<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 March 31, 2000
-----------------------------------------
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 March 31, 2000, the registrant had 1,150,000,000 and 144,118,820
respective shares of Class A and Class B Common Stock authorized,
728,795,037 shares of Class A Common Stock issued, of which 728,355,167
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>
Three Months Ended
March 31
2000 1999
---- ----
<S> <C> <C>
REVENUE
Finance charges $2,278.2 $2,283.9
Servicing related income 403.6 223.3
Insurance premiums 275.3 256.3
Investment and other income 100.8 181.5
-------- --------
3,057.9 2,945.0
EXPENSES
Interest expense 961.1 960.0
Operating expenses 1,044.2 979.6
Provision for losses on finance
receivables 451.5 362.8
Insurance benefits paid or provided 125.4 103.7
-------- --------
2,582.2 2,406.1
-------- --------
EARNINGS BEFORE PROVISION FOR INCOME TAXES 475.7 538.9
PROVISION FOR INCOME TAXES 176.0 202.1
-------- --------
NET EARNINGS $ 299.7 $ 336.8
======== ========
NET EARNINGS PER SHARE
Basic $ 0.41 $ 0.46
======== ========
Diluted $ 0.41 $ 0.46
======== ========
See notes to consolidated interim financial statements.
</TABLE>
ASSOCIATES FIRST CAPITAL CORPORATION
CONSOLIDATED BALANCE SHEET
(Dollars In Millions, Except Share Information)
<TABLE>
<CAPTION>
March 31 December 31
2000 1999
-------- -----------
(Unaudited)
<S> <C> <C>
ASSETS
CASH AND CASH EQUIVALENTS $ 1,286.9 $ 1,026.3
INVESTMENTS IN DEBT AND EQUITY SECURITIES 7,505.3 7,176.5
FINANCE RECEIVABLES, net of unearned finance
income, allowance for losses and insurance
policy and claims reserves 62,851.5 65,656.8
OTHER ASSETS 13,056.4 9,097.2
--------- ---------
Total assets $84,700.1 $82,956.8
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
NOTES PAYABLE, unsecured short-term
Commercial Paper $27,967.8 $25,991.9
Bank Loans 207.9 1,261.5
ACCOUNTS PAYABLE AND ACCRUALS 4,639.5 4,498.9
LONG-TERM DEBT
Senior Notes 41,444.8 40,978.8
Subordinated and Capital Notes 425.2 425.2
--------- ---------
41,870.0 41,404.0
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, 728,795,037
and 728,747,443 shares issued in 2000 and
1999, respectively 7.3 7.3
Class B Common Stock, $0.01 par value,
144,118,820 shares authorized, no shares
issued or outstanding - -
Paid-in Capital 5,279.7 5,282.1
Retained Earnings 4,754.1 4,501.8
<PAGE>
Accumulated Other Comprehensive Income 6.9 44.7
Less 439,870 and 597,785 shares of
Class A Common Stock held at cost in
Treasury in 2000 and 1999, respectively (33.1) (35.4)
--------- ---------
Total stockholders' equity 10,014.9 9,800.5
--------- ---------
Total liabilities and stockholders' equity $84,700.1 $82,956.8
========= =========
See notes to consolidated interim financial statements.
</TABLE>
<PAGE>
ASSOCIATES FIRST CAPITAL CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(In Millions)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31
2000 1999
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 299.7 $ 336.8
Adjustments to reconcile net earnings for
non-cash and other operating activities:
Provision for losses on finance receivables 451.5 362.8
Amortization of goodwill and other
intangible assets 64.1 54.0
Depreciation and other amortization 80.5 61.0
Other operating activities 176.6 (204.2)
---------- ----------
Net cash provided from operating
activities 1,072.4 610.4
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Finance receivables originated or purchased (15,126.6) (17,766.0)
Finance receivables liquidated 12,930.8 16,649.8
Sale of finance businesses and branches - 1,482.0
Acquisition of finance receivables held
for sale or securitization (1,462.5) -
Proceeds from securitization and sales of
finance receivables 1,242.1 -
Acquisitions of other finance businesses, net - (3,708.0)
Other investing activities (18.5) 68.9
---------- ----------
Net cash used for investing
activities (2,434.7) (3,273.3)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of long-term debt 3,464.3 2,037.7
Retirement of long-term debt (2,835.3) (1,812.4)
Increase (Decrease) in notes payable 1,048.6 (973.9)
Other financing activities (47.2) (10.0)
---------- ----------
Net cash provided from (used for)
financing activities 1,630.4 (758.6)
<PAGE>
EFFECT OF FOREIGN CURRENCY TRANSLATION
ADJUSTMENT ON CASH (7.5) 10.9
---------- ----------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 260.6 (3,410.6)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 1,026.3 4,665.6
---------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,286.9 $ 1,255.0
========== ==========
See notes to consolidated interim financial statements.
</TABLE>
<PAGE>
ASSOCIATES FIRST CAPITAL CORPORATION
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
NOTE 1 - THE COMPANY
Associates First Capital Corporation (the "Company"), a Delaware
corporation, is a leading diversified finance organization providing
finance, leasing, insurance 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. These statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. Certain prior period
financial statement amounts have been reclassified to conform to the
current period presentation.
In the opinion of 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. This Form 10-Q should be read in conjunction
with the consolidated financial statements and footnotes thereto included
in the Company's Annual Report on Form 10-K for the year ended December 31,
1999.
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 TRANSACTIONS
ACQUISITIONS
In January 2000, the Company entered into an agent bank partnership
with KeyCorp, under which the companies will jointly manage KeyCorp's
credit card program. Additionally, the Company acquired KeyCorp's credit
card receivables portfolio with a fair market value of approximately $1.3
billion and intangible assets, primarily related to customer lists and
operating agreements, of approximately $350 million for approximately $1.7
billion. As it is the intent of management to securitize these receivables
in the future, this portfolio is included in finance receivables held for
sale or securitization.
ASSOCIATES FIRST CAPITAL CORPORATION
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (continued)
In March 2000, the Company completed an agreement to manage the
proprietary credit card program of CITGO Petroleum Corporation. As part of
the agreement, the Company acquired finance receivables for approximately
$130 million.
In April 2000, the Company acquired Arcadia Financial Ltd. ("Arcadia")
for approximately $195 million plus a residual value obligation which will
participate in cash flows in excess of agreed upon amounts released from
Arcadia's existing securitization transactions. Arcadia was a leading
independent automobile finance company which serviced over $5 billion in
finance receivables. As part of the agreement and prior to the closing of
the acquisition, the Company entered into a continuous asset purchase and
sale agreement under which the Company purchased from Arcadia $867 million
of retail installment and sales contracts in the fourth quarter of 1999 and
the first quarter 2000.
All of the transactions described above were accounted for as
purchases, and as such, the results of these operations are included in the
consolidated results of the Company from the respective acquisition dates.
The 1999 acquisitions were described in the Company's Form 10-K for
the year ended December 31, 1999.
Pro forma information is not presented for the first quarter 2000 and
1999 because there is no significant difference between pro forma and
reported revenue, earnings and earnings per share information for the
periods.
NOTE 4 - EARNINGS PER SHARE
Earnings per share on a basic and diluted basis for the periods
indicated is calculated as follows (in millions, except per share amounts):
<TABLE>
<CAPTION>
Three Months Ended
March 31
2000 1999
---- ----
<S> <C> <C>
Basic net earnings per share: (1)
Net earnings $299.7 $336.8
Weighted average shares outstanding 727.3 727.7
$ 0.41 $ 0.46
====== ======
<PAGE>
Diluted net earnings per share: (1)
Net earnings $299.7 $336.8
Weighted average shares outstanding
plus assumed conversions 728.8 732.1
$ 0.41 $ 0.46
====== ======
Calculation of weighted average shares
outstanding plus assumed conversions:
Weighted average shares outstanding 727.3 727.7
Effect of dilutive securities 1.5 4.4
------ ------
728.8 732.1
====== ======
(1) Net earnings and earnings per share for the three months ended March 31,
2000 include a special pre-tax charge of approximately $112 million as
described in Note 7. Excluding the special pre-tax charge, net earnings
would have been $370.5 million and basic and diluted earnings per share
would have been $0.51.
</TABLE>
During the three months ended March 31, 2000 and 1999, the Company
declared and paid cash dividends of $0.065 and $0.055 per common share,
respectively.
NOTE 5 - COMPREHENSIVE INCOME
The components of accumulated other comprehensive income, net of tax,
are as follows (in millions):
<TABLE>
<CAPTION>
March 31 December 31
2000 1999
-------- -----------
<S> <C> <C>
Foreign currency translation adjustments $ 119.2 $ 148.8
Net unrealized loss on available-for-sale
securities (112.3) (104.1)
------- -------
Accumulated other comprehensive income $ 6.9 $ 44.7
======= =======
</TABLE>
<PAGE>
ASSOCIATES FIRST CAPITAL CORPORATION
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (continued)
Comprehensive income for the three-month periods ended March 31, 2000
and 1999 consisted of the following components, net of tax (in millions):
<TABLE>
<CAPTION>
Three Months Ended
March 31
2000 1999
-------- --------
<S> <C> <C>
Net earnings $299.7 $336.8
Foreign currency translation adjustments (29.6) 7.4
Unrealized (loss) gain on available-for-sale
securities (8.2) 4.9
------ ------
Total comprehensive income $261.9 $349.1
====== ======
</TABLE>
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. The Company generally invests in these 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 securities as available-for-sale securities and
adjusts their recorded value to market. The estimated market value at
March 31, 2000 and December 31, 1999 was $7.5 billion and $7.1 billion,
respectively. The amortized cost at March 31, 2000 and December 31, 1999
was $7.7 billion and $7.3 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 accumulated other comprehensive income.
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 March
31, 2000 and December 31, 1999 was $29.0 million and $26.8 million,
respectively. Historical cost at March 31, 2000 and December 31, 1999 was
$18.0 million and $17.1 million, respectively.
ASSOCIATES FIRST CAPITAL CORPORATION
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (continued)
NOTE 7 - FINANCE RECEIVABLES
At March 31, 2000 and December 31, 1999, finance receivables consisted
of the following (in millions):
<TABLE>
<CAPTION>
March 31 December 31
2000 1999
-------- -----------
<S> <C> <C>
Home equity $24,490.6 $25,015.0
Personal lending and retail sales
finance (1) 15,391.6 16,012.4
Truck and truck trailer 13,017.4 13,130.3
Equipment 7,016.2 6,977.3
Credit card 2,284.4 2,247.1
Auto fleet leasing 2,117.2 2,070.1
Manufactured housing - 1,849.0
Warehouse lending and other (2) 1,565.0 1,515.9
--------- ---------
Finance receivables, net of unearned
finance income ("net finance
receivables") (3) 65,882.4 68,817.1
Allowance for losses on finance receivables (2,055.6) (2,174.4)
Insurance policy and claims reserves (975.3) (985.9)
--------- ---------
Finance receivables, net of unearned
finance income, allowance for losses
and insurance policy and claims
reserves $62,851.5 $65,656.8
========= =========
(1) In the first quarter of 2000, the Company transferred the unpaid principal
balance related to the $867 million of retail sales finance receivables
purchased from Arcadia to finance receivables held for sale or securitization.
(2) Includes warehouse lending, government guaranteed lending and municipal
finance.
(3) Unearned finance income was approximately $4.7 billion at both
March 31, 2000 and December 31,1999.
</TABLE>
In January 2000, the Company announced its intention to discontinue
the loan origination operations of its Associates Housing Finance ("AHF")
unit. Prior to the announcement, AHF originated and serviced loans for
manufactured homes. As a result of this announcement, the Company took a
special pre-tax charge against earnings of approximately $112 million in
the first quarter 2000. This charge covers exit costs of approximately $25
ASSOCIATES FIRST CAPITAL CORPORATION
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (continued)
million, including severance, noncancellable contractual obligations and
related costs, a securitization retained interest write down of approximately
$47 million, and a provision for increased losses on the disposition of
repossessions of approximately $40 million. The Company closed
substantially all of its sales purchase offices in February 2000 and will
close its regional loan origination centers in the second quarter 2000.
The Company will service the liquidation of the existing receivables
through its centralized service facility in Knoxville, Tennessee. The
Company will limit its origination activities to support of its contractual
arrangements and loss mitigation initiatives. Additionally, the Company
reclassified its AHF unit's finance receivables of $1.8 billion and related
allowance for losses of $175 million to finance receivables held for sale
or securitization. At March 31, 2000, the Company had a remaining accrual
related to the exit costs of approximately $10.4 million. The AHF unit had
pre-tax loss before the special pre-tax charge of approximately $1 million
for the three months ended March 31, 2000 and a pre-tax loss of
approximately $1 million for the three months ended March 31, 1999.
In March 2000, the Company securitized and sold a $1.5 billion home
equity receivables portfolio and retained interests in the related
securitization trust totaling approximately $262 million. A pre-tax gain
of approximately $22 million was recorded on this transaction.
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):
<TABLE>
<CAPTION>
Three Months Ended Year Ended
March 31 December 31
2000 1999 1999
---- ---- -----------
<S> <C> <C> <C>
Balance at beginning of period $2,174.4 $1,978.7 $ 1,978.7
Provision for losses 451.5 362.8 1,506.4
Recoveries on receivables
charged off 67.2 77.3 268.8
Losses sustained (458.5) (426.4) (1,717.1)
Reserves of receivables sold or
held for sale or securitization (1) (176.6) (27.3) (214.0)
Reserves of acquired
businesses and other (2.4) 302.2 351.6
-------- -------- ---------
Balance at end of period $2,055.6 $2,267.3 $ 2,174.4
======== ======== =========
(1) Includes $175 million of reserves for manufactured housing receivables transferred to
finance receivables held for sale or securitization at March 31, 2000.
</TABLE>
ASSOCIATES FIRST CAPITAL CORPORATION
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (continued)
NOTE 9 - OTHER ASSETS
The components of other assets at March 31, 2000 and December 31, 1999
were as follows (in millions):
<TABLE>
<CAPTION>
March 31 December 31
2000 1999
--------- -----------
<S> <C> <C>
Goodwill, net $ 3,662.5 $3,747.8
Finance receivables held for sale
or securitization, net (1) 3,961.0 153.0
Notes and other receivables 1,631.9 1,877.9
Other intangible assets, net 1,891.0 1,579.4
Property and equipment 681.4 662.2
Collateral held for resale 557.2 431.7
Relocation client advances 196.5 185.4
Other 474.9 459.8
--------- --------
Total other assets $13,056.4 $9,097.2
========= ========
(1) At March 31, 2000, finance receivables held for sale or securitization
includes the finance receivables acquired from Arcadia of approximately $830
million and KeyCorp of approximately $1.3 billion as discussed in Note 3 and
finance receivables relating to the Company's AHF unit of approximately $1.8
billion as discussed in Note 7.
</TABLE>
NOTE 10 - DEBT RESTRICTION
Restrictions contained in certain syndicated credit facilities require
the Company to maintain a minimum tangible net worth, as defined, of $2.5
billion. At March 31, 2000, the Company's tangible net worth, as defined
in the syndicated credit facilities, was approximately $6.4 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.
Instruments currently used by the Company are foreign currency forward
exchange, currency swap, interest rate swap, interest rate option,
municipal bond and treasury futures and option contracts.
Foreign currency forward exchange agreements are generally held for
purposes other than trading and have been designated for accounting
purposes as hedges of certain of the Company's foreign currency denominated
ASSOCIATES FIRST CAPITAL CORPORATION
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (continued)
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 five years. The aggregate notional amount
of these agreements at March 31, 2000 and December 31, 1999 was $3.2
billion and $2.8 billion, respectively. The fair value of such agreements
at March 31, 2000 and December 31, 1999 would have been a liability of
$368.9 million and $389.0 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 March
31, 2000 and December 31, 1999 was $5.8 billion and $5.9 billion,
respectively. The fair value of such agreements at March 31, 2000 and
December 31, 1999 would have been a liability of $446.0 million and $307.9
million, respectively.
Interest rate swap and interest rate option 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. The aggregate notional amount of interest
rate swap agreements at March 31, 2000 and December 31, 1999 was $9.4
billion and $9.2 billion, respectively. The fair value of such agreements
at March 31, 2000 and December 31, 1999 would have been a liability of
$43.2 million and $46.7 million, respectively. The aggregate notional
amount of interest rate option agreements was $1.5 billion at March 31,
2000. The fair value of such agreements would have been an asset of $7.0
million at March 31, 2000. Interest rate swap and interest rate option
agreements mature on varying dates over the next 31 years.
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 March 31, 2000 and December 31, 1999 was $372.5 million
and $536.2 million, respectively. The fair value of these contracts would
have been a liability of $21.2 million and an asset of $12.4 million at
March 31, 2000 and December 31, 1999, respectively. Such contracts mature
on varying dates through 2000.
Municipal bond futures are used to minimize fluctuations in the value
of municipal bond investments and are held for purposes other than trading.
The aggregate notional amount of municipal bond futures contracts at March
31, 2000 and December 31, 1999 was $229.9 million and $180.1 million,
respectively. The fair value of these contracts would have been a
liability of $4.5 million at March 31, 2000 and an asset of $2.4 million at
December 31, 1999. Such contracts mature on varying dates through 2000.
ASSOCIATES FIRST CAPITAL CORPORATION
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (continued)
NOTE 12 - SEGMENT REPORTING
The Company is organized into five primary business units: U.S. credit
card, U.S. consumer branch, U.S. home equity, commercial and international
finance. The U.S. consumer branch and U.S. home equity business units are
aggregated into one reportable U.S. consumer finance segment due to their
similar operating characteristics. The Company's corporate activities
include, among others, managing the operations of its domestic and foreign
subsidiaries, accessing the global debt, securitization and capital markets
and managing the mix of businesses in its portfolio. The Company fully
allocates its corporate activities to its business segments primarily based
upon managed receivables.
Managed Basis revenue, earnings and receivables information for each
of the Company's reportable segments is presented below (in millions):
<TABLE>
<CAPTION>
U.S. U.S.
Credit Consumer International
Card Finance Commercial(1) Finance Total
------ -------- ------------- ------------- --------
<S> <C> <C> <C> <C> <C>
Total revenue for the
three months ended:
March 31, 2000 $ 760.1 $ 1,136.6 $ 677.4 $ 806.2 $ 3,380.3
March 31, 1999 621.1 1,124.5 764.4 675.5 3,185.5
Segment earnings for
for three months ended:
March 31, 2000 (2) $ 150.9 $ 125.7 $ (4.6) $ 203.7 $ 475.7
March 31, 1999 82.3 174.0 126.6 156.0 538.9
Finance receivables at:
March 31, 2000 $12,966.0 $32,338.2 $22,442.9 $13,591.5 $81,338.6
December 31, 1999 11,576.0 31,566.8 22,453.8 13,323.3 78,919.9
(1) Commercial finance receivables exclude the owned finance receivables and serviced assets of
the Company's AHF unit of $1.8 billion and $3.5 billion, respectively, at March 31, 2000 and $1.8
billion and $3.6 billion, respectively, at December 31, 1999. The owned receivables have been
reclassified to finance receivables held for sale or securitization and are included in other
assets.
(2) Excluding the special pre-tax charge, as discussed in Note 7, commercial segment earnings
and total earnings would have been $107.8 million and $588.1 million, respectively.
</TABLE>
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
The discussion that follows includes amounts reported in the
historical financial statements adjusted on a pro forma basis to include
certain effects of receivables held for securitization and receivables sold
with servicing retained ("Managed Basis"). On an Owned Basis, the net
earnings on the Company's retained securitization interests and receivables
held for securitization, as well as gains from subsequent sales in
revolving securitization structures, are included in servicing related
income in the consolidated statement of earnings. On a Managed Basis,
these earnings are reclassified and presented as if the receivables had
neither been held for securitization nor sold. The initial gains recorded
on securitization transactions are recorded in investment and other income
on both an Owned and Managed Basis. Management believes the discussion of
Managed Basis information is useful in evaluating the Company's operating
performance.
The following tables contain selected Managed Basis financial
information (in millions):
<TABLE>
<CAPTION>
Three Months Ended March 31,
2000 1999
--------- ----------
<S> <C> <C>
Finance charges $ 3,004.2 $ 2,747.7
Insurance premiums 275.3 256.3
Investment and other income 100.8 181.5
--------- ----------
Total revenue 3,380.3 3,185.5
Interest expense 1,101.4 1,031.6
Operating expenses 1,044.2 979.6
Provision for losses 633.6 531.7
Insurance benefits paid or provided 125.4 103.7
--------- ----------
Total expenses 2,904.6 2,646.6
Earnings before provision
for income taxes 475.7 538.9
Provision for income taxes 176.0 202.1
--------- ----------
Net earnings $ 299.7 $ 336.8
========= =========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
-------- ----------
<S> <C> <C>
Net Finance Receivables (1)
End of period $81,338.6 $78,919.9
Average 80,114.2 73,621.8
Total Assets
End of period $98,247.3 $95,088.0
Average 96,625.3 89,575.4
(1) Excludes the owned finance receivables and serviced assets of the
Company's AHF unit of $1.8 billion and $3.5 billion, respectively, at March
31, 2000 and $1.8 billion and $3.6 billion, respectively, at December 31,
1999. Additionally, the owned finance receivables and serviced assets of the
Company's AHF unit have been excluded from the calculation of the
average net finance receivables for the periods ended March 31, 2000 and
December 31, 1999.
</TABLE>
Net Earnings
Net earnings decreased for the three-month period ended March 31, 2000
over the same period in the previous year. In January 2000, the Company
announced its intention to discontinue the loan origination operations of
its Associates Housing Finance ("AHF") unit. As a result of this
announcement, the Company took a special pre-tax charge against earnings of
approximately $112 million in the first quarter of 2000. Excluding the
special pre-tax charge, net earnings would have increased to $370.5 million
for the three- month period ended March 31, 2000 from $336.8 million for
the same period in the previous year. The principal factors that
influenced the changes in the Company's net earnings are described in the
sections that follow.
Finance Charges
Finance charge revenue on a Managed Basis increased for the first
quarter of 2000 to $3.0 billion compared to $2.7 billion in the same
quarter 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 (the "Finance Charge
Ratio") was 15.00% for the first quarter of 2000 compared to 14.44% for the
same quarter in the prior year. The increase in the Finance Charge Ratio
was principally due to increased new business yields in response to the
rising interest rate environment and the exclusion of the manufactured
housing owned finance receivables and serviced assets from average managed
receivables.
ASSOCIATES FIRST CAPITAL CORPORATION
Interest Expense
Managed Basis interest expense increased to $1.1 billion for the
three-month period ended March 31, 2000 compared to $1.0 billion for the
same period in 1999. A modest shift toward a higher amount of long term
debt as a percentage of total debt was the primary cause of the increase,
as long term debt rates were higher than short term debt rates in each
period. Lower average outstanding debt levels partially offset the
increase.
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 $1.9 billion for the first quarter of 2000 compared to $1.7
billion for the prior-year quarter. For the three months ended March 31,
2000, the Company's net interest margin expressed as a ratio to average
managed finance receivables ("Interest Margin Ratio") increased to 9.50% from
9.02% for the same period in the prior year. The primary reason for the
increase in net Interest Margin Ratio was due to the previously mentioned
exclusion of manufactured housing owned finance receivables and serviced
assets from average managed receivables.
Investment and Other Income
Investment and other income, on a Managed Basis, decreased to $100.8
million for the first quarter of 2000 compared to $181.5 million for the
prior year quarter. The decrease primarily relates to the special pre-tax
charge of approximately $47 million related to the write down of the
manufactured housing securitization retained interest, the earnings of net
assets held for sale and businesses sold during the first quarter of 1999
of approximately $31 million, and the net proceeds on the sale of the
Company's recreational vehicle business which were included in investment
and other income for the three-month period ended March 31, 1999. This was
somewhat offset by a pre-tax gain of approximately $22 million on the first
quarter of 2000 securitization and sale of approximately $1.5 billion in
home equity receivables.
Operating Expenses
First quarter Managed Basis operating expenses were higher in 2000
than in 1999 reflecting the growth in the size of the Company and business
mix. Operating expenses as a percentage of average managed finance
receivables ("Operating Expense Ratio") increased to 5.21% in the first
quarter of 2000, compared to 5.15% in the prior year quarter. The
Company's efficiency ratio, measured as the ratio of total Managed Basis
operating expenses divided by total Managed Basis revenue net of Managed
Basis interest expense and insurance benefits paid or provided was 48.5%
for the first three months of 2000 compared to 47.8% in the same period in
the prior year. Excluding the special pre-tax charge of approximately $25
million related to the exit costs, the operating expense ratio and
ASSOCIATES FIRST CAPITAL CORPORATION
efficiency ratio declined to 5.09% and 46.3%, respectively. The decrease
in the adjusted ratios was primarily the result of integration and other
costs of the Avco acquisition in the first quarter 1999. The decline in
the operating expense ratio was somewhat offset by the previously mentioned
exclusion of manufactured housing owned finance receivables and serviced
assets from average managed finance receivables.
Provision for Losses
The Company's Managed Basis provision for losses increased to $593.4
million during the first quarter of 2000 from $531.7 million for the first
quarter of 1999. The increase is primarily related to the special pre-tax
charge in the first quarter 2000 of approximately $40 million. Total
Managed Basis net credit losses from ongoing operations, which excludes the
Company's AHF unit, as a percentage of average managed finance receivables
(the "Loss Ratio") were 2.86% for the first quarter of 2000 compared to
2.78% for the same period in 1999. The increase in the Loss Ratio was
primarily due to an increase in loss rates in the home equity, personal
lending and truck and truck trailer receivables portfolios. A
deterioration of credit quality in certain acquired home equity portfolios
and the fourth quarter centralization of certain collection operations
related to the personal loan portfolios caused the increase in losses in the
home equity and personal lending portfolios. The increase in truck and truck
trailer net credit losses is due to increased loss severity on the sale of
repossessions and fewer loans with recourse arrangements.
Financial Condition
Managed finance receivables decreased $3.1 billion during the first
quarter of 2000. This decrease was primarily the result of the exclusion
of approximately $5.5 billion in manufactured housing receivables from
managed receivables at March 31, 2000. The Company did not include
manufactured housing receivables in total managed receivables because it
had discontinued the loan origination operations of its Associates Housing
Finance unit. The Company will continue to service manufactured housing
accounts and report manufactured housing receivables as a component of
total managed assets. This decrease was partially offset by the
acquisition of KeyCorp's credit card receivables portfolio of $1.3 billion
and receivables growth of approximately $1.1 billion.
Composite 60+days contractual delinquency from ongoing operations was
2.64% of gross managed finance receivables at March 31, 2000, compared to
2.81% at December 31, 1999. Accordingly, the allowance for losses to net
finance receivables decreased to 3.12% at March 31, 2000 from 3.16% at
December 31, 1999. Company management believes the allowance for losses at
March 31, 2000 is sufficient to provide adequate coverage against losses in
its portfolios. Composite 60+days contractual delinquency for the
Company's AHF unit was 1.58% for the three months ended March 31, 2000.
ASSOCIATES FIRST CAPITAL CORPORATION
The Loss Ratio for the Company's AHF unit was 2.88% and 1.96% for the three
months ended March 31, 2000 and 1999, respectively.
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 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, cash provided from the Company's operations
and asset securitizations. Management believes that 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 manages 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 financed through private and
public debt borrowings in the transactional currency and fully hedged
intercompany borrowings.
At March 31, 2000, the Company had short- and long-term debt
outstanding of $28.2 billion and $41.9 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 three months ended March 31, 2000 and 1999, the
Company raised term debt aggregating $3.5 billion and $2.0 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 March 31,
2000, these credit facilities were allocated to provide at least 75% backup
coverage of the Company's recurring commercial paper borrowings and
utilized uncommitted lines of credit.
ASSOCIATES FIRST CAPITAL CORPORATION
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.
The Company has additional asset classes in its portfolio which can be
securitized, including asset classes within its foreign operations.
Certain debt issues are subject to put or call redemption provisions
whereby repayment may be required 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. Additionally, the Company has
written put options during the first quarter of 2000 in aggregate of up to
$1.5 billion principal amounts of certificates backed by home equity
receivables which requires it to purchase, upon request of the holder, the
securities issued. The Company has recorded a liability of $7 million in
connection with these options.
As part of its risk management activities, the Company hedges its net
investments in its Japanese subsidiary, AIC Corporation. To date the
Company has used forward contracts to hedge the Yen denominated net
investment. Beginning in the second quarter of 2000, the Company will
transition its investment hedging activities to utilize other instruments
which will receive consistent accounting treatment under Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities".
During the first quarter of 2000, the credit ratings of the Company
and its principal operating subsidiary, Associates Corporation of North
America ("ACONA"), were lowered. Fitch IBCA ("Fitch") lowered the long-
term and short-term credit ratings of the Company and ACONA to A+/F1 and
AA-/F1+, respectively. The ratings of the Company and ACONA remain on a
negative outlook. The action taken by Fitch brought the ratings of the
Company and ACONA into alignment with the other major rating agencies. In
addition, Standard & Poors lowered its long-term and short-term credit
ratings of ACONA to A+/A1 with a stable outlook. The Company's credit ratings
were reaffirmed by Standard & Poors with a stable outlook.
During the first quarter of 2000, the Company's board of directors
authorized the repurchase of up to 50 million shares of the Company's stock.
The share repurchase would be implemented over time and funded through excess
capital formation.
<PAGE>
ASSOCIATES FIRST CAPITAL CORPORATION
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The discussion that follows reflects material changes in the
"Quantitative and Qualitative Disclosure About Market Risk" reported at
year end, and, as such, should be read in conjunction with the Company's
Annual Report on Form 10-K for the year ended December 31, 1999. 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.
Interest Rate Risk-Managed Basis
Interest rate risk is measured and controlled through the use of
static gap analysis and financial forecasting, both of which incorporate
assumptions about future events. At March 31, 2000, the one-year gap was a
negative 10%, an increase from negative 5% at December 31, 1999. A
negative one-year gap indicates that a greater percentage of liabilities
versus assets will reprice within a one-year time frame.
The Company also uses a simulation model to evaluate the impact on
earnings. For an immediate 1% increase in rates, projected annual after-tax
earnings on managed assets would have declined by 6% at March 31, 2000 and
4% at December 31, 1999. An immediate 1% rise in interest rates is a
hypothetical rate scenario, used to calibrate risk, and does not currently
represent the Company's view of future market developments.
For purposes of the 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 Managed assets and
liabilities and their exposure to changes in interest rates. At March 31,
2000, interest rate movements would affect annual after-tax earnings by
approximately $69 million, as compared to $60 million at December 31, 1999,
as calculated under the VAR methodology.
In April 2000, the Company initiated $4.8 billion of transactions,
which reduced its interest rate risk position, to a level similar to the
December 1999 risk profile. Including the effect of these April
transactions, the projected April 30, 2000 one-year gap was a negative 4%.
Similarly, using a simulation model, an immediate 1% increase in rates
would result in an decrease in projected annual after-tax earnings on
managed assets of 4%.
<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, 1999 the cautionary statements
found on pages 30 and 31 of such Form 10-K.
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 first quarter ended March 31, 2000, the Company filed a
Current Report on Form 8-K as of January 27, 2000 (announcing
financial results for the year ended December 31, 1999); January
27, 2000 (announcing expected growth for 2000 earnings per share);
and February 15, 2000 (announcing management's outlook for 2000).
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.
May 12, 2000
ASSOCIATES FIRST CAPITAL CORPORATION
(registrant)
By /s/ John F. Stillo
----------------------------------------
Executive Vice President, Comptroller and
Principal Accounting Officer
<PAGE>
EXHIBIT 12
ASSOCIATES FIRST CAPITAL CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollar Amounts in Millions)
<TABLE>
<CAPTION>
Three Months Ended
March 31
2000 1999
---- ----
<S> <C> <C>
Fixed Charges (a)
Interest expense $ 961.1 $ 960.0
Implicit interest in rent 9.4 9.2
-------- --------
Total fixed charges $ 970.5 $ 969.2
======== ========
Earnings (b)
Earnings before provision for income
taxes $ 475.7 $ 538.9
Fixed charges 970.5 969.2
-------- --------
Earnings, as defined $1,446.2 $1,508.1
======== ========
Ratio of Earnings to Fixed Charges (c) 1.49 1.56
==== ====
- ----------
(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.
(c) Excluding the special pre-tax charge related to the Company's AHF unit,
the ratio of earnings to fixed charges for the three months ended March
31, 2000 would have been 1.61.
</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 March 31, 2000 and the three 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-2000
<CASH> 1,287
<SECURITIES> 7,505
<RECEIVABLES> 65,882
<ALLOWANCES> 2,056
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 84,700
<CURRENT-LIABILITIES> 0
<BONDS> 70,046
<COMMON> 7
0
0
<OTHER-SE> 10,008
<TOTAL-LIABILITY-AND-EQUITY> 84,700
<SALES> 3,058
<TOTAL-REVENUES> 3,058
<CGS> 0
<TOTAL-COSTS> 2,582
<OTHER-EXPENSES> 1,170
<LOSS-PROVISION> 451
<INTEREST-EXPENSE> 961
<INCOME-PRETAX> 476
<INCOME-TAX> 176
<INCOME-CONTINUING> 300
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 300
<EPS-BASIC> 0.41
<EPS-DILUTED> 0.41
</TABLE>
