<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-1004
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 2-44197
ASSOCIATES FIRST CAPITAL CORPORATION
------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 06-0876639
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
250 East Carpenter Freeway, Irving, Texas 75062-2729
(Address of principal executive offices) (Zip code)
972-652-4000
(Registrant's telephone number, including area code)
Not applicable
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities 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.....
<PAGE>
As of September 30, 1999, the registrant had 1,150,000,000 and 144,118,820,
respective shares of Class A and Class B Common Stock authorized, 728,699,995
shares of Class A Common Stock issued, of which 728,244,633 shares were
outstanding; and no shares of Class B Common Stock were issued or outstanding.
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS.
ASSOCIATES FIRST CAPITAL CORPORATION
CONSOLIDATED STATEMENT OF EARNINGS
----------------------------------
(In Millions, Except Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30 September 30
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUE
Finance charges $6,787.6 $5,857.4 $2,241.6 $1,930.6
Insurance premiums 785.5 326.5 268.7 110.0
Investment and other
income 1,401.9 647.0 530.3 264.1
-------- -------- -------- --------
8,975.0 6,830.9 3,040.6 2,304.7
EXPENSES
Interest expense 2,917.8 2,350.1 992.5 807.3
Operating expenses 2,900.0 1,996.6 948.9 705.2
Provision for losses on
finance receivables 1,096.5 961.3 369.3 253.5
Insurance benefits paid
or provided 330.2 107.5 111.3 34.2
-------- ------- ------- --------
7,244.5 5,415.5 2,422.0 1,800.2
-------- ------- ------- --------
EARNINGS BEFORE PROVISION
FOR INCOME TAXES 1,730.5 1,415.4 618.6 504.5
PROVISION FOR INCOME TAXES 648.8 523.9 231.8 186.9
-------- -------- -------- --------
NET EARNINGS $1,081.7 $ 891.5 $ 386.8 $ 317.6
======== ======== ======== ========
NET EARNINGS PER SHARE
Basic $ 1.49 $ 1.29 $ 0.53 $ 0.46
======== ======== ======== ========
Diluted $ 1.48 $ 1.28 $ 0.53 $ 0.46
======== ======== ======== ========
</TABLE>
See notes to consolidated financial statements.
ASSOCIATES FIRST CAPITAL CORPORATION
CONSOLIDATED BALANCE SHEET
--------------------------
(Dollars In Millions)
<TABLE>
<CAPTION>
September 30 December 31
1999 1998
------------ -----------
(Unaudited)
ASSETS
<S> <C> <C>
CASH AND CASH EQUIVALENTS $ 768.0 $ 4,665.6
INVESTMENTS IN DEBT AND EQUITY SECURITIES 7,822.0 6,678.7
FINANCE RECEIVABLES, net of unearned finance
income, allowance for credit losses and
insurance policy and claims reserves 64,700.9 57,496.4
OTHER ASSETS 11,667.9 6,334.7
--------- ---------
Total assets $84,958.8 $75,175.4
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
NOTES PAYABLE, unsecured short-term
Commercial Paper $27,146.2 $24,144.3
Bank Loans 409.8 1,565.5
ACCOUNTS PAYABLE AND ACCRUALS 5,052.2 3,342.4
LONG-TERM DEBT
Senior Notes 42,453.4 37,171.4
Subordinated and Capital Notes 425.3 425.3
--------- ---------
42,878.7 37,596.7
STOCKHOLDERS' EQUITY
Series A Junior Participating Preferred
Stock, $0.01 par value, 734,500 shares
authorized, no shares issued or
outstanding - -
Class A Common Stock, $0.01 par value,
1,150,000,000 shares authorized, 728,699,995
and 728,228,488 shares issued
in 1999 and 1998, respectively 7.3 7.3
Class B Common Stock, $0.01 par value,
144,118,820 shares authorized, no shares
issued or outstanding - -
<PAGE>
Paid-in Capital 5,281.9 5,273.7
Retained Earnings 4,139.8 3,178.9
Accumulated Other Comprehensive Income 74.4 106.8
Less 455,362 and 980,314 shares of
Class A Common Stock at cost held in
treasury in 1999 and 1998, respectively (31.5) (40.2)
--------- ---------
Total stockholders' equity 9,471.9 8,526.5
--------- ---------
Total liabilities and stockholders' equity $84,958.8 $75,175.4
========= =========
See notes to consolidated financial statements.
</TABLE>
<PAGE>
ASSOCIATES FIRST CAPITAL CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
------------------------------------
(In Millions)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30
1999 1998
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 1,081.7 $ 891.5
Adjustments to reconcile net earnings to
net cash provided from operating activities:
Provision for losses on finance receivables 1,096.5 961.3
Depreciation and amortization 371.5 262.1
Other operating activities (374.9) (146.9)
--------- ---------
Net cash provided from operating
activities 2,174.8 1,968.0
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Finance receivables originated or purchased (49,430.9) (39,626.8)
Finance receivables liquidated 43,078.8 32,543.8
Sale of finance businesses and branches 1,659.4 -
Acquisitions of other finance businesses, net (4,170.5) (925.1)
Proceeds from securitization of finance
receivables 2,479.4 2,234.9
Other investing activities (1,126.0) (1,357.7)
--------- ---------
Net cash used for investing
activities (7,509.8) (7,130.9)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of long-term debt 9,635.8 7,445.8
Retirement of long-term debt (7,249.6) (4,293.0)
(Decrease) increase in notes payable (943.6) 2,875.8
Other financing activities (94.7) (119.3)
--------- ---------
Net cash provided from financing
activities 1,347.9 5,909.3
--------- ---------
<PAGE>
EFFECT OF FOREIGN CURRENCY TRANSLATION
ADJUSTMENTS ON CASH 89.5 (85.3)
--------- ---------
(DECREASE)INCREASE IN CASH AND CASH
EQUIVALENTS (3,897.6) 661.1
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 4,665.6 433.2
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 768.0 $ 1,094.3
========= =========
See notes to consolidated financial statements.
</TABLE>
<PAGE>
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 leading diversified finance organization
providing finance, leasing and related services to individual consumers and
businesses in the United States and internationally.
NOTE 2 - BASIS OF PRESENTATION AND CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its subsidiaries after elimination of all significant intercompany
balances and transactions. Certain prior period financial statement amounts
have been reclassified to conform to the current period presentation.
In the opinion of the management, all adjustments necessary to present
fairly the results of operations and financial position have been made. The
financial position and results of operations as of and for any interim period
are unaudited and not necessarily indicative of the results of operations for
a full year.
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.
NOTE 3 - SIGNIFICANT ACQUISITIONS AND DISPOSITIONS
SIGNIFICANT ACQUISITIONS
In June 1999, the Company acquired the Newcourt Credit Group automotive
fleet management business. The transaction included Newcourt Fleet Services,
which operates in Canada, and Newcourt Automotive Services Limited, which
operates in the United Kingdom. The fair market value of the total assets
acquired was approximately $460 million. This acquisition was accounted for
as a purchase.
In February 1999, the Company acquired the Shell Oil Proprietary Credit
Card program. The fair market value of the private label credit card
receivables acquired was approximately $260 million. This acquisition was
accounted for as a purchase.
On January 6, 1999, the Company purchased the assets and assumed the
liabilities of Avco Financial Services, Inc. ("Avco") for $3.9 billion.
Prior to the acquisition, Avco, formerly a subsidiary of Textron Inc.,
was a global, diversified financial services company with approximately $9
billion in assets. Its product offerings included home equity lending,
retail sales finance and consumer loans, equipment, inventory and vendor
finance, and credit and collateral-related insurance. Avco had operations
in the U.S., Canada, Puerto Rico, Australia, the United Kingdom,
New Zealand, France, Hong Kong, Spain, Ireland, India and Sweden. This
acquisition was accounted for as a purchase.
The unaudited pro forma combined revenues, net earnings and net earnings
per basic and diluted share of the Company were approximately $9.1 billion,
$1.1 billion, $1.48 and $1.47 for the nine-month period ended September 30,
1999; $3.0 billion, $387 million, $0.53 and $0.53 for the three-month period
ended September 30, 1999; $8.8 billion, $890 million, $1.22 and $1.22 for the
nine-month period ended September 30, 1998; and $2.9 billion, $308 million,
$0.42 and $0.42 for the three-month period ended September 30, 1998,
respectively. The 1998 acquisitions are described in the Company's Form 10-K
for the year ended December 31, 1998. These unaudited pro forma results
include the historical operating results of the significant 1999 and 1998
acquisitions and assume that the acquisitions occurred at the beginning of
each applicable period. Certain adjustments, including additional common
shares outstanding and interest and amortization expenses associated with
these purchases are reflected in the pro forma results. This information has
been prepared for comparative purposes only, and is based on the historical
operating results of these entities prior to their acquisition by the Company
and does not include cost savings and other profit enhancement initiatives
introduced by the Company that management believes will be reflected in the
post-acquisition operating results. As a result, management does not believe
that these pro forma results are indicative of the actual results that would
have occurred had the acquisitions closed at the beginning of each period.
SIGNIFICANT DISPOSITIONS
In July 1999, the Company sold the Network Transaction Services unit of
its Associates Commerce Solutions, Inc. ("ACS") subsidiary (formerly SPS
Payment Systems, Inc.) to Alliance Data Systems, a leading provider of
electronic transaction processing services.
In June 1999, the Company sold its Avco consumer and commercial finance
operations in Australia and New Zealand to General Electric Capital
Corporation, a subsidiary of General Electric Company, for approximately $493
million.
In June 1999, the Company sold 41 of its Canadian consumer branches to
Commercial Credit Corporation CCC Limited, a subsidiary of Citigroup, Inc.,
for approximately $155 million.
In March 1999, the Company sold Fleetwood Credit Corporation, its
recreational vehicle financing subsidiary, to NationsBank, N.A., a unit of
BankAmerica Corporation for approximately $227 million.
In March 1999, the Company sold 128 domestic consumer finance branches
to Commercial Credit Corporation, a subsidiary of Citigroup, Inc., for
approximately $640 million. All of these branches were acquired from Avco in
January 1999.
On June 14, 1999, the Company announced it had reached an agreement to
sell certain assets and liabilities of Balboa Life and Casualty Insurance
Group to Countrywide Insurance Group, a subsidiary of Countrywide Credit
Industries, Inc. The assets and liabilities to be sold are included in other
assets as net assets held for sale. This transaction is expected to close
prior to the end of 1999.
The operating results of these dispositions from January 1, 1999 through
the date of the related sale were included in investment and other income.
No significant gains or losses were recorded on these transactions.
<PAGE>
NOTE 4 - EARNINGS PER SHARE
<TABLE>
<CAPTION>
Earnings per share on a basic and diluted basis for the periods
indicated is calculated as follows (in millions, except per share amounts):
Nine Months Ended Three Months Ended
September 30 September 30
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Basic net earnings per share:
Net earnings $1,081.7 $891.5 $386.8 $317.6
Weighted average shares
outstanding 728.0 692.8 728.1 692.7
$ 1.49 $ 1.29 $ 0.53 $ 0.46
======== ====== ====== ======
Diluted net earnings per share:
Net earnings $1,081.7 $891.5 $386.8 $317.6
Weighted average shares
outstanding plus assumed
conversions 732.2 697.1 731.6 696.5
$ 1.48 $ 1.28 $ 0.53 $ 0.46
======== ====== ====== ======
Calculation of weighted average
shares outstanding plus
assumed conversions:
Weighted average shares
outstanding 728.0 692.8 728.1 692.7
Effect of dilutive securities 4.2 4.3 3.5 3.8
-------- ------ ------ ------
732.2 697.1 731.6 696.5
======== ====== ====== ======
</TABLE>
NOTE 5 - COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
The components of accumulated other comprehensive income, net of tax,
are as follows (in millions):
September 30 December 31
1999 1998
------------ -----------
<S> <C> <C>
Foreign currency translation adjustments $116.2 $117.1
Net unrealized loss on available-for-sale
securities (41.8) (10.3)
------ ------
Accumulated other comprehensive income $ 74.4 $106.8
====== ======
</TABLE>
Comprehensive income for the nine and three-month periods ended
September 30, 1999 and 1998 consisted of the following components,
net of tax (in millions):
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30 September 30
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net earnings $1,081.7 $891.5 $386.8 $317.6
Foreign currency translation
adjustments (0.9) (56.8) 14.0 6.8
Net unrealized (loss) gain on
available-for-sale securities (31.5) (1.0) 5.9 (2.1)
-------- ------ ------ ------
Comprehensive income $1,049.3 $833.7 $406.7 $322.3
======== ====== ====== ======
</TABLE>
<PAGE>
NOTE 6 - INVESTMENTS IN DEBT AND EQUITY SECURITIES
AVAILABLE-FOR-SALE SECURITIES
Available-for-sale securities consist of retained securitization
interests as well as bonds, notes and preferred stock and other equity
securities primarily held by the Company's insurance subsidiaries. The
Company generally invests in debt securities with the intention of holding
them to maturity. However, if market conditions change, the Company may sell
them prior to maturity. Accordingly, the Company classifies these debt and
equity securities as available-for-sale securities and adjusts their recorded
value to market. The estimated market value at September 30, 1999 and
December 31, 1998 was $7.8 billion and $6.7 billion, respectively. The
amortized cost at September 30, 1999 and December 31, 1998 was $7.9 billion
and $6.7 billion, respectively. Realized gains or losses on sales are
included in investment and other income. Unrealized gains or losses are
included, net of tax, in other comprehensive income, a component of
stockholders' equity.
TRADING SECURITIES
Trading securities consist of investments in equity securities which are
recorded at market value. Unrealized gains or losses on trading securities
are included in earnings. The estimated market value at September 30, 1999
and December 31, 1998 was $24.8 million and $20.8 million, respectively.
Historical cost at September 30, 1999 and December 31, 1998 was $16.7 million
and $15.5 million, respectively.
NOTE 7 - FINANCE RECEIVABLES
At September 30, 1999 and December 31, 1998, finance receivables
consisted of the following (in millions):
<TABLE>
<CAPTION>
September 30 December 31
1999 1998
---- ----
<S> <C> <C>
Home equity lending $26,334.0 $22,458.2
Personal lending and retail sales
finance 15,498.6 11,459.2
Truck and truck trailer 12,870.9 10,783.6
Equipment 6,863.6 6,114.0
Manufactured housing (a) 683.7 3,648.2
Credit card (b) 2,263.2 3,138.1
Auto fleet leasing 2,050.9 1,589.7
Recreational vehicles - 479.7
Warehouse lending and other 1,352.2 1,268.3
--------- ---------
Finance receivables, net of unearned
finance income ("net finance
receivables") (c) 67,917.1 60,939.0
Allowance for losses on finance receivables (2,170.9) (1,978.7)
Insurance policy and claims reserves (d) (1,045.3) (1,463.9)
--------- ---------
Finance receivables, net of unearned
finance income, allowance for losses
and insurance policy and claims
reserves $64,700.9 $57,496.4
--------- ---------
__________
(a) In July 1999, all retail manufactured housing finance receivables were
reclassified as finance receivables held for securitization and included
in other assets. This reclassification reflects management's intent to
securitize and sell these receivables. Accordingly, during the third
quarter of 1999, approximately $2.5 billion of the Company's
manufactured housing receivables were securitized and sold to a
master trust. The Company retained approximately a $500 million
interest in the trust. In order to broaden the investor base and
improve execution, the Company wrote a put option to the certificate
holders which allows the securities to be put back to the Company
at par, annually, beginning in October 2000. No significant gain
or loss was recorded on this transaction.
(b ) In April 1999, the Company reclassified approximately $1.6 billion of
private label credit card receivables as finance receivables held for
securitization. Accordingly, during the second quarter of 1999,
approximately $925 million of these receivables were securitized
and sold to a master trust. No significant gain or loss was recorded
on this transaction.
(c) Unearned finance income was approximately $4.6 billion and $4.0 billion at
September 30, 1999 and December 31, 1998, respectively.
(d) At December 31, 1998, insurance policy and claims reserves included
approximately $678 million of non-affiliate insurance reserves. The
September 30, 1999 balance only includes affiliate insurance reserves;
non-affiliate insurance reserves of approximately $706 million are
included in accounts payable and accruals.
</TABLE>
NOTE 8 - ALLOWANCE FOR LOSSES ON FINANCE RECEIVABLES
Changes in the allowance for losses on finance receivables during the
periods indicated were as follows (in millions):
<PAGE>
<TABLE>
<CAPTION>
Nine Months Ended Year Ended
September 30 December 31
1999 1998 1998
---- ---- ----
<S> <C> <C> <C>
Balance at beginning of period $ 1,978.7 $ 1,949.9 $ 1,949.9
Provision for losses 1,096.5 961.3 1,283.5
Recoveries on receivables
charged off 226.7 177.2 237.7
Losses sustained (1,284.9) (1,062.2) (1,424.6)
Reserves of receivables sold
or held for securitization (178.0) (334.7) (334.7)
Reserves of acquired
businesses 298.7 172.3 271.1
Other 33.2 1.2 (4.2)
--------- --------- ---------
Balance at end of period $ 2,170.9 $ 1,865.0 $ 1,978.7
========= ========= =========
</TABLE>
The Company maintains an allowance for losses on finance receivables at
an amount that it believes is sufficient to provide for losses in its
existing receivables portfolios. The allowance is determined principally
on the basis of historical loss experience, and reflects management's
judgment of current loss exposure at the end of the period considering
economic conditions and the nature and characteristics of the underlying
finance receivables. The Company records an allowance for losses when it
believes the event causing the loss has occurred. The allowance is
evaluated 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.
<PAGE>
NOTE 9 - OTHER ASSETS
The components of other assets at September 30, 1999 and December 31,
1998 were as follows (in millions):
<TABLE>
<CAPTION>
September 30 December 31
1999 1998
---- ----
<S> <C> <C>
Goodwill $ 3,903.4 $1,890.4
Notes and other receivables 2,075.7 1,172.9
Finance receivables held for
securitization, net 2,076.8 812.2
Customer lists and operating agreements 1,545.9 929.8
Property and equipment 652.5 608.7
Collateral held for resale 454.1 297.4
Net assets held for sale 440.6 -
Relocation client advances 158.4 171.8
Other 360.5 451.5
--------- --------
Total other assets $11,667.9 $6,334.7
========= ========
</TABLE>
NOTE 10 - DEBT RESTRICTION
A restriction contained in a revolving credit agreement dated June 30,
1998 requires the Company to maintain a minimum tangible net worth, as
defined, of $2.5 billion. At September 30, 1999, the Company's tangible net
worth, as defined in the revolving credit agreement, was approximately $5.6
billion.
NOTE 11 - DERIVATIVE FINANCIAL INSTRUMENTS
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, treasury lock agreements and treasury
futures and option contracts.
Foreign currency forward exchange agreements are held for purposes other
than trading and have been designated for accounting purposes as hedges of
certain of the Company's foreign currency denominated net investments. Under
these agreements, the Company is obligated to deliver specific foreign
currencies in exchange for United States dollars at varying times over the
next 5 years. The aggregate notional amount of these agreements at September
30, 1999 and December 31, 1998 was $2.4 billion and $2.5 billion,
respectively. The fair value of such agreements at September 30, 1999 and
December 31, 1998 would have been a liability of $303.7 million and $134.4
million, respectively.
Foreign currency swap agreements are held for purposes other than
trading and have been designated for accounting purposes as hedges of
specific foreign currency exposures under certain debt obligations. Under
these agreements, the Company and the agreement counterparties are obligated
to exchange specific foreign currencies at varying times over the next 4
years. The aggregate notional amount of these agreements at September 30,
1999 and December 31, 1998 was $5.6 billion and $4.4 billion, respectively.
The fair value of such agreements at September 30, 1999 and December 31,
1998 would have been a liability of $307.8 million and $118.5 million,
respectively.
Interest rate swap 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 certain investment securities. The aggregate notional
amount of interest rate swap agreements at September 30, 1999 was $5.8
billion. The fair value of such agreements would have been a liability of
$1.6 million. These agreements mature on varying dates over the next 10
years. In addition, treasury lock agreements were used by the Company at
December 31, 1998 to hedge the effect of interest rate movements on
anticipated debt issuances. The aggregate notional amount of interest rate
swap and treasury lock agreements at December 31, 1998 was $4.3 billion. The
fair value of such agreements at December 31, 1998 would have been a
liability of $81.3 million.
Treasury futures and option contracts are used to minimize fluctuations
in the value of preferred stock investments and are held for purposes other
than trading. The aggregate notional amount of futures and option contracts
at September 30, 1999 and December 31, 1998 was $647.9 million and $720.6
million, respectively. The fair value of these contracts would have been a
liability of $3.0 million and $5.2 million at September 30, 1999 and December
31, 1998, respectively. Such contracts mature on varying dates through 2000.
NOTE 12 - SEGMENT REPORTING
Managed basis revenue, earnings and receivables information for each of
the Company's reportable segments is presented below (in millions):
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30 September 30
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Managed basis revenue
---------------------
Domestic Consumer Finance $5,169.8 $4,206.3 $1,718.2 $1,424.4
Commercial Finance 2,421.1 1,910.1 849.3 667.7
International Finance 2,152.1 1,128.5 742.7 432.3
-------- -------- -------- --------
$9,743.0 $7,244.9 $3,310.2 $2,524.4
======== ======== ======== ========
<PAGE>
Segment earnings
----------------
Domestic Consumer Finance $ 798.2 $ 708.6 $ 266.2 $ 240.9
Commercial Finance 400.9 375.0 148.9 138.5
International Finance 531.4 331.8 203.5 125.1
-------- -------- -------- --------
$1,730.5 $1,415.4 $ 618.6 $ 504.5
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
September 30 December 31
1999 1998
---- ----
<S> <C> <C>
Managed receivables
-------------------
Domestic Consumer Finance $40,825.9 $36,432.4
Commercial Finance 27,275.9 26,469.7
International Finance 13,604.7 8,462.2
--------- ---------
$81,706.5 $71,364.3
========= =========
</TABLE>
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
The discussion that follows includes comparisons of amounts reported in
the historical financial statements ("Owned Basis") and on a pro forma basis
adjusted to include the impact of receivables held for securitization and
receivables sold with servicing retained ("Managed Basis"). On an Owned
Basis, finance charges and service fee income, interest expense and credit
losses on receivables held for securitization and receivables sold with
servicing retained are included in investment and other income in the
statement of earnings. On a pro forma Managed Basis, these items are
reclassified from investment and other income and presented as if the
receivables had neither been held for securitization nor sold. Management
believes the discussion of pro forma Managed Basis information is useful in
evaluating the Company's operating performance.
The following tables contain selected Owned Basis and pro forma Managed
Basis financial information for the nine and three-month periods ended or at
September 30, 1999 and 1998 (in millions):
<TABLE>
<CAPTION>
Nine Months Ended Nine Months Ended
September 30, 1999 September 30, 1998
Owned Pro Forma Managed Owned Pro Forma Managed
Basis Adjustments Basis Basis Adjustments Basis
----- ----------- ------- ----- ----------- -------
<S> <C> <C> <C> <C> <C> <C>
Finance charges $ 6,787.6 $ 1,660.2 $ 8,447.8 $ 5,857.4 $ 854.1 $6,711.5
Insurance premiums 785.5 - 785.5 326.5 - 326.5
Investment and other
income 1,401.9 (892.2) 509.7 647.0 (440.1) 206.9
--------- --------- --------- --------- -------- --------
Total revenue 8,975.0 768.0 9,743.0 6,830.9 414.0 $7,244.9
Interest expense 2,917.8 224.7 3,142.5 2,350.1 194.5 2,544.6
Operating expenses 2,900.0 - 2,900.0 1,996.6 - 1,996.6
Provision for losses 1,096.5 543.3 1,639.8 961.3 219.5 1,180.8
Insurance benefits
paid or provided 330.2 - 330.2 107.5 - 107.5
-------- --------- -------- -------- ------- --------
Total expenses 7,244.5 768.0 8,012.5 5,415.5 414.0 $5,829.5
-------- --------- -------- -------- ------- --------
Earnings before
provision for income
taxes 1,730.5 - 1,730.5 1,415.4 - 1,415.4
Provision for income
taxes 648.8 - 648.8 523.9 - 523.9
--------- --------- --------- --------- -------- --------
Net earnings $ 1,081.7 $ - $ 1,081.7 $ 891.5 $ - $ 891.5
========= ========== ========= ========= ======== ========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
September 30, 1999 September 30, 1998
Owned Pro Forma Managed Owned Pro Forma Managed
Basis Adjustments Basis Basis Adjustments Basis
----- ----------- ------- ----- ----------- -------
<S> <C> <C> <C> <C> <C> <C>
Finance charges $ 2,241.6 $ 655.7 $ 2,897.3 $ 1,930.6 $ 400.2 $ 2,330.8
Insurance premiums 268.7 - 268.7 110.0 - 110.0
Investment and other
income 530.3 (386.1) 144.2 264.1 (180.5) 83.6
-------- --------- -------- -------- --------- --------
Total revenue 3,040.6 269.6 3,310.2 2,304.7 219.7 2,524.4
Interest expense 992.5 82.3 1,074.8 807.3 75.3 882.6
Operating expenses 948.9 - 948.9 705.2 - 705.2
Provision for losses 369.3 187.3 556.6 253.5 144.4 397.9
Insurance benefits
paid or provided 111.3 - 111.3 34.2 - 34.2
-------- --------- -------- -------- --------- --------
Total expenses 2,422.0 269.6 2,691.6 1,800.2 219.7 2,019.9
-------- --------- -------- -------- --------- --------
Earnings before
provision for income
taxes 618.6 - 618.6 504.5 - 504.5
Provision for income
taxes 231.8 - 231.8 186.9 - 186.9
--------- --------- --------- --------- -------- ---------
Net earnings $ 386.8 $ - $ 386.8 $ 317.6 $ - $ 317.6
========= ========== ========= ========= ======== =========
</TABLE>
<TABLE>
<CAPTION>
September 30, 1999 December 31, 1998
Owned Pro Forma Managed Owned Pro Forma Managed
Basis Adjustments Basis Basis Adjustments Basis
----- ----------- ------- ----- ----------- -------
<S> <C> <C> <C> <C> <C> <C>
Net Finance
Receivables
End of period $67,917.1 $13,789.4 $81,706.5 $60,939.0 $10,425.3 $71,364.3
Average 66,868.5 10,972.1 77,840.6 57,253.1 7,252.7 64,505.8
</TABLE>
Net Earnings
Net earnings, on both an Owned Basis and a Managed Basis, for the
nine-month period ended September 30, 1999 were $1.08 billion, a 21%
increase over the same period in the previous year. Net earnings for the
three months ended September 30, 1999 were $386.8 million, an increase of
22% over the same period in the previous year. The primary factors
affecting earnings and the Company's operating results are discussed below.
Finance Charges
Managed Basis finance charge revenue increased for the nine and three-
month periods ended September 30, 1999, compared to the same periods in the
prior year, principally as a result of growth in average managed finance
receivables outstanding. Finance charge revenue as a percentage of average
managed finance receivables increased to 14.47% and 14.51% for the nine
and three-month periods ended September 30, 1999, respectively, from 14.31%
and 14.32% for the comparable periods in 1998. The increase was primarily
due to a shift in product mix toward a higher percentage of unsecured
managed finance receivables to total managed finance receivables during
both comparative periods. Unsecured portfolios generally have higher
finance charge rates than secured portfolios. In addition, higher finance
rates on variable rate loans and 1999 new business also contributed to the
increase.
Interest Expense
Managed Basis interest expense increased to $3.1 billion and $1.1
billion for the nine and three-month periods ended September 30, 1999,
respectively, from $2.5 billion and $882.6 million for the respective nine
and three-month periods ended September 30, 1998. This increase was
primarily due to an increase in average managed debt outstanding for each
of the comparative periods. The increase in average managed debt
outstanding principally resulted from the growth in average managed finance
receivables. Debt is the primary source of funding to support the
Company's growth in net finance receivables. The increase in managed basis
interest expense due to growth was partially offset by the benefit of a
reduction in the Company's total average borrowing rate in both comparable
periods.
Net Interest Margin
As a result of the factors discussed in the finance charges and
interest expense sections above, Managed Basis net interest margin
increased to $5.3 billion and $1.8 billion for the nine and three-month
periods ended September 30, 1999, respectively, compared to $4.2 billion
and $1.4 billion for the comparable periods in the prior year. The
Company's Managed Basis net interest margin expressed as a ratio to average
managed finance receivables also improved to 9.09% and 9.13% for the nine
and three-month periods ended September 30, 1999, respectively, compared
to 8.88% and 8.90% for the comparable periods in the prior year.
Investment and Other Income
Investment and other income, on a Managed Basis, increased to $509.7
million and $144.2 million for the nine and three-month periods ended
September 30, 1999, respectively, compared to $206.9 million and $83.6
million for the comparable periods in 1998. The Northland Company and Avco
affiliated insurance related investment portfolio income, together with the
earnings of net assets and businesses held for sale during the first three
quarters of 1999, contributed to this increase. The Northland Company was
acquired during the fourth quarter of 1998. As described in NOTE 3 to the
consolidated financial statements, the operating results of operations held
for sale were recorded in investment and other income. In addition, the
sale of the Company's recreational vehicle and network services business
and the securitization transactions described in NOTE 3 to the
consolidated financial statements also contributed to the increase.
Operating Expenses
Nine and three-month operating expenses for the periods ended
September 30, 1999 were higher on a dollar basis than in the
corresponding periods in 1998, reflecting growth in the size
of the Company and business mix.
Managed Basis operating expense efficiency, measured as the ratio of
total operating expenses to Managed Basis revenue net of Managed Basis
interest expense and insurance benefits paid or provided ("Efficiency
Ratio"), increased to 46.3% and 44.7% for the nine and three-month periods
ended September 30, 1999, respectively, compared to 43.5% and 43.9% for the
same periods in the prior year. The Avco goodwill amortization and Avco
integration expenses were significant causes of the increase in the
Efficiency Ratio. Furthermore, a slight shift in business mix toward more
fee based businesses caused by the acquisition of The Northland Company and
ACS during the fourth quarter of 1998 also contributed to the increase.
Provision for Losses
The Company's Managed Basis provision for losses increased to $1.6
billion for the first nine months of 1999 from $1.2 billion for the same
period in 1998. The provision for losses for the three-month period ended
September 30, 1999 increased to $556.6 million from $397.9 million in the
prior year period. In both periods, the provision increased principally
as a result of increased Managed Basis net credit losses.
Total Managed Basis net credit losses as a percentage of average
managed finance receivables (the "Loss Ratio") were 2.74% and 2.73% for the
nine and three-month periods ended September 30, 1999, respectively,
compared to 2.35% and 2.38% for the same periods in 1998. The increase in
the Loss Ratio in both periods was principally due to a shift toward a
higher percentage of unsecured managed finance receivables primarily as a
result of the ACS and Avco acquisitions. Unsecured finance receivables
generally have higher loss ratios than secured finance receivables. In
addition, higher loss levels in the Company's secured portfolios during
both comparable periods also contributed to the increase in the Loss Ratio.
Financial Condition
Receivable Growth
Managed finance receivables grew $10.3 billion and $3.2 billion during
the nine and three-month periods ended September 30, 1999, respectively,
compared to $7.7 billion and $1.8 billion for the same periods in 1998.
The transactions described in NOTE 3 to the consolidated financial
statements and internal growth were the primary factors driving receivable
growth during both periods.
Contractual Delinquency
Composite 60+days contractual delinquency was 2.81% of managed finance
receivables at September 30, 1999, an increase from 2.57% at December 31,
1998 and 2.39% at September 30, 1998. The aforementioned shift in product
mix toward a higher percentage of unsecured managed finance receivables is
the primary cause of the increase. Unsecured finance receivables generally
have higher delinquency rates.
Allowance for losses on finance receivables
The Company maintains an allowance for losses on finance receivables
at an amount that it believes is sufficient to provide for losses in its
existing receivables portfolios. The allowance is determined principally
on the basis of historical loss experience, and reflects management's
judgment of current loss exposure at the end of the period considering
economic conditions and the nature and characteristics of the underlying
finance receivables. The Company records an allowance for losses when it
believes the event causing the loss has occurred. The allowance is
evaluated 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. The Company's allowance for loss methodology has been
consistently applied for all periods presented, although this paragraph
contains clarification from the related disclosure in the Company's 1998
Form 10-K.
The loss coverage ratio (calculated as a ratio of the allowance for
losses to related trailing net credit losses on receivables owned at the
end of the period) decreased to 1.63x at September 30, 1999 compared to
1.74x at December 31, 1998. The allowance for losses to net finance
receivables declined to 3.20% at September 30, 1999 from 3.25% at December
31, 1998. Company management believes the allowance for losses at
September 30, 1999 is sufficient to provide adequate coverage against
existing losses in its Owned Basis finance receivable portfolios.
Liquidity and 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 rate risk. The Company has a
formal process for managing its liquidity 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
and asset securitizations. Management believes the Company has available
sufficient liquidity, from a combination of cash provided from operations,
external borrowings and asset securitizations to support its operations.
A principal strength of the Company is its ability to access the
global debt and equity 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 domestic operations are principally funded through
domestic and international borrowings and asset securitizations. The
Company's foreign subsidiaries are principally funded through private and
public debt borrowings in the transactional currency and fully hedged
intercompany borrowings.
At September 30, 1999, the Company had short and long-term debt
outstanding of $27.6 billion and $42.9 billion, respectively. Short-term
debt principally consists of commercial paper and represents the Company's
primary source of short-term liquidity. Long-term debt principally
consists of senior unsecured long-term debt issued publicly and privately
by the Company's principal domestic operating subsidiary, Associates
Corporation of North America, in the United States and abroad, and to a
lesser extent, private and public borrowings made by the Company's foreign
subsidiaries. During the nine months ended September 30, 1999 and 1998,
the Company raised term debt aggregating $9.6 billion and $7.4 billion,
respectively, through public and private offerings.
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 September
30, 1999, these credit facilities were allocated to provide at least 75%
coverage of the Company's recurring commercial paper borrowings and
utilized uncommitted lines of credit.
The Company has access to other sources of liquidity such as the
issuance of alternative forms of capital, the issuance of common and
preferred stock and the increased use of asset securitization. The
Company's securitization transactions up to this point have included the
manufactured housing, home equity and credit card asset-backed classes.
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, if such systems are not repaired they may be
unable to accurately process certain date-based information.
The Company has a company-wide initiative to address the Year 2000
Compliance issue. A team of technology professionals began addressing the
Year 2000 Compliance issue in 1995. Since then, the Company has identified
and addressed all significant third party and internal applications that
require modification to ensure Year 2000 Compliance.
The Company divides its Year 2000 Compliance initiative into two
components, information technology ("IT") and non-information technology
("Non-IT"). The IT initiative includes third party and Company mainframe
and desktop systems and applications. The Non-IT initiative includes third
party suppliers, embedded systems and the Company's larger commercial
borrowers.
The project organization, awareness, inventory and analysis,
renovation, testing, implementation and contingency planning phases of the
Year 2000 effort have been successfully completed. Results from the
testing phases were reviewed to confirm Year 2000 Compliance. In cases
where testing identifies potential non-compliance, modifications are made
to the system as necessary and retested until successful. To provide added
assurance that no new Year 2000 problems have been introduced into
previously repaired systems, the Company will continue to perform
additional testing and facilitate independent verification and validation
testing through the remainder of 1999. The Company is also developing a
plan to monitor systems and critical providers, suppliers and others with
which the Company has significant relationships to ensure that any
unforeseen problems are quickly identified and resolved.
The Company's Non-IT efforts include evaluating Year 2000 Compliance
of third party suppliers, embedded systems and the Company's larger
commercial borrowers. The Company has communicated with third party
suppliers that provide critical products or services, providers of
significant embedded systems and large commercial borrowers to determine
their Year 2000 Compliance readiness and has tested where feasible the
extent to which the Company may be vulnerable to any significant Year 2000
issues. In addition, the Company required these suppliers and borrowers
to certify that they will be Year 2000 compliant.
Contingency planning is an integral part of the Company's Year 2000
readiness project. The Company has developed and is continuing to refine
and test contingency plans which document the processes necessary to
maintain critical business functions should a significant third party
system or critical internal system fail. These contingency plans generally
include the repair of existing systems and the use of alternative systems
or procedures.
There can be no guarantee that the systems of other companies on which
the Company's systems rely will be converted in a timely manner, 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. In addition, there are many risks associated with
the Year 2000 Compliance issue, including but not limited to the possible
failure of the Company's computer and information technology systems. Any
such failure could have a material adverse affect on the Company including
the inability to properly bill and collect payments from customers and
errors or omissions in accounting and financial data. In addition, the
Company is exposed to the inability of third parties to perform as a result
of Year 2000 Compliance. Any such failure by a third party bank,
regulatory agency, group of investors, securities exchange or clearing
agency, software product or service provider, utility or other entity may
have a material adverse financial or operational effect on the Company.
From the inception of the Year 2000 readiness project through
September 30, 1999 the Company incurred and expensed approximately $29
million for incremental costs primarily related to third party vendors,
outside contractors and additional staff dedicated to the Year 2000
readiness project. During the nine and three-month periods ended September
30, 1999, approximately $13 million and $4 million of respective
incremental Year 2000 project costs were incurred. The Company expects
that it will incur additional future incremental costs related to the
project of approximately $4 million. These incremental costs do not
include existing resources allocated to the project effort. The Company's
Year 2000 project is expected to continue through March of 2000. The first
quarter of the Year 2000 effort is specifically designed to monitor all
Year 2000 transition activities.
These costs and the date on which the Company plans to complete the
Year 2000 project 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Management has no material changes to report from the disclosure set
forth in the Company's Form 10-K for the year ended December 31, 1998.
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None to report.
ITEM 2. CHANGES IN SECURITIES.
None to report.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None to report.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None to report.
ITEM 5. OTHER INFORMATION.
Forward-Looking Statements
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 Company hereby incorporates into this report by reference to its
Form 10-K for the year ended December 31, 1998 the cautionary statements
found on pages 29-30 of such Form 10-K.
Stockholder Proposals
Proposals of stockholders intended to be presented at the Company's
2000 annual meeting of stockholders must be received at the Company's
principal executive offices not later than November 27, 1999 in order to
be included in the Company's proxy statement and form of proxy relating to
the 2000 annual meeting.
Pursuant to new amendments to Rule 14a-4(c) of the Securities Exchange
Act of 1934, as amended, if a stockholder who intends to present a proposal
at the 2000 annual meeting of stockholders does not notify the Company of
such proposal not earlier than the 90th day prior to the date of the annual
meeting nor later than the 60th day prior to the date of the annual meeting
in order to be brought before the meeting then management proxies would be
allowed to use their discretionary voting authority to vote on the proposal
when the proposal is raised at the annual meeting, even though there is no
discussion of the proposal in the 2000 proxy statement.
The Company's Bylaws contain an advance notice provision, which
provides that proposals of stockholders intended to be presented at the
Company's 2000 annual meeting of stockholders must be received by the
Secretary of the Company at the Company's principal executive offices not
earlier than the 90th day prior to the date of the annual meeting nor later
than the 60th day prior to the date of the annual meeting in order to be
brought before the meeting. (Although, as stated above, the proposal must
be received no later than November 27, 1999 in order to be included in the
proxy statement relating to the 2000 annual meeting). The Company
currently believes that the 2000 annual meeting of stockholders will be
held on May 22, 2000.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
(12) Computation of Ratio of Earnings to Fixed Charges.
(27) Financial Data Schedule.
(b) Reports on Form 8-K
During the third quarter ended September 30, 1999, First
Capital filed a Current Report on Form 8-K as of July 13, 1999
announcing earnings for the second quarter of 1999.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
November 12, 1999
ASSOCIATES FIRST CAPITAL CORPORATION
(registrant)
By/s/ John F. Stillo
Executive Vice President, Comptroller and
Principal Accounting Officer
EXHIBIT 12
ASSOCIATES FIRST CAPITAL CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollar Amounts in Millions)
<TABLE>
<CAPTION>
Nine Months Ended
September 30
1999 1998
---- ----
<S> <C> <C>
Fixed Charges (a)
Interest expense $2,917.8 $2,350.1
Implicit interest in rent 26.5 19.3
-------- --------
Total fixed charges $2,944.3 $2,369.4
======== ========
Earnings (b)
Earnings before provision for income
taxes $1,730.5 $1,415.4
Fixed charges 2,944.3 2,369.4
-------- --------
Earnings, as defined $4,674.8 $3,784.8
======== ========
Ratio of Earnings to Fixed Charges 1.59 1.60
==== ====
(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, plus fixed charges.
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
0 MEANS NOT APPLICABLE OR NOT SEPARATELY DISCLOSED. This schedule contains
summary financial information extracted from the Company's unaudited
consolidated financial statements as of September 30, 1999 and the six
months then ended and is qualified in its entirety by reference to such
consolidated financial statements.
</LEGEND>
<CIK> 0000007974
<NAME> ASSOCIATES FIRST CAPITAL CORPORATION
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1999
<CASH> 768
<SECURITIES> 7,822
<RECEIVABLES> 67,917
<ALLOWANCES> 2,171
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 84,959
<CURRENT-LIABILITIES> 0
<BONDS> 70,435
<COMMON> 7
0
0
<OTHER-SE> 9,465
<TOTAL-LIABILITY-AND-EQUITY> 84,959
<SALES> 8,975
<TOTAL-REVENUES> 8,975
<CGS> 0
<TOTAL-COSTS> 7,244
<OTHER-EXPENSES> 3,230
<LOSS-PROVISION> 1,096
<INTEREST-EXPENSE> 2,918
<INCOME-PRETAX> 1,731
<INCOME-TAX> 649
<INCOME-CONTINUING> 1,082
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,082
<EPS-BASIC> 1.49
<EPS-DILUTED> 1.48
</TABLE>
