitrator shall
be selected by mutual agreement, through alternative strikes from a designated
list, or as required by the American Arbitration Association. The arbitrator
shall be duly licensed to practice law in the State of Texas and shall have
experience in employment law arbitration. All proceedings shall be conducted
in the City of Dallas, State of Texas, unless otherwise agreed by all parties.
13.2 The arbitrator shall permit reasonable pre-hearing discovery of
facts, to the extent necessary to establish a claim or a defense to a claim,
subject to supervision by the arbitrator. Each party shall be entitled to
present evidence and argument to the arbitrator. Each party shall have the
right to be represented by legal counsel of the party's choosing. The
arbitrator shall have the right only to interpret and apply the provisions of
this Agreement and may not change any of its provisions. The arbitrator does
not have authority (i) to render a decision that contains a reversible error of
state or federal law, or (ii) to apply a cause of action or remedy not
otherwise provided for under applicable state or federal law. The arbitrator
shall be required to state in a written opinion all facts and conclusions of
law relied upon to support the decision rendered and shall give written notice
to the parties of the decision and furnish each party a signed copy of such
decision. The determination of the arbitrator shall be conclusive and binding
upon the parties, and judgment upon the same may be entered in any court having
jurisdiction thereof. The parties will resolve any dispute over the
enforceability of an award through declaratory relief to be disposed of through
motion proceedings in the applicable court of law. Either party may move for
dismissal through summary judgment in accordance with the Federal Rules of
Civil Procedure and the standard of proof under federal law for a motion for
summary judgment. The expenses of arbitration, including reasonable expenses
of legal counsel retained by the Executive in connection with such arbitration,
shall be borne by the Company.
13.3 Notwithstanding the foregoing, the Company shall not be required
to seek or participate in arbitration regarding any breach of the Executive's
obligations pursuant to Sections 8.2 or 8.3 hereof, but may pursue its remedies
for such breach in a court of competent jurisdiction in Dallas, Texas.
14. GOVERNING LAW
This Agreement shall be construed, interpreted and governed in
accordance with the laws of Texas.
7
<PAGE> 8
IN WITNESS WHEREOF, the parties have executed this Agreement as
of the day and year first above written.
----------------------------------------------------
[Executive]
ASSOCIATES CORPORATION OF NORTH AMERICA
(A Texas Corporation)
By:
-----------------------------------------------
Keith W. Hughes
Chief Executive Officer
8
<PAGE> 1
Exhibit 10.8
ASSOCIATES FIRST CAPITAL CORPORATION
INCENTIVE COMPENSATION PLAN
(AMENDED AND RESTATED EFFECTIVE JANUARY 1, 1997)
ARTICLE 1. PURPOSE AND DURATION
1.1. PURPOSE OF THE PLAN. Associates First Capital Corporation, a
Delaware corporation, hereby amends and restates, effective January 1, 1997,
the Associates First Capital Corporation Incentive Compensation Plan (formerly
called the "Associates First Capital Corporation Long-Term Equity Compensation
Plan"), as set forth in this document, to allow the Company (a) to optimize the
profitability and growth of the Company through incentives that are consistent
with the Company's goals and that link the individual interests of Participants
with those of the Company's stockholders, (b) to provide Participants with an
incentive for excellence in individual performance, (c) to provide flexibility
to the Company in its ability to motivate, attract and retain the services of
Employees who make significant contributions to the Company's success, and (d)
to allow such Employees to share in the success of the Company. The Plan
permits awards of Corporate Annual Performance Pay, Incentive Stock Options,
Nonqualified Stock Options, Performance Shares, Performance Units, Restricted
Stock and Stock Appreciation Rights.
1.2. DURATION OF THE PLAN. On and after the Effective Date, subject to
approval by the Company's stockholders, the provisions of the amended and
restated Plan shall govern all Awards. The Plan shall remain in effect
indefinitely, subject to the right of the Board of Directors to amend or
terminate the Plan at any time pursuant to Article 13, until all Awards are
satisfied by the issuance of Shares and/or the payment of cash.
Notwithstanding the foregoing, in no event may an Award be made on or after
March 31, 2006.
ARTICLE 2. DEFINITIONS
2.1. GENERAL. Whenever used in the Plan, the following terms shall
have the meanings set forth below, and when any such meaning is intended, the
initial letter of the word shall be capitalized. Except where the context
otherwise indicates, any masculine term used herein shall include the feminine,
the plural shall include the singular, and the singular shall include the
plural.
2.2. "AWARD" means, individually or collectively, an award under the
Plan of Corporate Annual Performance Pay, Incentive Stock Options, Nonqualified
Stock Options, Performance Shares, Performance Units, Restricted Stock or Stock
Appreciation Rights.
2.3. "AWARD AGREEMENT" means an agreement, entered into between the
Company and a Participant, setting forth the terms and conditions applicable to
an Award.
2.4. "BOARD" or "BOARD OF DIRECTORS" means the board of directors of
the Company.
<PAGE> 2
2.5. "CLASS A COMMON STOCK" means the Class A Common Stock, par value
$.01 per share, of the Company.
2.6. "CODE" means the Internal Revenue Code of 1986, as amended from
time to time, or any successor thereto.
2.7. "COMMITTEE" means the Committee designated pursuant to Section
12.1 to administer the Plan.
2.8. "COMPANY" means Associates First Capital Corporation, a Delaware
corporation, and any successor thereto as provided in Section 14.5.
2.9. "CORPORATE ANNUAL PERFORMANCE PAY" or "CAPP" means annual
incentive compensation awarded under Article 5.
2.10. "DIRECTOR" means any individual who is a member of the Board of
Directors.
2.11. "EFFECTIVE DATE" means January 1, 1997, as provided in Section
1.1. The original effective date of the Plan was April 1, 1996.
2.12. "EMPLOYEE" means any individual who is a full-time, active
employee of the Company or any Subsidiary.
2.13. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended from time to time, or any successor thereto.
2.14. "FAIR MARKET VALUE" means the closing sale price at which Shares
were sold regular way on the relevant date on the principal securities exchange
on which Shares were traded on such date or, if there was no sale on the
relevant date, then on the last previous day on which there was such a sale;
provided that "Fair Market Value" for any Awards made concurrent with or
contingent upon the consummation of the initial public offering of Shares in
1996 means the initial public offering price of Shares covered by such initial
public offering.
2.15. "FREESTANDING SAR" means an SAR, awarded under Article 9, that is
granted independently of any Option.
2.16. "INCENTIVE STOCK OPTION" or "ISO" means an option to purchase
Shares, awarded under Article 6, that is intended to qualify as an "incentive
stock option" within the meaning of Code Section 422.
2.17. "INSIDER" means an individual who is, on the relevant date, an
officer or Director of the Company or a beneficial owner (as the term
"beneficial owner" is defined in Rule 13d-3 of the General Rules and
Regulations promulgated under the Exchange Act) of 10 percent (10%) or more of
any class of the Company's equity securities that is registered pursuant to
Section 12 of
<PAGE> 3
the Exchange Act, as such terms are used under Section 16 of the Exchange Act
and the General Rules and Regulations promulgated thereunder.
2.18. "NAMED EXECUTIVE OFFICER" means an individual who, as of the date
of payment, exercise and/or lapse of restrictions with respect to an Award, as
applicable, is a "covered employee" as defined in Code Section 162(m) and the
Treasury Regulations promulgated thereunder.
2.19. "NON-EMPLOYEE DIRECTOR" means a Director who is not an Employee
of the Company or any Subsidiary or of Ford Motor Company or any of its direct
or indirect subsidiaries.
2.20. "NONQUALIFIED STOCK OPTION" or "NQSO" means an option to purchase
Shares, awarded under Article 6, that is not intended to be treated as an
"incentive stock option" within the meaning of Code Section 422.
2.21. "OPTION" means an Incentive Stock Option or a Nonqualified Stock
Option, as applicable.
2.22. "OPTION PRICE" means the price at which a Share may be purchased
by a Participant pursuant to an Option.
2.23. "PARTICIPANT" means an Employee selected pursuant to Article 4 to
receive an Award.
2.24. "PERFORMANCE-BASED EXCEPTION" means the performance-based
compensation exception from the tax deductibility limitations of Code Section
162(m).
2.25. "PERFORMANCE SHARE" means a performance-based grant, awarded
under Article 7, the initial value of which is based on the Fair Market Value
of a Share on the date of grant.
2.26. "PERFORMANCE UNIT" means a performance-based grant, awarded under
Article 7, the initial value of which is established by the Committee at the
time of grant.
2.27. "PLAN" means the Associates First Capital Corporation Incentive
Compensation Plan (formerly called the "Associates First Capital Corporation
Long-Term Equity Compensation Plan"), as amended and restated effective January
1, 1997.
2.28. "RESTRICTED STOCK" means Class A Common Stock, awarded under
Article 8, that is subject to restrictions on transferability and to a
substantial risk of forfeiture.
2.29. "SHARES" means shares of Class A Common Stock.
<PAGE> 4
2.30. "STOCK APPRECIATION RIGHT" or "SAR" means a right, awarded under
Article 9, either alone or in connection with an Option, to receive the value
of the appreciation over time in the value of a Share. An SAR may be either a
Freestanding SAR or a Tandem SAR.
2.31. "SUBSIDIARY" means any corporation, partnership, joint venture or
other entity in which the Company has a direct or indirect majority voting
interest (including all divisions, affiliates and related entities), provided
that for ISOs "Subsidiary" has the meaning set forth in Code Section 422.
2.32. "TANDEM SAR" means an SAR, awarded under Article 9 in connection
with an Option, the exercise of which forfeits the right to purchase a Share
under the related Option (and which SAR is itself forfeited if and when a Share
is purchased under the related Option).
ARTICLE 3. SHARES SUBJECT TO THE PLAN AND MAXIMUM AWARDS
3.1. NUMBER OF SHARES AVAILABLE FOR GRANTS. Subject to adjustment as
provided in Section 3.3, the maximum number of Shares with respect to which
Awards may be made shall be 20,799,268. Shares issued under the Plan may be
either authorized but unissued Shares, treasury Shares or any combination
thereof.
3.2. LAPSED AWARDS. If any Award is canceled, terminates, expires or
lapses for any reason without the issuance of Shares or payment in respect
thereof (with the exceptions of termination of a Tandem SAR upon exercise of
the related Option or termination of an Option upon exercise of the related
Tandem SAR), any Shares subject to such Award shall be available again for an
Award to the fullest extent permitted under Rule 16b-3 of the General Rules and
Regulations promulgated under the Exchange Act and Code Sections 162(m) and
422.
3.3. ADJUSTMENTS IN AUTHORIZED SHARES. In the event of any change in
capitalization of the Company (such as a stock split, stock dividend or
combination of shares), corporate transaction (such as any merger,
consolidation, separation, including a spin-off, or other distribution of stock
or property of the Company), reorganization (whether or not such reorganization
comes within the definition of such term in Code Section 368) or partial or
complete liquidation of the Company, an adjustment shall be made in the number
and class of Shares with respect to which Awards may be made, in the number and
class of and/or price of Shares subject to outstanding Awards, and in the Award
limits set forth with respect to Options and SARs in Section 3.4, as may be
determined to be appropriate and equitable by the Committee, in its sole
discretion, to reflect such change in capitalization, corporate transaction,
reorganization or partial or complete liquidation; provided, however, that the
number of Shares subject to any Award shall always be a whole number.
3.4. MAXIMUM AWARDS. The maximum aggregate number of Shares with
respect to which Options, with or without Tandem SARs, or Freestanding SARs may
be awarded to any one individual under the Plan in any one calendar year shall
be 400,000. The maximum Corporate
<PAGE> 5
Annual Performance Pay that may be awarded to any one individual under the Plan
in any one calendar year shall be $5,000,000.
ARTICLE 4. ELIGIBILITY AND PARTICIPATION
4.1. ELIGIBILITY. Any officer of the Company or salaried Employee,
including any Employee who is a Director, with potential to contribute to the
success of the Company and/or any Subsidiary shall be eligible to be selected
as a Participant by the Committee.
4.2. PARTICIPATION. Subject to the provisions of the Plan, the
Committee shall, from time to time and in its sole discretion, select from
among all eligible Employees, as specified in Section 4.1, those to whom Awards
shall be made and shall determine the nature, amount, terms and conditions of
each Award.
ARTICLE 5. CORPORATE ANNUAL PERFORMANCE PAY
5.1. GENERAL. Subject to the provisions of the Plan, the Committee may
award Corporate Annual Performance Pay to a Participant at any time and from
time to time in such amount and upon such terms and conditions as the Committee
may determine.
5.2. DETERMINATION OF CAPP INCENTIVE POOLS. Corporate Annual
Performance Pay shall be payable each year from two incentive pools, one of
which shall fund CAPP Awards solely to the Named Executive Officers (the "Named
Executive Officers' Incentive Pool") and the other of which shall fund CAPP
Awards solely to Participants other than the Named Executive Officers (the
"General Incentive Pool"). The amount of the Named Executive Officers'
Incentive Pool shall be determined by multiplying (a) a fixed base amount,
established by the Committee concurrent with establishment of performance
targets pursuant to Section 5.3, by (b) a performance percentage determined by
reference to the Company's achievement of the performance targets established
by the Committee pursuant to Section 5.3. The Committee shall determine the
amount of the General Incentive Pool in its discretion.
5.3. PERFORMANCE MEASURES AND TARGETS. The Committee shall establish
each year, within the first 90 days of such year, performance targets that must
be achieved in order for CAPP Awards to be payable to the Named Executive
Officers. Such performance targets shall be based upon one or more performance
measures, which the Committee shall select (concurrent with establishing each
year's performance targets) from among profits, net income (either before or
after taxes), share price, earnings per share, total stockholder return, return
on assets, return on equity, operating income, return on capital or
investments, or economic value added. At the same time the Committee selects
performance measures and specifies performance targets, the Committee shall
also determine the manner in which such performance measure(s) shall be
calculated or measured, including the extent to which such measure(s) shall be
adjusted to take into account certain factors over which Participants have no
or limited control, including, without limitation, changes in accounting
principles and extraordinary charges to income.
<PAGE> 6
5.4. DETERMINATION OF CAPP AWARDS TO NAMED EXECUTIVE OFFICERS. The
Committee shall specify each year, concurrent with establishing performance
measure(s) and targets pursuant to Section 5.3, the percentage of the Named
Executive Officers' Incentive Pool that shall be payable to each Named
Executive Officer as a CAPP Award for that year, subject to the maximum CAPP
Award limit specified in Section 3.4 and subject to the Committee's exercise of
negative discretion to adjust downward any such CAPP Award.
5.5. DETERMINATION OF CAPP AWARDS TO OTHER PARTICIPANTS. The Committee
shall determine the CAPP Award, if any, payable from the General Incentive Pool
to each Participant who is not a Named Executive Officer.
5.6. PAYMENT OF CAPP AWARDS. CAPP Awards shall be payable to
Participants at such time(s) and in cash or in Shares of equivalent value or in
some combination thereof, as the Committee shall determine.
5.7. TERMINATION OF EMPLOYMENT. The Committee shall determine if, and
the extent to which, any Participant shall have the right to receive payment of
a CAPP Award following termination of the Participant's employment with the
Company or any Subsidiary. Any determinations under this Section shall be made
in the sole discretion of the Committee, need not be uniform among all CAPP
Awards and may reflect distinctions based on the reasons for termination of
employment.
5.8. NONTRANSFERABILITY OF CAPP AWARD. No right to a CAPP Award may be
sold, transferred, pledged, assigned or otherwise alienated or hypothecated,
other than by will or by the laws of descent and distribution.
ARTICLE 6. INCENTIVE AND NONQUALIFIED STOCK OPTIONS
6.1. GENERAL. Subject to the provisions of the Plan, the Committee may
award Options to a Participant at any time and from time to time in such number
and upon such terms and conditions as the Committee may determine.
6.2. OPTION AWARD AGREEMENT. Each Award of an Option shall be
evidenced by an Award Agreement that shall specify the Option Price, the
duration of the Option, the number of Shares that may be purchased pursuant to
exercise of the Option and such other terms and conditions as the Committee may
determine. The Award Agreement also shall specify whether the Option is
intended to qualify as an "incentive stock option" within the meaning of, and
be governed by, Code Section 422 or a NQSO not intended to be treated as an
"incentive stock option" within the meaning of Code Section 422.
6.3. OPTION PRICE. The Option Price for each Award of an Option shall
be at least equal to 100 percent (100%) of the Fair Market Value of a Share on
the Option's date of grant.
<PAGE> 7
6.4. DURATION OF OPTIONS. Each Option shall expire at such time as the
Committee shall determine at the time of grant; provided, however, that no
Option shall be exercisable later than the 10th anniversary of the Option's
date of grant.
6.5. EXERCISE OF OPTIONS. Each Option shall be exercisable at such
time(s) and in such manner and subject to such conditions as the Committee
shall in each instance determine, which need not be the same for each Award or
for each Participant.
6.6. PAYMENT OF OPTION PRICE. The aggregate Option Price shall be
payable in full upon exercise of any Option either (a) in cash in the form of
currency or check or other cash equivalent acceptable to the Company; (b) by
tendering previously acquired, nonforfeitable, nonrestricted Shares having an
aggregate fair market value at the time of exercise equal to the aggregate
Option Price (provided that any Shares so tendered must have been owned by the
Participant for at least six (6) months prior to their tender); or (c) by a
combination of the foregoing methods. The Committee may permit a Participant
to satisfy the requirement of payment in cash from the proceeds of a sale
through a broker of some or all of the Shares to which the exercise relates (a
"cashless exercise"), subject to applicable securities laws restrictions, or by
any other means that the Committee determines to be consistent with the Plan's
purpose and applicable law.
6.7. PAYMENT OF SHARES OR PROCEEDS. As soon as practicable after
exercise of an Option is completed, the Company shall deliver the Shares
purchased to the Participant; provided, however, that if the Committee permits
cashless exercise of Options, a Participant may elect to receive the cash
proceeds from the cashless exercise in lieu of Shares.
6.8. TERMINATION OF EMPLOYMENT. Each Participant's Option Award
Agreement shall set forth if, and the extent to which, the Participant shall
have the right to exercise the Option following termination of the
Participant's employment with the Company or any Subsidiary. Such terms and
conditions shall be determined in the sole discretion of the Committee, need
not be uniform among all Option Awards and may reflect distinctions based on
the reasons for termination of employment.
6.9. NONTRANSFERABILITY OF OPTIONS. Except as otherwise provided in a
Participant's Option Award Agreement with respect to NQSOs, (a) ISOs and NQSOs
shall be exercisable during a Participant's lifetime only by the Participant
or, in the event of the Participant's legal incapacity, by the Participant's
legal guardian or representative acting in a fiduciary capacity on behalf of
the Participant under state law and court supervision, and (b) no ISO or NQSO
may be sold, transferred, pledged, assigned or otherwise alienated or
hypothecated, other than by will or by the laws of descent and distribution.
ARTICLE 7. PERFORMANCE SHARES AND PERFORMANCE UNITS
7.1. GENERAL. Subject to the provisions of the Plan, the Committee may
award Performance Shares and/or Performance Units to a Participant at any time
and from time to time in such number and upon such terms and conditions as the
Committee may determine.
<PAGE> 8
7.2. PERFORMANCE SHARES/UNITS AWARD AGREEMENT. Each Award of
Performance Shares and/or Performance Units shall be evidenced by an Award
Agreement that shall specify the initial value of such Performance Shares
and/or Performance Units, the time period during which preestablished
performance goals must be met (the "Performance Period"), the performance goals
upon which payment of such Performance Shares and/or Performance Units depends
(the "Performance Goals"), the number of Performance Shares and/or Performance
Units awarded and such other terms and conditions as the Committee may
determine.
7.3. INITIAL VALUE OF PERFORMANCE SHARES/UNITS. The initial value of
each Performance Share shall equal the Fair Market Value of a Share on the
Performance Share's date of grant. The Committee shall establish the initial
value of each Performance Unit at the time of grant.
7.4. DURATION OF PERFORMANCE SHARES/UNITS AWARDS. Each Award of
Performance Shares and/or Performance Units shall expire at the end of the
applicable Performance Period, without payment of the Performance Shares or
Performance Units, if the Performance Goals established for that Performance
Period have not been achieved during such Performance Period.
7.5. SATISFACTION OF PERFORMANCE GOALS. The Committee shall determine
at the end of each Performance Period if, and the extent to which, the
applicable Performance Goals have been achieved.
7.6. PAYMENT OF PERFORMANCE SHARES/UNITS. As soon as practicable after
the end of a Performance Period, if the applicable Performance Goals for that
Performance Period have been achieved (as determined by the Committee pursuant
to Section 7.5), the Company shall deliver to a Participant payment for such
Participant's Performance Shares and/or Performance Units in an amount
determined, as specified in such Participant's Performance Share and/or Unit
Award Agreement, on the last day of the Performance Period by reference to the
achievement of the applicable Performance Goals. The Committee may permit a
Participant to elect payment of the aggregate value of such Participant's
Performance Shares and/or Performance Units in cash or in Shares of equivalent
value or in some combination thereof, subject to the availability of Shares to
the Company. If, and to the extent that, dividends with respect to Shares are
declared or paid during the Performance Period, the Committee may direct
payment of dividend equivalents to a Participant in an amount equal to the
dividends that such Participant would receive or have received if such
Participant's Performance Shares were Shares; provided, however, that such
dividend equivalents shall be subject to the same restrictions as apply to
dividends payable with respect to Restricted Stock pursuant to Section 8.4.
7.7. TERMINATION OF EMPLOYMENT. Each Participant's Performance Share
and/or Unit Award Agreement shall set forth if, and the extent to which, the
Participant shall have the right to receive payment of Performance Shares
and/or Performance Units following termination of the Participant's employment
with the Company or any Subsidiary. Such terms and conditions shall be
determined in the sole discretion of the Committee, need not be uniform among
all Performance Share and/or Performance Unit Awards and may reflect
distinctions based on the reasons for termination of employment.
<PAGE> 9
7.8. NONTRANSFERABILITY OF PERFORMANCE SHARES/UNITS. Except as
otherwise provided in a Participant's Performance Share and/or Unit Award
Agreement, (a) all rights with respect to Performance Shares and/or Performance
Units shall be exercisable during a Participant's lifetime only by the
Participant or, in the event of the Participant's legal incapacity, by the
Participant's legal guardian or representative acting in a fiduciary capacity
on behalf of the Participant under state law or court supervision, and (b) no
Performance Shares or Performance Units may be sold, transferred, pledged,
assigned or otherwise alienated or hypothecated, other than by will or by the
laws of descent and distribution.
ARTICLE 8. RESTRICTED STOCK
8.1. GENERAL. Subject to the provisions of the Plan, the Committee may
award Restricted Stock to a Participant at any time and from time to time in
such number and upon such terms and conditions as the Committee may determine.
8.2. RESTRICTED STOCK AWARD AGREEMENT. Each Award of Restricted Stock
shall be evidenced by an Award Agreement that shall specify the restrictions
that limit transferability of the Restricted Stock and create a substantial
risk of forfeiture (the "Restrictions"), the time period during which such
Restrictions apply (the "Period of Restriction"), the number of Shares of
Restricted Stock awarded and such other terms and conditions as the Committee
may determine (which may, but are not required to, include a stipulated
purchase price for each Share of Restricted Stock).
8.3. ISSUANCE OF SHARES OF RESTRICTED STOCK. Certificates representing
Restricted Stock shall be issued on the Restricted Stock's date of grant in the
name of each Participant to whom the Committee awards such Restricted Stock.
Certificates so issued shall be retained by the Company or its designee during
the applicable Period of Restriction.
8.4. DIVIDENDS AND VOTING RIGHTS DURING PERIOD OF RESTRICTION. During
the applicable Period of Restriction, each Participant to whom the Committee
has awarded Restricted Stock may receive regular cash dividends, if any, paid
with respect to the Restricted Stock; provided, however, that the Committee may
apply any restrictions to such dividends that the Committee deems appropriate.
In the event that any dividend constitutes a "derivative security" or an
"equity security" within the meaning of Rule 16(a) of the General Rules and
Regulations promulgated under the Exchange Act, such dividend shall be subject
to a period of restriction equal to the remaining Period of Restriction
applicable to the Restricted Stock with respect to which the dividend has been
paid. Each Participant to whom the Committee has awarded Restricted Stock may
exercise full voting rights during the Period of Restriction with respect to
such Participant's Restricted Stock.
8.5. LAPSE OF RESTRICTIONS. Restrictions on Restricted Stock shall
lapse at such time(s) and in such manner and subject to such conditions as the
Committee shall in each instance
<PAGE> 10
determine, which need not be the same for each Award or for each Participant.
Restricted Stock shall become freely transferable by the Participant upon the
lapse of all Restrictions on such Restricted Stock.
8.6. TERMINATION OF EMPLOYMENT. Each Participant's Restricted Stock
Award Agreement shall set forth if, and the extent to which, Restrictions on a
Participant's Restricted Stock shall lapse following termination of the
Participant's employment with the Company or any Subsidiary. Such terms and
conditions shall be determined in the sole discretion of the Committee, need
not be uniform among all Restricted Stock Awards and may reflect distinctions
based on the reasons for termination of employment.
8.7. NONTRANSFERABILITY OF RESTRICTED STOCK. Except as otherwise
provided in a Participant's Restricted Stock Award Agreement, (a) all rights
with respect to Restricted Stock shall be available during a Participant's
lifetime only to the Participant or, in the event of the Participant's legal
incapacity, to the Participant's legal guardian or representative acting in a
fiduciary capacity on behalf of the Participant under state law or court
supervision, and (b) no Restricted Stock may be sold, transferred, pledged,
assigned or otherwise alienated or hypothecated, other than by will or by the
laws of descent and distribution, during the applicable Period of Restriction.
ARTICLE 9. STOCK APPRECIATION RIGHTS
9.1. GENERAL. Subject to the provisions of the Plan, the Committee may
award SARs to a Participant at any time and from time to time in such number
and upon such terms and conditions as the Committee may determine.
9.2. SAR AWARD AGREEMENT. Each Award of an SAR shall be evidenced by
an Award Agreement that shall specify the grant price of the SAR, the duration
of the SAR, the number of Shares to which the SAR pertains and such other terms
and conditions as the Committee may determine. The Award Agreement also shall
specify whether the SAR is a Freestanding SAR or a Tandem SAR.
9.3. GRANT PRICE. The grant price for each Award of a Freestanding SAR
shall equal the Fair Market Value of a Share on the Freestanding SAR's date of
grant. The grant price for each Award of a Tandem SAR shall equal the Option
Price of the related Option.
9.4. DURATION OF SARS. Each SAR shall expire at such time as the
Committee shall determine at the time of grant; provided, however, that no SAR
shall be exercisable later than the 10th anniversary of such SAR's date of
grant and provided, further, that a Tandem SAR awarded in connection with an
ISO shall expire no later than the date of expiration of the related ISO.
9.5. EXERCISE OF SARS. Each SAR shall be exercisable at such time(s)
and in such manner and subject to such conditions as the Committee shall in
each instance determine, which need not be the same for each Award or for each
Participant. A Tandem SAR may be exercised
<PAGE> 11
for all or a portion of the Shares subject to the related Option upon the
surrender of the right to exercise the equivalent portion of the related
Option; provided, however, that a Tandem SAR may be exercised only with respect
to the Shares with respect to which its related Option is then exercisable and
provided, further, that a Tandem SAR awarded in connection with an ISO may be
exercised only when the Fair Market Value of the Shares subject to the related
ISO exceeds the ISO's Option Price.
9.6. PAYMENT OF SHARES OR PROCEEDS. As soon as practicable after
exercise of an SAR, the Company shall deliver to the Participant payment in an
amount equal to the aggregate appreciation in value of the Shares with respect
to which the SAR was exercised, such appreciation to be measured by the
difference between the aggregate grant price and the aggregate fair market
value of such Shares on the date of exercise; provided that, with respect to a
Tandem SAR awarded in connection with an ISO, the value of the amount payable
upon exercise of the Tandem SAR may not exceed 100 percent (100%) of the
difference between the aggregate Option Price of the related ISO and the
aggregate fair market value of the Shares subject to the related ISO at the
time the Tandem SAR is exercised. The Committee may permit a Participant to
elect payment of the aggregate appreciation in cash or in Shares of equivalent
value or in some combination thereof, subject to the availability of Shares to
the Company.
9.7. TERMINATION OF EMPLOYMENT. Each Participant's SAR Award Agreement
shall set forth if, and the extent to which, the Participant shall have the
right to exercise the SAR following termination of the Participant's employment
with the Company or any Subsidiary. Such terms and conditions shall be
determined in the sole discretion of the Committee, need not be uniform among
all SAR Awards and may reflect distinctions based on the reasons for
termination of employment.
9.8. NONTRANSFERABILITY OF SARS. Except as otherwise provided in a
Participant's SAR Award Agreement, (a) all SARs shall be exercisable during a
Participant's lifetime only by the Participant or, in the event of the
Participant's legal incapacity, by the Participant's legal guardian or
representative acting in a fiduciary capacity on behalf of the Participant
under state law or court supervision, and (b) no SAR may be sold, transferred,
pledged, assigned or otherwise alienated or hypothecated, other than by will or
by the laws of descent and distribution.
ARTICLE 10. COMPLIANCE WITH APPLICABLE LAWS, RULES AND REGULATIONS
10.1. GENERAL. Awards and Shares issued or transferred pursuant to
Awards 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.
10.2. RESTRICTIONS ON SHARES. The Committee may impose such
restrictions, including restrictions on transferability, on Awards and/or
Shares issued or transferred pursuant to any Award as the Committee may deem
advisable, including, without limitation, restrictions under United States
federal securities laws or other applicable securities laws, under the
requirements of
<PAGE> 12
any securities exchange or market upon which Shares are then listed and/or
traded and/or under any blue sky or state securities laws applicable to Shares.
10.3. RESTRICTIONS ON INSIDERS. With respect to Insiders, transactions
under the Plan are intended to comply with all applicable conditions of Rule
16b-3 of the General Rules and Regulations promulgated under the Exchange Act.
To the extent any provision of the Plan or action by the Committee fails to so
comply, such provision or action shall be deemed null and void, to the extent
permitted by law and deemed advisable by the Committee.
ARTICLE 11. DEFERRALS
The Committee may permit or require a Participant to defer such
Participant's receipt of the payment of cash or the delivery of Shares that
would otherwise be due to such Participant under the Plan. If any such
deferral election is required or permitted, the Committee shall establish rules
and procedures for such payment deferrals.
ARTICLE 12. ADMINISTRATION
12.1. DESIGNATION OF COMMITTEE. The Plan shall be administered by a
committee consisting of not fewer than two Non-Employee Directors, each of whom
qualifies as an "outside director" within the meaning of Code Section 162(m),
which committee shall be the Compensation Committee of the Board (provided that
its members so qualify) unless the Board specifically appoints a different
committee to administer the Plan.
12.2. AUTHORITY OF THE COMMITTEE. Except as limited by law or by the
Certificate of Incorporation or Bylaws of the Company, and subject to the
provisions of the Plan, the Committee shall have full power and authority, in
its sole discretion, to (a) select Participants from among all eligible
Employees and determine the nature, amount, terms and conditions of Awards in a
manner consistent with the Plan; (b) make Awards to Participants; (c) construe
and interpret the Plan and any agreement or instrument entered into under the
Plan; (d) adopt, amend, waive or rescind such rules and regulations as the
Committee may deem appropriate for the proper administration or operation of
the Plan; (e) subject to the provisions of Article 13, amend the terms and
conditions of any outstanding Award to the extent such terms and conditions are
within the discretion of the Committee as provided in the Plan; and (f) make
all other determinations and take all other actions as may be necessary,
appropriate or advisable for the administration or operation of the Plan. As
permitted by law, the Committee may delegate its authority, or any part
thereof, as it deems necessary, appropriate or advisable for proper
administration or operation of the Plan; provided, however, that no such
delegation shall be permitted if, and to the extent that, such delegation would
cause an Award designed to qualify for the Performance-Based Exception to fail
to so qualify.
12.3. DECISIONS BINDING. All determinations, interpretations,
decisions or other actions made or taken by the Committee pursuant to the
provisions of the Plan and all related orders and resolutions of the Board
shall be final, conclusive and binding for all purposes and upon all
<PAGE> 13
persons, including without limitation the Company, its stockholders, Employees,
Participants, and Participants' estates and beneficiaries.
ARTICLE 13. AMENDMENT, ADJUSTMENT AND TERMINATION
13.1. AMENDMENT AND TERMINATION. Subject to Section 13.3, the Board
may at any time, and from time to time, in its sole discretion alter, amend,
suspend or terminate the Plan in whole or in part for any reason or for no
reason; provided, however, that no amendment or other action that requires
stockholder approval in order for the Plan to continue to comply with
applicable law shall be effective unless such amendment or other action shall
be approved by the requisite vote of stockholders of the Company entitled to
vote thereon.
13.2. ADJUSTMENT OF AWARDS. Subject to Section 13.3, the Committee may
make adjustments to Awards and in the terms and conditions of, and the criteria
included in, Award Agreements in recognition of (a) unusual or nonrecurring
events (including, without limitation, the events described in Section 3.3)
affecting the Company or the financial statements of the Company, and/or (b)
changes in applicable laws, regulations or accounting principles whenever the
Committee determines that such adjustments are appropriate; provided, however,
that no such adjustment shall be made or authorized to the extent that such
adjustment or authority would cause any Award designed to qualify for the
Performance-Based Exception to fail to so qualify.
13.3. AWARDS PREVIOUSLY GRANTED. No alteration, amendment, suspension
or termination of the Plan shall adversely affect in any material way any Award
previously made under the Plan without the written consent of the affected
Participant; provided, however, that the Committee may modify, without a
Participant's consent, any Award previously made to a Participant who is a
foreign national or employed outside the United States to recognize differences
in local law, tax policy or custom.
ARTICLE 14. MISCELLANEOUS
14.1. NO RIGHTS TO EMPLOYMENT. Nothing in the Plan shall interfere
with or limit in any way the right of the Company to terminate the employment
of any Employee, whether or not a Participant, at any time; nor shall anything
in the Plan be deemed to create or confer upon any Employee, whether or not a
Participant, or other individual, any rights to employment of any kind or
nature whatsoever for any period of time or at any particular rate of
compensation, including, without limitation, any right to continue in the
employ of the Company.
14.2. NO RIGHTS TO PARTICIPATION. No Employee, whether or not a
Participant, or other individual shall have any right to be selected to receive
an Award or, having been so selected, to be selected to receive a future Award;
nor shall anything in the Plan be deemed to create or confer upon any Employee,
whether or not a Participant, or other individual any such right.
14.3. WITHHOLDING. The Company shall have the power and the right to
deduct or withhold from any amount to be paid to any Participant or beneficiary
hereunder, or require such
<PAGE> 14
a Participant or beneficiary to remit to the Company, an amount sufficient to
satisfy any federal, state and/or local taxes, domestic or foreign, required by
applicable law or regulation to be withheld with respect to any taxable event
arising as a result of the Plan. The Company may permit a Participant or
beneficiary to elect to satisfy any withholding requirement with respect to an
Award, in whole or in part, either by surrendering to the Company (either
directly or through its designee) a portion of the Shares issued or transferred
to the Participant or beneficiary pursuant to that Award or by tendering
previously acquired, nonforfeitable, nonrestricted shares (provided that any
Shares so tendered by a Participant must have been owned by the Participant for
at least six (6) months prior to their tender); provided, however, that any
such election by an Insider shall be subject to express approval by the
Committee if such approval is then required by Rule 16b-3 of the General Rules
and Regulations promulgated under the Exchange Act. To the extent that a
Participant or beneficiary satisfies any withholding requirement by
surrendering or tendering Shares, the Shares so surrendered or tendered shall
be credited against any such withholding requirement at the fair market value
per Share on the date of such surrender or tender. All withholding elections
shall be irrevocable, made in writing and signed by the Participant, and shall
be subject to any restrictions or limitations that the Committee deems
appropriate.
14.4. DESIGNATION OF BENEFICIARY. A Participant may designate a
beneficiary or beneficiaries (who may be named contingently or successively)
who, in the event of the Participant's death prior to payment, exercise or
lapse of restrictions with respect to any Awards to such Participant, shall be
entitled to exercise any unexercised Options or SARs, receive any Restricted
Stock and receive payment of any CAPP Award, Performance Shares and/or
Performance Units, subject in each case to the terms and conditions of the
Participant's Award Agreement, as applicable. Any such beneficiary designation
shall be made by the Participant in writing (on the appropriate form as
provided by the Company) and shall automatically revoke all prior designations
by such Participant. The Participant may, at any time and from time to time,
change or revoke such designation. A beneficiary designation, or revocation of
a prior beneficiary designation, will be effective only if it is signed by the
Participant and received by the Company prior to the Participant's death. If
the Participant does not designate a beneficiary or all beneficiaries die prior
to payment, exercise or lapse of restrictions with respect to an Award, the
Participant's estate shall be the beneficiary. If a beneficiary dies after at
least partial payment, exercise, or lapse of restrictions with respect to an
Award, the beneficiary's estate shall be the beneficiary of any remaining
payments or unexercised rights.
14.5. SUCCESSORS. All obligations of the Company under the Plan with
respect to Awards 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.
14.6. SEVERABILITY. In the event any provision of the Plan shall be
held illegal or invalid for any reason, the illegality or invalidity shall not
affect the remaining parts of the Plan, and the Plan shall be construed and
enforced as though the illegal or invalid provision had not been included.
<PAGE> 15
14.7. APPROVAL BY STOCKHOLDERS. Notwithstanding any other provision of
the Plan to the contrary, under no circumstances shall any Award to a Named
Executive Officer, or to an individual whom the Committee considers likely to
become a Named Executive Officer, be made under the Plan on or after the date
of the first annual meeting of the Company's stockholders following the
Effective Date unless the Company's stockholders approve the material terms of
the Plan at such meeting.
14.8. GOVERNING LAW. To the extent not preempted by United States
federal law or other comparable law, the Plan and all agreements hereunder,
including Award Agreements, shall be construed in accordance with and governed
by the laws of the State of Texas.
IN WITNESS WHEREOF, this document is executed as of this 23rd day of
May, 1997.
ASSOCIATES FIRST CAPITAL CORPORATION
By:
--------------------------------
Name: James B. Watts
------------------------------
Title: Executive Vice President
-----------------------------
<PAGE> 1
EXHIBIT 10.22
ASSOCIATES FIRST CAPITAL CORPORATION
INCENTIVE COMPENSATION PLAN
STOCK OPTION AWARD AGREEMENT - 1998
You have been selected to become a Participant in the Associates First Capital
Corporation Incentive Compensation Plan (the "Plan") for 1998, through this
grant of a nonqualified stock option (the "Stock Option" or "Option") 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:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
Percentage Number of Shares Available for Cumulative Number of Shares
Date Exercisable Purchase as of this Date(*) Available for Purchase(*)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
33 1/3% Shares Shares
---------------------- ---------------------------
- ----------------------------------------------------------------------------------------------------------------
66 2/3% Shares Shares(**)
---------------------- ---------------------------
- ----------------------------------------------------------------------------------------------------------------
100% Shares Shares(**)
---------------------- ---------------------------
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
THIS AGREEMENT, effective as of the Date of Grant set forth above,
represents the grant of an Option to purchase shares of the Class A Common
Stock ("Shares") of Associates First Capital Corporation, a Delaware
corporation (the "Company"), to the Participant named above, pursuant to the
provisions of the Plan.
- -----------------------------------
(*) Number of Shares may reflect rounding to extent necessary to avoid
fractional Shares.
(**) Numbers listed assume no exercise has yet occurred under this Option.
<PAGE> 2
The Plan provides a description of certain terms and conditions
governing the Option. In the event of 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 Participant is hereby granted an Option to
purchase the number of Shares set forth above, at the stated Option
Price (as set forth on page 1 of this Agreement), 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 otherwise provided in this
Agreement, the Participant may exercise this Option as provided in
Section 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 (as set
forth on page 1 of this Agreement).
This Option may be exercised in whole or in part, but not for less than
25 Shares at any one time, unless fewer than 25 Shares then remain
subject to the Option, and the Option is then being exercised as to all
such remaining Shares. The Option may be exercised only for full
Shares; no Option is exercisable for fractional Shares.
3. PROCEDURE FOR EXERCISE OF OPTION. Exercise of this Option may be
initiated on any business day by delivery of a notice of exercise (on
such form as may be specified and provided by the Company or its
designee) (the "Notice of Exercise") to the Company or its designee, or
by such other method as the Company specifies. The Company may at any
time change the time and/or manner in which the Option may be exercised.
(a) Payment of Option Price: The Option Price shall be payable (i)
in cash in the form of currency or check or other cash equivalent
acceptable to the Company; (ii) by tendering previously acquired,
nonforfeitable, nonrestricted Shares (provided that any Shares so
tendered must have been owned by the Participant for at least six
months prior to their tender); or (iii) by a combination of the
foregoing methods. The requirement of payment in cash may be
satisfied through a "cashless exercise" as described in Section
3(b).
(b) Cashless Exercise: A Participant may direct, through the
Company's designee or in such other manner as the Company may
specify from time to time, a broker that is a member of the
National Association of Securities Dealers, Inc. to sell a
sufficient number of the Shares being purchased pursuant to the
exercise so that the net proceeds of the sale transaction will at
least equal the aggregate Option Price, plus interest (if any) at
the applicable federal rate (as "applicable federal rate" is
defined in Section 1274 of the Code) for the period from the date
of exercise to the date of payment, and to deliver the aggregate
Option Price, plus such interest (if any), to the Company not
later than the date on which the sale
2
<PAGE> 3
transaction will settle in the ordinary course of business (such
a broker-assisted transaction to be referred to herein as a
"cashless exercise").
(c) Share Price: Any Share purchased (and sold, in the case of a
cashless exercise) pursuant to exercise of the Option shall be
valued on the basis of such Share's fair market value as of the
date on which exercise of the Option is completed (or, if
exercise of the Option is completed over a period of more than
one day, on the basis of the average fair market value during
such period). Any Share tendered by the Participant in payment of
all or any part of the Option Price shall be valued on the basis
of such Share's fair market value as of the date on which such
Share is exchanged in order to effectuate exercise of the Option.
(d) Delivery to Participant: As soon as practicable following the
date on which the purchase (and sale, in the case of a cashless
exercise) of Shares pursuant to the Option will settle in the
ordinary course of business, the Company shall cause, in
accordance with the Participant's election and in any case net of
transaction fees (if any) and tax withholding (if applicable
pursuant to Section 3(e)), the following to occur:
(i) Certificates for the Shares purchased to be delivered to
the Participant;
(ii) The number of Shares purchased to be credited to a
brokerage account specified by the Participant on the
Notice of Exercise; or
(iii) In the event of a cashless exercise, any proceeds of the
sale transaction remaining after delivery to the Company
of the aggregate Option Price (plus any interest, as
described in Section 3(b)) to be delivered to the
Participant in the manner specified by the Participant on
the Notice of Exercise.
If a Participant elects either (i) or (ii), to the extent such
Participant has elected a cashless exercise of the Option, the
number of Shares subject to this Section 3(d) shall be only the
number of Shares remaining after the sale transaction described
in Section 3(b).
(e) Withholding: If the Company is required by law to withhold any
federal, state, local or foreign taxes in connection with
exercise of an Option, the Participant shall either (i) pay such
taxes, in addition to the Option Price, in conjunction with
electing exercise of the Option or (ii) elect either (A) to have
such taxes withheld from any cash payment of proceeds pursuant to
a cashless exercise or (B) to satisfy all or any part of any such
withholding obligation by surrendering to the Company (either
directly or through its designee) a portion of the Shares issued
or transferred to the Participant pursuant to exercise of the
Option. To the extent that a Participant elects to meet any
withholding obligation by surrendering Shares, the Shares so
surrendered shall be credited against any such withholding
obligation at the fair market value per Share on the date of such
surrender; provided, however, if the Participant is subject to
Section 16 of the Exchange Act, such election shall be subject to
approval by the Committee if such approval is then
3
<PAGE> 4
required by Rule 16b-3 of the General Rules and Regulations
promulgated under the Exchange Act. All withholding elections
shall be irrevocable.
4. TERMINATION OF EMPLOYMENT.
(a) By Retirement, Disability or death: In the event of a
Participant's termination of employment due to Retirement,
Disability or death ("Retirement" and "Disability" 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. For purposes of this
Agreement, termination of a Participant's employment due to
"Retirement" shall mean a termination of employment with the
Company on or after such date as the Participant is eligible for
a pension under the Company's defined benefit pension plan as
then in effect. The term "Disability" when used herein shall
mean complete and total disability as determined under the
Company's long-term disability plan as in effect at the time of
such determination. In the event of the Participant's death
prior to exercise of this Option in whole, the beneficiary
designated or deemed to be designated pursuant to Section 8
hereof or, if such beneficiary is an estate, the executor or
administrator of the estate 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 as
though the Participant had remained employed by the Company. 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. Notwithstanding the foregoing,
if at any time the Company ceases to be a Ford Subsidiary, the
preceding sentence shall no longer be given effect, and any
Participant who previously had transferred to Ford or a Ford
Subsidiary and remains employed by Ford or a Ford Subsidiary as
of the date on which the Company ceases to be a Ford Subsidiary
shall be subject to the provisions of Section 4(e) as though such
Participant had terminated employment (without regard to the
reasons for termination of employment) as of the date on which
the Company ceases to be a Ford Subsidiary.
(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 (as
hereinafter defined), 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 this Agreement, a termination by the Company for
"Cause" shall mean a termination resulting from (a) action by the
Participant involving willful malfeasance, (b) the Participant's
unreasonable neglect or refusal to perform such Participant's
duties for the Company, (c) the Participant being convicted of a
felony, (d) the Participant 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
4
<PAGE> 5
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 and under employment
agreement: In the event that the Participant's employment is
terminated by the Company other than for Cause, including by
Constructive Termination in connection with a Change in Control
(if and to the extent applicable under the Participant's
employment agreement with the Company, if any and as described
below), the Option shall become vested if so, and to the extent,
provided under the Participant's employment agreement with the
Company, if any, as such agreement may be amended from time to
time. If the Option becomes vested pursuant to the foregoing,
the Option shall be exercisable to the extent permitted under the
provisions hereof until the Date of Expiration (as set forth on
page 1 of this Agreement). For purposes of this Section 4(d),
"Change in Control" and "Constructive Termination" shall have the
same meanings as provided under the Participant's employment
agreement with the Company, if any, as such agreement may be
amended from time to time. Notwithstanding the foregoing, in the
event that (i) the Participant's employment is terminated by the
Company and (ii) no employment agreement between the Participant
and the Company is in effect as of the date of such termination
of employment, this Section 4(d) shall not apply, and the
Participant's rights under this Agreement shall be governed by
the provisions of this Agreement without regard to this Section
4(d).
(e) By termination other than for Cause and not under employment
agreement: In the event of a termination of the Participant's
employment for reasons other than Retirement, Disability, death,
transfer to Ford or a Ford Subsidiary, termination by the Company
for Cause or resignation, the portion of the Option that is vested
as of the date of termination of active employment may be
exercised to the extent permitted under the provisions hereof
until the earlier of (i) the Date of Expiration (as set forth on
page 1 of this Agreement) or (ii) the close of business on the
90th day following the date of termination of employment. No
other rights under this Agreement shall continue in effect or
continue to accrue from the date of termination forward.
Notwithstanding the foregoing, in the event that (i) the
Participant's employment is terminated by the Company under
circumstances described in Section 4(d) and (ii) an employment
agreement between the Participant and the Company is in effect as
of the date of such termination of employment, this Section 4(e)
shall not apply, and the Participant's right under this Agreement
shall be governed by the provisions of Section 4(d) and not by
this Section 4(e).
5. EFFECT OF COMPETITIVE ACTIVITY OR INIMICAL CONDUCT.
(a) 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 (as set forth on page 1 of this Agreement) 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
Company Subsidiary (as hereinafter defined) or affiliate thereof.
The term "Company Subsidiary" when used herein shall mean any
5
<PAGE> 6
corporation a majority of the voting stock of which is owned
directly or indirectly by the Company.
(b) In the event of the Participant's nonfulfillment of the condition
set forth in Section 5(a), 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, in its sole judgment, that
there shall not have been and will not be any substantial adverse
effect upon the Company or any Company Subsidiary or affiliate
thereof by reason of the nonfulfillment of such condition.
(c) 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 Company
Subsidiary or affiliate thereof. Conduct that constitutes
engaging in an activity that is directly or indirectly in
competition with any activity of the Company or any Company
Subsidiary or affiliate thereof shall be governed by Sections
5(a) and 5(b) and shall not be subject to any determination under
this Section 5(c).
6. RESTRICTIONS ON EXERCISE AND TRANSFER. This Option (a) shall be
exercisable during the Participant's lifetime only by the Participant
or, in the event of the Participant's legal incapacity, by the
Participant's legal guardian or representative acting in a fiduciary
capacity on behalf of the Participant under state law and court
supervision, and (b) may not be sold, transferred, pledged, assigned or
otherwise alienated or hypothecated, other than by will or by the laws
of descent and distribution.
7. RECAPITALIZATION. In the event of any change in capitalization of the
Company (such as a stock split, stock dividend or combination of
shares), corporate transaction (such as any merger, consolidation,
separation, including a spin-off, or other distribution of stock or
property of the Company), reorganization (whether or not such
reorganization comes within the definition of such term in Code Section
368) or partial or complete liquidation of the Company, an adjustment
may be made in the number and class of Shares subject to this Option, as
well as the Option Price, as may be determined to be appropriate and
equitable by the Committee, in its sole discretion, to reflect such
change in capitalization, corporate transaction, reorganization or
partial or complete liquidation.
8. BENEFICIARY DESIGNATION. The Participant may designate a beneficiary or
beneficiaries (who may be named contingently or successively) who, in
the event of the Participant's death prior to exercise of this Option in
whole, shall be entitled to exercise any unexercised portion of the
Option. Any such beneficiary designation shall be made by the
Participant in writing (on the appropriate form as provided by the
Company) and shall automatically revoke all prior designations by the
Participant. The Participant may, at any time and from time to time,
change or revoke such designation. A beneficiary designation, or
revocation of a prior beneficiary designation, shall be effective only
if it is signed by the Participant and received by the Company prior to
the Participant's death. If the Participant does not designate a
beneficiary or all beneficiaries die prior to exercise of any
unexercised portion of the Option, the Participant's estate shall be
deemed to be the beneficiary. If a beneficiary dies after having
exercised at least a portion of the Option, the beneficiary's estate
shall be deemed to be the beneficiary of any remaining unexercised
portion of the Option.
6
<PAGE> 7
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
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. Nothing in this Agreement shall interfere with
or limit in any way the right of the Company to terminate the employment
of the Participant at any time, with or without reason; nor shall
anything in this Agreement be deemed to create or confer upon the
Participant or any other individual any rights to employment of any kind
or nature whatsoever for any period of time or at any particular rate of
compensation, including, without limitation, any right to continue in
the employ of the Company.
11. COMPLIANCE WITH LAW. The Company shall make reasonable efforts to
comply with all applicable federal and state securities laws or other
applicable securities laws; provided, however, notwithstanding any other
provision of this Agreement, the Option shall not be exercisable if the
exercise thereof would result in a violation of any such law. The
Committee may impose such restrictions, including restrictions on
transferability, on any Shares acquired pursuant to the exercise of this
Option as the Committee may deem advisable, including, without
limitation, restrictions under United States federal securities laws or
other applicable securities laws, under the requirements of any
securities exchange or market upon which such Shares are then listed
and/or traded and/or under any blue sky or state securities laws
applicable to Shares.
12. 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. 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) Pursuant to the terms of the Plan, (i) the Board may at any time,
and from time to time, in its sole discretion alter, amend,
suspend or terminate the Plan in whole or in part for any reason
or for no reason, and (ii) the Committee may make adjustments to
this Option and Agreement in recognition of unusual or
nonrecurring events affecting the Company or the financial
statements of the Company and/or changes in applicable laws,
regulations or accounting principles whenever the Committee
determines that such adjustments are appropriate; provided,
however, that no alteration, amendment, suspension or termination
of the Plan shall adversely affect in any material way the
Participant's vested rights under this Agreement without the
written consent of the Participant. Notwithstanding the
foregoing, the Committee may modify, without the Participant's
consent, this Option and Agreement to recognize differences in
local law, tax policy or custom if the Participant is a foreign
national or employed outside the United States.
7
<PAGE> 8
(c) The Participant agrees to take all steps necessary to comply with
all applicable provisions of federal and state securities law and
other applicable securities laws 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 United States federal law or other
comparable law, this Agreement shall be construed in accordance
with and governed by the laws of the State of Texas.
(g) The grant of the Option to the Participant is completely
discretionary. Neither the Participant nor any other individual
shall have any right to be selected to receive a grant under the
Plan or, having been so selected, to be selected to receive a
future grant; nor shall anything in this Agreement create or
confer, or be deemed to create or confer, upon any Employee or
other individual any such right.
IN WITNESS WHEREOF, this Agreement is executed effective as of the Date
of Grant.
ASSOCIATES FIRST CAPITAL CORPORATION
By:
---------------------------------
Michael E. McGill,
Executive Vice President
The undersigned Participant hereby acknowledges receipt of this Agreement and
accepts the Option subject to the applicable terms and conditions set forth
herein and in the Plan.
Participant's Signature:________________________ Date:_______________________
Note: Please sign both copies of this Agreement, keep one copy for your
records, and return the other signed original to:
Compensation Committee
c/o John W. Lee
Associates First Capital Corporation
P.O. Box 660237
Dallas, TX 75266-0237
8
<PAGE> 1
EXHIBIT 10.23
ASSOCIATES FIRST CAPITAL CORPORATION
LONG-TERM EQUITY COMPENSATION PLAN
RESTRICTED STOCK AWARD AGREEMENT
You have been selected to be a Participant in the Associates First Capital
Corporation Long-Term Equity Compensation Plan (the "Plan"), through this grant
of shares of restricted stock (hereinafter referred to as the "Restricted
Stock"), as specified below:
PARTICIPANT:
DATE OF GRANT:
NUMBER OF SHARES OF RESTRICTED STOCK GRANTED:
DATE OF LAPSE OF RESTRICTIONS:
THIS AGREEMENT, effective as of the Date of Grant set forth above,
represents the grant of shares of Restricted Stock 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 an conditions governing
the Restricted Stock. If there is any inconsistency between the terms of the
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 here to agree as follows:
1. GRANT OF RESTRICTED STOCK. The Company hereby grants to the
Participant the number of shares of Restricted Stock set forth above, subject
to restrictions until the Date of Lapse of Restrictions, in the manner and
subject to the terms and conditions of the Plan and this Agreement. Subject to
Section 5 herein, this Restricted Stock is awarded on the condition that
Participant remain in the employ of the Company from the Date of Grant through
(and including) the Date of Lapse of Restrictions, as specified above.
However, neither such condition nor the award of this Restricted Stock
shall impose upon the Company any obligation to retain Participant in his or
her employ for any given period or upon any specific terms of employment.
2. CERTIFICATE LEGEND. Each certificate representing Shares of
Restricted Stock granted pursuant to the Plan shall bear the following legend:
"The sale or other transfer of the shares of stock represented by
this certificate, whether voluntary, involuntary, or by operation
of law, is subject to certain restrictions on transfer set forth
in the Long-Term Equity Compensation Plan of Associates First
Capital Corporation, and any rules and administrative
interpretations adopted pursuant to such Plan, and a Restricted
Stock grant dated_______________________." A copy of the
1
<PAGE> 2
Plan, such rules, and such Restricted Stock grant may be obtained
from the Secretary of Associates First Capital Corporation.
3. REMOVAL OF RESTRICTIONS. Except as otherwise provided in
the Plan, shares of Restricted Stock granted under this Agreement shall become
freely transferable by Participant after the last day of the Period of
Restriction. Once the Shares are released from the restrictions, Participant
shall be entitled to receive certificates representing the Shares which have
vested, and to have the legend required by paragraph 2 of this Agreement
removed from his or her Common Stock certificate.
4. VOTING RIGHTS AND DIVIDENDS. During the Period of
Restriction, Participant may exercise full voting rights and is entitled to
receive all dividends and other distributions paid with respect to the
Restricted Stock while they are held. If any such dividends or distributions
are paid in shares of Common Stock of the Company, the shares shall be subject
to the same restrictions on transferability as the shares of Restricted Stock
with respect to which they were paid.
5. TERMINATION OF EMPLOYMENT:
(a) By Retirement, Disability, or death: In the event of a
Participant's Retirement, Disability, or death, the
Restricted Stock shall become vested during the applicable
periods in accordance with Articles 1 and 3 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 Holder, the executor or administrator
of the estate of the descendent or the person or persons
to whom the Restricted Stock 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 the Restricted Stock, when vested, in
accordance with the provisions of Articles 1 and 3 hereof.
(b) By transfer to Ford or Subsidiaries: In the event the
Participant transfers to Ford Motor Company ("Ford") or a
Ford Subsidiary (as hereinafter defined) the Restricted
Stock shall continue in effect and shall become vested
during the applicable periods in accordance with Articles
1 and 3 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, all shares of Restricted Stock not vested shall
be forfeited effective as of the date of such resignation
or termination. For purposes of the Plan, a termination by
the Company for Cause shall include termination resulting
from (i) acts of insubordination, (ii) embezzlement,
attempted embezzlement, theft of property or attempted
theft of property, whether or not a criminal action
relating thereto is initiated by the Company, (iii)
conviction of a felony or any crime involving moral
turpitude, (iv) material breach of any employment
agreement or condition of employment with the Company, or
(v) violation of Company policy covering Standards of
Corporate Conduct.
2
<PAGE> 3
6. EFFECT OF COMPETITIVE ACTIVITY OR INIMICAL CONDUCT. Anything
contained herein to the contrary notwithstanding, the right of the Participant
to shares of unvested Restricted Stock following termination of the
Participant's employment with the Company shall remain effectively only if,
during the entire period from the date of the Participant's termination to the
date of such exercise, the participant shall have earned out the Restricted
Stock 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 shares
of unvested Restricted Stock shall cease; provided, however, that the
nonfulfillment of such condition may at any time (whether before, at the time
of or subsequent to termination of the Participant's employment) be waived by
the Committee upon its determination that in its sole judgement there shall not
have been and will not be any substantial adverse effect upon the Company or
any subsidiary of affiliate thereof by reason of the nonfulfillment of such
condition.
Anything contained in the Plan to the contrary notwithstanding, the
right of the Participant to shares of unvested Restricted Stock following
termination of the Participant's employment with the Company shall cease on and
as of the date of which it has been determined by the Committee that the
Participant at any time (whether before or subsequent to termination of the
Holder's employment) 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 6 and shall not be subject
to any determination under this paragraph.
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 of Restricted
Stock subject to this award, may be equitably adjusted by the Committee, in its
sole discretion, to prevent dilution or enlargement of rights.
8. BENEFICIAL 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
his or her 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, benefits remaining unpaid at
the Participant's death shall be paid to 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 Award
Agreement until such time as the shares of Restricted Stock have vested, and
the Shares have been issued and delivered to him or her.
3
<PAGE> 4
10. NO RIGHT OF EMPLOYMENT. This Award Agreement shall not
confer upon the Participant any right to continuation of employment by the
Company, nor shall this Award Agreement interfere in any way with the Company's
right to terminate the Participant's employment at any time.
11.1 MISCELLANEOUS.
(a) This Award 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 this Award Agreement 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 a administer, construe, and make all
determinations necessary or appropriate to the
administration of the Plan and this Award Agreement, all
of which shall be binding upon the Participant.
(b) With approval of the Board, the Committee may 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.
(e) All obligations of the Company under the Plan and this
Agreement, with respect to this Award Agreement, 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 Delaware.
4
<PAGE> 5
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed as of the Date of Grant.
Associates First Capital Corporation
By:
--------------------------------
The foregoing award of shares of Restricted Stock hereby is accepted on the
terms and considerations set forth herein and in the Plan.
Participant's Signature:
-------------------------
Note: Please sign one copy of this agreement and mail it immediately to:
Compensation Committee
c/o Mr. John W. Lee
Associates First Capital Corporation
P.O. Box 660237
Dallas, TX 75266-0237
Keep the other copy for your records.
5
<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
----------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Fixed Charges (a)
Interest expense............................. $2,775.2 $2,456.0 $2,177.9 $1,657.3 $1,421.7
Implicit interest in rent.................... 20.3 17.1 13.8 11.7 10.8
-------- -------- -------- -------- --------
Total fixed charges.................. $2,795.5 $2,473.1 $2,191.7 $1,669.0 $1,432.5
======== ======== ======== ======== ========
Earnings (b)................................... $1,640.0 $1,404.6 $1,198.1 $1,017.4 $ 821.3
Fixed charges.................................. 2,795.5 2,473.1 2,191.7 1,669.0 1,432.5
-------- -------- -------- -------- --------
Earnings, as defined......................... $4,435.5 $3,877.7 $3,389.8 $2,686.4 $2,253.8
======== ======== ======== ======== ========
Ratio of Earnings to Fixed Charges............. 1.59 1.57 1.55 1.61 1.57
======== ======== ======== ======== ========
</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 of Incorporation
<S> <C>
Associates First Capital Corporation Delaware
Subsidiaries (Designated by "A "preceding the name of the corporation)
A. Associates Credit Card Services, Inc. Delaware
Subsidiaries
Associates Credit Card Receivables Corp. Delaware
Voyager Fleet Systems, Inc. Delaware
A. Associates Housing Finance, LLC Delaware
A. Associates Housing Finance Services, Inc. Delaware
Subsidiaries
Associates Home Finance Services, Inc. Delaware
A. Associates Information Services, Inc. Delaware
A. Associates National Bank (Delaware) N.B.A.
A. Associates World Capital Corporation Delaware
A. Associates International Holdings Corporation New York
A. Fleetwood Credit Corp. California
Subsidiaries
Fleetwood Credit Receivables Corp. California
A. Associates Capital Corporation of Canada Canada
A. AIC Associates Canada Holdings, Inc. Canada
Subsidiaries
AIC Corporation Japan
A. Associates Corporation of North America Delaware
Subsidiaries (Designated by "B " preceding the name of the corporation)
B. Associates Corporation of North America (A Texas Corporation) Texas
B. AFC Securities Inc. Delaware
B. Associates Commercial Corporation of Delaware Delaware
B. Associates Credit Services, Inc. Delaware
B. Associates Capital Bank, Inc. Utah
B. Associates Insurance Group, Inc. Delaware
B. Associates Life Insurance Group, Inc. Delaware
B. Associates Financial Life Insurance Company Tennessee
Subsidiaries
Associates Insurance Company Indiana
Subsidiaries
Commercial Guaranty Insurance Company Delaware
Capco General Agency, Inc. Illinois
Capco General Agency, Inc. New York
Capco General Agency, Inc. Virginia
AFSC General Agency, Inc. Texas
Associates Financial Life Insurance Company of Texas Texas
</TABLE>
<PAGE> 2
<TABLE>
<S> <C>
B. Associates Real Estate Financial Services Company, Inc. Delaware
Subsidiaries
Associates Relocation Management Company, Inc. Colorado
Subsidiaries
Associates Relocation Management Company of Texas Texas
Associates National Mortgage Corporation Delaware
Associates First Capital Mortgage Corporation Florida
Corporate America Realty, Inc. New Jersey
B. The Associates Payroll Management Service Company, Inc. Delaware
B. Associates Investment Company Delaware
Subsidiaries (Designated by "C" preceding name of corporation)
C. Associates Diversified Services, Inc. Delaware
C. Associates Financial Services Company, Inc. ("AFSCI") Delaware
[The names of 103 subsidiaries of AFSCI operating in the United
States in the consumer finance business and 41 subsidiaries
operating in the insurance business are omitted pursuant to Rule
601(b)(21)(ii)]
C. Associates Commercial Corporation ("ACC") Delaware
[The names of 11 subsidiaries of ACC operating in the United
States in the commercial finance business and I subsidiary in the
insurance business are omitted pursuant to Rule 60 1 (b)(2 1)(ii)]
</TABLE>
<PAGE> 1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements
of Associates First Capital Corporation on Form S-8 (File Nos. 333-09215,
333-12141, 333-12143, 333-12145, 333-12147, 333-12149, 333-12151, 333-12153,
333-19417, 333-22367, 333-22369, 333-24727, and 333-42001) of our report dated
January 20, 1998, on our audits of the consolidated financial statements of
Associates First Capital Corporation and Subsidiaries as of December 31, 1997
and 1996, and for the years ended December 31, 1997, 1996 and 1995, which report
is included in this Annual Report on Form 10-K.
COOPERS & LYBRAND L.L.P.
Dallas, Texas
February 17, 1998
<PAGE> 1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that 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, JOHN F. STILLO, 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, 1997, 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, JOHN F. STILLO, 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 all that said ROY A.
GUTHRIE, TIMOTHY M. HAYES, JOHN F. STILLO, 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 12th day of February, 1998.
<TABLE>
<S> <C>
Signature: /s/ KEITH W. HUGHES
----------------------------------------
Name: Keith W. Hughes
Title: Chairman of the Board, Principal Executive
Officer and Director
Signature: /s/ J. CARTER BACOT
----------------------------------------
Name: J. Carter Bacot
Title: Director
Signature: /s/ JOHN M. DEVINE
----------------------------------------
Name: John M. Devine
Title: Director
Signature: /s/ ROY A. GUTHRIE
----------------------------------------
Name: Roy A. Guthrie
Title: Director, Senior Executive Vice President
and Chief Financial Officer
Signature: /s/ JOHN F. STILLO
----------------------------------------
Name: John F. Stillo
Title: Senior Vice President, Comptroller and
Principal Accounting Officer
Signature: /s/ HAROLD D. MARSHALL
----------------------------------------
Name: Harold D. Marshall
Title: President and Director
Signature: /s/ H. JAMES TOFFEY, JR.
----------------------------------------
Name: H. James Toffey, Jr.
Title: Director
Signature: /s/ KENNETH WHIPPLE
----------------------------------------
Name: Kenneth Whipple
Title: Director
</TABLE>
<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, 1997 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-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 433
<SECURITIES> 1,242
<RECEIVABLES> 55,216
<ALLOWANCES> 1,950
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 57,233
<CURRENT-LIABILITIES> 0
<BONDS> 49,199
0
0
<COMMON> 4
<OTHER-SE> 6,265
<TOTAL-LIABILITY-AND-EQUITY> 57,233
<SALES> 8,279
<TOTAL-REVENUES> 8,279
<CGS> 0
<TOTAL-COSTS> 6,639
<OTHER-EXPENSES> 2,486
<LOSS-PROVISION> 1,378
<INTEREST-EXPENSE> 2,775
<INCOME-PRETAX> 1,640
<INCOME-TAX> 608
<INCOME-CONTINUING> 1,032
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,032
<EPS-PRIMARY> 2.98
<EPS-DILUTED> 2.97
</TABLE>
