EX-99.1 3 y41388ex99-1.txt EXCERPTS FROM JUNE 30, 2000 REPORT ON FORM 10-Q 1 PART I - FINANCIAL INFORMATION ITEM I. FINANCIAL STATEMENTS. ASSOCIATES FIRST CAPITAL CORPORATION CONSOLIDATED STATEMENT OF EARNINGS (In Millions, Except Per Share Amounts) (Unaudited)
Six Months Ended Three Months Ended June 30 June 30 ------- ------- 2000 1999 2000 1999 ---- ---- ---- ---- REVENUE Finance charges $4,615.3 $4,546.0 $2,337.1 $2,262.1 Servicing related income 938.6 506.1 535.0 282.8 Insurance premiums 554.6 516.8 279.3 260.5 Investment and other income 286.9 365.5 186.1 184.0 -------- -------- -------- -------- 6,395.4 5,934.4 3,337.5 2,989.4 EXPENSES Interest expense 2,009.2 1,925.3 1,048.1 965.3 Operating expenses 2,090.7 1,951.1 1,046.5 971.5 Provision for losses on finance receivables 900.9 727.2 449.4 364.4 Insurance benefits paid or provided 269.4 218.9 144.0 115.2 -------- -------- -------- -------- 5,270.2 4,822.5 2,688.0 2,416.4 -------- -------- -------- -------- EARNINGS BEFORE PROVISION FOR INCOME TAXES 1,125.2 1,111.9 649.5 573.0 PROVISION FOR INCOME TAXES 416.3 417.0 240.3 214.9 -------- -------- -------- -------- NET EARNINGS $ 708.9 $ 694.9 $ 409.2 $ 358.1 ======== ======== ======== ======== NET EARNINGS PER SHARE Basic $ 0.97 $ 0.95 $ 0.56 $ 0.49 ======== ======== ======== ======== Diluted $ 0.97 $ 0.95 $ 0.56 $ 0.49 ======== ======== ======== ========
See notes to consolidated interim financial statements. 2 ASSOCIATES FIRST CAPITAL CORPORATION CONSOLIDATED BALANCE SHEET -------------------------- (Dollars In Millions, Except Per Share Information)
June 30 December 31 2000 1999 --------- ----------- (Unaudited) ASSETS CASH AND CASH EQUIVALENTS $ 1,334.0 $ 1,026.3 INVESTMENTS IN DEBT AND EQUITY SECURITIES 8,010.6 7,176.5 FINANCE RECEIVABLES, net of unearned finance income, allowance for losses and insurance policy and claims reserves 65,723.2 65,656.8 OTHER ASSETS 12,633.2 9,097.2 --------- --------- Total assets $87,701.0 $82,956.8 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY NOTES PAYABLE, unsecured short-term Commercial Paper $31,034.5 $25,991.9 Bank Loans 228.5 1,261.5 ACCOUNTS PAYABLE AND ACCRUALS 3,990.7 4,498.9 LONG-TERM DEBT Senior Notes 41,697.5 40,978.8 Subordinated and Capital Notes 455.2 425.2 --------- --------- 42,152.7 41,404.0 STOCKHOLDERS' EQUITY Series A Junior Participating Preferred Stock, $0.01 par value, 734,500 shares authorized, no shares issued or outstanding - - Class A Common Stock, $0.01 par value, 1,150,000,000 shares authorized, 728,865,065 and 728,747,443 shares issued in 2000 and 1999, respectively 7.3 7.3 Class B Common Stock, $0.01 par value, 144,118,820 shares authorized, no shares issued or outstanding - - Paid-in Capital 5,281.9 5,282.1 Retained Earnings 5,115.9 4,501.8 Accumulated Other Comprehensive (75.8) 44.7 (Loss) Income Less 457,909 and 597,785 shares of Class A Common Stock at cost held in Treasury in 2000 and 1999, respectively, and Restricted Stock (34.7) (35.4) --------- --------- Total stockholders' equity 10,294.6 9,800.5 --------- --------- Total liabilities and stockholders' equity $87,701.0 $82,956.8 ========= =========
See notes to consolidated interim financial statements. 3 ASSOCIATES FIRST CAPITAL CORPORATION CONSOLIDATED STATEMENT OF CASH FLOWS ------------------------------------ (In Millions) (Unaudited)
Six Months Ended June 30 ------- 2000 1999 ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES Net earnings $ 708.9 $ 694.9 Adjustments to reconcile net earnings for non-cash and other operating activities: Provision for losses on finance receivables 900.9 727.2 Amortization of goodwill and other intangible assets 135.8 109.1 Depreciation and other amortization 201.8 138.7 Other operating activities (1,023.2) (344.2) ---------- ---------- Net cash provided from operating activities 924.2 1,325.7 ---------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES Finance receivables originated (28,679.5) (32,963.8) Finance receivables liquidated 23,796.3 29,692.6 Sale of finance businesses and branches - 1,490.1 Acquisitions of loan portfolios and other finance businesses, net (2,839.3) (4,511.9) Proceeds from securitization of finance receivables 2,327.7 664.6 Other investing activities 213.4 (670.8) ---------- ---------- Net cash used for investing activities (5,181.4) (6,299.2) ---------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES Issuance of long-term debt 8,456.9 8,294.2 Retirement of long-term debt (7,491.6) (5,295.1) Increase in notes payable 3,698.0 856.3 Other financing activities (94.7) (51.5) ---------- ---------- Net cash provided from financing activities 4,568.6 3,803.9 EFFECT OF FOREIGN CURRENCY TRANSLATION ADJUSTMENTS ON CASH (3.7) (10.6) ---------- ---------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 307.7 (1,180.2) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,026.3 4,665.6 ---------- ---------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,334.0 $ 3,485.4 ========== ==========
See notes to consolidated interim financial statements. 4 ASSOCIATES FIRST CAPITAL CORPORATION NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS NOTE 1 - THE COMPANY Associates First Capital Corporation (the "Company"), a Delaware corporation, is a leading diversified finance organization providing finance, leasing, insurance and related services to consumers and businesses in the United States and internationally. NOTE 2 - BASIS OF PRESENTATION AND CONSOLIDATION The consolidated financial statements include the accounts of the Company and its subsidiaries after elimination of all significant intercompany balances and transactions. These statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. Certain prior period financial statement amounts have been reclassified to conform to the current period presentation. In the opinion of management, all adjustments, consisting only of normal, recurring accruals, necessary to present fairly the results of operations and financial position have been made. The financial position and results of operations as of and for any interim period are unaudited and not necessarily indicative of the results of operations for a full year. This Form 10-Q should be read in conjunction with the consolidated financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 1999. The preparation of these consolidated financial statements in conformity with generally accepted accounting principles requires the use of management estimates. These estimates are subjective in nature and involve matters of judgment. Actual results could differ from these estimates. NOTE 3 - SIGNIFICANT TRANSACTIONS In January 2000, the Company entered into an agreement with KeyCorp, under which the companies will jointly manage KeyCorp's credit card program. Additionally, the Company acquired KeyCorp's credit card receivables portfolio with a fair market value of $1.3 billion and intangible assets, primarily related to customer lists and operating agreements, of approximately $350 million for $1.7 billion. In April 2000, the Company acquired the common stock of Arcadia Financial Ltd. ("Arcadia") for $195 million which approximated the fair value of the intangible assets established in the acquisition. Arcadia had approximately $470 million in senior and subordinated notes at the time of the acquisition. At June 30, 2000, the Company managed approximately $3.4 billion of Arcadia's serviced assets originated and sold with servicing retained prior to the acquisition. All of the transactions described above were accounted for as purchases. The results of operations are included in the consolidated results of the Company from the respective acquisition dates. The 5 ASSOCIATES FIRST CAPITAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) allocation of the purchase price for these transactions is based upon preliminary estimates and may be refined as additional information is available. In July 2000, the Company announced an agreement to purchase approximately $630 million in credit card receivables from Zale Corporation ("Zale"). Additionally, the Company entered into an operating agreement for Zale's on-going credit card business. NOTE 4 - EARNINGS PER SHARE Earnings per share on a basic and diluted basis for the periods indicated is calculated as follows (in millions, except per share amounts):
Six Months Ended Three Months Ended June 30 June 30 ------- ------- 2000 1999 2000 1999 ---- ---- ---- ---- Basic net earnings per share: (1) Net earnings $708.9 $694.9 $409.2 $358.1 Weighted average shares outstanding 727.4 728.0 727.5 728.4 $ 0.97 $ 0.95 $ 0.56 $ 0.49 ====== ====== ====== ====== Diluted net earnings per share:(1) Net earnings $708.9 $694.9 $409.2 $358.1 Weighted average shares outstanding plus assumed conversions 728.7 732.5 729.1 732.7 $ 0.97 $ 0.95 $ 0.56 $ 0.49 ====== ====== ====== ====== Calculation of weighted average shares outstanding plus assumed conversions: Weighted average shares outstanding 727.4 728.0 727.5 728.4 Effect of dilutive securities 1.3 4.5 1.6 4.3 ------ ------ ------ ------ 728.7 732.5 729.1 732.7 ====== ====== ====== ======
(1) Net earnings and earnings per share for the six months ended June 30, 2000 include a special pre-tax charge of approximately $112 million as described in Note 7. Excluding the special pre- tax charge, net earnings would have been $779.7 million and basic and diluted earnings per share would have been $1.07. During the six months ended June 30, 2000 and 1999, the Company declared and paid cash dividends of $0.13 and $0.11 per common share, respectively. 6 ASSOCIATES FIRST CAPITAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) NOTE 5 - COMPREHENSIVE INCOME (LOSS) The components of accumulated other comprehensive income (loss), net of tax, are as follows (in millions):
June 30 December 31 2000 1999 ---- ---- Foreign currency translation adjustments $ 34.3 $ 148.8 Net unrealized loss on available-for-sale securities (110.1) (104.1) ------ ------- Accumulated other comprehensive (loss) income $(75.8) $ 44.7 ====== =======
Comprehensive income, net of tax, for the six- and three-month periods ended June 30, 2000 and 1999 consisted of (in millions):
Six Months Ended Three Months Ended June 30 June 30 ------- ------- 2000 1999 2000 1999 ---- ---- ---- ---- Net earnings $ 708.9 $694.9 $409.2 $358.1 Foreign currency translation adjustments (114.5) (14.9) (84.9) (22.3) Net unrealized (loss) gain on available-for-sale securities (6.0) (37.4) 2.2 (42.3) ------ ------ ------ ------ Total Comprehensive income $588.4 $642.6 $326.5 $293.5 ====== ====== ====== ======
NOTE 6 - INVESTMENTS IN DEBT AND EQUITY SECURITIES Available-for-sale securities consist of retained securitization interests, notes and preferred stock and other equity securities primarily held by the Company's insurance subsidiaries. The Company classifies these debt and equity securities as available-for-sale securities and adjusts their recorded value to market. The estimated market value at June 30, 2000 and December 31, 1999 was $8.0 billion and $7.1 billion, respectively. The amortized cost at June 30, 2000 and December 31, 1999 was $8.2 billion and $7.3 billion, respectively. Realized gains or losses on sales are included in investment and other income. Unrealized gains or losses are included, net of tax, in accumulated other comprehensive income. NOTE 7 - FINANCE RECEIVABLES 7 ASSOCIATES FIRST CAPITAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) At June 30, 2000 and December 31, 1999, finance receivables consisted of the following (in millions):
June 30 December 31 2000 1999 ---- ---- Home equity $26,264.7 $25,015.0 Personal lending and retail sales finance 16,371.1 16,012.4 Truck and truck trailer 12,722.4 13,130.3 Equipment 7,109.2 6,977.3 Credit card 2,358.4 2,247.1 Auto fleet leasing 2,192.6 2,070.1 Manufactured housing - 1,849.0 Warehouse lending, government guaranteed lending and municipal finance 1,784.4 1,515.9 --------- --------- Finance receivables, net of unearned finance income of approximately $4.7 billion at June 30, 2000 and December 31, 1999 ("net finance receivables") 68,802.8 68,817.1 Allowance for losses on finance receivables (2,115.7) (2,174.4) Insurance policy and claims reserves (963.9) (985.9) --------- --------- Finance receivables, net of unearned finance income, allowance for losses and insurance policy and claims reserves $65,723.2 $65,656.8 ========= =========
In January 2000, the Company announced it would discontinue originating loans for manufactured housing. As a result of this decision, the Company took a special pre-tax charge against earnings of approximately $112 million. At June 30, 2000, the Company included such finance receivables and related allowance for losses of $1.7 billion and $0.2 billion, respectively, in other assets as finance receivables held for sale or securitization. In 2000, the Company has securitized and sold a home equity receivables portfolio, a credit card receivables portfolio and an automobile retail sales finance receivables portfolio totaling $2.7 billion and retained interests in the related securitization trusts approximating $473 million. Pre-tax gains of approximately $53 million were recorded on these transactions. NOTE 8 - ALLOWANCE FOR LOSSES ON FINANCE RECEIVABLES Changes in the allowance for losses on finance receivables were (in millions): 8 ASSOCIATES FIRST CAPITAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Six Months Ended Year Ended June 30 December 31 ------- ----------- 2000 1999 1999 ---- ---- ---- Balance at beginning of period $2,174.4 $1,978.7 $ 1,978.7 Provision for losses 900.9 727.2 1,506.4 Recoveries on receivables charged off 145.0 157.5 268.8 Losses sustained (937.3) (856.9) (1,717.1) Reserves of receivables sold and held for securitization (185.7) (185.2) (214.0) Reserves of acquired businesses and other 18.4 318.1 351.6 -------- -------- --------- Balance at end of period $2,115.7 $2,139.4 $ 2,174.4 ======== ======== =========
NOTE 9 - OTHER ASSETS The components of other assets at June 30, 2000 and December 31, 1999 were as follows (in millions):
June 30 December 31 2000 1999 Goodwill, net $ 3,624.7 $3,747.8 Finance receivables held for sale or securitization, net (1) 3,514.5 153.0 Other intangible assets, net 2,097.2 1,579.4 Notes and other receivables 1,281.7 1,877.9 Property and equipment 736.3 662.2 Collateral held for resale 606.8 431.7 Relocation client advances 235.3 185.4 Other 536.7 459.8 --------- -------- Total other assets $12,633.2 $9,097.2 ========= ========
(1) At June 30, 2000, finance receivables held for sale or securitization includes approximately $516 million of automobile finance receivables acquired from Arcadia, approximately $1.1 billion of securitizable finance receivables acquired from KeyCorp and approximately $1.5 billion of manufactured housing net finance receivables as discussed in Note 7. NOTE 10 - DERIVATIVE FINANCIAL INSTRUMENTS The Company uses derivative financial instruments for the purpose of hedging specific exposures as part of its risk management program. Instruments currently used by the Company are foreign currency forward exchange, currency swap, interest rate swap, interest rate option, municipal bond and treasury futures and option contracts. All of these instruments are held for purposes other than trading. Foreign currency forward exchange agreements have been designated for accounting purposes as hedges of certain of the Company's foreign currency denominated net investments. Under these agreements, the Company is obligated to deliver specific foreign currencies in exchange for United States dollars at varying times over the next year. The aggregate notional amount of these agreements was $2.9 billion and $2.8 billion at June 30, 2000 and December 31, 1999, respectively. The fair value of such agreements at June 30, 2000 and December 31, 1999 would have been an asset of $14.5 million and a liability of $389.0 million, 9 ASSOCIATES FIRST CAPITAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) respectively. Foreign currency swap agreements have been designated for accounting purposes as hedges of specific foreign currency exposures under certain debt obligations. Under these agreements, the Company and the agreement counterparties are obligated to exchange specific foreign currencies at varying times over the next four years. The aggregate notional amount of these agreements at June 30, 2000 and December 31, 1999 was $7.0 billion and $5.9 billion, respectively. The fair value of such agreements at June 30, 2000 and December 31, 1999 would have been a liability of $303.0 million and $307.9 million, respectively. Interest rate swap and interest rate option agreements are used by the Company to hedge the effect of interest rate movements on existing debt and anticipated debt and asset securitization transactions. The aggregate notional amount of interest rate swap agreements at June 30, 2000 and December 31, 1999 was $15.8 billion and $9.2 billion, respectively. The fair value of such agreements at June 30, 2000 and December 31, 1999 would have been a liability of $63.6 million and $46.7 million, respectively. The aggregate notional amount of interest rate option agreements was $1.5 billion at June 30, 2000. The fair value of such agreements at June 30, 2000 would have been an asset of $1.2 million. Interest rate swap and interest rate option agreements mature on varying dates over the next 30 years. Treasury futures and option contracts are used to minimize fluctuations in the value of preferred stock investments. The aggregate notional amount of futures and option contracts at June 30, 2000 and December 31, 1999 was $308.9 million and $536.2 million, respectively. The fair value of these contracts at June 30, 2000 and December 31, 1999 would have been a liability of $1.9 million and an asset of $12.4 million, respectively. Such contracts mature on varying dates through 2000. 10 ASSOCIATES FIRST CAPITAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Municipal bond futures are used to minimize fluctuations in the value of municipal bond investments. The aggregate notional amount of municipal bond futures contracts at June 30, 2000 and December 31, 1999 was $243.7 million and $180.1 million, respectively. The fair value of these contracts at June 30, 2000 and December 31, 1999 would have been a liability of $5.0 million and an asset of $2.4 million, respectively. Such contracts mature on varying dates through 2000. NOTE 11 - SEGMENT REPORTING The Company is organized into five primary business units: U.S. credit card, U.S. consumer branch, U.S. home equity, commercial and international finance. The U.S. consumer branch and U.S. home equity business units are aggregated into one reportable U.S. consumer finance segment due to their similar operating characteristics. The Company's corporate activities include, among others, managing the operations of its domestic and foreign subsidiaries, accessing the global debt, securitization and capital markets and managing the mix of businesses in its portfolio. The Company fully allocates its corporate activities to its business segments primarily based upon managed receivables. 11 ASSOCIATES FIRST CAPITAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) The Company allocates resources to and evaluates the performance of its segments primarily based on total revenue, net interest margin, segment earnings and managed finance receivables adjusted to include the impact of receivables either held for sale or sold with servicing retained ("Managed Basis"). Managed Basis revenue, earnings and receivables information for each of the Company's reportable segments is presented below (in millions):
U.S. U.S. Credit Consumer International Card Finance Commercial Finance Total ---- ------- ---------- ------- ----- Total revenue Six months ended: June 30, 2000 $ 1,577.7 $ 2,353.3 $ 1,432.2 $ 1,662.9 $ 7,026.1 June 30, 1999 1,214.8 2,238.0 1,571.2 1,408.8 6,432.8 Three months ended: June 30, 2000 $ 817.6 $ 1,216.7 $ 754.8 $ 856.7 $ 3,645.8 June 30, 1999 593.7 1,113.5 806.8 733.3 3,247.3 Segment earnings Six months ended: June 30, 2000 (2) $ 312.7 $ 299.6 $ 78.4 $ 434.5 $ 1,125.2 June 30, 1999 167.6 373.2 255.2 315.9 1,111.9 Three months ended: June 30, 2000 (2) $ 160.3 $ 170.2 $ 80.0 $ 239.0 $ 649.5 June 30, 1999 85.3 199.2 128.6 159.9 573.0 Finance receivables (1): June 30, 2000 $13,321.6 $34,073.1 $22,444.6 $14,959.2 $84,798.5 December 31, 1999 11,576.0 31,566.8 22,453.8 13,323.3 78,919.9
(1) Commercial finance receivables exclude the manufactured housing owned finance receivables and serviced assets of $1.7 billion and $3.4 billion, respectively, at June 30, 2000 and $1.8 billion and $3.6 billion at December 31, 1999, respectively. The owned receivables have been reclassified to finance receivables held for sale or securitization and are included in other assets. Additionally, U.S. Consumer Finance receivables excludes the serviced assets of Arcadia securitized prior to the acquisition of Arcadia of $3.4 billion at June 30, 2000. (2) Excluding the special pre-tax charge, as discussed in Note 7, commercial segment earnings and total earnings would have been $187.8 million and $1.2 billion, respectively.