FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-1004
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-6154
ASSOCIATES CORPORATION OF NORTH AMERICA
(Exact name of registrant as specified in its charter)
Delaware 74-1494554
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
250 East Carpenter Freeway, Irving, Texas 75062-2729
(Address of principal executive offices)
(Zip Code)
214-541-4000
(Registrant's telephone number, including area code)
Not applicable
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes..X.. No.....
As of September 30, 1995, the registrant had 260 shares of Common Stock and
1,000,000 shares of Class B Common Stock issued and outstanding, all of which
were owned directly or indirectly by Associates First Capital Corporation.
The registrant meets the conditions set forth in General Instruction H.(1)(a)
and (b) to Form 10-Q and is therefore filing this Form 10-Q with the reduced
disclosure format.
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS.
ASSOCIATES CORPORATION OF NORTH AMERICA
CONSOLIDATED STATEMENT OF EARNINGS
(In Millions)
Nine Months Ended Three Months Ended
September 30 September 30
1995 1994 1995 1994
REVENUE
Finance charges $3,537.0 $2,794.6 $1,234.2 $ 984.6
Insurance premiums 245.4 211.8 80.4 78.4
Investment and other
income 190.9 170.2 66.9 58.7
3,973.3 3,176.6 1,381.5 1,121.7
EXPENSES
Interest expense 1,460.7 1,082.9 507.5 391.2
Operating expenses 1,046.0 849.9 355.8 286.5
Provision for losses on
finance receivables 533.5 422.4 185.6 148.6
Insurance benefits paid
or provided 99.9 108.7 33.9 37.6
3,140.1 2,463.9 1,082.8 863.9
EARNINGS BEFORE PROVISION
FOR INCOME TAXES 833.2 712.7 298.7 257.8
PROVISION FOR INCOME TAXES 306.3 268.4 110.5 96.0
NET EARNINGS $ 526.9 $ 444.3 $ 188.2 $ 161.8
See notes to consolidated financial statements.
<PAGE>
ASSOCIATES CORPORATION OF NORTH AMERICA
CONSOLIDATED BALANCE SHEET
(In Millions)
September 30 December 31
1995 1994
ASSETS
CASH AND CASH EQUIVALENTS $ 327.6 $ 361.1
INVESTMENTS IN DEBT AND EQUITY SECURITIES
- NOTE 3 876.7 609.5
FINANCE RECEIVABLES, net of unearned finance
income - NOTE 4
Consumer Finance 24,004.6 21,159.8
Commercial Finance 11,065.6 9,815.9
Total net finance receivables 35,070.2 30,975.7
ALLOWANCE FOR LOSSES ON FINANCE RECEIVABLES (1,065.4) (932.4)
OTHER ASSETS 1,182.8 1,218.9
Total assets $36,391.9 $32,232.8
LIABILITIES AND STOCKHOLDERS' EQUITY
NOTES PAYABLE, unsecured short-term
Commercial Paper $12,837.7 $11,640.5
Bank Loans 571.4
ACCOUNTS PAYABLE AND ACCRUALS 909.5 726.0
INSURANCE POLICY AND CLAIMS RESERVES 594.7 545.6
LONG-TERM DEBT, unsecured
Senior Notes 17,573.9 14,821.4
Subordinated and Capital Notes 141.8 141.8
17,715.7 14,963.2
STOCKHOLDERS' EQUITY
Class B Common Stock, $100 par value,
2,000,000 shares authorized, 1,000,000
shares issued and outstanding 100.0 100.0
Common Stock, no par value, 5,000 shares
authorized, 260 shares issued and
outstanding, at stated value 47.0 47.0
Paid-in Capital 1,330.6 1,330.6
Retained Earnings 2,853.0 2,326.1
Unrealized Gain (Loss) on Available-for-Sale
Securities - NOTE 3 3.7 (17.6)
Total stockholders' equity 4,334.3 3,786.1
Total liabilities and stockholders' equity $36,391.9 $32,232.8
See notes to consolidated financial statements.
<PAGE>
ASSOCIATES CORPORATION OF NORTH AMERICA
CONSOLIDATED STATEMENT OF CASH FLOWS
(In Millions)
Nine Months Ended
September 30
1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 526.9 $ 444.3
Adjustments to net earnings for noncash items:
Provision for losses on finance receivables 533.5 422.4
Increase in accounts payable and accruals 195.7 60.4
Depreciation and amortization 108.8 106.0
Increase in insurance policy and claims
reserves 49.1 95.1
Deferred income taxes (19.7) (80.0)
Unrealized gain on trading securities (4.3) (3.0)
Purchases of trading securities (5.8) (15.9)
Sales of trading securities 39.3 17.4
Other (4.2)
Net cash provided from operating activities 1,423.5 1,042.5
CASH FLOWS FROM INVESTING ACTIVITIES
Finance receivables originated or purchased (24,604.4) (20,235.5)
Finance receivables liquidated 20,163.6 16,805.5
Acquisitions of other finance businesses, net (116.1) (404.9)
Proceeds from sale of investment in mortgage
servicing rights 97.1
Purchases of available-for-sale securities (620.2) (205.8)
Sales and maturities of available-for-sale
securities 357.6 237.4
(Increase) decrease in real estate loans
held for sale (6.7) 52.6
Increase in other assets (9.1) (205.0)
Net cash used for investing activities (4,835.3) (3,858.6)
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of long-term debt 3,902.6 2,584.9
Increase in notes payable 625.8 1,375.9
Retirement of long-term debt (1,150.1) (1,102.4)
Net cash provided from financing activities 3,378.3 2,858.4
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (33.5) 42.3
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 361.1 261.6
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 327.6 $ 303.9
CASH PAID FOR:
Interest $ 1,372.9 $ 1,060.5
Income taxes $ 328.5 $ 347.8
See notes to consolidated financial statements.
<PAGE>
ASSOCIATES CORPORATION OF NORTH AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - THE COMPANY
Associates Corporation of North America ("Associates" or the "Company"), a
Delaware corporation, is a wholly-owned subsidiary and principal operating
unit of Associates First Capital Corporation ("First Capital"), which in turn
is an indirect subsidiary of Ford Motor Company ("Ford"). All the outstanding
Common Stock of Associates is owned by First Capital. All shares of Class B
Common Stock are owned by Associates World Capital Corporation, a wholly-owned
subsidiary of First Capital. Class B Common Stock is redeemable only at the
option of the issuer.
NOTE 2 - BASIS OF CONSOLIDATION
The accompanying consolidated financial statements consolidate Associates and
its subsidiaries. In the opinion of the management of Associates, all
adjustments necessary to present fairly the results of operations and
financial position have been made and are of a normal recurring nature. The
results of operations for any interim period are not necessarily indicative
of the results of operations for a full year. Certain prior period financial
statement amounts have been reclassified to conform to the current period
presentation.
NOTE 3 - INVESTMENTS IN DEBT AND EQUITY SECURITIES
DEBT SECURITIES
The Company invests in debt securities, principally bonds and notes, with the
intention of holding them to maturity. However, if market conditions change,
the Company may sell these securities prior to maturity. Accordingly, the
Company classifies its investments in debt securities as available-for-sale
securities and adjusts its recorded value to market. The estimated market
value at September 30, 1995 and December 31, 1994 was $864.0 million and
$567.6 million, respectively. Amortized cost at September 30, 1995 and
December 31, 1994 was $858.3 million and $594.7 million, respectively.
Realized gains or losses on sales are included in investment and other income.
Unrealized gains or losses are reported as a component of stockholders'
equity, net of tax.
EQUITY SECURITIES
Equity security investments, principally common stock held by the Company's
insurance subsidiaries, are recorded at market value. The Company classifies
its investments in equity securities as trading securities. The estimated
market value at September 30, 1995 and December 31, 1994 was $12.7 million and
$41.9 million, respectively. Historical cost at September 30, 1995 and
December 31, 1994 was $7.8 million and $38.9 million, respectively. Realized
and unrealized gains or losses on sales are included in investment and other
income as incurred.
<PAGE>
NOTE 4 - FINANCE RECEIVABLES
At September 30, 1995 and December 31, 1994, net finance receivables consisted
of the following (in millions):
September 30 December 31
1995 1994
Consumer Finance
Residential real estate-secured receivables $12,988.8 $11,455.2
Direct installment and credit card
receivables 7,340.7 6,485.4
Manufactured housing and other installment
receivables 3,675.1 3,219.2
24,004.6 21,159.8
Commercial Finance
Heavy-duty truck receivables 4,797.9 4,524.1
Other industrial equipment receivables 6,267.7 5,291.8
11,065.6 9,815.9
Net finance receivables $35,070.2 $30,975.7
On January 1, 1995, Associates acquired $116 million of net real estate-
secured receivables and certain other assets from Ford Motor Credit Company,
an affiliate. The transaction was recorded at historical cost, which
approximated market.
In September 1994, Associates acquired the credit card portfolio and certain
other assets of Amoco Oil Company. The fair market value of assets acquired
totaled $405 million. The transaction was accounted for as a purchase.
NOTE 5 - DEBT RESTRICTIONS
Associates is subject to various limitations under the provisions of its
outstanding debt and revolving credit agreements. The most significant of
these limitations are summarized as follows:
LIMITATION ON PAYMENT OF DIVIDENDS
A restriction contained in one series of debt securities maturing August 1,
1996, generally limits payments of cash dividends on the Company's Common
Stock in any year to not more than 50% of consolidated net earnings for such
year, subject to certain exceptions, plus increases in contributed capital and
extraordinary gains. Any such amounts available for the payment of dividends
in such fiscal year and not so paid, may be paid in any one or more of the
five subsequent fiscal years. In accordance with this provision, at September
30, 1995, $717.0 million was available for dividends.
LIMITATION ON MINIMUM TANGIBLE NET WORTH
A restriction contained in certain revolving credit agreements requires
Associates to maintain a minimum tangible net worth, as defined, of $1.5
billion. At September 30, 1995, Associates tangible net worth was
approximately $4.0 billion.
<PAGE>
NOTE 6 - RATIO OF EARNINGS TO FIXED CHARGES
The ratio of earnings to fixed charges of Associates for the nine months ended
September 30, 1995 and 1994 was 1.57 and 1.65, respectively. For purposes of
such computation, the term "earnings" represents Earnings Before Provision for
Income Taxes, plus fixed charges. The term "fixed charges" represents
interest expense and a portion of rentals representative of an implicit
interest factor for such rentals.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
For the nine months ended September 30, 1995 compared with the nine months
ended September 30, 1994:
REVENUE - Total revenue for the nine months ended September 30, 1995
increased $796.7 million (25%), compared to the nine months ended September
30, 1994. The components of the increase were as follows:
Finance charges increased $742.4 million (27%), caused primarily by an
increase in average net finance receivables outstanding, and, to a lesser
extent, an increase in average revenue rates. Average net finance receivables
outstanding were $33.0 billion and $27.7 billion for the nine months ended
September 30, 1995 and 1994, respectively, a 19% increase. The growth was
primarily generated from internal sources, but included the acquisitions of
net finance receivables of Amoco Oil Company ($396 million) in September 1994
and First Collateral Services, Inc. ($61 million) in December 1994. The
annualized average revenue rates on aggregate net receivables were 14.30% and
13.47% for the nine months ended September 30, 1995 and 1994, respectively.
Insurance premiums increased $33.6 million (16%), as a result of increased
sales of insurance products, primarily in the credit life, credit accident and
health, and casualty insurance products.
Investment and other income increased $20.7 million (12%). The increase
was primarily due to increased investment income from the Company's investment
portfolio related to its insurance business.
EXPENSES - Total expenses for the nine months ended September 30, 1995
increased $676.2 million (27%), compared with the nine months ended September
30, 1994. The components of the increase were as follows:
Interest expense increased $377.8 million (35%). This change was caused
by an increase in average outstanding debt ($235.5 million) attributable to
higher net finance receivables outstanding, and an increase in average
interest rates ($142.3 million). The annualized average interest rates on
total debt, including amortization of discount and issuance expense, were
6.68% and 5.85% for the nine months ended September 30, 1995 and 1994,
respectively. The annualized net interest margin was 8.39% for the nine
months ended September 30, 1995 compared with 8.25% for the nine months ended
September 30, 1994.
Operating expenses increased $196.1 million (23%), primarily as a result
of increased salaries, employment benefits and other operating expenses
generally related to increased volumes of business, including acquisitions.
The provision for loan losses increased $111.1 million (26%), primarily
due to increased losses resulting from an increase in net finance receivables.
Annualized net credit losses, measured as a percent of average net finance
receivables, were 1.63% at September 30, 1995, compared to 1.61% for the prior
year. The allowance for losses increased $133.0 million (14%) to $1.1 billion
at September 30, 1995 from $932.4 million at December 31, 1994. The increase
primarily relates to the growth in net finance receivables. The allowance for
losses, measured as a percent of net finance receivables, was 3.04% at
September 30, 1995 as compared to 3.01% at December 31, 1994. The Company
maintains an allowance for losses on finance receivables at an amount which
it believes is sufficient to provide adequate protection against future losses
in the portfolios. The allowance is determined principally on the basis of
historical loss experience, and reflects management's judgment of additional
loss potential considering future economic conditions and the nature and
characteristics of the finance receivables.
Insurance benefits paid or provided decreased $8.8 million (8%) during the
nine months ended September 30, 1995, primarily due to an overall decrease in
claims activity.
EARNINGS BEFORE PROVISION FOR INCOME TAXES - As a result of the
aforementioned changes, earnings before provision for income taxes increased
$120.5 million (17%) during the nine months ended September 30, 1995.
PROVISION FOR INCOME TAXES - The provision for income taxes represented
36.8% and 37.7% of earnings before provision for income taxes for the nine
months ended September 30, 1995 and 1994, respectively. The percentage
decrease was primarily due to a decrease in the Company's state income tax
provision as a result of changes in its tax sharing agreement with Ford.
NET EARNINGS - As a result of the aforementioned changes, net earnings
increased $82.6 million (19%) during the nine months ended September 30, 1995.
For the three months ended September 30, 1995 compared with the three
months ended September 30, 1994:
REVENUE - Total revenue for the three months ended September 30, 1995
increased $259.8 million (23%), compared to the three months ended September
30, 1994. The components of the increase were as follows:
Finance charges increased $249.6 million (25%), caused primarily by an
increase in average net finance receivables outstanding, and, to a lesser
extent, an increase in average revenue rates. Average net finance receivables
outstanding were $34.4 billion and $28.9 billion for the three months ended
September 30, 1995 and 1994, respectively, a 19% increase. The annualized
average revenue rates on aggregate net receivables were 14.33% and 13.65% for
the three months ended September 30, 1995 and 1994, respectively.
Insurance premiums increased $2.0 million (3%), as a result of increased
sales of insurance products, primarily in the credit life and credit accident
and health insurance programs.
Investment and other income increased $8.2 million (14%). The increase
was primarily due to increased investment income from the Company's investment
portfolio related to its insurance business.
EXPENSES - Total expenses for the three months ended September 30, 1995
increased $218.9 million (25%), compared with the three months ended September
30, 1994. The components of the increase were as follows:
Interest expense increased $116.3 million (30%). This change was caused
by an increase in average outstanding debt ($82.1 million) attributable to
higher net finance receivables outstanding, and an increase in average
interest rates ($34.2 million). The annualized average interest rates on
total debt, including amortization of discount and issuance expense, were
6.62% and 6.07% for the three months ended September 30, 1995 and 1994,
respectively. The annualized net interest margin was 8.44% for the three
months ended September 30, 1995 compared with 8.23% for the three months ended
September 30, 1994.
Operating expenses increased $69.3 million (24%), primarily as a result
of increased salaries, employment benefits and other operating expenses
generally related to increased volumes of business, including acquisitions.
The provision for loan losses increased $37.0 million (25%), primarily due
to the growth in net finance receivables.
Insurance benefits paid or provided decreased $3.7 million (10%) during
the three months ended September 30, 1995, primarily due to an overall
decrease in claims activity.
EARNINGS BEFORE PROVISION FOR INCOME TAXES - As a result of the
aforementioned changes, earnings before provision for income taxes increased
$40.9 million (16%) during the three months ended September 30, 1995.
PROVISION FOR INCOME TAXES - The provision for income taxes represented
37.0% and 37.3% of earnings before provision for income taxes for the three
months ended September 30, 1995 and 1994, respectively.
NET EARNINGS - As a result of the aforementioned changes, net earnings
increased $26.4 million (16%) during the three months ended September 30,
1995.
LIQUIDITY/CAPITAL RESOURCES
Associates endeavors to maximize its liquidity by diversifying its sources
of funds, which include: (i) its operations; (ii) the issuance of commercial
paper; (iii) the issuance of unsecured intermediate-term debt in the public
and private markets; (iv) borrowings available from short-term and revolving
credit facilities with commercial banks; and (v) receivables purchase
facilities.
Issuance of Short- and Intermediate-Term Debt
Commercial paper, with maturities ranging from 1 to 270 days, is the
primary source of short-term debt. The average commercial paper interest rate
incurred during the nine months ended September 30, 1995 was 5.88%.
Associates issues intermediate-term debt publicly and privately in the
domestic and foreign markets. During the nine months ended September 30,
1995, Associates raised $3.9 billion through public and private offerings at
a weighted average effective interest rate and a weighted average term of
7.09% and 5.8 years, respectively. At September 30, 1995, Associates short-
term debt (which includes the current portion of long-term debt but excludes
short-term investments) as a percent of total debt was 50%.
Credit Facilities and Related Borrowings
Associates policy is to maintain bank credit facilities in support of its
net short-term borrowings consistent with market conditions. Bank credit
facilities provide a means of refinancing maturing commercial paper
obligations as needed. Bank lines and revolvers may be withdrawn only under
certain standard conditions.
At September 30, 1995, Associates had contractually committed lines of
credit at 119 banks aggregating $4.0 billion, with various maturities through
September 30, 1996, none of which was utilized at September 30, 1995. Also at
September 30, 1995, Associates had agreements with 105 banks extending
revolving credit facilities of $4.7 billion, with maturity dates ranging from
October 1, 1995 through July 1, 2000, and $1.3 billion of receivables purchase
facilities, $275.0 million of which is available through April 24, 1996,
$500.0 million of which is available through April 15, 1997 and $500.0 million
of which is available through April 30, 1998; none of these facilities was
utilized as of September 30, 1995. The aggregate credit facilities as of
September 30, 1995 were $10.0 billion with 147 banks. Associates pays fees or
maintains compensating balances or utilizes a combination of both to maintain
the availability of its bank credit facilities. Fees are .07% to .25% of 1%
per annum of the amount of the facilities. At September 30, 1995, short-term
bank lines, revolving credit and receivables purchase facilities with banks
represented 77% of net short-term borrowings outstanding.
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None to report
In accordance with General Instruction H.(2)(b), the following items have been
omitted: Item 2, Changes in Securities; Item 3, Defaults Upon Senior
Securities; and Item 4, Submission of Matters to a Vote of Security Holders.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
(12) Computation of Ratio of Earnings to Fixed Charges.
(27) Financial Data Schedule.
(b) Reports on Form 8-K
During the third quarter ended September 30, 1995, Associates
filed Current Reports on Form 8-K dated July 10, 1995, August 25,
1995 and September 15, 1995, related to issuances of debt
securities pursuant to Rule 415.
On October 17, 1995, Associates filed a Current Report on Form
8-K dated October 16, 1995, reflecting an announcement by Ford
Motor Company as to the possible partial sale of the Company.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
November 10, 1995
ASSOCIATES CORPORATION OF NORTH AMERICA
(registrant)
By/s/ Roy A. Guthrie
Executive Vice President and Comptroller
<PAGE>
EXHIBIT 12
ASSOCIATES CORPORATION OF NORTH AMERICA
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollar Amounts in Millions)
Nine Months Ended
September 30
1995 1994
Fixed Charges
Interest expense $1,460.7 $1,082.9
Implicit interest in rent 10.0 8.6
Total fixed charges $1,470.7 $1,091.5
Earnings
Earnings before provision for income
taxes $ 833.2 $ 712.7
Fixed charges 1,470.7 1,091.5
Earnings, as defined $2,303.9 $1,804.2
Ratio of Earnings to Fixed Charges 1.57 1.65
(a) For purposes of such computation, the term "fixed charges" represents
interest expense and a portion of rentals representative of an implicit
interest factor for such rentals. The prior year implicit interest
amount has been restated to conform to current calculation methodology.
(b) For purposes of such computation, the term "earnings" represents earnings
before provision for income taxes, plus fixed charges.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> 0 MEANS NOT APPLICABLE OR NOT SEPARATELY DISCLOSED.
This schedule contains summary financial information
extracted from the Company's audited consolidated
financial statements as of September 30, 1995 and the
nine months then ended and is qualified in its entirety
by reference to such consolidated financial statements.
</LEGEND>
<CIK> 0000007973
<NAME> ASSOCIATES CORPORATION OF NORTH AMERICA
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 328
<SECURITIES> 877
<RECEIVABLES> 35,070
<ALLOWANCES> 1,065
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 36,392
<CURRENT-LIABILITIES> 0
<BONDS> 30,553
<COMMON> 147
0
0
<OTHER-SE> 4,187
<TOTAL-LIABILITY-AND-EQUITY> 36,392
<SALES> 3,973
<TOTAL-REVENUES> 3,973
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<TOTAL-COSTS> 3,140
<OTHER-EXPENSES> 1,146
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</TABLE>
