<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-K
(Mark One)
X Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (Fee Required)
For the fiscal year ended December 31, 1994 OR
___ Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (No Fee Required)
For the transition period from ________________ to ________________
Commission file number 0-18263
FORD HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Delaware 38-2890269
(State of incorporation) (I.R.S. Employer Identification No.)
The American Road, Dearborn, Michigan 48121
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 3l3-322-3000
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
<TABLE>
<CAPTION>
Name of each exchange on
Title of each class which registered
- -------------------------------------------- ------------------------
<S> <C>
Depositary Shares, each representing New York Stock Exchange
1/4,000 of a share of Series A Cumulative
Preferred Stock, as described below
Depositary Shares, each representing New York Stock Exchange
1/4,000 of a share of Series B Cumulative
Preferred Stock, as described below
Depositary Shares, each representing New York Stock Exchange
1/4,000 of a share of Series C Cumulative
Preferred Stock, as described below
Depositary Shares, each representing New York Stock Exchange
1/4,000 of a share of Series D Cumulative
Preferred Stock, as described below
</TABLE>
[COVER PAGE 1 OF 2 PAGES]
<PAGE> 2
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Series A Cumulative Preferred Stock, par value $1.00 per share
(with an annual dividend rate of $8,000 per share
and a liquidation preference of $100,000 per share)
(Title of Class)
Series B Cumulative Preferred Stock, par value $1.00 per share
(with an annual dividend rate of $8,000 per share
and a liquidation preference of $100,000 per share)
(Title of Class)
Series C Cumulative Preferred Stock, par value $1.00 per share
(with an annual dividend rate of $7,120 per share
and a liquidation preference of $100,000 per share)
(Title of Class)
Series D Cumulative Preferred Stock, par value $1.00 per share
(with an annual dividend rate of $8,100 per share
and a liquidation preference of $100,000 per share)
(Title of Class)
________________________
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
-------- --------
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ ]
As of March 1, 1995, the Registrant had outstanding 1,099 shares of
Common Stock, all of which were held, directly or indirectly, by Ford Motor
Company. The Registrant also had outstanding: 8,000 shares of Flexible Rate
Auction Preferred Stock (Exchange), Series A-K, having an aggregate
liquidation preference of $800 million; 2,150 shares of Flexible Rate Auction
Preferred Stock, Series L, M and N, having an aggregate liquidation preference
of $215 million; 2,868.9469 shares of Series A Cumulative Preferred Stock
having an aggregate liquidation preference of $287 million; 1,732.4527 shares
of Series B Cumulative Preferred Stock having an aggregate liquidation
preference of $173 million; 2,001.4942 shares of Series C Cumulative Preferred
Stock having an aggregate liquidation preference of $200 million; and
2,000.4035 shares of Series D Cumulative Preferred Stock having an aggregate
liquidation preference of $200 million. None of the shares of preferred stock
of the Registrant is held, directly or indirectly, by Ford Motor Company.
[COVER PAGE 2 OF 2 PAGES]
<PAGE> 3
PART I
Item 1. Business
GENERAL
Ford Holdings, Inc. (the "Company" or "Ford Holdings") was
incorporated on September 1, 1989 for the principal purpose of acquiring,
owning and managing certain assets of Ford Motor Company ("Ford"). The
Company's primary activities consist of consumer and commercial financing
operations, insurance underwriting and equipment leasing. These activities are
conducted through the Company's wholly owned subsidiaries, Associates First
Capital Corporation and its subsidiaries ("The Associates"), USL Capital
Corporation (formerly United States Leasing International, Inc.) and its
subsidiaries ("USL Capital"), The American Road Insurance Company and its
subsidiaries ("American Road"), Ford Motor Land Development Corporation and its
subsidiaries ("Ford Land"), Ford Leasing Development Company and its
subsidiaries ("Ford Leasing") and Ford Holdings Financing, Inc. ("Ford
Financing").
The Associates' primary business activities are consumer finance,
commercial finance and insurance underwriting. The Associates conducts its
operations primarily through its principal operating subsidiary, Associates
Corporation of North America ("ACONA").
The principal business of USL Capital is the leasing and financing of
office and other business and commercial equipment, the leasing and management
of rail cars and commercial auto fleets, the leasing and financing of
commercial aircraft, industrial and energy facilities, and equipment financing
for state and local governments.
American Road is principally engaged in underwriting insurance with
respect to coverages for physical damage on vehicles financed through Ford
Motor Credit Company ("Ford Credit"), a wholly owned subsidiary of Ford, credit
life and credit disability insurance in connection with retail vehicle
financing, and extended service plan products covering vehicle repairs on
retail contracts. In addition, Ford Life Insurance Company ("Ford Life"), a
wholly owned subsidiary of American Road, offers deferred annuities. American
Road also has agreed to maintain Ford Life's surplus and capital at levels
necessary to meet applicable insurance regulations.
Ford Land's principal business is real estate development. Ford
Leasing's principal business is the leasing of dealership facilities to
franchised Ford vehicle dealers.
Ford Financing's principal business is the leasing of certain
commercial assets to Ford.
All the outstanding Common Stock of the Company, representing 75% of
the combined voting power of all classes of capital stock of the Company, is
owned, directly or indirectly, by Ford. The balance of the capital stock,
consisting of shares of Flexible Rate Auction Preferred Stock (Exchange),
Series A-K, Flexible Rate Auction Preferred Stock, Series L, M and N, Series A
Cumulative Preferred Stock, Series B Cumulative Preferred Stock, Series C
Cumulative Preferred Stock and Series D Cumulative Preferred Stock, accounts
for the remaining 25% of the total voting power; none of the preferred stock is
held, directly or indirectly, by Ford.
The principal executive offices of the Company are located at The
American Road, Dearborn, Michigan 48121, and its telephone number is (313)
322-3000.
<PAGE> 4
Item 1. Business (Continued)
BUSINESS OF THE COMPANY
As indicated above, the Company is a holding company and conducts its
operations through its subsidiaries. The Company, through its subsidiaries,
operates in three business segments: consumer finance, commercial finance and
insurance underwriting. The consumer finance segment (which includes certain
operations of The Associates) is principally engaged in making and investing in
residential real estate-secured receivables, making secured and unsecured
installment loans to individuals, purchasing consumer retail installment
obligations, investing in credit card receivables, financing manufactured
housing purchases and providing other consumer financial services. The
commercial finance segment (which includes the operations of USL Capital, Ford
Land, Ford Leasing, Ford Financing and certain operations of The Associates) is
principally engaged in financing sales of transportation and industrial
equipment, real estate development and leasing, and providing other financial
services, including automobile club, mortgage banking and relocation services.
The insurance segment (which includes the operations of American Road and
certain operations of The Associates) is engaged in, among other things,
underwriting property, casualty, credit life and disability insurance products,
and offering deferred annuities.
The business of each of the Company's principal subsidiaries is
presented separately below. Segment information for the Company is set forth
in Note 17 of Notes to Financial Statements, included on page FH-20 of this
Report.
THE ASSOCIATES
At December 31, 1994, The Associates had 1,473 branch offices in the
United States and employed approximately 13,700 persons. The Associates'
primary business activities are consumer finance, commercial finance and
insurance underwriting. The Associates conducts its operations primarily
through ACONA, its principal operating subsidiary.
- 2 -
<PAGE> 5
Item 1. Business (Continued)
Selected Financial Data. The following table sets forth selected
financial information of The Associates (in millions):
<TABLE>
<CAPTION>
Year Ended or at December 31
---------------------------------------------------------------------
1994 1993 1992 1991 1990
------- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C>
Consolidated Statement of
Income
Revenues $ 4,405 $ 3,706 $ 3,347 $ 3,187 $ 2,726
Interest expense 1,558 1,340 1,281 1,348 1,217
Provision for losses on
finance receivables 577 477 513 434 310
Operating income 888 752 606 540 448
Net income 548 470 383(a) 347 288
Consolidated Balance Sheet
Finance receivables
Consumer finance $24,067 $20,496 $17,943 $15,335 $10,137
Commercial finance 10,878 9,077 7,672 7,210 6,310
------- ------- ------- ------- -------
Total receivables 34,945 29,573 25,615 22,545 16,447
Unearned finance income 3,769 3,208 2,781 2,396 1,574
Allowance for losses on
finance receivables 944 809 699 591 450
Total assets 32,247 27,696 24,034 21,551 16,881
Total debt 27,866 23,809 20,790 18,551 14,579
Stockholders' equity 2,960 2,506 2,062 1,868 1,375
</TABLE>
- ---------------
(a) Includes a net charge of $10 million representing the cumulative effects
of changes in accounting principles.
- 3 -
<PAGE> 6
Item 1. Business (Continued)
Segment Data. The following table sets forth information by business
segment of The Associates for the years ended December 31 (in millions):
<TABLE>
<CAPTION>
Business Segment
------------------------
Consumer Commercial
Finance Finance(c) Insurance Other Eliminations Consolidated
------- ---------- --------- ----- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
1994
- ----
Revenues other than
intersegment $ 2,949 $ 1,134 $ 339 $ 16 $ (33) $ 4,405
Intersegment (a) 131 22 (153)
------- ------- ------ ---- ----- -------
Total revenues $ 3,080 $ 1,156 $ 339 $ 16 $(186) $ 4,405
======= ======= ====== ==== ===== =======
Operating income (b) $ 675 $ 308 $(95) $ 888
Assets at December 31 $19,576 $11,555 $1,030 $ 86 $32,247
1993
- ----
Revenues other than
intersegment $ 2,444 $ 991 $ 281 $ 15 $ (25) $ 3,706
Intersegment (a) 106 20 (126)
------- ------- ------ ---- ----- -------
Total revenues $ 2,550 $ 1,011 $ 281 $ 15 $(151) $ 3,706
======= ======= ====== ==== ===== =======
Operating income (b) $ 565 $ 277 $(90) $ 752
Assets at December 31 $16,894 $ 9,851 $ 877 $ 74 $27,696
1992
- ----
Revenues other than
intersegment $ 2,200 $ 902 $ 252 $ 14 $ (21) $ 3,347
Intersegment (a) 95 33 (128)
------- ------- ------ ---- ----- -------
Total revenues $ 2,295 $ 935 $ 252 $ 14 $(149) $ 3,347
======= ======= ====== ==== ===== =======
Operating income (b) $ 450 $ 249 $(93) $ 606
Assets at December 31 $15,109 $ 8,129 $ 736 $ 60 $24,034
</TABLE>
- ---------------
(a) Represents the gross profit of the insurance operation which is
attributable to the business segment which produced the business.
(b) Operating income is earnings before provision for income taxes and
cumulative effects of changes in accounting principles. Operating
income produced by the finance operations from the sale of the insurance
operation's products is included in the respective finance operation.
(c) Includes information pertaining to the financing of manufactured housing
purchases which are managed by the commercial operation.
- 4 -
<PAGE> 7
Item 1. Business (Continued)
Consumer Finance. Consumer finance consists of making and investing
in residential real estate-secured loans to individuals, making secured and
unsecured installment loans to individuals, purchasing consumer retail
installment obligations, investing in credit card receivables, financing
manufactured housing purchases ("MHO") and providing other consumer financial
services. In addition, The Associates offers insurance to its consumer finance
customers.
Loans made to individuals are secured by mortgages on real property,
by liens on personal property (the realizable value of which may be less than
the amount of the loans secured) or are unsecured. At December 31, 1994, 77%
of the gross outstanding balance of residential real estate-secured receivables
was secured by first mortgages. At December 31, 1994, the gross consumer
finance receivables included credit card receivables ($4.0 billion) owned or
originated by Associates National Bank (Delaware), a subsidiary of The
Associates.
The interest rates currently charged on all types of consumer finance
receivables average approximately 17% simple interest per annum. At December
31, 1994, the interest rates charged on approximately 38% of the net consumer
finance receivables outstanding varied during the term of the contract at
specified intervals in relation to a base rate established at the time the loan
was made. State laws establish maximum allowable finance charges for certain
consumer loans; approximately 89% of the outstanding gross consumer finance
receivables were either not subject to such state maximums, or if subject, such
maximum finance charges did not, in most cases, materially restrict the
interest rates charged. Original maturities of residential real estate-secured
receivables average 149 months and original maturities of other consumer
receivables, excluding credit card and MHO receivables, average 33 months.
Original maturities of MHO receivables average 217 months.
Commercial Finance. Commercial finance consists of the purchase of
time sales obligations and leases, direct leases and secured direct loans, and
sales of other financial services, including automobile club, mortgage banking
and relocation services. In addition, The Associates offers insurance to its
commercial finance customers.
The types of equipment financed or leased are heavy-duty trucks,
truck trailers, autos and other transportation equipment, construction
equipment and machinery used in various manufacturing and distribution
processes. Except for lease transactions in which The Associates owns the
equipment, liens on the equipment financed secure the receivables. In many
cases, The Associates obtains the endorsement or a full or limited repurchase
agreement of the seller or the manufacturer of the goods, and in some cases, a
portion of the purchase price of the installment obligations is withheld as a
reserve.
At December 31, 1994, the interest rates charged on approximately 14%
of the net commercial finance receivables were established to vary during the
term of the contract in relation to a base rate. Commercial finance
receivables are generally not subject to maximum finance charges established by
state law, and where such restrictions apply, at the present time, they do not
materially restrict the interest rates charged. The interest rates currently
charged on all types of commercial finance receivables average approximately 9%
simple interest per annum. Original maturities of the commercial receivables
average 46 months.
- 5 -
<PAGE> 8
Item 1. Business (Continued)
Volume of Financing. The following tables set forth the gross volume
of finance business by major categories and average size and number of accounts
based on gross finance receivables volume (dollar amounts in millions):
<TABLE>
<CAPTION>
Gross Volume of Finance Receivables Purchased and Loans Made
------------------------------------------------------------
Consumer Finance Commercial Finance
---------------------------------- ------------------
Residential Installment, Heavy-Duty Truck
Real Estate- MHO and and Industrial
Secured Credit Card Equipment Total
Receivables Receivables Receivables Gross
(a) (a) (b) Volume
----------- ------------ ------------------ ---------
Year Ended
December 31
- -----------
<S> <C> <C> <C> <C>
1994 $6,283 $12,568 $12,275 $31,126
20% 40% 40% 100%
1993 $4,518 $ 9,382 $ 9,955 $23,855
19% 39% 42% 100%
1992 $4,480 $ 6,940 $ 7,329 $18,749
24% 37% 39% 100%
1991 $5,194 $ 6,672 $ 6,697 $18,563
28% 36% 36% 100%
1990 $1,946 $ 5,153 $ 5,904 $13,003
15% 40% 45% 100%
</TABLE>
- ---------------
(a) Included in 1994 are $61 million of warehouse loan facilities purchased
from First Collateral Services, Inc. and $416 million of credit card
receivables purchased from Amoco Oil Company ("Amoco"). Included in 1993
are $182 million of gross residential real estate-secured and installment
finance receivables attributable to the acquisition of Allied Finance
Company and $216 million of credit card receivables purchased from Great
Western Financial Corporation. Included in 1992 are $305 million of
gross residential real estate-secured and installment finance receivables
purchased from Signal Financial Corporation and $795 million of gross
residential real estate-secured and installment finance receivables
attributable to the acquisition of First Family Financial Services H.C.,
Inc. Included in 1991 are $2.7 billion of gross residential real
estate-secured finance receivables and contracts for the purchase of
manufactured housing purchased from Ford Credit and $337 million of gross
installment finance receivables attributable to the acquisition of
Kentucky Finance Co., Inc. Included in 1990 are $606 million in gross
residential real estate-secured receivables and installment finance
receivables attributable to the acquisition of Mellon Financial Services
Corporation.
(b) Included in 1993 are $597 million of gross heavy-duty truck and truck
trailer finance receivables purchased from Mack Financial Corp. Included
in 1992 are $57 million of gross industrial equipment finance receivables
attributable to the acquisition of Trans-National Leasing, Inc. Included
in 1991 are $931 million of gross industrial equipment finance
receivables attributable to the acquisition of Chase Manhattan Leasing
Company (Michigan), Inc. (renamed "Clark Credit").
- 6 -
<PAGE> 9
Item 1. Business (Continued)
<TABLE>
<CAPTION>
Average Size and Number of
Accounts Based on Gross Finance Receivables Volume
--------------------------------------------------
Consumer Finance Commercial Finance
--------------------------------- ------------------
Residential Installment, Heavy-Duty Truck
Real Estate- MHO and and Industrial
Secured Credit Card Equipment
Receivables Receivables Receivables(b)
------------ ------------- ------------------
<S> <C> <C> <C>
Year Ended December 31
- ----------------------
1994 Average size $46,283 $ 975 $51,447
Number of accounts 135,757 12,889,405(a) 122,542
1993 Average size $46,659 $1,527 $48,216
Number of accounts 96,833 6,141,881 113,766
1992 Average size $42,489 $1,511 $41,191
Number of accounts 105,436 4,594,106 105,533
1991 Average size $44,253 $1,588 $30,094
Number of accounts 117,365 4,201,643 140,962
1990 Average size $36,020 $1,647 $44,308
Number of accounts 54,029 3,129,480 80,197
</TABLE>
- ---------------
(a) Includes 5 million accounts pertaining to credit card receivables
purchased from Amoco, which accounts had lower average balances than the
remaining Associates receivables.
(b) Excludes wholesale receivables.
During 1994, 25% of the total gross volume of consumer loans, excluding
credit card receivables, was made to current creditworthy customers that
requested additional funds. The average balance prior to making an additional
advance was $10,150 and the average additional advance was $3,589.
Finance Receivables. The following tables set forth the amounts of gross
finance receivables by major categories and average size and number of accounts
(dollar amounts in millions):
<TABLE>
<CAPTION>
Gross Finance Receivables Held at End of Year
---------------------------------------------
Consumer Finance Commercial Finance
---------------------------------- ------------------
Residential Installment, Heavy-Duty Truck Total
Real Estate- MHO and and Industrial Gross
Secured Credit Card Equipment Finance
Receivables Receivables Receivables Receivables
------------ ------------ ------------------ -----------
<S> <C> <C> <C> <C>
At December 31
- --------------
1994 $12,003 $12,064 $10,878 $34,945
34% 35% 31% 100%
1993 $10,626 $ 9,870 $ 9,077 $29,573
36% 33% 31% 100%
1992 $ 9,820 $ 8,123 $ 7,672 $25,615
38% 32% 30% 100%
1991 $ 8,146 $ 7,188 $ 7,210 $22,544
36% 32% 32% 100%
1990 $ 4,901 $ 5,236 $ 6,310 $16,447
30% 32% 38% 100%
</TABLE>
- 7 -
<PAGE> 10
Item 1. Business (Continued)
<TABLE>
<CAPTION>
Average Size and Number of Accounts
Based on Gross Finance Receivables Held at End of Year
------------------------------------------------------
Consumer Finance Commercial Finance
-------------------------------- ------------------
Residential Installment, Heavy-Duty Truck
Real Estate- MHO and and Industrial
Secured Credit Card Equipment
Receivables Receivables Receivables
----------- ------------ -----------------
<S> <C> <C> <C>
At December 31
- --------------
1994 Average size $38,690 $1,528 $35,884
Number of accounts 310,230 7,894,845(a) 303,157
1993 Average size $37,787 $2,489 $31,218
Number of accounts 281,206 3,965,781 290,765
1992 Average size $36,725 $2,551 $27,792
Number of accounts 267,394 3,183,747 276,055
1991 Average size $33,829 $2,469 $27,506
Number of accounts 240,798 2,910,995 262,110
1990 Average size $33,928 $2,097 $28,002
Number of accounts 144,438 2,496,411 225,349
</TABLE>
- ---------------
(a) Includes 3 million accounts pertaining to credit card receivables purchased
from Amoco.
The ten largest customer accounts at December 31, 1994, other than
accounts with affiliates, represented 9/10 of one percent of the total gross
finance receivables outstanding. Of such ten accounts (all of which were
current at December 31, 1994), four were secured by truck leasing arrangements,
three were secured by construction equipment, one was secured by a
manufacturer's endorsement and related to communications equipment, one was
secured by manufactured housing and one was secured by auto leasing
arrangements. At December 31, 1994, the largest gross balance outstanding in
such accounts was $54 million and the average gross balance was $31 million.
- 8 -
<PAGE> 11
Item 1. Business (Continued)
Credit Loss and Delinquency Experience. The credit loss experience,
net of recoveries, of the finance business is set forth in the following table
(dollar amounts in millions):
<TABLE>
<CAPTION>
Year Ended or at December 3l
-------------------------------------------------------
1994 1993 1992 1991 1990
------ ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
NET CREDIT LOSSES
Consumer finance
Amount $456 $372 $383 $354 $255
% of average net receivables 2.33% 2.19% 2.64% 2.84% 3.06%
% of receivables liquidated 3.09 3.41 4.57 5.65 5.51
Commercial finance
Amount $ 8 $ 22 $ 42 $ 35 $ 23
% of average net receivables .09% .30% .64% .60% .44%
% of receivables liquidated .08 .26 .61 .61 .41
Total net credit losses
Amount $464 $394 $425 $389 $278
% of average net receivables 1.62% 1.61% 2.02% 2.13% 2.03%
% of receivables liquidated 1.84 2.03 2.80 3.24 2.69
ALLOWANCE FOR LOSSES
Balance at end of period $944 $809 $699 $591 $450
% of net receivables 3.03% 3.07% 3.06% 2.93% 3.02%
</TABLE>
An analysis of The Associates' allowance for losses on finance
receivables is as follows (in millions):
<TABLE>
<CAPTION>
Year Ended December 31
----------------------------------
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Beginning balance $809 $699 $591
Additions 577 477 513
Recoveries 101 88 72
Losses (565) (482) (497)
Other adjustments, primarily
reserves of acquired businesses 22 27 20
---- ---- ----
Ending balance $944 $809 $699
==== ==== ====
</TABLE>
The Associates maintains an allowance for losses on finance
receivables at an amount which it believes is sufficient to provide adequate
protection against future losses in the portfolios. The allowance is
determined principally on the basis of historical loss experience, and reflects
management's judgment of additional loss potential considering future economic
conditions and the nature and characteristics of the finance receivables.
Additions to the allowance are charged to the provision for losses on finance
receivables. Collateral held for resale is not considered significant to total
assets.
- 9 -
<PAGE> 12
Item 1. Business (Continued)
Finance receivables are charged to the allowance for losses when they
are deemed to be uncollectible. Additionally, The Associates' policy generally
provides for charge-off of various types of accounts on a contractual basis
(described below). Consumer direct and other installment and credit card
receivables are charged to the allowance for losses when they become 180 days
delinquent. All other finance receivables are charged to the allowance for
losses when any of the following conditions occur: (i) the related security
has been converted or destroyed; (ii) the related security has been repossessed
and sold or held for sale for one year; or (iii) the related security has not
been repossessed and the receivable has become one year delinquent. A
delinquent account is one on which the customer has not made a payment as
contractually agreed. Extensions are granted on receivables from customers
with satisfactory credit and with prior approval of management. Recoveries on
losses previously charged to the allowance are credited to the allowance at the
time the recovery is collected.
The following table shows total gross balances contractually
delinquent 60 days and more by type of business at the dates indicated (dollar
amounts in millions):
<TABLE>
<CAPTION>
Gross Gross
Consumer Finance Commercial Finance Total Gross
----------------------------- ------------------------------ ----------------------------
Balances Balances Balances
Delinquent Delinquent Delinquent
60 days 60 days 60 days
and more and more and more
---------------- ---------------- ----------------
Total % of Total % of % of
Out- Out- Out- Out- Out- Out-
stand- stand- stand- stand- stand- stand-
ings Amt. ings ings Amt. ings ings Amt. ings
------- ---- ------ ------- ---- ----- ------ ---- ------
At Dec. 31
- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1994 $24,067 $443 1.84% $10,878 $ 31 .28% $34,945 $474 1.36%
1993 20,496 363 1.77 9,077 48 .53 29,573 411 1.39
1992 17,943 371 2.07 7,672 63 .82 25,615 434 1.69
1991 15,334 401 2.61 7,210 129 1.79 22,544 530 2.35
1990 10,137 300 2.96 6,310 130 2.06 16,447 430 2.62
</TABLE>
Insurance Underwriting. The Associates is engaged in the property
and casualty and accidental death and dismemberment insurance business through
Associates Insurance Company ("AIC") and in the credit life and credit accident
and health insurance business through Associates Financial Life Insurance
Company ("AFLIC"), principally for customers of the finance operations of The
Associates. At December 31, 1994, AIC was licensed to do business in 50
states, the District of Columbia and Canada, and AFLIC was licensed to do
business in 49 states and the District of Columbia. In addition, The
Associates receives compensation for certain insurance programs underwritten by
other companies.
The operating income produced by the finance operations' sale of
insurance products is included in the respective finance operations' operating
income.
The following table sets forth the net property and casualty
insurance premiums written by major lines of business (in millions):
<TABLE>
<CAPTION>
Year Ended December 31
----------------------------------------------
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Automobile physical damage $119 $ 98 $ 80 $ 69 $ 87
Fire and extended coverage 50 41 28 16 31
Other casualty coverage 35 20 25 24 17
---- ---- ---- ---- ----
Total net premiums written $204 $159 $133 $109 $135
==== ==== ==== ==== ====
</TABLE>
- 10 -
<PAGE> 13
Item 1. Business (Continued)
The following table sets forth the aggregate premium income relating
to credit life, credit accident and health and accidental death and
dismemberment insurance, and the life insurance in force, for the years
indicated (in millions):
<TABLE>
<CAPTION>
Year Ended or at December 31
-------------------------------------------------------
1994 1993 1992 1991 1990
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Premium income $ 136 $ 111 $ 93 $ 84 $ 80
Life insurance in force 8,306 7,134 6,110 5,534 4,770
</TABLE>
The following table summarizes the revenue of the insurance operation
for all lines of business (in millions):
<TABLE>
<CAPTION>
Year Ended or at December 31
-------------------------------------------------------
1994 1993 1992 1991 1990
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Premium revenue(a) $ 293 $ 242 $ 210 $ 203 $ 213
Investment income 45 39 41 53 58
------ ------ ------ ------ ------
Total revenue $ 338 $ 281 $ 251 $ 256 $ 271
====== ====== ====== ====== ======
</TABLE>
- ---------------
(a) Includes compensation for insurance programs underwritten by other
companies.
Competition and Regulation. The interest rates charged for the
various classes of receivables of The Associates' finance business vary with
the type of risk and maturity of the receivable and are generally affected by
competition, current interest rates and, in some cases, governmental
regulation. In addition to competition with finance companies, competition
exists with, among others, commercial banks, thrift institutions, credit unions
and retailers.
Consumer finance operations are subject to detailed supervision by
state authorities under legislation and regulations which generally require
finance companies to be licensed and which, in many states, govern interest
rates and charges, maximum amounts and maturities of credit and other terms and
conditions of consumer finance transactions, including disclosure to a debtor
of certain terms of each transaction. Licenses may be subject to revocation
for violations of such laws and regulations. In some states, the commercial
finance operations are subject to similar laws and regulations. Customers may
seek damages for violations of state and Federal statutes and regulations
governing lending practices, interest rates and other charges. Federal
legislation preempts state interest rate ceilings on first mortgage loans and
state laws which restrict various types of alternative residential real
estate-secured receivables, except in those states which have specifically
opted out of such preemption. Certain Federal and state statutes and
regulations, among other things, require disclosure of the finance charges in
terms of an annual percentage rate, make credit discrimination unlawful on a
number of bases, require disclosure of a maximum rate of interest on variable
or adjustable rate mortgage loans, and limit the types of security that may be
taken in connection with non-purchase money consumer loans. Federal and state
legislation, in addition to that mentioned above, in the past has been, and
from time to time may be, introduced which seeks to regulate the maximum
interest rate and/or other charges on consumer finance receivables, including
credit cards.
- 11 -
<PAGE> 14
Item 1. Business (Continued)
Associates National Bank (Delaware) ("ANB") is under the supervision
of, and subject to examination by, the Office of the Comptroller of the
Currency. In addition, ANB is subject to the rules and regulations of the
Federal Reserve Board and the Federal Deposit Insurance Corporation ("FDIC").
Associates Investment Corporation, a Utah industrial loan company, is regulated
by the FDIC and the Utah Department of Financial Institutions. Areas subject
to regulation by these agencies include capital adequacy, loans, deposits,
consumer protection, the payment of dividends and other aspects of operations.
The insurance business is subject to detailed regulation, and
premiums charged on certain lines of insurance are subject to limitation by
state authorities. Most states in which insurance subsidiaries of The
Associates are authorized to conduct business have enacted insurance holding
company legislation pertaining to insurance companies and their affiliates.
Generally, such laws provide, among other things, limitations on the amount of
dividends payable by any insurance company and guidelines and standards with
respect to dealings between insurance companies and affiliates.
It is not possible to forecast the nature or the effect on future
earnings or otherwise of present and future legislation, regulations and
decisions with respect to the foregoing, or other related matters.
Other
In January 1995, Mr. Reece Overcash, Jr., Chairman of the Board of
Directors of The Associates since 1979, passed away. Mr. Keith Hughes,
formerly President of The Associates, was elected Chairman of the Board of
Directors to replace Mr. Overcash.
- 12 -
<PAGE> 15
Item 1. Business (Continued)
USL CAPITAL
USL Capital, a diversified commercial leasing and financing
organization, originally incorporated in 1956, was acquired by Ford in 1987 and
was transferred to Ford Holdings in 1989. In November 1993, the corporation's
name was changed from United States Leasing International, Inc. to USL Capital
Corporation. USL Capital provides financing to commercial and governmental
entities principally in the United States, including: (i) leasing and financing
of office, manufacturing, and other general-purpose business equipment; (ii)
leasing and management of commercial fleets of automobiles, vans, and trucks;
(iii) leasing and financing of large-balance transportation equipment
(principally commercial aircraft, rail and marine equipment); (iv) acting as
owner-trustee for certain leveraged leases for other investors; (v)
first-mortgage, intermediate-term financing of commercial properties; (vi)
financing of essential-use equipment for state and local governments; and (vii)
purchase of industrial development, private activity and housing bonds and
investments in publicly traded and privately placed preferred stocks and senior
and subordinated debt of public and private companies. Certain of these
financing transactions are carried on the books of Ford affiliates. At
December 31, 1994, USL Capital had 637 full-time employees.
Key Data. The following table sets forth certain data with respect
to USL Capital's business for the periods ending on and as of the dates
indicated (dollar amounts in millions):
<TABLE>
<CAPTION>
December 31
------------------------------------------------------------
1994 1993 1992 1991 1990
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Revenue $ 598 $ 565 $ 501 $ 500 $ 503
Income before taxes 160 122 89 86 51
Net income 109 77 57(a) 55 24
Additions to earning assets 1,542 2,045 1,831 1,655 1,073
Earning assets at December 31 5,043 4,607 3,585 2,727 1,983
Business unit earning assets (% of total):
Business equipment
financing 27% 32% 39% 48% 53%
Fleet services 11 10 12 12 25
Transportation and
industrial financing 25 24 21 16 7
Rail services 10 9 9 6 6
Real estate financing 9 9 9 9 5
Municipal and
corporate financing 18 16 10 9 4
--- --- --- --- ---
Total 100% 100% 100% 100% 100%
</TABLE>
- ---------------
(a) Includes reduction of $3 million resulting from cumulative effect of
adopting the new accounting standard on health care costs.
- 13 -
<PAGE> 16
Item 1. Business (Continued)
Credit Loss Experience. USL Capital reviews the credit of all
prospective customers, and manages concentration exposure by customer,
collateral type and geographic distribution. It establishes appropriate loss
allowances based on the credit characteristics and the loss experience for each
type of business, and also establishes additional reserves for specific
transactions if it believes this action is warranted. Delinquent receivables
are reviewed by management monthly, and are generally written down to expected
realizable value when, in the opinion of management, they become uncollectible
or when they become more than 180 days past due. Collection activities
continue on accounts written off when management believes such action is
warranted.
The table below summarizes certain information on USL Capital's
allowance for doubtful accounts at December 31 of the years indicated (dollar
amounts in millions):
<TABLE>
<CAPTION>
1994 1993 1992
------ ------ ------
<S> <C> <C> <C>
Allowance for doubtful accounts
Beginning balance $ 55 $ 40 $ 30
Additions 8 25 19
Deductions (5) (10) (9)
------ ------ ------
Ending balance $ 58 $ 55 $ 40
====== ====== ======
Percent of earning assets 1.2% 1.2% 1.1%
Total balances of accounts
receivable over 90 days
past due at year end $ 37 $ 44 $ 49
Percent of earning assets 0.7% 1.0% 1.4%
Total earning assets
Investments in
finance leases - net $2,435 $2,364 $2,075
Investments in
operating leases - net 712 695 558
Investments in leveraged
leases - net 266 191 4
Notes receivable 825 721 502
Investments in securities 700 563 329
Inventory held for sale
or lease 87 55 97
Investments in associated
companies 18 18 20
------ ------ ------
Total earning assets $5,043 $4,607 $3,585
====== ====== ======
</TABLE>
Additions to the allowance for doubtful accounts for 1994 decreased by
$17 million from 1993, primarily as a result of decreased write-offs as well
as management's evaluation of the adequacy of the loss reserve. Deductions in
1994 decreased $5 million from 1993, primarily as a result of improved
collection activities in the Business Equipment Financing business unit.
Total balances of accounts receivable over 90 days past due at year-end
1994 decreased $7 million over 1993 primarily because of the improved
collections on aged accounts and the completion of foreclosure on an apartment
complex, which was collateral for an $11 million note which was delinquent at
December 31, 1993. These changes were offset in part by a $16 million note,
collateralized by an aircraft, which became delinquent at the end of 1994.
Substantial payment of the delinquent amount was received on this note in
January 1995.
- 14 -
<PAGE> 17
Item 1. Business (Continued)
Residual Policy. The establishment and realization of residual
values on finance, leveraged and operating leases are important elements of USL
Capital's business. In general, finance and leveraged leases are
non-cancelable leases in which the net lease payments over the term amortize
the investment in the leased equipment down to the estimated value of equipment
at lease expiration. Operating leases are usually of a shorter term and the
lease payments by themselves are not sufficient to cover all costs and
expenses. Full recovery of equipment cost is dependent upon selling or
re-leasing the equipment.
Residual values are established upon acquisition of the equipment
based upon the estimated value of the equipment at the time USL Capital expects
to dispose of the equipment under finance and leveraged leases, and at the end
of the equipment's expected useful life under operating leases. Periodically,
USL Capital reviews its residual values, and if it determines there has been an
other than temporary impairment in value, adjustments are made which result in
an immediate charge to income and/or a reduction in earnings over the remaining
term of the lease. Proceeds as a percentage of the adjusted residual values
for finance and leveraged leases were 152% in 1994, 252% in 1993 and 129% in
1992. Proceeds as a percentage of the adjusted residual values for operating
leases were 115% in 1994, 125% in 1993 and 115% in 1992.
Competition. In all of its financing programs, USL Capital competes
with other leasing and finance companies, banks, lease brokers and investment
banking firms who arrange for the financing and leasing of equipment, and
manufacturers and vendors who sell, finance and lease their own products to
customers.
AMERICAN ROAD
American Road was incorporated as a wholly owned subsidiary of Ford
Credit in 1959 and was transferred to Ford Holdings in 1989. It is licensed in
50 states and the District of Columbia and in most provinces of Canada.
The operations of American Road consist primarily of underwriting floor
plan insurance related to substantially all new vehicle inventories of dealers
financed at wholesale by Ford Credit in the United States and Canada, credit
life and disability insurance in connection with retail vehicle financing, and
insurance related to retail contracts sold by automobile dealers to cover
vehicle repairs. In addition, Ford Life, a wholly owned subsidiary of American
Road, offers deferred annuities which are sold primarily through banks and
brokerage firms. The obligations of Ford Life, including annuities, are
guaranteed by American Road. American Road also has agreed to maintain Ford
Life's surplus and capital at levels necessary to meet applicable insurance
regulations.
The principal subsidiaries of American Road are Ford Life and Vista Life
Insurance Company ("Vista Life"). Ford Life primarily offers annuities, credit
life and disability insurance on vehicles and equipment financed at retail and
Vista Life writes group credit life insurance and credit disability insurance
on vehicles financed at retail.
Total premiums written by American Road and its subsidiaries during the
last five years were as follows (in millions): 1994: $319; 1993: $309; 1992:
$235; 1991: $379; and 1990: $437. The decrease in premiums written after 1990
resulted
- 15 -
<PAGE> 18
Item 1. Business (Continued)
primarily from (1) the conversion in October 1989 of a significant portion of
the Extended Service Plan from an American Road insurance product to a Ford
service contract and (2) the discontinuance in the second quarter of 1992 of
Ford Credit's purchase of collateral protection insurance from American Road.
The 1993 increase in premiums written resulted primarily from higher vehicle
sales and higher premium rates for floor plan insurance products. The 1994
increase in premiums written reflected higher vehicle sales.
The following table summarizes the revenues and net income of American
Road (in millions):
<TABLE>
<CAPTION>
Revenues
------------------------------------------------
Premiums Investment Annuities and Net
Earned Income Other Income Total Income
-------- ---------- ------------- ----- ------
<S> <C> <C> <C> <C> <C>
1994 $376 $ 41 $159 $576 $ 58(a)
1993 465 141 130 736 79
1992 519 175 42 736 63(b)
1991 706 211 2 919 126
1990 764 149 4 917 103
</TABLE>
- ---------------
(a) Includes an increase of $26 million for non-recurring recoveries of
income taxes in 1994 from prior years.
(b) Includes an increase of $16 million resulting from cumulative effect of
adopting new accounting rules on income taxes.
The detail of premiums earned by American Road was as follows (in
millions):
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Extended service contracts $148 $211 $217 $318 $355
Physical damage 119 139 176 227 228
Credit life and disability 109 115 126 161 181
---- ---- ---- ---- ----
Total $376 $465 $519 $706 $764
==== ==== ==== ==== ====
</TABLE>
The insurance industry is highly regulated by the states with
respect to premium rates, policy terms, dividends, investments and many other
aspects of the insurance business. American Road competes with many insurance
companies and is not a significant factor in car and truck insurance
underwriting. The principal competitors of Ford Life and Vista Life are life
insurance companies that specialize in credit life and credit disability
insurance and insurance companies that offer deferred annuities.
FORD LAND
Ford Land was formed by Ford in 1970 to implement a master plan for
the development of 2,360 acres of vacant land in Dearborn, Michigan. Since
then, Ford Land has expanded its activities to include non-automotive real
estate development and management and development of land and facilities
related to Ford operations. See Item 2. "Properties" for a description of
Ford Land's real estate holdings.
The assets employed in, and revenues derived from, Ford Land are not
significant in relation to the Company's consolidated operations.
- 16 -
<PAGE> 19
Item 1. Business (Continued)
FORD LEASING
Ford Leasing, which was incorporated by Ford in 1960, acquires real
property by purchase or lease and constructs facilities on such property for
lease to franchised Ford car and truck dealers where private capital funding is
unavailable. Ford Leasing provides dealers with facilities in key markets at
affordable rental rates. It sells certain of those dealership facilities to
the dealers, and sells to third parties property and facilities which are no
longer needed for automobile dealerships. The assets employed in, and revenues
derived from, Ford Leasing are not significant in relation to the Company's
consolidated operations.
FORD FINANCING
Ford Financing was incorporated as a wholly owned subsidiary of the
Company in 1994. Ford Financing's principal business is the leasing of certain
commercial assets to Ford. The assets employed in, and revenues derived from,
Ford Financing are not significant in relation to the Company's consolidated
operations.
Item 2. Properties
The furniture, equipment and other physical property owned by the
Company and its subsidiaries are not significant in relation to total assets.
Ford Land and its wholly owned subsidiaries own or lease real property
consisting of 3,692 acres of land and 7.0 million square feet of improvements
having a net book value of $595 million. Of the real property owned or leased
by Ford Land and its subsidiaries, 1,153 acres of land and 3.9 million square
feet of improvements are located within the Fairlane Development, a commercial,
residential and recreational community being developed by Ford Land in Dearborn
and Allen Park, Michigan. The balance of the properties are located in
California, Colorado, New Jersey, Massachusetts, Ohio and Virginia. The
finance operations of the Company's subsidiaries generally are conducted on
leased premises under short-term operating leases normally not exceeding five
years.
Item 3. Legal Proceedings
Because the finance and insurance businesses involve the collection
of numerous accounts, the validity and priority of liens, and loss or damage
claims under many types of insurance policies, the finance and insurance
subsidiaries of the Company are plaintiffs and defendants in numerous legal
proceedings, including class action lawsuits. Neither the Company nor any of
its subsidiaries is a party to, nor is the property thereof the subject of, any
pending legal proceedings other than (i) ordinary routine litigation or (ii)
litigation which should not have a material adverse impact on the consolidated
financial position of the Company. There are no proceedings pending or, to the
Company's knowledge, threatened by or on behalf of any administrative board or
regulatory body which would materially affect or impair the right of the
Company or any of its subsidiaries to carry on any of their respective
businesses.
- 17 -
<PAGE> 20
8Item 4. Submission of Matters to a Vote of Security Holders
At the Annual Meeting of Stockholders of the Company held on
November 22, 1994 (the "Annual Meeting"), the holders of the outstanding shares
of the Company's Common Stock elected the following nominees as directors of
the Company: Elizabeth S. Acton, Wayland F. Blood, John M. Devine, Malcolm S.
Macdonald, David N. McCammon and Kenneth Whipple. Each such person received
1,099 votes; no votes were cast against or withheld from the election of such
directors and there were no broker nonvotes.
Also at the Annual Meeting, the holders of the outstanding shares of
the Company's Flexible Rate Auction Preferred Stock (Exchange), Series A-K,
Series A Cumulative Preferred Stock, Series B Cumulative Preferred Stock,
Series C Cumulative Preferred Stock and Series D Cumulative Preferred Stock
elected the following nominees as directors of the Company by the following
votes:
<TABLE>
<CAPTION>
Votes Votes Votes Broker
Nominee For Against Withheld Nonvotes
- ------- --- ------- -------- --------
<S> <C> <C> <C> <C>
Dean E. Richardson 12,150.460 0 61.988 0
H. James Toffey, Jr. 12,152.870 0 59.577 0
</TABLE>
Also at the Annual Meeting, the holders of the Company's Common
Stock, Flexible Rate Auction Preferred Stock (Exchange), Series A-K, Series A
Cumulative Preferred Stock, Series B Cumulative Preferred Stock, Series C
Cumulative Preferred Stock and Series D Cumulative Preferred Stock ratified the
selection of Coopers & Lybrand L.L.P. to audit the Company's books of account
and other corporate records for the year 1994 by the following votes:
<TABLE>
<CAPTION>
Votes Votes Broker
For Against Abstentions Nonvotes
--- ------- ----------- --------
<S> <C> <C> <C> <C>
Common Stock(a) 1,099.000 0 0 0
Flexible Rate
Auction Preferred
Stock (Exchange)
Series A-K(b) 102.684 0.375 0 0
Series A Cumulative
Preferred Stock(b) 58.011 0.132 0.514 0
Series B Cumulative
Preferred Stock(b) 32.963 0.091 0.503 0
Series C Cumulative
Preferred Stock(b) 36.783 0.115 0.497 0
Series D Cumulative
Preferred Stock(b) 36.350 0.250 0.358 0
</TABLE>
- ---------------
(a) Holders of the outstanding shares of Common Stock had 75% of the
combined voting power of all classes of capital stock.
(b) Holders of the outstanding shares of the Flexible Rate Auction
Preferred Stock (Exchange), Series A-K, Series A Cumulative
Preferred Stock, Series B Cumulative Preferred Stock, Series C
Cumulative Preferred Stock and Series D Cumulative Preferred Stock
together had the remaining 25% of the combined voting power of all
classes of capital stock. At the time of the Annual Meeting, the
Flexible Rate Auction Preferred Stock, Series L, M and N, had not
yet been issued.
- 18 -
<PAGE> 21
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
All of the outstanding Common Stock of the Company is owned directly
or indirectly by Ford as of March 1, 1995. There is no market for the
Company's Common Stock.
Dividends on the Common Stock will be paid when declared by the
Board of Directors. No dividends have been paid to date.
Item 6. Selected Financial Data
The following table sets forth selected consolidated financial
information regarding the operating results and financial position of the
Company and its subsidiaries. The amounts shown for the years ended December
31, 1990 through 1994 represent the consolidated operating results and
financial position of the subsidiaries of the Company then owned, directly or
indirectly, by Ford. The reorganizations of these subsidiaries, which occurred
in October 1989, have been accounted for at historical cost in a manner similar
to a pooling-of-interests combination. The information should be read in
conjunction with Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the audited consolidated financial
statements and accompanying notes to financial statements included in this
Report.
- 19 -
<PAGE> 22
Item 6. Selected Financial Data (Continued)
<TABLE>
<CAPTION>
Year Ended or at December 31
----------------------------------------------------------------
1994 1993 1992 1991 1990
------ ------ ------ ------ -------
(in millions)
CONSOLIDATED STATEMENT
OF INCOME
- ----------------------
<S> <C> <C> <C> <C> <C>
Total revenues $ 5,880 $ 5,292 $ 4,817 $ 4,814 $ 4,361
Interest expense 1,996 1,751 1,658 1,718 1,563
Insurance claims 419 498 567 664 672
Other expenses 2,525 2,212 2,004 1,840 1,670
------- ------- ------- ------- ------
Income before income taxes
and cumulative effects of
changes in accounting
principles 940 831 588 592 456
Provision for income
taxes and minority
interest in net income
of subsidiaries 331 320 231 208 186
------- ------- ------- ------- -------
Net income before
cumulative effects of
changes in accounting
principles 609 511 357 384 270
Cumulative effects of
changes in accounting
principles - - 26 - -
------- ------- ------- ------- -------
Net income $ 609 $ 511 $ 383 $ 384 $ 270
======= ======= ======= ======= =======
Dividends paid on
Preferred Stock $ 94 $ 73 $ 48 $ 48 $ 59
CONSOLIDATED BALANCE SHEET
- --------------------------
Cash and securities $ 5,947 $ 5,100 $ 3,659 $ 2,981 $ 3,016
Finance receivables, net 29,362 24,568 20,750 18,362 13,465
Investments in leases, net 5,983 5,415 4,607 3,718 3,161
Total assets 44,373 38,599 32,731 28,780 23,564
Unearned insurance premiums 914 865 936 1,190 1,529
Debt 33,820 29,570 25,767 22,930 18,215
Stockholders' equity 5,015 4,291 3,498 2,897 2,289
</TABLE>
- 20 -
<PAGE> 23
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
OVERVIEW
The Company's net income in 1994 was $609 million, up $98 million
from the $511 million earned in 1993. The increase reflected primarily higher
levels of earning assets and lower credit and insurance losses.
Consolidated results reflect the acquisition-related costs of
purchasing The Associates, including interest expense, goodwill, and
adjustments to record the fair value of net assets acquired. These adjustments
will vary over time as the acquired assets and liabilities liquidate.
The consolidated financial statements on pages FH-1 through FH-20
should be read as an integral part of this review.
RESULTS OF OPERATIONS: 1994 COMPARED WITH 1993
The Associates earned a record $548 million in 1994, up $78 million
from 1993. The increase reflected higher levels of earning assets and improved
net interest margins. During 1994 and 1993, The Associates made acquisitions
of finance businesses and finance receivables, as described in Note 4 of the
consolidated financial statements.
USL Capital earned a record $109 million in 1994, up $32 million from
1993. The increase reflected higher earning assets, lower operating costs, and
the non-recurrence of the one-time tax adjustment in 1993 for increased U.S.
tax rates.
American Road earned $58 million in 1994, compared with $79 million
in 1993. The decrease reflected primarily reduced investment income from
capital gains, partially offset by improved underwriting experience in extended
service plans and a one-time decrease to the 1994 income tax provision.
Premiums written by American Road were $319 million in 1994, compared with $309
million a year ago.
Ford Land, Ford Leasing and Ford Financing, on a combined basis,
earned $12 million in 1994, compared with $11 million in 1993.
HISTORICAL REFERENCE: 1993 COMPARED WITH 1992
The Company's net income in 1993 was $511 million, up $128 million
from the $383 million earned in 1992. The increase reflected higher levels of
earning assets and lower credit and insurance losses.
In 1992, the Company adopted new accounting standards for
postretirement benefits (principally retiree health care) and income taxes that
resulted in a one-time increase in net income in 1992 of $26 million.
Excluding the accounting changes, the Company earned $357 million in 1992. The
following discussion of the results of operations excludes the one-time effects
associated with the accounting changes.
- 21 -
<PAGE> 24
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
The Associates earned $470 million in 1993, up $77 million from 1992.
The increase resulted primarily from improved credit loss performance and
higher levels of earning assets, partially offset by higher operating costs
incurred to service higher receivables levels. During 1993 and 1992, The
Associates made acquisitions of finance businesses and finance receivables, as
described in Note 4 of the consolidated financial statements.
USL Capital earned $77 million in 1993, up $17 million from 1992.
The improvement resulted primarily from higher earning assets and continued
operating cost reductions.
American Road earned $79 million in 1993, compared with $47 million
in 1992. The increase resulted primarily from improved underwriting experience
in extended service plan and floor plan products, offset partially by lower
investment income. Premiums written by American Road were $309 million in
1993, compared with $235 million in 1992. The increase in premiums written
reflected higher vehicle sales and higher premium rates for floorplan insurance
products.
Ford Land and Ford Leasing, on a combined basis, earned $11 million
in 1993, compared with a loss of $3 million in 1992.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1994, Ford Holdings (excluding subsidiaries) had
outstanding debt of $1.9 billion, all of which was long-term. All of Ford
Holdings debt held by nonaffiliated persons is guaranteed by Ford. Ford
Holdings had no contractually committed lines of credit at December 31, 1994.
At December 31, 1994, Ford Holdings had outstanding shares of its Series A
through N Flexible Rate Auction Preferred Stock and Series A through D
Cumulative Preferred Stock with an aggregate liquidation preference of $1,875
million, as described in Note 12 of the consolidated financial statements.
The Associates' primary sources of funds include sales of commercial
paper, issuance of unsecured intermediate-term debt in the public and private
markets, and credit facilities with commercial banks. At December 31, 1994,
The Associates had contractually committed lines of credit with banks of $3.8
billion, with various maturities ranging from January 4, 1995 to December 31,
1995, none of which was utilized at December 31, 1994. Also, at December 31,
1994, The Associates had $4.4 billion of contractually committed revolving
credit facilities with banks, with maturity dates ranging from February 1, 1995
through January 1, 2000, and $1 billion of contractually committed receivables
sale facilities, $500 million of which are available through April 30, 1995 and
$500 million of which are available through April 15, 1997; none of these
facilities was in use at December 31, 1994. Neither Ford nor Ford Holdings
guarantees the debt of The Associates. Payment of dividends by ACONA, the
primary operating subsidiary of The Associates, is restricted under the
provisions of certain debt agreements. (See Note 13 of the consolidated
financial statements for additional information regarding dividend restrictions
applicable to The Associates.) Profitability of The Associates is not related
to the business outlook for Ford, and this situation is not expected to change
in the future.
- 22 -
<PAGE> 25
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
USL Capital's principal sources of funds include sales of commercial
paper and issuance of unsecured medium-term debt. At December 31, 1994, USL
Capital had $1.5 billion of contractually committed credit facilities, 69% of
which are available through September 1999. These facilities included $120
million of contractually committed receivables sale facilities, of which 100%
were in use at December 31, 1994. Neither Ford nor Ford Holdings guarantees
the debt of USL Capital, although USL Capital's existing credit lines require
that Ford maintain at least a 75% direct or indirect ownership interest in USL
Capital. Profitability of USL Capital is not significantly related to the
business outlook for Ford, and this situation is not expected to change in the
future.
American Road's principal sources of funds are insurance premiums,
annuity deposits, and investment income. American Road had no debt or credit
lines at December 31, 1994. From an operating standpoint, American Road's
profitability is closely related to the business conditions affecting Ford and
Ford Credit and the level of insurance premiums generated by American Road
depends, to a large extent, on the level of Ford vehicle sales and the extent
to which Ford Credit finances these sales. (See Note 13 of the consolidated
financial statements for additional information regarding dividend restrictions
applicable to American Road.)
Ford Land is capitalized principally through a combination of
unsecured long-term debt and mortgages. Ford Holdings has guaranteed
substantially all of Ford Land's unsecured long-term debt. The mortgages are
collateralized by land and buildings. A majority of Ford Land's completed real
estate projects were unmortgaged as of December 31, 1994. Ford Land's primary
business is real estate development, which is not directly related to the
business of Ford, although Ford activities are among the tenants of Ford Land's
developed properties.
Ford Leasing is capitalized principally through a combination of
short-term notes payable to Ford and long-term debt. Either Ford or Ford
Holdings has guaranteed substantially all of Ford Leasing's long-term debt.
Ford Leasing's primary business is leasing dealership facilities to Ford
dealers. Under an agreement with Ford, Ford Leasing is reimbursed for certain
expenses and any loss incurred in dealership facility operations.
Ford Financing had no debt or credit lines at December 31, 1994.
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
Not required.
- 23 -
<PAGE> 26
PART III
Item 10. Directors and Executive Officers
The following table sets forth certain information as of March 1,
1995, regarding the directors and executive officers of the Company:
<TABLE>
<CAPTION>
Mo./Yr.
Name Age Elected Position
- -------------- --- ------- --------
<S> <C> <C> <C>
J. M. Devine 50 9/94 Chairman of the Board, Director
K. Whipple 60 10/89 President, Director
E. S. Acton 43 9/94 Vice President - Assistant Treasurer
and Director
S. I. Gilman 56 2/95 Vice President, Director(a)
M. S. Macdonald 54 10/89 Vice President - Treasurer, Director
D. N. McCammon 60 10/89 Vice President, Director
D. E. Richardson 67 10/89 Director
H. J. Toffey, Jr. 64 10/89 Director
E. A. Law 41 11/94 Vice President - Controller
J. M. Rintamaki 53 7/93 Vice President - General Counsel
and Secretary(b)
</TABLE>
(a) Mr. Gilman was elected a director in February 1995 to replace W. F.
Blood who had resigned.
(b) Mr. Rintamaki has held the position of Secretary since July of 1993
and was elected Vice President - General Counsel in November 1994.
Except for Messrs. Toffey and Richardson, all of the above officers
and directors have been employed by Ford or its subsidiaries in one or more
executive capacities during the past five years. H. J. Toffey, Jr. was a
Managing Director of First Boston, Inc. until his retirement in 1986. D. E.
Richardson was the Chairman of the Board of Directors of Manufacturers National
Corporation from October 1973 until his retirement in April 1990. Mr.
Richardson serves as a director of The Detroit Edison Company, Tecumseh
Products Company and the Automobile Club of Michigan.
Mr. Whipple serves as a director of CMS Energy Corporation; Consumers
Power Company; Ford Credit; and USL Capital and is a Trustee of JPM Advisor
Funds. Mr. Macdonald serves as a director of The Hertz Corporation. Mr.
McCammon serves as a director of Ford Credit and The Hertz Corporation.
Based on Company records and other information, the Company believes
that all SEC filing requirements applicable to its directors and officers with
respect to the Company's fiscal year ended December 31, 1994 were complied with
except that, due to an administrative error by the Company, the initial Form 3
report for Mr. Law (who does not own any stock of the Company) was not timely
filed.
- 24 -
<PAGE> 27
Item 11. Executive Compensation
The directors and executive officers of the Company do not and will
not receive any compensation from the Company except that directors of the
Company who are not otherwise employed by Ford or another affiliate of the
Company will be entitled to director fees in amounts established from time to
time by the Board. Prior to January 1, 1995, each director who was not an
employee of Ford or another affiliate of the Company was paid an annual fee of
$15,000. Thus in 1994, Messrs. Richardson and Toffee each received annual fees
of $15,000. None of the other directors received an annual fee in 1994.
Effective January 1, 1995, each director who is not an employee of Ford or
another affiliate of the Company will be paid an annual fee of $18,000. All
directors and officers are reimbursed for expenses reasonably incurred in
connection with their services on behalf of the Company. None of the directors
and executive officers of the Company receives or will receive any additional
compensation from Ford or any of its affiliates for services rendered on behalf
of the Company. The Company compensates Ford for the time during which any
salaried officer or employee of Ford performs services for the Company. See
Item 13.
Item 12. Security Ownership of Certain Beneficial Owners and Management
(a) Security ownership of certain beneficial owners (as of March 1,
1995).
<TABLE>
<CAPTION>
Title of Name and Address Amount and Nature of Percent
Class of Beneficial Owner Beneficial Ownership of Class
- --------------- ------------------------- -------------------- --------
<S> <C> <C>
Common Stock, Ford Motor Credit Company 495 shares 45%
par value $1.00 The American Road
Dearborn, MI 48121-1699
Common Stock, Ford Motor Company 604 shares 55%
par value $1.00 The American Road
Dearborn, MI 48121-1899
</TABLE>
(b) Security ownership of management (as of March 1, 1995).
None of the Company's or any of its parents or subsidiaries equity
securities is beneficially owned by the Company's directors (and nominees) or
officers, except as shown below:
<TABLE>
<CAPTION>
Title of Name Amount and Nature of Percent
Class of Beneficial Owner Beneficial Ownership of Class
- --------------- ------------------- -------------------- --------
<S> <C> <C> <C>
Series A Cumulative D. E. Richardson 1 share(a) *
Preferred Stock,
par value $1.00 (with
an annual dividend rate
of $8,000 per share and
a liquidation preference
of $100,000 per share)
</TABLE>
- ---------------
(*) Amount owned is less than 0.1% of class.
(a) Mr. Richardson owns 4,000 Depositary Shares, each representing 1/4,000
of a share of Series A Cumulative Preferred Stock.
- 25 -
<PAGE> 28
Item 12. Security Ownership of Certain Beneficial Owners and Management
(continued)
<TABLE>
<CAPTION>
Title of Name Amount and Nature of Percent
Class of Beneficial Owner Beneficial Ownership of Class
- --------------- ------------------- -------------------- --------
<S> <C> <C> <C>
Ford Motor Company D. E. Richardson 1,000 shares *
Common Stock, par
value $1.00
H. J. Toffey, Jr. 20,000 shares *
J. M. Devine 14,468 shares *
(8,800)(a)
K. Whipple 342,187 shares *
(198,000)(a)
E. S. Acton 6,121 shares *
(5,600)(a)
M. S. Macdonald 63,557 shares(b) *
(27,200)(a)
S. I. Gilman 58,734 shares *
(57,750)(a)
D. N. McCammon 352,738 shares *
(173,000)(a)
All Directors and 881,602 shares
Officers as a Group (484,150) (a) *
Ford Motor Company M. S. Macdonald 1 share(c) *
Series A Cumulative
Convertible Preferred All Directors and
Stock, par value $1.00 Officers as a Group 1.2 shares *
per share, with an
annual dividend rate
of $4,200 per share and
a liquidation preference
of $50,000 per share
</TABLE>
- ---------------
(*) Amount owned is less than 0.1% of class.
(a) Of the number of shares listed, indicates those with respect to which
such person(s) has the right to acquire beneficial ownership within 60
days.
(b) Of the number of shares listed, Mr. Macdonald disclaims beneficial
ownership of 596 shares.
(c) Mr. Macdonald owns 1,000 Depositary Shares, each representing 1/1,000
of a share at Ford Motor Company Series A Cumulative Convertible
Preferred Stock. Each Depositary Share is convertible into 3.2654
shares of Ford Motor Company Common Stock. In addition, Mr. Macdonald
has disclaimed beneficial ownership of an additional 40 Depositary
Shares.
- 26 -
<PAGE> 29
Item 13. Certain Relationships and Related Transactions
Ford is the direct or indirect beneficial owner of all of the
outstanding shares of Common Stock of the Company, which represent 75% of the
total voting power of the outstanding capital stock of the Company. As
majority stockholder, Ford is in a position to cause the election of a majority
of the Board of Directors of the Company and to control the Company's affairs.
The Company, Ford and Ford Credit also maintain a number of financial
and administrative arrangements and regularly engage in transactions with each
other. These arrangements include management services agreements between the
Company and Ford and the Company and Ford Credit ("Management Services
Agreements") pursuant to which, upon the reasonable request of the Company,
certain employees of Ford and Ford Credit work on the affairs of the Company
and its subsidiaries, so as to enable the Company to continue to conduct and
operate the business and affairs of the Company and to provide other services
required by the Company. The services provided for under the Management
Services Agreements include, but are not necessarily limited to, accounting,
finance, treasury, systems, credit, personnel (including administration of
pension and other benefit plans), purchasing, engineering, legal, tax, and
other technical and professional support, including Ford employees who serve as
executive officers of the Company and/or its subsidiaries.
Under the Management Services Agreements, the Company reimburses Ford
or Ford Credit, as appropriate, for the costs of the services provided to the
Company or its subsidiaries by Ford or Ford Credit, as the case may be.
Presently, such costs include an allocation of the total compensation
(including benefits) and overhead charges related to such employees, based on
the time spent in rendering services under the Management Services Agreements,
and in cases where the services are provided for purposes other than to enable
the Company to provide, in turn, a service to Ford or Ford Credit, a reasonable
markup on such costs. Out-of-pocket expenses incurred by Ford or Ford Credit
under the Management Services Agreements also are reimbursed by the Company.
The Associates also has similar services agreements with the various Ford
subsidiaries that acquired The Associates' former foreign subsidiaries.
Certain of the arrangements and agreements between the Company (and/or
its subsidiaries) and Ford (and its subsidiaries) were established by Ford
prior to the Company's formation and thus were not the result of direct
negotiations between Ford and the Company. The Company believes, however, that
all such arrangements and agreements are fair and reasonable.
- 27 -
<PAGE> 30
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) 1. Financial Statements
Ford Holdings, Inc. and Subsidiaries
Report of Independent Accountants.
Consolidated Statement of Income, for the years ended December 31,
1994, 1993 and 1992.
Consolidated Balance Sheet, December 31, 1994 and 1993.
Consolidated Statement of Cash Flows, for the years ended December 31,
1994, 1993 and 1992.
Consolidated Statement of Stockholders' Equity, for the years ended
December 31, 1994, 1993 and 1992.
Notes to Financial Statements.
The Report of Independent Accountants, Financial Statements and Notes
to Financial Statements listed above are filed as part of this Report and are
as set forth on pages FH-1 through FH-20 immediately following the signature
pages of this Report.
(a) 2. Financial Statement Schedules
<TABLE>
<CAPTION>
Designation Description
- ----------- -----------
<S> <C>
Schedule I Condensed Financial Information of the Registrant
(Parent Company)
</TABLE>
The Financial Statement Schedule listed above is filed as part of this
Report and is as set forth on pages FSS-1 and FSS-2 immediately following page
FH-20. The schedules not filed are omitted because the information required to
be contained therein is disclosed elsewhere in the financial statements or the
amounts involved are not sufficient to require submission.
- 28 -
<PAGE> 31
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(Continued)
(a) 3. Exhibits
<TABLE>
<CAPTION>
Designation Description Method of Filing
- ----------- ----------- ----------------
<S> <C>
Exhibit 3-A Certificate of Incorporation Filed as Exhibit 3-A to
dated August 30, 1989. the Registrant's Annual
Report on Form 10-K for
the year ended December 31,
1989. File No. 0-18263.*
Exhibit 3-B By-Laws of the Registrant, as Filed as Exhibit 3-B to
amended through October 20, the Registrant's Annual
1989. Report on Form 10-K for
the year ended December 31,
1989. File No. 0-18263.*
Exhibit 3-C By-Laws of the Registrant, as Filed as Exhibit 3-C to the
amended through May 22, 1992. Registrant's Annual Report on
Form 10-K for the year ended
December 31, 1992. File No.
0-18263.*
Exhibit 4-A Certificate of Designations Filed as Exhibit 4-A to
of Flexible Rate Auction the Registrant's Annual
Preferred Stock. Report on Form 10-K for
the year ended December 31,
1989. File No. 0-18263.*
Exhibit 4-A-1 Certificate of Designations Filed as Exhibit 4-A-1 to
of Flexible Rate Auction the Registrant's Annual
Preferred Stock (Exchange), Report on Form 10-K for
Series A-K. the year ended December 31,
1990. File No. O-18263.*
Exhibit 4-A-2 Certificate of Amendment to Filed as Exhibit 4-A-2 to the
the Certificate of Desig- Registrant's Annual Report on
nations of Flexible Rate Form 10-K for the year ended
Auction Preferred Stock December 31, 1991. File No.
(Exchange), Series A-K, filed 0-18263.*
December 27, 1991.
Exhibit 4-A-3 Certificate of Elimination of Filed as Exhibit 4-A-3 to the
Flexible Rate Auction Pre- Registrant's Annual Report on
ferred Stock (as referred to Form 10-K for the year ended
in Exhibit 4-A). December 31, 1992. File No.
0-18263.*
Exhibit 4-A-4 Certificate of Amendment to Filed as Exhibit 4-A-4 to the
the Certificate of Designations Registrant's Annual Report on
of the Flexible Rate Auction Form 10-K for the year ended
Preferred Stock (Exchange), December 31, 1992. File No.
Series A-K, filed June 1, 1992. 0-18263.*
</TABLE>
- 29 -
<PAGE> 32
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(Continued)
<TABLE>
<CAPTION>
Designation Description Method of Filing
- ----------- ----------- ----------------
<S> <C> <C>
Exhibit 4-A-5 Certificate of Designations of Filed as Exhibit 4-A-5 to the
Series A Cumulative Registrant's Annual Report on
Preferred Stock. Form 10-K for the year ended
December 31, 1992. File No. 0-18263.*
Exhibit 4-A-6 Certificate of Designations of Filed as Exhibit 4-A-6 to the
Series B Cumulative Registrant's Annual Report on
Preferred Stock. Form 10-K for the year ended
December 31, 1992. File No.
0-18263.*
Exhibit 4-A-7 Form of Certificate of Filed as Exhibit 2.7 to the
Designations of Series C Registrant's Registration
Cumulative Preferred Stock. Statement on Form 8-A dated
August 24, 1993. File No.
0-18263.*
Exhibit 4-A-8 Certificate of Designations of Filed as Exhibit 4.1 of the
the Series D Cumulative Registrant's Current Report
Preferred Stock. on Form 8-K dated August 11,
1994. File No. 1-11146 or
0-18263.
Exhibit 4-A-9 Certificate of Designations of Filed as Exhibit 4.1 of the
the Flexible Rate Auction Registrant's Current Report
Preferred Stock, Series L, M on Form 8-K dated December 12,
and N. 1994. File No. 1-11146 or 0-18263.*
Exhibit 4-B Indenture dated as of February 1, Filed as Exhibit 4-A to
1990 among the Registrant, Ford the Registrant's Regis-
and Manufacturers Hanover Trust tration Statement No.
Company. 33-32641.*
Exhibit 4-C-1 Deposit Agreement dated as of Filed as Exhibit 4-C-1 to the
June 4, 1992, among Registrant, Registrant's Annual Report on
Chemical Bank, as depositary, Form 10-K for the year ended
and the holders from time to time December 31, 1992. File No.
of Depositary Shares, each 0-18263.*
representing 1/4,000 of a share
of Series A Cumulative
Preferred Stock.
Exhibit 4-C-2 Deposit Agreement dated as of Filed as Exhibit 1-B
January 26, 1993, among to Registrant's Report on
Registrant, Chemical Bank, Form 8-K dated January 19,
as depositary and the holders 1993. File No. 0-18263.*
from time to time of Depositary
Shares, each representing
1/4,000 of a share of Series B
Cumulative Preferred Stock.
</TABLE>
- 30 -
<PAGE> 33
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(Continued)
<TABLE>
<CAPTION>
Designation Description Method of Filing
- ----------- ----------- ----------------
<S> <C> <C>
Exhibit 4-C-3 Deposit Agreement dated as of Filed as Exhibit 2.8 to the
August 30, 1993, among Reg- Registrant's Registration
istrant, Chemical Bank, as Statement on Form 8-A dated
depositary and the holders August 24, 1993. File No.
from time to time of Depositary 0-18263.*
Shares, each representing 1/4000
of a share of Series C Cumulative
Preferred Stock.
Exhibit 4-C-4 Deposit Agreement dated as of Filed as Exhibit 4.3 of the
August 10, 1994, among Registrant's Current Report
Registrant, Chemical Bank, as on Form 8-K dated August 11,
depositary and the holders from 1994. File No. 1-11146 or
time to time of Depositary 0-18263.*
Shares, each representing
1/4,000 of a share of Series D
Cumulative Preferred Stock.
Exhibit 10-A Agreement dated as of Filed as Exhibit 10-A to
October 27, 1989 between the Registrant's Annual
the Registrant and Ford. Report on Form 10-K for
the year ended December 31,
1989. File No. 0-18263.*
Exhibit 10-B Agreement dated as of Filed as Exhibit 10-B to
October 27, 1989 between the Registrant's Annual
the Registrant and Ford Report on Form 10-K for
Credit. the year ended December 31,
1989. File No. 0-18263.*
Exhibit 12 Computation of Ratio of Filed with this Report.
Earnings to Fixed Charges.
Exhibit 21 Subsidiaries of the Registrant Filed with this Report.
as of December 31, 1994.
Exhibit 23 Consent of Independent Filed with this Report.
Certified Public Accountants.
Exhibit 24 Powers of Attorney. Filed with this Report.
</TABLE>
- ---------------
* Incorporated by reference as an exhibit hereto.
(b) Reports on Form 8-K
The Registrant did not file any Current Reports on Form 8-K during
the quarter ended December 31, 1994.
- 31 -
<PAGE> 34
SIGNATURES
Pursuant to the requirements of Section 13 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.
FORD HOLDINGS, INC.
By: /s/Eric A. Law
-----------------------------
Eric A. Law
Vice President-Controller
(principal accounting officer)
Date: March 20, 1995
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
Director and
Chairman of the Board
of Directors and
Chief Executive Officer
John M. Devine* (principal executive officer)
- --------------------------
(John M. Devine)
Director and
President and Chief
Kenneth Whipple* Operating Officer
- --------------------------
(Kenneth Whipple)
March 20, 1995
Director and
David N. McCammon* Vice President
- --------------------------
(David N. McCammon)
Director and
Vice President - Treasurer
Malcolm S. Macdonald* (principal financial officer)
- ---------------------------
(Malcolm S. Macdonald)
Director and
Vice President -
Elizabeth S. Acton* Assistant Treasurer
- ---------------------------
(Elizabeth S. Acton)
</TABLE>
- 32 -
<PAGE> 35
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
Director and
S. I. Gilman* Vice President
- ----------------------------
(S. I. Gilman)
Dean E. Richardson* Director
- ----------------------------
(Dean E. Richardson)
March 20, 1995
H. James Toffey, Jr.* Director
- ----------------------------
(H. James Toffey, Jr.)
*By: /s/P. J. Sherry, Jr.
---------------------------------------
(P. J. Sherry, Jr.
Attorney-in-Fact)
</TABLE>
- 33 -
<PAGE> 36
[COOPERS & LYBRAND LETTERHEAD]
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
Ford Holdings, Inc.
We have audited the consolidated balance sheet of Ford Holdings, Inc. and
Subsidiaries at December 31, 1994 and 1993, and the related consolidated
statements of income, stockholders' equity and cash flows for each of the three
years in the period ended December 31, 1994, and the financial statement
schedule listed in Item 14(a) of this Form 10-K. These financial statements
and financial statement schedule are the responsibility of the company's
management. Our responsibility is to express an opinion on these financial
statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Ford Holdings,
Inc. and Subsidiaries at December 31, 1994 and 1993, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1994, in conformity with generally accepted
accounting principles. In addition, in our opinion, the financial statement
schedule referred to above, when considered in relation to the basic financial
statements taken as a whole, presents fairly, in all material respects, the
information required to be included therein.
As discussed in Notes 9 and 11 to the consolidated financial statements, the
Company changed its method of accounting for income taxes and postretirement
benefits other than pensions in 1992.
/s/ Coopers & Lybrand L.L.P.
400 Renaissance Center
Detroit, Michigan
313-446-7100
January 27, 1995
FH-1
<PAGE> 37
<TABLE>
<CAPTION>
Ford Holdings, Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF INCOME
For the Years Ended December 31, 1994, 1993, and 1992
(in millions)
1994 1993 1992
------ ------ ------
<S> <C> <C> <C>
REVENUES
Financing revenues (Note 1) $4,494 $3,839 $3,461
Insurance premiums earned (Note 1) 667 706 729
Investment income 293 377 282
Real estate rental income 232 235 206
Other income 194 135 139
------ ------ ------
Total revenues 5,880 5,292 4,817
EXPENSES
Interest expense 1,996 1,751 1,658
Operating and other expenses 1,547 1,332 1,135
Provision for credit losses (Note 7) 586 501 532
Insurance claims (Note 1) 419 498 567
Depreciation 192 186 211
Interest credited on annuity contracts (Note 1) 117 70 24
Amortization of policy acquisition costs (Note 8) 83 123 102
------ ------ ------
Total expenses 4,940 4,461 4,229
INCOME BEFORE INCOME TAXES AND CUMULATIVE
EFFECTS OF CHANGES IN ACCOUNTING PRINCIPLES 940 831 588
Provision for income taxes (Note 9) 332 325 222
------ ------ ------
INCOME BEFORE MINORITY INTERESTS AND
CUMULATIVE EFFECTS OF CHANGES IN
ACCOUNTING PRINCIPLES 608 506 366
Minority interests in net (loss)/income
of subsidiaries (1) (5) 9
------ ------ ------
Income before cumulative effects of
changes in accounting principles 609 511 357
Cumulative effects of changes in accounting
principles (Notes 9 and 11) - - 26
------ ------ ------
NET INCOME $ 609 $ 511 $ 383
====== ====== ======
</TABLE>
The accompanying notes are part of the financial statements.
FH-2
<PAGE> 38
<TABLE>
<CAPTION>
Ford Holdings, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEET
(in millions)
December 31
-------------------------
1994 1993
-------- --------
<S> <C> <C>
ASSETS
Cash and cash equivalents (Note 1) $ 968 $ 823
Investments in securities (Note 3) 4,979 4,277
Finance receivables, net (Note 4) 29,362 24,568
Accounts and notes receivable 415 607
Receivables from Ford and affiliated companies 167 292
Investments in direct financing leases, net (Note 5) 4,404 3,974
Investments in operating leases, net (Note 6) 1,579 1,441
Goodwill (Note 1) 1,768 1,830
Deferred policy acquisition costs (Note 8) 253 178
Other assets 478 609
------- -------
TOTAL ASSETS $44,373 $38,599
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 469 $ 622
Payables to Ford and affiliated companies 187 324
Unpaid insurance claims (Note 1) 150 136
Annuity contracts (Note 1) 2,722 1,598
Unearned insurance premiums (Note 1) 914 865
Debt (Note 10) 33,820 29,570
Other liabilities and deferred income 1,096 1,193
------- -------
Total liabilities 39,358 34,308
STOCKHOLDERS' EQUITY
Preferred Stock, $1 par value (Note 12) 1,875 1,458
Common Stock, $1 par value, authorized - 10,000 shares;
issued and outstanding - 1,099 shares (Note 12) * *
Capital in excess of par value of stock 965 976
Unrealized (loss)/gain on investments in securities,
net of taxes, and other (Note 3) (160) 37
Earnings retained for use in business (Note 13) 2,335 1,820
------- -------
Total stockholders' equity 5,015 4,291
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $44,373 $38,599
======= =======
</TABLE>
- ---------------
*Less than $50,000
The accompanying notes are part of the financial statements.
FH-3
<PAGE> 39
<TABLE>
<CAPTION>
Ford Holdings, Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Years Ended December 31, 1994, 1993, and 1992
(in millions)
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
CASH AND CASH EQUIVALENTS AT JANUARY 1 $ 823 $ 408 $ 521
Cash flows from operating activities
Net income 609 511 383
Adjustments to reconcile net income to
cash flows from operating activities:
Cumulative effects of changes in accounting principles - - (26)
Depreciation 192 186 211
Provision for credit losses 586 501 532
Net purchases of trading securities (Note 3) (55) - -
Gain on sales of real estate and investments 9 (136) (93)
Provision for deferred income taxes 4 18 51
Changes in assets and liabilities:
Accounts and notes receivable 192 190 (47)
Deferred policy acquisition costs (75) (30) (10)
Accounts payable and other liabilities (397) 539 23
Unearned insurance premiums 49 (71) (254)
Other 193 (93) 202
-------- -------- --------
Net cash provided by operating activities 1,307 1,615 972
Cash flows from investing activities
Acquisitions of finance receivables (28,530) (21,524) (15,989)
Collections of finance receivables 23,539 18,081 13,839
Purchases of securities (Note 3) (9,994) (12,507) (10,950)
Sales and maturities of securities (Note 3) 9,047 11,581 10,243
Cost of equipment and lease receivables acquired (1,376) (1,764) (1,666)
Recovery of equipment costs and residual interests 866 744 550
Acquisitions of other companies, net (485) (299) (461)
Capital expenditures (65) (30) (36)
Other 165 27 118
-------- -------- --------
Net cash used in investing activities (6,833) (5,691) (4,352)
Cash flows from financing activities
Issuance of Preferred Stock 417 375 283
Proceeds from issuance of long-term debt 4,540 4,897 3,936
Principal payments on long-term debt (2,656) (2,307) (2,536)
Changes in short-term debt 2,366 743 865
Dividends paid to shareholders (94) (73) (48)
Receipts from annuity contracts, net 1,124 821 731
Other (26) 35 36
-------- -------- --------
Net cash provided by financing activities 5,671 4,491 3,267
Net increase/(decrease) in cash and cash equivalents 145 415 (113)
-------- -------- --------
CASH AND CASH EQUIVALENTS AT DECEMBER 31 $ 968 $ 823 $ 408
======== ======== ========
Supplementary cash flow information
Interest paid $ 2,020 $ 1,737 $ 1,639
Taxes paid 386 235 184
</TABLE>
The accompanying notes are part of the financial statements.
FH-4
<PAGE> 40
<TABLE>
<CAPTION>
Ford Holdings, Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
For the Years Ended December 31, 1994, 1993, and 1992
(in millions)
1994 1993 1992
------ ------ ------
<S> <C> <C> <C>
PREFERRED STOCK (NOTE 12)
Balance at beginning of year $1,458 $1,083 $ 800
Issuance of Preferred Stock 417 375 283
------ ------ ------
Balance at end of year 1,875 1,458 1,083
COMMON STOCK (NOTE 12)
Issued at beginning and end of year * * *
CAPITAL IN EXCESS OF PAR VALUE OF STOCK
Balance at beginning of year 976 989 998
Issuance cost on Preferred Stock (11) (13) (9)
------ ------ ------
Balance at end of year 965 976 989
UNREALIZED (LOSS)/GAIN ON INVESTMENTS IN
SECURITIES, NET OF TAXES AND OTHER (NOTE 3)
Balance at beginning of year 37 44 52
Loss during year (195) (5) (5)
Translation adjustments during year (2) (2) (3)
------ ------ ------
Balance at end of year (160) 37 44
EARNINGS RETAINED FOR USE IN BUSINESS (NOTE 13)
Balance at beginning of year 1,820 1,382 1,047
Net income 609 511 383
Cash dividends on Preferred Stock (94) (73) (48)
------ ------ ------
Balance at end of year 2,335 1,820 1,382
------ ------ ------
Total stockholders' equity $5,015 $4,291 $3,498
====== ====== ======
</TABLE>
- ---------------
*Less than $50,000
The accompanying notes are part of the financial statements.
FH-5
<PAGE> 41
Ford Holdings, Inc. and Subsidiaries
Notes to Financial Statements
NOTE 1. Accounting Policies
Principles of Consolidation
The consolidated financial statements include Ford Holdings and all
majority-owned subsidiaries (the "company"). Ford Holdings, Inc. ("Ford
Holdings") is a wholly-owned subsidiary of Ford Motor Company ("Ford"). The
company's wholly-owned subsidiaries include Associates First Capital
Corporation and its subsidiaries ("The Associates"), The American Road
Insurance Company and its subsidiaries ("American Road"), USL Capital
Corporation (formerly United States Leasing International, Inc.) and its
subsidiaries ("USL Capital"), Ford Motor Land Development Corporation and its
subsidiaries ("Ford Land"), Ford Leasing Development Company and its
subsidiaries ("Ford Leasing"), and Ford Holdings Financing, Inc. ("Ford
Financing"). Investments in certain partnerships and affiliates that are 50%
or less owned are included in the consolidated financial statements on an
equity basis.
Revenue Recognition
Revenue from finance receivables and direct financing leases is recognized over
the term of the contract using the interest method. Revenue from operating
leases is recognized ratably over the term of the lease. Insurance premiums
are recorded as unearned premiums when written and are subsequently recognized
in income over the term of the related insurance contracts. The methods of
recognizing premium revenue are related to amounts at risk and include
historical loss experience, pro rata, and sum-of-the-digits bases.
Derivative Financial Instruments
The company and many of its subsidiaries have entered into agreements to manage
exposures to fluctuations in foreign exchange and interest rates. All
derivative financial instruments are classified as "held for purposes other
than trading"; company policy specifically prohibits the use of derivatives for
speculative purposes.
Certain subsidiaries of the company issue debt denominated in foreign
currencies. Foreign currency swap agreements are used to manage foreign
exchange exposure. Gains and losses on the foreign currency swap agreements
are recognized during the period of the related transactions.
Certain subsidiaries of the company issue debt and other payables for which the
maturity and interest rate structure differs from the invested assets to ensure
continued access to capital markets and to minimize overall borrowing costs.
Agreements to manage interest rate fluctuations include interest-rate swap
agreements and, to a lesser extent, interest rate cap agreements. The
differential paid or received on interest-rate agreements is recognized as an
adjustment to interest expense in the period.
Cash Equivalents
The company considers all highly-liquid investments purchased with a maturity
of three months or less to be cash equivalents. The book value of these
investments approximates fair value because of the short maturity.
Goodwill
Goodwill, representing the excess of the purchase price over the fair value of
the net assets primarily from the acquisitions of The Associates by Ford
Holdings and of USL Capital by Ford, is being amortized using the straight-line
method over 40 years. The company evaluates the carrying value of goodwill for
potential impairment on an ongoing basis. Such evaluations compare operating
income before amortization of goodwill to the amortization recorded for the
operations to which the goodwill relates. The company also considers projected
future operating results, trends and other circumstances in making such
evaluations.
FH-6
<PAGE> 42
NOTE 1. Accounting Policies (Cont'd)
Insurance Claims
A liability is provided for reported claims and for claims that have been
incurred but not reported. The estimate of the liability for claims that have
been incurred but not reported is based on prior experience and insurance
in-force.
Annuity Contracts
The liability for annuity contracts reflected deposits received and interest
credited, less related withdrawals. The weighted-average interest rate on
annuity contracts outstanding at December 31, 1994 and 1993 was 6.3% and 6.2%,
respectively. Interest rates offered are initially guaranteed for periods of
either one or five years. Interest credited to annuity account balances is
recognized as expense; surrender charges are recognized as a reduction of
interest credited to annuitants. The fair value of annuity contracts at
December 31, 1994 and 1993 approximated book value because the contractual
interest rate due holders is reset annually for more than 97% of contracts
outstanding.
NOTE 2. Reinsurance Activity
A portion of the physical damage and credit life and disability insurance
business of the company relates to reinsurance agreements with unaffiliated
insurance companies. Amounts added to or deducted from accounts in connection
with insurance assumed or ceded were as follows (in millions):
<TABLE>
<CAPTION>
1994 1993 1992
----- ----- -----
<S> <C> <C> <C>
Added to
Insurance premiums earned $101 $92 $41
Insurance claims 65 62 46
Deducted from
Insurance premiums earned 50 52 37
Insurance claims 24 25 24
</TABLE>
The company remains contingently liable with respect to insurance ceded should
the reinsurer be unable to meet the obligation assumed under the reinsurance
agreement. Amounts recoverable from reinsurers in 1994 and 1993 were $7
million each year.
NOTE 3. Investments in Securities
The company adopted Statement of Financial Accounting Standards No. 115 ("SFAS
115"), "Accounting for Certain Investments in Debt and Equity Securities," as
of January 1, 1994. The effect of this change in accounting principle on the
company's financial statements was not material.
Trading securities are recorded at fair value, with unrealized gains and losses
included in income. Available-for-sale securities are recorded at fair value,
with unrealized gains and losses excluded from income and reported in a
separate component of stockholders' equity, net of taxes. Held-to-maturity
securities are recorded at amortized cost. The first-in, first-out basis of
cost is generally used in determining realized gains and losses; realized gains
and losses are included in investment income. The purchases, sales and
maturities of trading securities are included in cash flows from operating
activities. The purchases, sales and maturities of available-for-sale and the
purchases and maturities of held-to-maturity securities are included in cash
flows from investing activities.
FH-7
<PAGE> 43
NOTE 3. Investments in Securities (Cont'd)
The fair value of most securities was estimated based on quoted market prices.
For those securities for which there were no quoted market prices, the estimate
of fair value was based on similar types of securities that are traded in the
market.
Expected maturities of debt securities may differ from contractual maturities
because borrowers may have the right to call or prepay obligations with or
without penalty.
Investments in securities at December 31, 1994 were as follows (in millions):
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- ------
<S> <C> <C> <C> <C>
Trading securities $ 715 $ 6 $ 10 $ 711
Available-for-sale securities
-----------------------------
Corporate securities 1,924 2 150 1,776
Mortgage-backed securities 871 0 62 809
Debt securities issued by the U.S.
government and agencies 677 1 38 640
Municipal securities 155 1 11 145
Debt securities issued by foreign
governments 105 0 10 95
Other debt securities 22 0 0 22
Equity securities 130 34 6 158
------ --- ---- ------
Total available-for-sale securities 3,884 38 277 3,645
Held-to-maturity securities
---------------------------
Corporate securities 522 0 27 495
Municipal securities 91 0 2 89
Debt securities issued by the U.S.
government and agencies 10 0 0 10
------ --- ---- ------
Total held-to-maturity securities 623 0 29 594
------ --- ---- ------
Total investments in securities $5,222 $44 $316 $4,950
====== === ==== ======
</TABLE>
The amortized cost and fair value of investments in available-for-sale
securities and held-to-maturity securities at December 31, 1994, by contractual
maturity, were as follows (in millions):
<TABLE>
<CAPTION>
Available-for-sale Held-to-maturity
----------------------- -----------------------
Amortized Amortized
Cost Fair Value Cost Fair Value
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Due in one year or less $ 110 $ 108 $ 28 $ 27
Due after one year through five years 746 719 38 38
Due after five years through ten years 635 596 219 211
Due after ten years 1,392 1,255 338 318
Mortgage-backed securities 871 809 - -
Equity securities 130 158 - -
------ ------ ---- ----
Total $3,884 $3,645 $623 $594
====== ====== ==== ====
</TABLE>
For trading securities, the net unrealized loss included in income during 1994
was $4 million.
Proceeds from sales of available-for-sale securities were $8.9 billion in 1994;
gross gains of $37 million and gross losses of $57 million were realized on
those sales. The net unrealized loss, net of taxes, included in stockholders'
equity was $155 million at December 31, 1994.
Other securities classified as cash equivalents were $927 million and $740
million at December 31, 1994 and 1993, respectively, and consisted primarily of
short-term time deposits, corporate securities, and debt securities issued by
the U.S. government and agencies.
At December 31, 1993, investments in debt securities were recorded at amortized
cost because of the ability to hold such securities until maturity and the
intent to hold them for the foreseeable future. Marketable equity securities
were recorded at fair value, with the net unrealized gain net of tax recorded
directly to stockholders' equity.
FH-8
<PAGE> 44
NOTE 3. Investments in Securities (Cont'd)
Investments in debt securities at December 31, 1993 were as follows (in
millions):
<TABLE>
<CAPTION>
Gross Gross
Book Unrealized Unrealized
Value Gains Losses Fair Value
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Corporate securities $1,779 $48 $19 $1,808
Debt securities issued by the U.S.
government and agencies 766 26 1 791
Mortgage-backed securities 684 12 2 694
Municipal securities 114 3 1 116
Debt securities issued by foreign
governments 88 4 1 91
Other debt securities 625 0 0 625
------ --- --- ------
Total $4,056 $93 $24 $4,125
====== === === ======
</TABLE>
The book value and fair value of investments in debt securities at December 31,
1993, by contractual maturity, were as follows (in millions):
<TABLE>
<CAPTION>
Book
Value Fair Value
-------- ----------
<S> <C> <C>
Due in one year or less $ 498 $ 498
Due after one year through five years 808 818
Due after five years through ten years 596 613
Due after ten years 1,470 1,502
Mortgage-backed securities 684 694
------ ------
Total $4,056 $4,125
====== ======
</TABLE>
Proceeds from sales of investments in debt securities were $11.1 billion in
1993 and $9.9 billion in 1992. In 1993, gross gains of $112 million and gross
losses of $20 million were realized on those sales; gross gains of $90 million
and gross losses of $28 million were realized in 1992.
The cost of marketable equity securities at December 31, 1993 was $160 million.
In 1993, gross unrealized gains totaled $66 million and gross unrealized losses
totaled $5 million.
NOTE 4. Finance Receivables
Finance receivables at December 31 were as follows (in millions):
<TABLE>
<CAPTION>
1994 1993
-------- --------
<S> <C> <C>
Consumer finance
Residential real estate-secured receivables $12,003 $10,626
Direct installment and credit card receivables 7,200 6,060
Other consumer installment receivables 5,189 3,812
------- -------
Total consumer finance 24,392 20,498
Commercial finance
Heavy-duty truck equipment receivables 5,881 4,663
Other industrial installment receivables 3,650 3,277
------- -------
Total commercial finance 9,531 7,940
Total finance receivables 33,923 28,438
Unearned finance income (3,647) (3,089)
Allowance for credit losses (914) (781)
------- -------
Net finance receivables $29,362 $24,568
======= =======
Fair value $31,610 $26,019
</TABLE>
The estimated contractual maturities of finance receivables outstanding at
December 31, 1994 were as follows (in millions):
<TABLE>
<CAPTION>
After
1995 1996 1997 1997 Total
------ ------ ------ ------- -------
<S> <C> <C> <C> <C> <C>
Consumer finance $4,168 $2,975 $2,539 $14,710 $24,392
Commercial finance 3,860 2,269 1,497 1,905 9,531
------ ------ ------ ------- -------
Total $8,028 $5,244 $4,036 $16,615 $33,923
====== ====== ====== ======= =======
</TABLE>
FH-9
<PAGE> 45
NOTE 4. Finance Receivables (Cont'd)
Estimated maturities were based on contractual terms and do not give effect to
possible prepayments or renewals.
The fair value of most receivables was estimated by discounting future cash
flows using an estimated discount rate which reflected the credit, interest
rate and prepayment risks associated with similar types of instruments. For
receivables with short maturities, the book value approximated fair value.
Acquisitions
During 1994, 1993 and 1992, the company made acquisitions of finance businesses
and finance receivables, the most significant of which were as follows:
In December 1994, The Associates acquired the assets of First Collateral
Services, Inc., principally consisting of warehouse loan facilities extended to
mortgage brokers secured by mortgage contracts. The fair value of assets
acquired and liabilities assumed was $62 million and $3 million, respectively.
The transaction was accounted for as a purchase.
In September 1994, The Associates acquired the credit card portfolio and
certain other assets of Amoco Oil Company. The fair value of assets acquired
totaled $426 million. The transaction was accounted for as a purchase.
In September 1993, The Associates acquired the credit card portfolio of Great
Western Financial Corporation. The outstanding balances totaled $216 million.
In September 1993, The Associates purchased the assets of Mack Financial
Corporation, the financing division of Mack Trucks, Inc., consisting of $552
million of net commercial finance receivables, principally secured by
heavy-duty trucks and truck trailers. The fair value of assets acquired and
liabilities assumed was $587 million and $380 million, respectively. The
transaction was accounted for as a purchase.
In April 1993, The Associates purchased the stock of Allied Finance Company,
with assets primarily consisting of $146 million of net consumer finance
receivables, principally comprised of residential real estate-secured, direct
installment and indirect installment receivables. The fair value of assets
acquired and liabilities assumed was $197 million and $112 million,
respectively. The transaction was accounted for as a purchase.
In December 1992, The Associates purchased the stock of Trans-National Leasing,
Inc. Approximately $48 million of net commercial finance receivables relating
to the financing of fleet vehicles was acquired in the transaction. The fair
value of assets acquired and liabilities assumed was $52 million and $45
million, respectively. The transaction was accounted for as a purchase.
In November 1992, The Associates purchased substantially all of the assets of
First Family Financial Services H. C., Inc., including $546 million of net
consumer finance receivables, principally residential real estate-secured and
direct installment receivables. The fair value of assets acquired and
liabilities assumed was $697 million and $543 million, respectively. The
transaction was accounted for as a purchase.
In April 1992, The Associates purchased from Signal Financial Corporation $290
million of net consumer finance receivables, consisting primarily of direct
installment and residential real estate-secured receivables. The fair value of
assets acquired and liabilities assumed was $303 million and $2 million,
respectively. The transaction was accounted for as a purchase.
FH-10
<PAGE> 46
NOTE 5. Investments in Direct Financing Leases
Investments in direct financing leases at December 31 were as follows (in
millions):
<TABLE>
<CAPTION>
1994 1993
-------- --------
<S> <C> <C>
Minimum lease rentals $ 5,568 $ 5,146
Estimated residual values 356 324
Lease origination costs 21 23
Unearned finance income (1,466) (1,448)
Allowance for credit losses (75) (71)
------- -------
Net investments in direct financing leases $ 4,404 $ 3,974
======= =======
</TABLE>
Minimum direct financing lease rentals are contractually due as follows (in
millions): 1995 - $1,509; 1996 - $1,207; 1997 - $782; 1998 - $540; thereafter
- - $1,530.
The estimated residual values represent proceeds expected to be received from
the sale of equipment leased under direct financing leases.
NOTE 6. Investments in Operating Leases
Investments in equipment operating leases at December 31 were as follows (in
millions):
<TABLE>
<CAPTION>
1994 1993
------- -------
<S> <C> <C>
Equipment cost:
Automotive $ 131 $ 155
Business equipment 418 382
Rail 476 463
Aircraft 52 40
------ ------
Total equipment cost 1,077 1,040
Rentals receivable 9 10
Accumulated depreciation (370) (352)
Allowance for credit losses (5) (3)
------ ------
Net investments in equipment
operating leases $ 711 $ 695
====== ======
</TABLE>
Future minimum equipment operating lease rentals are contractually due as
follows (in millions): 1995 - $154; 1996 - $98; 1997 - $54; 1998 - $26;
thereafter - $28. Revenues from equipment operating leases, included in
financing revenues, were as follows (in millions): 1994 - $218; 1993 - $189;
1992 - $168. The cost of equipment under operating leases is capitalized and
depreciated over the lease term, or useful life, primarily on a straight-line
basis. Depreciation expense on these operating leases was as follows (in
millions): 1994 - $122; 1993 - $131; 1992 - $159.
Investments in real estate operating leases at December 31 were as follows (in
millions):
<TABLE>
<CAPTION>
1994 1993
------ ------
<S> <C> <C>
Properties at cost:
Land $ 225 $ 206
Buildings and land improvements 730 581
Leasehold improvements 10 10
Machinery, equipment, and office furniture 68 60
Construction in progress 48 82
Accumulated depreciation (213) (193)
----- -----
Net investments in real estate
operating leases $ 868 $ 746
===== =====
</TABLE>
Future minimum real estate operating lease rentals are contractually due as
follows (in millions): 1995 - $35; 1996 - $30; 1997 - $28; 1998 - $26;
thereafter - $80. Revenues from real estate operating leases are included in
real estate rental income. The cost of real estate operating leases is
capitalized and depreciated on a straight-line basis over the useful life of
the real estate asset. Depreciation expense on these operating leases was as
follows (in millions): 1994 - $26; 1993 - $23; 1992 - $23.
FH-11
<PAGE> 47
NOTE 6. Investments in Operating Leases (Cont'd)
The company, as lessee, leases certain office facilities, equipment, land, and
dealership facilities under operating leases for subsequent sublease. Rental
expense and sublease income, respectively, for all operating leases were as
follows (in millions): 1994 - $64 and $61; 1993 - $58 and $56; 1992- $57 and
$54.
NOTE 7. Allowances for Credit Losses
Allowances for credit losses are established as required based on historical
experience. Other factors that affect collectibility also are evaluated, and
additional amounts may be provided.
Finance receivables and lease investments are charged to the allowances for
credit losses when an account is deemed to be uncollectible, taking into
consideration the financial condition of the borrower, the value of the
collateral, recourse to guarantors and other factors. In addition, company
policy generally provides for charge-off of various types of accounts on a
contractual basis as follows: consumer direct and other installment and credit
card receivables, are charged to the allowance for losses when the receivable
becomes six months delinquent. All other finance receivables and lease
investments are charged to the allowances for losses when any of the following
conditions occur: (i) the related security has been converted or destroyed;
(ii) the related security has been repossessed and sold or held for sale for
one year; or (iii) the related security has not been repossessed and the
receivable has become contractually one year delinquent. Recoveries on losses
previously charged to the allowances are credited to the allowance at the time
the recovery is collected.
Changes in the allowances for credit losses were as follows (in millions):
<TABLE>
<CAPTION>
1994 1993 1992
------ ------ ------
<S> <C> <C> <C>
Beginning balance $ 855 $ 724 $ 617
Additions 586 501 532
Net losses (471) (404) (436)
Other changes 24 34 11
----- ----- -----
Ending balance $ 994 $ 855 $ 724
===== ===== =====
</TABLE>
NOTE 8. Deferred Policy Acquisition Costs
Certain costs of acquiring insurance contracts are deferred and amortized over
the terms of the related contracts on the same bases on which the premiums are
earned. Changes in deferred policy acquisition costs were as follows (in
millions):
<TABLE>
<CAPTION>
1994 1993 1992
------ ------ -----
<S> <C> <C> <C>
Beginning balance $ 178 $ 148 $ 138
Commissions 142 135 101
Origination costs 11 12 6
Premium taxes 5 6 5
Amortization of policy acquisition costs (83) (123) (102)
----- ----- -----
Ending balance $ 253 $ 178 $ 148
===== ===== =====
</TABLE>
FH-12
<PAGE> 48
NOTE 9. Income Taxes
The provision for income taxes was as follows (in millions):
<TABLE>
<CAPTION>
1994 1993 1992
------ ------ ------
<S> <C> <C> <C>
Currently payable
U.S. federal $303 $284 $149
State and local 25 23 22
---- ---- ----
Total currently payable 328 307 171
Deferred tax liability, federal and state 4 18 51
---- ---- ----
Total provision $332 $325 $222*
==== ==== ====
</TABLE>
---------------
*Excludes cumulative effects of changes in accounting principles
A reconciliation of the provision for income taxes compared with the amounts at
the U.S. statutory tax rate is shown below (in millions):
<TABLE>
<CAPTION>
1994 1993 1992
----- ----- -----
<S> <C> <C> <C>
Tax provision at U.S. statutory rate of 35%
for 1994 and 1993 and 34% for 1992 $329 $291 $200
Effect of:
Goodwill and acquisition adjustments 15 20 20
State and local income taxes 28 19 7
Investment income not subject to tax or
subject to tax at reduced rates (30) (16) (9)
Other (10) 11 4
---- ---- ----
Provision for income taxes $332 $325 $222*
==== ==== ====
Effective Tax Rate 35.3% 39.1% 37.8%
</TABLE>
---------------
*Excludes cumulative effects of changes in accounting principles
The company adopted Statement of Financial Accounting Standards No. 109 ("SFAS
109"), "Accounting for Income Taxes," as of January 1, 1992. The adoption of
SFAS 109 changed the method of accounting for income taxes from the deferred
method using Accounting Principles Board Opinion No. 11 to an asset and
liability approach. The cumulative effect of this change in accounting
principle increased 1992 net income by $51 million.
Under SFAS 109, deferred income taxes reflect the estimated tax effect of
temporary differences between assets and liabilities for financial reporting
purposes and those amounts as measured by tax laws and regulations. The
components of deferred income tax assets and liabilities at December 31 were as
follows (in millions):
<TABLE>
<CAPTION>
1994 1993
--------------------------- ---------------------------
Deferred Tax Deferred Tax Deferred Tax Deferred Tax
Assets Liabilities Assets Liabilities
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Allowance for credit losses $367 $ - $273 $ -
Employee benefit plans 83 - 75 -
Unearned premium reserve 106 - 76 -
Leasing transactions - 612 - 421
Deferred acquisition costs - 75 - 49
Unrealized gains 83 - - 20
Depreciation and amortization
(excludes leasing transactions) - 23 - 22
All other 13 76 - 142
---- ---- ---- ----
Subtotal 652 786 424 654
Valuation allowances - - (9) -
---- ---- ---- ----
Total deferred taxes $652 $786 $415 $654
==== ==== ==== ====
</TABLE>
FH-13
<PAGE> 49
NOTE 10. Debt
Debt at December 31 was as follows (in millions):
<TABLE>
<CAPTION>
Book Value
Weighted Average ------------------
Maturity Interest Rate* 1994 1993
---------- ---------------- ------- -------
Debt payable within one year 1994 1993
---------------------------- ---- ----
<S> <C> <C> <C> <C> <C>
Commercial paper $12,978 $10,721
Bank borrowings 572 472
------- -------
Total short-term debt 5.7% 3.3% 13,550 11,193
Senior and subordinated notes and
debentures payable within one year 2,505 2,609
------- -------
Total debt payable within one year 16,055 13,802
Long-term debt
--------------
Unsecured senior indebtedness 1996-2020 7.4% 7.5% 17,520 15,518
Unsecured subordinated notes 1996-2009 8.1% 8.1% 142 142
Secured notes 1996-2005 6.7% 6.4% 97 101
Capital lease obligations 1996-2021 8.0% 7.8% 6 7
------- -------
Total long-term debt 17,765 15,768
------- -------
Total debt $33,820 $29,570
======= =======
Fair value $33,457 $30,909
</TABLE>
---------------
*Excludes the effect of interest-rate swap agreements
The fair value of debt was estimated based on quoted market prices or current
rates for similar debt with the same remaining maturities.
The average remaining term of commercial paper was 17 days and 24 days at
December 31, 1994 and 1993, respectively.
Long-term debt at December 31, 1994, including amounts payable within one year,
matures as follows (in millions): 1995 - $2,505; 1996 - $3,591; 1997 - $4,247;
1998 - $2,014; 1999 - $2,372; thereafter - $5,541. The interest portion of
capital lease obligations was $1 million at December 31, 1994.
Secured indebtedness is collateralized by mortgages on land and buildings of
approximately $99 million and by rentals receivable and rental equipment of
approximately $10 million, which are included in investments in leases. At
December 31, 1994, warrants were outstanding to purchase $155 million aggregate
principal amount of senior notes at specified dates between 1995 and 1999.
Included in long-term debt at December 31, 1994 and December 31, 1993 were
obligations of $17,325 million and $15,325 million, respectively, with fixed
interest rates and $440 million and $443 million, respectively, with variable
interest rates (generally based on LIBOR or other short-term rates).
Agreements to manage exposures to fluctuations in interest rates, which include
primarily interest-rate swap agreements, did not materially change the overall
weighted-average rate on long-term debt and effectively decreased the
obligations subject to variable interest rates to $305 million at December 31,
1994. In addition, the weighted-average interest rate on short-term debt did
not materially change as a result of these agreements.
At December 31, 1994, Ford guaranteed all of Ford Holdings' debt held by
nonaffiliated persons, totaling $1,867 million, and $4 million of Ford
Leasing's debt.
At December 31, 1994, the company had contractually committed revolving credit
facilities with banks of $5.8 billion, none of which were utilized. Maturity
dates for these facilities ranged from February 1995 through January 2000.
Also, at December 31, 1994, the company had contractually committed lines of
credit with banks of $3.8 billion, none of which were utilized. Maturity dates
for these facilities ranged from January 1995 through December 1996. In
addition, the company had $1.1 billion of contractually committed receivables
sale facilities, of which about 11% were in use at December 31, 1994. Some of
these agreements contain certain provisions related to the continuation of
Ford's direct or indirect ownership in the company.
FH-14
<PAGE> 50
NOTE 11. Employee Retirement Benefits
Employee Retirement Plans
The Associates sponsors various defined benefit pension plans, which together
cover substantially all permanent employees who meet certain eligibility
requirements.
The Associates' pension expense was as follows (in millions):
<TABLE>
<CAPTION>
1994 1993 1992
----- ----- -----
<S> <C> <C> <C>
Benefits attributed to employee's service $ 14 $ 10 $ 8
Interest on projected benefit obligations 21 18 16
Actual return on assets (gain) - (21) (10)
Net amortization (11) 7 (2)
---- ---- ----
Net pension expense $ 24 $ 14 $ 12
==== ==== ====
</TABLE>
The status of these plans for The Associates at December 31 was as follows (in
millions):
<TABLE>
<CAPTION>
1994 1993
----- -----
<S> <C> <C>
Plan assets at fair value $205 $197
Actuarial present value of:
Vested benefits $204 $215
Accumulated benefits 214 223
Projected benefits 271 290
Plan assets (less than) projected benefits $(66) $(93)
Unamortized net transition obligation
and amendments 11 10
Unamortized net losses 15 46
---- ----
Prepaid pension (liability) recognized
in the balance sheet $(40) $(37)
==== ====
Plan assets (less than) accumulated benefits $ (9) $(26)
Assumptions:
Discount rate 8.25% 7.0%
Average rate of increase in compensation 6.0 % 6.0%
Long-term rate of return on assets 9.0 % 9.5%
</TABLE>
USL Capital sponsors a defined contribution retirement plan which covers
substantially all of its employees. The combined contribution for profit
sharing and deferred compensation is limited to 10% of a participant's
qualified earnings. Under the profit sharing p contributions are determined
as 6.9% of each covered participant's qualified earnings, plus an additional
5.7% of earnings above the social security maximum taxable amount. Profit
sharing cost represents contributions minus forfeited amounts of terminated
participants. Under the deferred compensation part, contributions (cost) are
determined as 75 cents per dollar for the first 3% and 25 cents per dollar on
the next 3% of deferred compensation up to a maximum of 6% of a participant's
compensation. The amount charged to operating expenses related to USL
Capital's retirement plan was as follows (in millions): 1994 - $3; 1993 - $4;
1992 - $4.
Other subsidiaries of the company do not have employees but purchase technical
and administrative services from Ford, the cost of which includes retirement
benefits. Retirement costs included in such service fee billings from Ford
were not significant.
Postretirement Health Care and Life Insurance Benefits
The Associates sponsors unfunded plans that provide selected health care and
life insurance benefits to substantially all retired employees who have met
certain eligibility requirements; however, the benefits of the plan may be
modified or terminated at the discretion of The Associates.
FH-15
<PAGE> 51
NOTE 11. Employee Retirement Benefits (Cont'd)
USL Capital sponsors unfunded plans that provide selected health care and life
insurance benefits to retired employees, the cost of which is shared between
USL Capital and the retiree. The accounting for the health care plan
anticipates future cost-sharing changes that are consistent with USL Capital's
past practice. USL Capital defines a maximum amount (or "cap") that it will
contribute toward the health benefits of each retiree. This cap is determined
annually and is based on the individual retiree's number of dependents. Over
the last seven years the aggregate increase in the cap approximates the average
increase in the underlying premium costs of the program. This valuation
assumed that in future years USL Capital will continue to increase the cap at
the average rate of increase of the underlying cost of the retiree benefit
program. Benefits and eligibility rules, however, may be modified by USL
Capital from time to time.
The estimated cost for postretirement health care benefits is accrued over
periods of employee service on an actuarially determined basis, in accordance
with the requirements of Statement of Financial Accounting Standards No. 106
("SFAS 106"), "Employers' Accounting for Postretirement Benefits Other Than
Pensions". In adopting SFAS 106, the company elected to recognize immediately
the prior-year unaccrued accumulated postretirement benefit obligation,
resulting in an adverse effect on income of $25 million in the first quarter of
1992. The charge reflected an unaccrued retiree benefit obligation of $70
million, offset partially by projected tax benefits of $27 million and reversal
of the unamortized postretirement benefit liability of $18 million relating to
the acquisition of The Associates by Ford Holdings.
The combined amount paid by The Associates and USL Capital for postretirement
benefits in 1994, 1993 and 1992 was $2 million each year.
The combined net postretirement benefit expense for The Associates and USL
Capital included the following (in millions):
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Benefits attributed to employees' service $ 6 $ 4 $ 3
Interest on accumulated benefit obligation 7 8 7
Net amortization (1) (1) -
--- --- ---
Net postretirement benefit expense $12 $11 $10
=== === ===
</TABLE>
The combined accrued postretirement benefit cost for The Associates and USL
Capital at December 31 included the following (in millions):
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Retirees $ 36 $ 36
Active employees eligible to retire 19 22
Other active employees 32 34
---- ----
Total accumulated obligation 87 92
Unamortized prior service cost a/ 10 11
Unrecognized net (loss) b/ (1) (17)
---- ----
Accrued postretirement benefit cost $ 96 $ 86
==== ====
Assumption: Discount rate at year-end 8.75% 7.5%
</TABLE>
---------------
a/ The prior service effect of the plan amendments deferred for
recognition over remaining service to retirement eligibility.
b/ The deferred gain or loss resulting from experience and changes in
assumptions deferred for recognition over remaining service to
retirement.
For measurement purposes, The Associates assumed 12.1% and 12.5% weighted
average annual rates of increase in per capita cost of covered health care
benefits for 1994 and 1993, respectively, decreasing gradually to 5.5% by 2009.
FH-16
<PAGE> 52
NOTE 11. Employee Retirement Benefits (Cont'd)
For measurement purposes, USL Capital assumed 9% and 7.5% annual rates of
increase in per capita cost of postretirement medical benefits for 1994 for the
under age 65 indemnity and HMO and over age 65 indemnity plans, respectively;
the rates were assumed to decrease gradually to 5.5% by 2006 and remain at that
level thereafter. The comparable rates assumed for 1993 were 12% and 8% for
the under age 65 indemnity and HMO and over age 65 indemnity plans,
respectively.
Changing the assumed health care cost trend rates by one percentage point would
change the aggregate service and interest cost components of net
postretirement benefit expense of The Associates and USL Capital, on a combined
basis, for 1994 by $1 million and the accumulated postretirement benefit
obligation at December 31, 1994 by $7 million.
NOTE 12. Capital Stock
The authorized capital stock of Ford Holdings consists of Common Stock and
Preferred Stock. Holders of Preferred Stock generally are entitled to elect
not less than 25 percent of the directors of the company. On all matters other
than the election of directors as to which stockholders generally have a vote,
holders of Common Stock, as a class, are entitled to 75%, and holders of
Preferred Stock, as a class, are entitled to 25%, of the total number of votes
of all the capital stock of Ford Holdings. At December 31, 1994, the Preferred
Stock consisted of $1,015 million of Cumulative Flexible Rate Auction Preferred
Stock ("Flex-APS"); $287 million of fixed-rate Series A Cumulative Preferred
Stock; $173 million of fixed-rate Series B Cumulative Preferred Stock; $200
million of fixed-rate Series C Cumulative Preferred Stock; and $200 million of
fixed-rate Series D Cumulative Preferred Stock.
Dividends on the Flex-APS generally are determined through auction procedures.
The maximum applicable dividend rate is a function of the 60- day "AA"
Composite Commercial Paper rate or the applicable reference rate. The average
dividend rate in effect on the Flex-APS in 1994 was 4.82%; the weighted average
dividend rate was 5.56% on December 31, 1994. Accumulated and unpaid dividends
on the Flex-APS amounted to $6 million at December 31, 1994.
The fixed-rate Series A Cumulative Preferred Stock dividend rate is 8% ($2.00
per depository share) per year; accumulated and unpaid dividends were $2
million at December 31, 1994. The fixed-rate Series B Cumulative Preferred
Stock dividend rate is 8% ($2.00 per depository share) per year; accumulated
and unpaid dividends were $1 million at December 31, 1994. The fixed-rate
Series C Cumulative Preferred Stock dividend rate is 7.12% ($1.78 per
depository share) per year; accumulated and unpaid dividends were $1 million at
December 31, 1994. The fixed-rate Series D Cumulative Preferred Stock dividend
rate is 8.1% ($2.025 per depository share) per year, accumulated and unpaid
dividends were $1 million at December 31, 1994.
NOTE 13. Dividend Restrictions
Payment of dividends by American Road to a company within its holding company
system is regulated by the State of Michigan. Under Michigan regulations, all
dividend payments must be reported to and reviewed by the Michigan Insurance
Commission.
Payment of dividends by certain subsidiaries of The Associates is restricted
under the provisions of certain debt and revolving credit agreements. At
December 31, 1994, $454 million was available for the payment of dividends.
FH-17
<PAGE> 53
NOTE 14. Litigation and Claims
Various legal actions, governmental investigations and proceedings and claims
are pending or may be instituted or asserted in the future against Ford
Holdings and its subsidiaries. Certain of the pending legal actions are, or
purport to be, class actions. Some of the foregoing matters involve or may
involve compensatory, punitive, or antitrust or other treble damage claims in
very large amounts, sanctions, or other relief which, if granted, would require
very large expenditures.
Litigation is subject to many uncertainties, the outcome of individual
litigated matters is not predictable with assurance. It is reasonably possible
that some of the matters discussed in the foregoing paragraph could be decided
unfavorably to Ford Holdings or the subsidiary involved and could require Ford
Holdings or such subsidiary to pay damages or make other expenditures in
amounts or a range of amounts that at December 31, 1994 cannot reasonably be
estimated. Although the final resolution of any such matters could have a
material effect on the company's consolidated financial results for a
particular reporting period, the company believes that, based on its analysis,
any resulting liability should not materially affect the consolidated financial
position at December 31, 1994.
NOTE 15. Transactions With Affiliated Companies
The company receives technical and administrative advice and services from Ford
and utilizes data processing facilities maintained by Ford. The cost of these
services is allocated to the company based on actual costs incurred by Ford in
performing these services. The company believes this allocation is a
reasonable approximation of the costs it would have incurred on a stand-alone
basis. Payments to Ford for such services were as follows (in millions): 1994
- - $36; 1993 - $31; 1992 - $41.
The company provides insurance and other services to Ford and other affiliated
companies. Amounts included in revenues for these services were as follows (in
millions):
<TABLE>
<CAPTION>
1994 1993 1992
------ ------ ------
<S> <C> <C> <C>
Physical damage premiums on vehicles
and equipment financed at wholesale $81 $85 $63
Reimbursements for administrative and
technical services 82 55 47
Rental of office space and parking facilities 45 57 39
</TABLE>
Net interest income under various financing arrangements between the company
and Ford was as follows (in millions): 1994 - $9; 1993 - $16; 1992 - $33.
NOTE 16. Financial Instruments
The company adopted Statement of Financial Accounting Standards No. 119,
"Disclosure about Derivative Financial Instruments and Fair Value of Financial
Instruments" as of December 31, 1994. Estimated fair value amounts have been
determined using available market information and various valuation methods
depending on the type of instrument. In evaluating the fair value information,
considerable judgement is required to interpret the market data used to develop
the estimates. The use of different market assumptions and/or different
valuation techniques may have a material effect on the estimated fair value
amounts.
FH-18
<PAGE> 54
NOTE 16. Financial Instruments (Cont'd)
Balance Sheet Financial Instruments
Information about specific valuation techniques and related fair value detail
is provided throughout the footnotes. The table below provides book value and
fair value amounts (in millions) and a cross reference to the applicable Note.
<TABLE>
<CAPTION>
December 31, 1994 December 31, 1993
------------------ ------------------
Book Fair Book Fair Fair Value
Value Value Value Value Reference
------- ------- -------- ------- ----------
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents $ 968 $ 968 $ 823 $ 823 Note 1
Investments in securities 4,979 4,950 4,277 4,346 Note 3
Finance receivables 29,362 31,610 24,568 26,019 Note 4
Debt 33,820 33,457 29,570 30,909 Note 10
Annuity contracts 2,722 2,722 1,598 1,598 Note 1
</TABLE>
Foreign Currency Instruments
The fair value of foreign currency swap agreements generally was estimated
using current market prices provided by outside quotation services. At
December 31, 1994, the fair value of net receivable contracts was $47 million.
At December 31, 1993, the fair value for all agreements was a net receivable of
$12 million. At December 31, 1994, foreign currency swaps had a deferred loss
of $1 million. In the unlikely event that a counterparty fails to meet the
terms of a foreign currency swap agreement, the company's risk is the fair
value of the agreement. At December 31, 1994 and 1993, the total notional
amount of the company's foreign currency swaps outstanding was $173 million and
$281 million, respectively, maturing primarily through 1997.
Interest-Rate Instruments
The fair value of interest-rate swap and cap agreements is the estimated amount
the company would receive or pay to terminate the agreement. Fair value is
calculated using information provided by outside quotation services, taking
into account current interest rates and the current credit-worthiness of the
swap and cap parties. At December 31, 1994, the fair value of net receivable
contracts was $10 million, and the fair value of net payable contracts was $5
million. At December 31, 1993, the fair value for all agreements was a net
receivable of $7 million. In the unlikely event that a counterparty fails to
meet the terms of an interest-rate swap or cap agreement, the company's risk is
the fair value of the agreement. At December 31, 1994 and 1993, the underlying
notional principal amounts on which the company has interest-rate swap and cap
agreements outstanding aggregated $4.5 billion and $2.1 billion, respectively,
maturing primarily through 1999.
Other Instruments
Certain subsidiaries of the company make credit lines available to holders of
their credit cards and to certain commercial and consumer customers. At
December 31, 1994 and 1993, the unused portion of available credit was
approximately $10.3 billion and $9.6 billion, respectively, and is revocable
under specified conditions. The fair value of unused credit lines and the
potential risk of loss was not considered to be material.
In addition, the company has entered into a variety of other financial
agreements which contain potential risk of loss. These agreements include
financial guarantees and warrants. Neither the amounts of these agreements nor
the potential risk of loss was considered to be material at December 31, 1994.
FH-19
<PAGE> 55
NOTE 17. Segment Information
The company operates in three business segments: consumer finance, commercial
finance, and insurance. The consumer finance segment is engaged primarily in
making and investing in direct installment and revolving credit receivables,
including credit card receivables, purchasing consumer-related installment
obligations, and providing other consumer financial services. The commercial
finance segment is engaged primarily in financing sales of transportation and
industrial equipment, leasing of equipment either through equipment vendors or
directly to end users, and the construction and operation of commercial real
estate developments. The insurance segment is engaged primarily in the
issuance of deferred annuities, property and casualty insurance relating to
extended service plan contracts, credit life and credit disability insurance,
and physical damage insurance. These insurance products are provided primarily
to purchasers of vehicles financed by Ford subsidiaries and to customers of the
finance operations of The Associates.
Corporate expenses consist primarily of interest on acquisition-related debt.
Acquisition-related goodwill has been allocated to the operating segments.
Financial information segregated by business segment is as follows (in
millions):
<TABLE>
<CAPTION>
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Revenues
Consumer finance $ 2,948 $ 2,461 $ 2,206
Commercial finance 1,986 1,788 1,617
Insurance 912 1,006 978
Corporate 34 37 16
------- ------- -------
Total $ 5,880 $ 5,292 $ 4,817
======= ======= =======
Income/(loss) before income
taxes and cumulative effects
of changes in accounting principles
Consumer finance $ 609 $ 493 $ 367
Commercial finance 438 380 285
Insurance 44 117 91
Corporate (151) (159) (155)
------- ------- -------
Total $ 940 $ 831 $ 588
======= ======= =======
Assets
Consumer finance $20,333 $17,682 $15,902
Commercial finance 18,464 16,167 13,200
Insurance 4,655 3,806 2,933
Corporate 921 944 696
------- ------- -------
Total $44,373 $38,599 $32,731
======= ======= =======
Capital expenditures
Consumer finance $ 42 $ 7 $ 16
Commercial finance 23 23 20
------- ------- -------
Total $ 65 $ 30 $ 36
======= ======= =======
</TABLE>
NOTE 18. Summary Quarterly Financial Data (Unaudited)
(in millions)
<TABLE>
<CAPTION>
1994 1993
------------------------------- -------------------------------
First Second Third Fourth First Second Third Fourth
Qtr. Qtr. Qtr. Qtr. Qtr. Qtr. Qtr. Qtr.
------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total revenues $1,371 $1,395 $1,529 $1,585 $1,259 $1,301 $1,365 $1,367
Income before income taxes $ 222 $ 213 $ 250 $ 255 $ 187 $ 177 $ 235 $ 232
Net income $ 140 $ 135 $ 160 $ 174 $ 118 $ 109 $ 136 $ 148
</TABLE>
FH-20
<PAGE> 56
<TABLE>
<CAPTION>
Schedule I
Ford Holdings, Inc. and Subsidiaries
CONDENSED FINANCIAL INFORMATION OF REGISTRANT (PARENT)
Statement of Income
----------------------------------------------
For the Years Ended December 31, 1994 and 1993
(in millions)
1994 1993
------ ------
<S> <C> <C>
Revenues
Dividends from The Associates, USL Capital
and American Road $ 373 $ 376
Investments and other income 45 36
------ ------
Total revenues 418 412
Expenses
Interest expense 182 183
Amortization of goodwill 36 36
Other expenses (3) (2)
------ ------
Total expenses 215 217
------ ------
Income before income taxes and equity in
undistributed earnings of subsidiaries 203 195
Credit for income taxes (52) (55)
------ ------
Income before equity in undistributed
earnings of subsidiaries 255 250
Equity in undistributed earnings of subsidiaries 354 261
----- ------
Net income $ 609 $ 511
====== ======
</TABLE>
<TABLE>
<CAPTION>
Balance Sheet
-----------------------------
At December 31, 1994 and 1993
(in millions)
1994 1993
------ ------
<S> <C> <C>
Assets
- ------
Cash and cash equivalents $ 267 $ 326
Investments in securities 669 621
Receivables from affiliates and others 450 166
Equity in net assets of subsidiaries 5,587 5,207
------ ------
Total assets $6,973 $6,320
====== ======
Liabilities and Stockholders' Equity
- ------------------------------------
Payable to Ford - 80
Other liabilities 66 75
Debt 1,892 1,874
------ ------
Total liabilities 1,958 2,029
Stockholders' equity 5,015 4,291
------ ------
Total liabilities and stockholders' equity $6,973 $6,320
====== ======
</TABLE>
FSS-1
<PAGE> 57
<TABLE>
<CAPTION>
Schedule I
Ford Holdings, Inc. and Subsidiaries
CONDENSED FINANCIAL INFORMATION OF REGISTRANT (PARENT)
Statement of Cash Flows
For the Years Ended December 31, 1994 and 1993
(in millions)
1994 1993
---- ----
<S> <C> <C>
Cash and cash equivalents at January 1 $326 $137
Cash flows from operating activities
Net income 609 511
Equity in undistributed earnings of subsidiaries (354) (261)
Other (376) (62)
---- ----
Net cash provided by operating activities (121) (188)
Cash flows from investing activities
Sales and purchases of securities, net (48) (61)
Capital contributions (213) (240)
---- ----
Net cash used in investing activities (261) (301)
Cash flows from financing activities
Dividends paid to preferred stockholders (94) (73)
Issuance of Preferred Stock 417 375
---- ----
Net cash provided by financing activities 323 302
Net (decrease)/increase in cash and cash
equivalents (59) 189
---- ----
Cash and cash equivalents at December 31 $267 $326
==== ====
</TABLE>
FSS-2
<PAGE> 58
EXHIBIT INDEX
<TABLE>
<CAPTION>
Designation Description Method of Filing
- ----------- ----------- ----------------
<S> <C>
Exhibit 3-A Certificate of Incorporation Filed as Exhibit 3-A to
dated August 30, 1989. the Registrant's Annual
Report on Form 10-K for
the year ended December 31,
1989. File No. 0-18263.*
Exhibit 3-B By-Laws of the Registrant, as Filed as Exhibit 3-B to
amended through October 20, the Registrant's Annual
1989. Report on Form 10-K for
the year ended December 31,
1989. File No. 0-18263.*
Exhibit 3-C By-Laws of the Registrant, as Filed as Exhibit 3-C to the
amended through May 22, 1992. Registrant's Annual Report on
Form 10-K for the year ended
December 31, 1992. File No.
0-18263.*
Exhibit 4-A Certificate of Designations Filed as Exhibit 4-A to
of Flexible Rate Auction the Registrant's Annual
Preferred Stock. Report on Form 10-K for
the year ended December 31,
1989. File No. 0-18263.*
Exhibit 4-A-1 Certificate of Designations Filed as Exhibit 4-A-1 to
of Flexible Rate Auction the Registrant's Annual
Preferred Stock (Exchange), Report on Form 10-K for
Series A-K. the year ended December 31,
1990. File No. O-18263.*
Exhibit 4-A-2 Certificate of Amendment to Filed as Exhibit 4-A-2 to the
the Certificate of Desig- Registrant's Annual Report on
nations of Flexible Rate Form 10-K for the year ended
Auction Preferred Stock December 31, 1991. File No.
(Exchange), Series A-K, filed 0-18263.*
December 27, 1991.
Exhibit 4-A-3 Certificate of Elimination of Filed as Exhibit 4-A-3 to the
Flexible Rate Auction Pre- Registrant's Annual Report on
ferred Stock (as referred to Form 10-K for the year ended
in Exhibit 4-A). December 31, 1992. File No.
0-18263.*
Exhibit 4-A-4 Certificate of Amendment to Filed as Exhibit 4-A-4 to the
the Certificate of Designations Registrant's Annual Report on
of the Flexible Rate Auction Form 10-K for the year ended
Preferred Stock (Exchange), December 31, 1992. File No.
Series A-K, filed June 1, 1992. 0-18263.*
</TABLE>
<PAGE> 59
Designation Description Method of Filing
- ----------- ----------- ----------------
Exhibit 4-A-5 Certificate of Designations Filed as Exhibit 4-A-5 to
of Series A Cumulative the Registrant's Annual
Preferred Stock. Report on Form 10-K for
the year ended December
31, 1992. File No. 0-18263.*
Exhibit 4-A-6 Certificate of Designations Filed as Exhibit 4-A-6 to
of Series B Cumulative the Registrant's Annual
Preferred Stock. Report on Form 10-K for
the year ended December
31, 1992. File No.
0-18263.*
Exhibit 4-A-7 Form of Certificate of Filed as Exhibit 2.7 to
Designations of Series C the Registrant's Regis-
Cumulative Preferred tration Statement on
Stock. Form 8-A dated August
24, 1993. File No.
0-18263.*
Exhibit 4-A-8 Certificate of Designations Filed as Exhibit 4.1 of the
of the Series D Cumulative Registrant's Current Report
Preferred Stock. on Form 8-K dated August 11,
1994. File No. 1-11146 or
0-18263.
Exhibit 4-A-9 Certificate of Designations Filed as Exhibit 4.1 of the
of the Flexible Rate Auction Registrant's Current Report
Preferred Stock, Series L, M on Form 8-K dated December
and N. 12, 1994. File No. 1-11146
or 0-18263.*
Exhibit 4-B Indenture dated as of February Filed as Exhibit 4-A to
1, 1990 among the Registrant, the Registrant's Regis-
Ford and Manufacturers Hanover tration Statement No.
Trust Company. 33-32641.*
Exhibit 4-C-1 Deposit Agreement dated as of Filed as Exhibit 4-C-1 to
June 4, 1992, among Registrant, the Registrant's Annual
Chemical Bank, as depositary, Report on Form 10-K for
and the holders from time to the year ended December
time of Depositary Shares, each 31, 1992. File No.
representing 1/4,000 of a share 0-18263.*
of Series A Cumulative
Preferred Stock.
Exhibit 4-C-2 Deposit Agreement dated as of Filed as Exhibit 1-B
January 26, 1993, among to Registrant's Report on
Registrant, Chemical Bank, Form 8-K dated January 19,
as depositary and the holders 1993. File No. 0-18263.*
from time to time of Depositary
Shares, each representing
1/4,000 of a share of Series B
Cumulative Preferred Stock.
<PAGE> 60
Designation Description Method of Filing
- ----------- ----------- ----------------
Exhibit 4-C-3 Deposit Agreement dated as of Filed as Exhibit 2.8 to
August 30, 1993, among Reg- the Registrant's Regis-
istrant, Chemical Bank, as tration Statement on
depositary and the holders Form 8-A dated August
from time to time of Depositary 24, 1993. File No.
Shares, each representing 1/4000 0-18263.*
of a share of Series C Cumulative
Preferred Stock.
Exhibit 4-C-4 Deposit Agreement dated as of Filed as Exhibit 4.3 of
August 10, 1994, among the Registrant's
Registrant, Chemical Bank, as Current Report on Form
depositary and the holders from 8-K dated August 11,
time to time of Depositary 1994. File No. 1-11146
Shares, each representing or 0-18263.*
1/4,000 of a share of Series D
Cumulative Preferred Stock.
Exhibit 10-A Agreement dated as of Filed as Exhibit 10-A to
October 27, 1989 between the Registrant's Annual
the Registrant and Ford. Report on Form 10-K for
the year ended December
31, 1989. File No.
0-18263.*
Exhibit 10-B Agreement dated as of Filed as Exhibit 10-B to
October 27, 1989 between the Registrant's Annual
the Registrant and Ford Report on Form 10-K for
Credit. the year ended December
31, 1989. File No.
0-18263.*
Exhibit 12 Computation of Ratio of Filed with this Report.
Earnings to Fixed Charges.
Exhibit 21 Subsidiaries of the Registrant Filed with this Report.
as of December 31, 1994.
Exhibit 23 Consent of Independent Filed with this Report.
Certified Public Accountants.
Exhibit 24 Powers of Attorney. Filed with this Report.
- ---------------
* Incorporated by reference as an exhibit hereto.
<PAGE> 1
<TABLE>
<CAPTION>
EXHIBIT 12
Ford Holdings, Inc. and Subsidiaries
CALCULATION OF RATIO OF EARNINGS
TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
(in millions)
For the Years Ended December 31
----------------------------------------------------------
1994 1993 1992 1991 1990
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Earnings (a)
- --------
Income before income taxes
and cumulative effects of
changes in accounting
principles $ 940 $ 831 $ 588 $ 592 $ 455
Adjusted fixed charges (b) 2,198 1,895 1,731 1,790 1,648
------ ------ ------ ------ ------
Total earnings $3,138 $2,726 $2,319 $2,382 $2,103
====== ====== ====== ====== ======
Combined Fixed Charges and
Preferred Stock Dividends (a)
- -------------------------
Interest expense $2,124 $1,832 $1,659 $1,718 $1,569
Interest portion of
rental expense 30 24 24 24 28
Preferred stock dividend
requirements (c) 151 123 78 74 89
------ ------ ------ ------ ------
Total combined fixed charges
and preferred stock dividends $2,305 $1,979 $1,761 $1,816 $1,686
====== ====== ====== ====== ======
Ratio of earnings to combined
fixed charges and preferred
stock dividends 1.4 1.4 1.3 1.3 1.2
</TABLE>
- ---------------
(a) For purposes of computing the ratio of earnings to combined fixed
charges and preferred stock dividends, "earnings" include earnings
before income taxes and cumulative effects of changes in accounting
principles, plus adjusted fixed charges. "Combined fixed charges and
preferred stock dividends" consist of interest on borrowed funds,
amortization of debt discount, premium and issuance expense, one-third
of all rental expense (the portion deemed representative of the
interest factor) and preferred stock dividend requirements.
(b) Adjusted fixed charges exclude the amount of interest capitalized
during the period and preferred stock dividend requirements.
(c) Preferred stock dividend requirements have been increased to an amount
representing the pre-tax earnings which would be required to cover
such dividend requirements based on Ford Holdings' effective income
tax rates for the respective periods.
<PAGE> 1
<TABLE>
<CAPTION>
EXHIBIT 21
PRINCIPAL SUBSIDIARIES OF THE COMPANY
(All subsidiaries are wholly owned except as indicated)
Jurisdiction of
Incorporation
---------------
<S> <C>
ASSOCIATES FIRST CAPITAL CORPORATION Delaware
Associates National Bank (Delaware) United States
Associates Bancorp Inc. Delaware
Associates Credit Card Services, Inc. California
Associates Credit Card Services of Delaware, Inc. Delaware
Associates World Capital Corporation Delaware
Associates Corporation of North America Delaware
Associates Corporation of North America
(A Texas Corporation) Texas
AFC Securities Inc. Delaware
Associates Commercial Corporation of Delaware Delaware
Associates Investment Corporation Utah
Associates Insurance Group, Inc. Delaware
Associates Life Insurance Group, Inc. Delaware
Alinco Life Insurance Company Indiana
Associates Financial Life Insurance Company Tennessee
Associates Management Corporation Delaware
Associates Real Estate Financial Services
Company, Inc. Delaware
The Associates Payroll Management Service
Company, Inc. Delaware
Associates Investment Company Delaware
Associates Diversified Services, Inc. Delaware
Associates Financial Services Company, Inc. Delaware
Associates Commercial Corporation Delaware
USL CAPITAL CORPORATION Delaware
Airlease Management Services, Inc. Delaware
United States Airlease Holding, Inc. California
Trust Company for USL, Inc. Illinois
THE AMERICAN ROAD INSURANCE COMPANY Michigan
Ford Life Insurance Company Michigan
Vista Insurance Company Michigan
Vista Life Insurance Company Michigan
Fairlane Life Insurance Company Arizona
American Renaissance Insurance Company Arizona
Dobco Life Insurance Company Arizona
FORD MOTOR LAND DEVELOPMENT CORPORATION Delaware
FORD LEASING DEVELOPMENT COMPANY Delaware
FORD HOLDINGS FINANCING, INC. Delaware
</TABLE>
<PAGE> 1
[COOPERS & LYBRAND LETTERHEAD]
EXHIBIT 23
CONSENT OF COOPERS & LYBRAND L.L.P.
Ford Holdings, Inc.
The American Road
Dearborn, Michigan 48121
We consent to the incorporation by reference in the registration statements of
Ford Holdings, Inc. on Form S-3 (No. 33-48743, 33-60232, 33-50419, 33-56335
and 33-56747) and of Ford Holdings, Inc. and Ford Motor Company on Form S-3
(No. 33-32641, 33-55474 and 33-55171) of our report dated January 27, 1995 on
our audits of the consolidated financial statements and financial statement
schedule of Ford Holdings, Inc. and Subsidiaries as of December 31, 1994 and
1993, and for the years ended December 31, 1994, 1993 and 1992, which report is
included in this Annual Report on Form 10-K.
/S/ Coopers & Lybrand L.L.P.
Coopers & Lybrand L.L.P.
Detroit, Michigan
March 17, 1995
<PAGE> 1
EXHIBIT 24
FORD HOLDINGS, INC.
Certificate of an Assistant Secretary
The undersigned, P. J. Sherry, Jr., an Assistant Secretary of FORD
HOLDINGS, INC., a Delaware corporation (the "Company"), DOES HEREBY CERTIFY
that the following are true and correct copies of resolutions adopted by the
Board of Directors of the Company by unanimous written consent dated as of
February 6, 1995 and the same are in full force and effect on the date hereof:
RESOLVED, That preparation of an Annual Report of the Company on Form
10-K for the year ended December 31, 1994 (the "l0-K Report"), including
exhibits and other documents, to be filed with the Securities and Exchange
Commission (the "Commission") under the Securities Exchange Act of 1934, as
amended, be and hereby is in all respects authorized and approved; that the
directors and appropriate officers of the Company, and each of them, be and
hereby are authorized to sign and execute in their own behalf, or in the
name and on behalf of the Company, or both, as the case may be, the 10-K
Report, and any and all amendments thereto, with such changes therein as
such directors and officers may deem necessary, appropriate or desirable,
as conclusively evidenced by their execution thereof; and that the
appropriate officers of the Company, and each of them, be and hereby are
authorized to cause the 10-K Report and any such amendments, so executed,
to be filed with the Commission.
RESOLVED, That each officer and director who may be required to sign
and execute the 10-K Report or any amendment thereto or document in
connection therewith (whether in the name and on behalf of the Company, or
as an officer or director of the Company, or otherwise), be and hereby is
authorized to execute a power of attorney appointing J. M. Devine, E. A.
Law, J. M. Rintamaki, T. J. DeZure, L. J. Ghilardi and P. J. Sherry, Jr.,
and each of them, severally, his or her true and lawful attorney or
attorneys to sign in his or her name, place and stead in any such capacity
the 10-K Report and any and all amendments thereto and documents in
connection therewith, and to file the same with the Commission, each of
said attorneys to have power to act with or without the other, and to have
full power and authority to do and perform in the name and on behalf of
each of said officers and directors who shall have executed such power of
attorney, every act whatsoever which such attorneys, or any of them, may
deem necessary, appropriate or desirable to be done in connection therewith
as fully and to all intents and purposes as such officers or directors
might or could do in person.
<PAGE> 2
WITNESS MY HAND this 16th day of March, 1995.
/s/ P. J. Sherry, Jr.
-------------------------
P. J. Sherry, Jr.
Assistant Secretary
(SEAL)
<PAGE> 3
POWER OF ATTORNEY WITH RESPECT TO
ANNUAL REPORT OF FORD HOLDINGS, INC.
ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1994
KNOW ALL MEN BY THESE PRESENTS that each of the undersigned, an officer
and/or director of FORD HOLDINGS, INC. does hereby constitute and appoint J. M.
Devine, E. A. Law, J. M. Rintamaki, T. J. DeZure, L. J. Ghilardi and P. J.
Sherry, Jr., and each of them, severally, his or her true and lawful attorney
and agent at any time and from time to time to do any and all acts and things
and execute, in his or her name (whether on behalf of FORD HOLDINGS, INC., or
as an officer or director of FORD HOLDINGS, INC., or otherwise) any and all
instruments which said attorney and agent may deem necessary or advisable in
order to enable FORD HOLDINGS, INC. to comply with the Securities Exchange Act
of 1934, as amended, and any requirements of the Securities and Exchange
Commission in respect thereof, in connection with the Annual Report of FORD
HOLDINGS, INC. on Form 10-K for the year ended December 31, 1994 and any and
all amendments thereto, as authorized by unanimous written consent of the Board
of Directors of FORD HOLDINGS, INC. dated as of February 6, 1995, including
specifically but without limitation thereto, power and authority to sign his or
her name (whether on behalf of FORD HOLDINGS, INC., or as an officer or
director of FORD HOLDINGS, INC., or otherwise) to such Annual Report and to any
such amendments to be filed with the Securities and Exchange Commission, or any
of the exhibits or financial statements and schedules filed therewith, and to
file the same with the Securities and Exchange Commission; and the undersigned
does hereby ratify and confirm all that said attorneys and agents, and each of
them, shall do or cause to be done by virtue hereof. Any one of said attorneys
and agents shall have, and may exercise, all the powers hereby conferred.
IN WITNESS WHEREOF, each of the undersigned has signed his or her name
hereto as of the 7th day of February 1995.
/s/ E. S. Acton /s/ David N. McCammon
- ---------------------------- ------------------------------
E. S. Acton David N. McCammon
/s/ J. M. Devine /s/ Dean E. Richardson
- ---------------------------- -------------------------------
J. M. Devine Dean E. Richardson
/s/ S. I. Gilman /s/ H. James Toffey, Jr.
- ---------------------------- ------------------------------
S. I. Gilman H. James Toffey, Jr.
/s/ Malcolm S. Macdonald /s/ Kenneth Whipple
- ---------------------------- ------------------------------
Malcolm S. Macdonald Kenneth Whipple
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 968
<SECURITIES> 4,979
<RECEIVABLES> 35,927
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 44,373
<CURRENT-LIABILITIES> 0
<BONDS> 33,820
<COMMON> 0
0
1,875
<OTHER-SE> 3,140
<TOTAL-LIABILITY-AND-EQUITY> 44,373
<SALES> 5,880
<TOTAL-REVENUES> 5,880
<CGS> 0
<TOTAL-COSTS> 4,940
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 586
<INTEREST-EXPENSE> 2,113
<INCOME-PRETAX> 940
<INCOME-TAX> 332
<INCOME-CONTINUING> 609
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 609
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
