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"), 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") and Ford Leasing Development Company and its subsidiaries ("Ford Leasing").
The Associates, formerly a subsidiary of Paramount Communications Inc., was acquired by the Company on October 31, 1989. 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").
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 single premium deferred annuities.
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.
Ford Land's principal business is real estate development and Ford Leasing's principal business is the leasing of dealership facilities to franchised Ford vehicle dealers.
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 Cumulative Preferred Stock, Series B Cumulative Preferred Stock and Series C 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.
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 and Ford Leasing 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 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 single premium 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 18 of Notes to Financial Statements, included on pages FH-19 and FH-20 of this Report.
THE ASSOCIATES
The Associates' foreign subsidiaries and Associates Federal Savings and Loan Association (sometimes referred to herein, collectively, as the "transferred operations") were transferred out of The Associates prior to, and not included in, the acquisition of The Associates by the Company. To provide comparative data for periods prior to the transfer of these operations, certain information included under this Item 1. "Business-The Associates" has been reclassified with respect to the transferred operations.
The Associates has approximately 1,390 branch offices in the United States and, as of December 31, 1993, employed approximately 12,400 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.
Item 1. Business (Continued) - ----------------------------
Selected Financial Data. The following table sets forth selected financial information of The Associates (in millions):
(a) Excludes the results of the transferred operations, except as noted; the Consolidated Statement of Income for the year ended December 31, 1989 is unaudited. (b) Includes net charge of $10 million representing the cumulative effects of changes in accounting principles. (c) Includes the after-tax operating results of the transferred operations through October 30, 1989.
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):
- ----------------- (a) Included in 1993 are $182 million of gross residential real estate-secured and installment finance receivables attributable to the Allied Finance Company acquisition 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").
Item 1. Business (Continued) - ---------------------------
____________ (a) Excludes wholesale receivables
During 1993, 23% 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 $9,115 and the average additional advance was $3,112.
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):
Item 1. Business (Continued) - ----------------------------
The ten largest accounts at December 31, 1993, other than accounts with affiliates, represented less than 8/10 of one percent of the total gross finance receivables outstanding. Of such ten accounts, five were secured by heavy-duty trucks or truck trailers, two were secured by construction equipment, two were secured by a manufacturer's endorsement and related to communications equipment and one was secured by auto leasing arrangements. At December 31, 1993, the largest gross balance outstanding in such accounts was $31 million and the average gross balance was $25 million.
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):
An analysis of The Associates' allowance for losses on finance receivables is as follows (in millions):
The allowance for losses on finance receivables is based on percentages of net finance receivables established by management for each major category of receivables based on historical loss experience, plus an amount for possible adverse deviation from historical experience. Additions to the allowance are charged to the provision for losses on finance receivables.
Item 1. Business (Continued) - ----------------------------
Finance receivables are charged to the allowance for losses when they are deemed to be uncollectible. Additionally, The Associates' policy provides for charge-off of various types of accounts as follows: consumer direct installment receivables, except those collateralized by residential real estate, are charged to the allowance for losses when no cash payment has been received for six months; credit card receivables are charged to the allowance for losses when the receivable becomes contractually six months delinquent; all other finance receivables are charged to the allowance for losses when any of the following conditions occur: (i) the related security has been converted or destroyed; (ii) the related security has been repossessed and sold or held for sale for one year; or (iii) the related security has not been repossessed and the receivable has become contractually one year delinquent. Recoveries on losses previously charged to the allowance are credited to the allowance at the time the recovery is collected.
Delinquency on consumer residential real estate-secured and direct installment and credit card receivables is determined by the date of the last cash payment received from the customer (recency of payment basis), a delinquent loan being one on which the customer has paid no cash whatsoever for a period of time. It is not The Associates' policy to accept token payments on delinquent accounts. A delinquent account on all types of receivables, other than consumer residential real estate-secured and direct installment and credit card receivables, is one on which the customer has not made payments as contractually agreed (contractual payment basis). Extensions are granted on receivables from customers with satisfactory credit and with prior approval of management.
The following tables show (i) the gross account balances delinquent 60 through 89 days, 90 days and more, and total gross balances delinquent 60 days and more; and (ii) total gross balances delinquent 60 days and more by type of business (dollar amounts in millions):
Item 1. Business (Continued) - ----------------------------
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, 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, 1993, 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 through marketing arrangements in a number of states.
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):
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 for the years indicated, and the life insurance in force (in millions):
The following table summarizes the revenue of the insurance operation (in millions):
- ------------------ (a) Includes compensation for insurance programs underwritten by other companies through marketing arrangements.
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 generally are 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
Item 1. Business (Continued) - ----------------------------
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, 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.
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 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.
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 single premium deferred annuities which are sold primarily through banks and brokerage firms. The obligations of Ford Life, including annuities, are guaranteed by American Road.
In the second quarter of 1992, Ford Credit discontinued purchasing collateral protection insurance ("CPI") from American Road for vehicles financed at retail by Ford Credit. This action continued to have a negative effect on
Item 1. Business (Continued) - ----------------------------
1993 earnings. 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. Vista Life Insurance Company of Texas, a subsidiary of American Road, was dissolved in April 1993.
Total premiums written by American Road and its subsidiaries during the last five years were as follows (in millions): 1993: $309; 1992: $235; 1991: $379; 1990: $437; and 1989: $913. The decrease in premiums written after 1989 resulted 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 CPI 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.
______________ (a) Includes 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):
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 single premium deferred annuities.
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 investment 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, 1993, USL Capital had 682 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):
- ---------------- (a) Principally businesses sold prior to December 31, 1990. (b) Includes reduction of $3 million resulting from cumulative effect of adopting the new accounting standard on health care costs. (c) Includes foreign operations of USL Capital (transferred to Ford subsidiaries in October 1989) through September 30, 1989.
Item 1. Business (Continued) - ----------------------------
Credit Loss Experience. The management of credit exposure is an important element of USL Capital's business. 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):
Additions to the allowance for doubtful accounts for 1993 increased by $6 million from 1992, primarily as a result of the increase in earning assets as well as management's evaluation of the adequacy of the loss reserve. In addition, deductions in 1993 increased $1 million from 1992, the largest single transaction being less than $3 million.
Item 1. Business (Continued) - ----------------------------
Total balances of accounts receivable over 90 days past due at year end 1993 decreased $5 million over 1992 primarily because of improved collection and workout activities as well as the write- down of several receivables which were delinquent at December 31, 1992, and which management has since deemed to be uncollectible.
Residual Policy. The establishment and realization of residual values on both finance and operating leases are important elements of USL Capital's business. In general, finance leases are non-cancelable leases in which the lease payments over the term exceed the cost of the leased equipment plus financing and other expenses. Operating leases are usually of a shorter term and the lease payments by themselves are not sufficient to cover such cost 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 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 leases were 215% in 1993, 129% in 1992, and 148% in 1991. Proceeds as a percentage of the adjusted residual values for operating leases were 115% in 1993, 1992 and 1991.
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.
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, management and development of land and facilities related to Ford operations. See Item 2.
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.
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.
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 3,745 acres of land and 6.4 million square feet of improvements having a net book value of $476 million. Of the real property owned or leased by Ford Land and its subsidiaries, 872 acres of land and 3.7 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.
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.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders - ------------------------------------------------------------
At the Annual Meeting of Stockholders of the Company held on November 23, 1993 (the "Annual Meeting"), the holders of the outstanding shares of the Company's Common Stock elected the following nominees as directors of the Company: Wayland F. Blood, Malcolm S. Macdonald, Terrence F. Marrs, David N. McCammon, Stanley A. Seneker 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 Cumulative Preferred Stock, Series B Cumulative Preferred Stock and Series C Cumulative Preferred Stock elected the following nominees as directors of the Company by the following votes:
Also at the Annual Meeting, the holders of the Company's Common Stock, Flexible Rate Auction Preferred Stock (Exchange), Series A Cumulative Preferred Stock, Series B Cumulative Preferred Stock and Series C Cumulative Preferred Stock ratified the selection of Cooper's & Lybrand to audit the Company's books of account and other corporate records for the year 1993 by the following votes:
______________ (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 Cumulative Preferred Stock, Series B Cumulative Preferred Stock and Series C Cumulative Preferred Stock together had the remaining 25% of the combined voting power of all classes of capital stock.
PART II
Item 5.
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, 1994. 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.
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, 1989 through 1993 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. This table includes The Associates' results for the two-month period ended December 31, 1989 and the full-years ended December 31, 1990 through 1993. The unaudited pro forma adjustments for 1989 reflect the estimated interest expense, net of related income taxes, that the Company would have incurred on the zero-coupon note issued in connection with the transfer from Ford to the Company of USL Capital's domestic operations as if such transfer had occurred on November 1, 1987, the date USL Capital was acquired by Ford. The unaudited pro forma net income for 1989 does not purport to represent what the Company's net income actually would have been had the zero coupon note in fact been issued on November 1, 1987. 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.
Item 6. Selected Financial Data (Continued) - --------------------------------------------
Each of the above-named persons has held the position with the Company set forth opposite his name since October 1989, except that Mr. T. F. Marrs has held his position since March 1990, Mr. W. F. Blood has held his position as Vice President since November 1992 and was elected a director effective May 1, 1993 and Mr. J. M. Rintamaki has held his position since July 1993.
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. Mr. Toffey also serves as a director of Sterling Energy Corp. 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 Comerica Incorporated, The Detroit Edison Company, Tecumseh Products Company and the Automobile Club of Michigan.
Mr. Seneker serves as a director of Ford. Mr. Whipple serves as a director of CMS Energy Corporation; Consumers Power Company; First Nationwide Bank, A Federal Savings Bank; First Nationwide Financial Corporation; Ford Credit; and USL Capital. Mr. Blood serves as a director of First Nationwide Bank, A Federal Savings Bank and First Nationwide Financial Corporation. Mr. Macdonald serves as a director of The Hertz Corporation. Mr. Marrs serves as a director of USL Capital and 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, 1993 were complied with except that Mr. D. E. Richardson had one late report of one transaction.
Item 11.
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. Currently, each director who is not an employee of Ford or another affiliate of the Company is paid an annual fee of $15,000. Thus in 1993, Messrs. Richardson and Toffee each received annual fees of $15,000. None of the other directors received an annual fee in 1993. 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.
Item 12. Security Ownership of Certain Beneficial Owners and Management - ------------------------------------------------------------------------
(a) Security ownership of certain beneficial owners.
(b) Security ownership of management.
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:
_________________ (*) 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.
Item 12. Security Ownership of Certain Beneficial Owners and Management (Continued) - ---------------------------------------------------------
______________ (*) Amount owned is less than 0.1% of class. (a) Indicates the number of shares listed with respect to which such person(s) has the right to acquire beneficial ownership within 60 days. (b) 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 1.6327 shares of Ford Motor Company Common Stock.
Item 13.
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, bookkeeping, 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.
PART IV
Item 14.
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, 1993, 1992 and 1991.
Consolidated Balance Sheet, December 31, 1993 and 1992.
Consolidated Statement of Cash Flows, for the years ended December 31, 1993, 1992 and 1991.
Consolidated Statement of Stockholders' Equity, for the years ended December 31, 1993, 1992 and 1991.
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
Designation Description - ----------- ------------ Schedule III Condensed Financial Information of the Registrant (Parent Company)
Schedule IV Indebtedness of and to Related Parties
Schedule IX Short-Term Borrowings
The Financial Statement Schedules listed above are filed as part of this Report and are as set forth on pages FSS-1 through FSS-4 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.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K (Continued) - -----------------------------------------------------------------
(a) 3. Exhibits - ----------------
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K (Continued) - --------------------------------------------------------------
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K (Continued) - -----------------------------------------------------------------
* 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, 1993.
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/Terrence F. Marrs* (Terrence F. Marrs) Vice President-Controller
Date: March 28, 1994
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.
J:\10K\FHI93.be
Coopers & Lybrand Certified Public Accountants
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, 1993 and 1992, and the related consolidated statements of income, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1993, and the financial statement schedules listed in Item 14(a) of this Form 10-K. These financial statements and financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedules 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, 1993 and 1992, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1993, in conformity with generally accepted accounting principles. In addition, in our opinion, the financial statement schedules referred to above, when considered in relation to the basic financial statements taken as a whole, present fairly, in all material respects, the information required to be included therein.
As discussed in Notes 10 and 12 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
Coopers & Lybrand 400 Renaissance Center Detroit, Michigan 48243 313-446-7100 February 1, 1994
FH-1
The accompanying notes are part of the financial statements.
FH-2
The accompanying notes are part of the financial statements.
FH-3
The accompanying notes are part of the financial statements.
Certain amounts for 1992 and 1991 have been reclassified to conform with presentations adopted in 1993.
FH-4
- - - - - - *Less than $50,000
The accompanying notes are part of the financial statements.
FH-5
Ford Holdings, Inc. and Subsidiaries
Notes to Financial Statements
NOTE 1. Accounting Policies - ---------------------------- Principles of Consolidation - --------------------------- The consolidated financial statements include the accounts of Ford Holdings and all majority-owned subsidiaries (the "company"). On September 1, 1989, Ford Holdings, Inc. ("Ford Holdings") was formed as 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") and Ford Leasing Development Company and its subsidiaries ("Ford Leasing"). 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 - ------------------- Finance revenues on loans and direct financing leases are recognized in income over the term of the related contract using the interest method. Rental income on operating leases is recognized ratably over the lease term.
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.
Goodwill - -------- Goodwill, arising 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.
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 reflects deposits received and interest credited, less related withdrawals. The weighted- average interest rate on annuity contracts outstanding at December 31, 1993 and 1992 was 6.2% and 7.3%, 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, 1993 and 1992 approximated book value because the contractual interest rate due holders is reset annually for more than 97% of contracts outstanding.
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.
FH-6
NOTE 2. Investment and Other Income - ------------------------------------
Investment and other income consisted of the following (in millions):
NOTE 3. 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):
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 were $7 million in 1993 and $8 million in 1992.
NOTE 4. Investments in Securities - ---------------------------------- Investments in debt securities are recorded at amortized cost because of the ability to hold such securities until maturity and the intent to hold them for the foreseeable future. If market conditions change, however, certain of these securities may be sold prior to maturity with the realized gain or loss included in investment and other income. The cost of investments sold generally is determined on a specific security basis.
Marketable equity securities are recorded at fair value with unrealized gains or losses, net of applicable income taxes, recorded directly to stockholders' equity; realized gains and losses are included in investment and other income. The cost of investments sold generally is determined on a first-in, first-out basis.
FH-7
NOTE 4. Investments in Securities (Cont'd) - ----------------------------------
Investments in debt securities at December 31 were as follows (in millions):
The fair value of most securities was estimated based on quoted market prices for those securities. 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.
The book value and fair value of investments in debt securities at December 31, by contractual maturity, are shown below (in millions). Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without penalty.
Proceeds from sales of investments in debt securities were $11.1 billion in 1993, $9.9 billion in 1992, and $11.2 billion in 1991. 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, and gross gains of $75 million and gross losses of $17 million were realized in 1991.
The cost of marketable equity securities at December 31, 1993 and 1992 was $160 million and $262 million, respectively. In 1993, gross unrealized gains totaled $66 million and gross unrealized losses totaled $5 million; in 1992, gross unrealized gains and gross unrealized losses totaled $82 million and $11 million, respectively.
FH-8
NOTE 5. Finance Receivables - ----------------------------
Finance receivables at December 31 were as follows (in millions):
The estimated maturities of finance receivables outstanding at December 31, 1993 were as follows (in millions):
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 1993, 1992 and 1991, the company made acquisitions of finance businesses and finance receivables, the most significant of which were as follows:
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.
FH-9
NOTE 5. Finance Receivables (Cont'd) - ----------------------------
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.
In the third quarter of 1991, The Associates acquired Kentucky Finance Co., Inc. and Chase Manhattan Leasing Company (Michigan), Inc. in separate transactions. The transactions involved approximately $1,076 million of net consumer and commercial finance receivables. The fair values of assets acquired and liabilities assumed in the aggregate were $1,184 million and $294 million, respectively. Both transactions were accounted for as purchases.
In January 1991, The Associates acquired from Ford Credit approximately $2.2 billion of net consumer finance receivables for a like amount of cash. The purchase price represented the net book value of the receivables, which also approximated fair value. The Associates funded the purchase through the issuance of short-term debt.
NOTE 6. Investments in Direct Financing Leases - -----------------------------------------------
Minimum direct financing lease rentals are as follows (in millions): 1994 - $1,375; 1995 - $1,054; 1996 - $703; 1997 - $460; thereafter - $1,554.
The estimated residual values represent proceeds expected to be received from the sale of equipment leased under direct financing leases.
FH-10
NOTE 7. Investments in Operating Leases - ----------------------------------------
Minimum equipment operating lease rentals are as follows (in millions): 1994 - $95; 1995 - $67; 1996 - $27; 1997 - $15; thereafter - $51. Revenues from equipment operating leases, included in financing revenues, were as follows (in millions): 1993 - $189; 1992 - $168; 1991 - $202. The cost of equipment under operating leases is capitalized and depreciated over the lease term, primarily on a straight-line basis. Depreciation expense on these operating leases was as follows (in millions): 1993 - $131; 1992 - $159; 1991- $178.
Investments in real estate operating leases at December 31 were as follows (in millions):
NOTE 9. 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):
NOTE 10. Income Taxes - ----------------------
The provision for income taxes was as follows (in millions):
- - - - - - *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 cumulative effect of this change in accounting principle increased 1992 net income by $51 million. Financial statements for prior years were not restated to apply the provisions of SFAS 109. The adoption of SFAS 109 changes the method of accounting for income taxes from the deferred method using Accounting Principles Board Opinion No. 11 ("APB 11") to an asset and liability approach.
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.
FH-12
NOTE 10. Income Taxes (Cont'd) - ----------------------
The components of deferred income tax assets and liabilities at December 31 were as follows (in millions):
Deferred income taxes for 1991 were derived using the guidelines in APB 11. Under APB 11, deferred income taxes result from timing differences in the recognition of revenues and expenses between financial statements and tax returns. The principal sources of these differences and the related effect of each on the provision for income taxes were as follows (in millions):
A reconciliation of the provision for income taxes compared with the amounts at the U.S. statutory tax rate is shown below (in millions):
FH-13
NOTE 11. Debt - --------------
Debt at December 31 was as follows (in millions):
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 24 days and 32 days at December 31, 1993 and 1992, respectively.
Long-term debt at December 31, 1993, including amounts payable within one year, matures as follows (in millions): 1994 - $2,609; 1995 - $2,479; 1996 - $2,955; 1997 - $3,069; 1998 - $1,513; thereafter - $5,752. The interest portion of capital lease obligations was $1 million at December 31, 1993.
Secured indebtedness is collateralized by mortgages on land and buildings of approximately $99 million and by rentals receivable and rental equipment of approximately $7 million, which are included in investments in leases. At December 31, 1993, warrants were outstanding to purchase $155 million aggregate principal amount of senior notes at specified dates between 1994 and 1999.
At December 31, 1993, Ford guaranteed all of Ford Holdings' debt held by nonaffiliated persons, totaling $1,862 million, and $46 million of Ford Leasing's debt.
At December 31, 1993, the company had contractually committed revolving credit facilities with banks of $5.3 billion. These facilities were unused at December 31, 1993. Maturity dates for these facilities ranged from February 1994 through September 1998. Also, at December 31, 1993, the company had contractually committed lines of credit with banks of $3.1 billion, none of which were utilized. In addition, the company had $1.2 billion of contractually committed receivables sale facilities, of which about 14% were in use at December 31, 1993. Some of these agreements contain certain provisions related to the continuation of Ford's direct or indirect ownership in the company.
FH-14
NOTE 12. 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 reflected the following (in millions):
The status of these plans for The Associates at December 31 was as follows (in millions):
USL Capital sponsors a defined contribution retirement plan which covers substantially all of its employees. Under the profit sharing part, contributions are determined as a percent (6.9%) of each covered participant's salary, minus the Old Age, Survivors, and Disability Insurance portion of social security taxes paid for the participant by USL Capital. Profit sharing cost represents contributions minus the unvested 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 compensa- tion. The amount charged to operating expenses related to USL Capital's retirement plan was as follows (in millions): 1993 - $4; 1992 - $4; 1991 - $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 sig- nificant.
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
NOTE 12. 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 six 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.
Prior to 1992, the expense recognized for postretirement health care benefits was based on actual expenditures for the year. Beginning in 1992, the estimated cost of postretirement health care benefits is accrued on an actuarially determined basis, in accordance with the requirements of Statement of Financial Accounting Standards No. 106 ("SFAS 106"), "Employer's Accounting for Postretirement Benefits Other Than Pensions". Implementation of SFAS 106 has not increased the company's cash expenditures for postretirement benefits. As of January 1, 1992, The Associates recorded a one-time charge to net income of $40 million, which represented the estimated accumulated postretirement benefit obligation of $65 million, net of deferred income taxes of $21 million and amounts recorded as purchase accounting adjustments of $4 million. In addition, the unamortized amount ($19 million) of the postretirement benefit liability recorded by Ford Holdings at the time The Associates was acquired was reversed with the adoption of the new standard by The Associates. As of January 1, 1992, USL Capital recorded a one-time charge to net income of $3 million, which represented the estimated accumulated postretirement benefit obligation of $5 million, net of deferred income taxes of $2 million. These amounts have been reflected in the Consolidated Statement of Income as a component of the cumulative effects of changes in accounting principles.
The combined amount paid by The Associates and USL Capital for postretirement benefits in 1993, 1992 and 1991 was $2 million, $2 million and $1 million, respectively.
The combined net postretirement benefit expense for The Associates and USL Capital included the following (in millions):
For measurement purposes, The Associates assumed 12.5% and 13.32% weighted average annual rates of increase in per capita cost of covered health care benefits for 1993 and 1992, respectively, decreasing gradually to 5.5% by 2009.
FH-16
NOTE 12. Employee Retirement Benefits (Cont'd) - --------------------------------------
For measurement purposes, USL Capital assumed 12% and 8% annual rates of increase in per capita cost of postretirement medical benefits for 1993 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 1992 were 14% and 9% for the under age 65 indemnity and HMO and over age 65 indemnity plans, respectively.
Changing the assumed health care cost trend rate by one percentage point would change the aggregate of the service and interest cost components of net periodic postretirement benefit cost of The Associates and USL Capital, on a combined basis, for 1993 and 1992 by $1 million each year, and the accumulated postretirement benefit obligation at December 31, 1993 and 1992 by $7 million and $6 million, respectively.
NOTE 13. 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, 1993, the Preferred Stock consisted of $800 million of Cumulative Flexible Rate Auction Preferred Stock (Exchange) ("Flex-APS"); $285 million of fixed-rate Series A Cumulative Preferred Stock; $173 million of fixed-rate Series B Cumulative Preferred Stock; and $200 million of fixed-rate Series C 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 1993 was 4.38%; the weighted average dividend rate was 4.43% on December 31, 1993. Accumulated and unpaid dividends on the Flex-APS amounted to $4 million at December 31, 1993.
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, 1993. 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, 1993. 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, 1993.
NOTE 14. Dividend Restrictions - -------------------------------
Payment of dividends by American Road is restricted by insurance regulatory requirements of the State of Michigan. Based on these restrictions at December 31, 1993, management has determined the maximum dividend that may be paid in 1994 to Ford Holdings without regulatory approval is approximately $11 million.
Payment of dividends by certain subsidiaries of The Associates is restricted under the provisions of certain debt and revolving credit agreements. At December 31, 1993, $222 million was available for the payment of dividends.
FH-17
NOTE 15. 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, and it is reasonably possible that some of the foregoing matters could be decided unfavorably to Ford Holdings or the subsidiary involved. Although the amount of the ultimate liability at December 31, 1993 with respect to these matters cannot be ascertained, the company believes that any resulting liability should not materially affect the consolidated financial position of the company at December 31, 1993.
NOTE 16. 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): 1993 - $31; 1992 - $41; 1991 - $48.
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):
Net interest income under various financing arrangements between the company and Ford was as follows (in millions): 1993 - $16; 1992 - $33; 1991 - $37.
In 1991, Ford Holdings received a capital contribution from Ford Credit of $216 million in the form of cash and stock of certain consumer finance subsidiaries formerly owned by Ford Credit in exchange for additional shares of Ford Holdings' Common Stock. The cash and stock of the consumer finance subsidiaries were then contributed by Ford Holdings to The Associates.
NOTE 17. Commitments and Contingencies - ---------------------------------------
The company has entered into foreign exchange agreements to manage exposure to foreign exchange rate fluctuations. These exchange agreements hedge primarily debt, firm commitments and dividends that are denominated in foreign currencies. Agreements entered into to manage these exposures are comprised primarily of foreign currency swaps. Gains or losses on the various agreements are either recognized during the period or included in the bases of the related transactions.
FH-18
NOTE 17. Commitments and Contingencies (Cont'd) - ---------------------------------------
The fair value of these foreign exchange agreements generally was estimated using current market prices provided by outside quotation services. The fair value was estimated to be net receivable of $12 million at December 31, 1993 and a net payable of $47 million at December 31, 1992. In the unlikely event that a counterparty fails to meet the terms of a foreign exchange agreement, the company's market risk is limited to the currency rate differential. In the case of currency swaps, the company's market risk also may include an interest rate differential. At December 31, 1993 and 1992, the total amount of the company's foreign currency swaps outstanding was $281 million and $398 million, respectively, maturing primarily through 1996.
The company has entered into arrangements to manage exposure to fluctuations in interest rates. These arrangements are comprised primarily of interest-rate swap agreements. The differential paid or received on interest-rate swap agreements is recognized as an adjustment to interest expense.
The fair value of interest-rate swaps is the estimated amount the company would receive or pay to terminate the swap agreement. The 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 counterparties. The fair value was estimated to be a net receivable of $7 million at December 31, 1993 and a net payable of $7 million at December 31, 1992. In the unlikely event that a counterparty fails to meet the terms of an interest-rate swap agreement, the company's exposure is limited to the interest rate differential. The underlying principal amounts on which the company has interest-rate swap agreements and futures contracts outstanding aggregated $2.1 billion at December 31, 1993 and $1.9 billion at December 31, 1992.
Certain Ford Holdings' subsidiaries make credit lines available to holders of their credit cards. At December 31, 1993 and 1992, the unused portion of available credit was approximately $9.6 billion and $5.5 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 significant.
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 interest rate caps and floors. The fair value of these agreements and the potential risk of loss was not considered to be significant.
NOTE 18. 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 single premium 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.
FH-19
NOTE 18. Segment Information (Cont'd) - -----------------------------
(a) Primarily an increase in Ford Land notes receivable from Ford (b) Primarily an increase in receivables at American Road for insurance premiums collected by Ford Credit (c) Primarily higher payables at Ford Land and an increase in State taxes payable at Ford Holdings (d) Primarily interest accrual on Ford Holdings zero-coupon note to Ford and increase in American Road accounts payable to Ford (e) Primarily increases in accounts payables at USL Capital and The Associates with Ford Credit
FSS-3
Schedule IX
FORD HOLDINGS, INC. AND SUBSIDIARIES
SHORT-TERM BORROWINGS ---------------------
For the Years Ended December 31, 1993, 1992 and 1991 (dollar amounts in millions)
- ------------------------- (a) The average amount outstanding during the period was computed using the amounts outstanding at the end of each month, including the amount at the beginning of the period.
(b) The weighted average interest rate during the period was computed by dividing actual interest expense on short-term borrowings by the average short-term debt outstanding during the period.
(c) The increase in debt in 1993, 1992 and 1991 resulted principally from the growth in receivables at The Associates.
FSS-4
EXHIBIT INDEX (continued) -------------------------
EXHIBIT INDEX (continued) -------------------------
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