FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-1004
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
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 March 31, 1996, 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 1. FINANCIAL STATEMENTS.
ASSOCIATES CORPORATION OF NORTH AMERICA
CONSOLIDATED STATEMENT OF EARNINGS
(In Millions)
Three Months Ended
March 31
1996 1995
REVENUE
Finance charges $1,308.3 $1,121.2
Insurance premiums 81.6 81.9
Investment and other income 64.3 60.1
1,454.2 1,263.2
EXPENSES
Interest expense 514.7 462.5
Operating expenses 366.7 333.5
Provision for losses on finance receivables 231.0 171.3
Insurance benefits paid or provided 33.0 36.3
1,145.4 1,003.6
EARNINGS BEFORE PROVISION FOR INCOME TAXES 308.8 259.6
PROVISION FOR INCOME TAXES 115.0 93.6
NET EARNINGS $ 193.8 $ 166.0
See notes to consolidated financial statements.
<PAGE>
ASSOCIATES CORPORATION OF NORTH AMERICA
CONSOLIDATED BALANCE SHEET
(In Millions)
March 31 December 31
1996 1995
ASSETS
CASH AND CASH EQUIVALENTS $ 200.4 $ 309.2
INVESTMENTS IN DEBT AND EQUITY SECURITIES
- NOTE 3 934.8 884.7
FINANCE RECEIVABLES, net of unearned finance
income - NOTE 4
Consumer Finance 25,578.0 24,609.2
Commercial Finance 11,998.8 11,759.1
Total net finance receivables 37,576.8 36,368.3
ALLOWANCE FOR LOSSES ON FINANCE RECEIVABLES
- NOTE 5 (1,205.9) (1,109.2)
INSURANCE POLICY AND CLAIMS RESERVES (613.7) (602.8)
OTHER ASSETS 1,273.5 1,173.5
Total assets $38,165.9 $37,023.7
LIABILITIES AND STOCKHOLDERS' EQUITY
NOTES PAYABLE, unsecured short-term
Commercial Paper $14,467.1 $12,732.7
Bank Loans 702.0
ACCOUNTS PAYABLE AND ACCRUALS 975.7 833.5
LONG-TERM DEBT, unsecured
Senior Notes 17,957.2 18,169.7
Subordinated and Capital Notes 141.8 141.8
18,099.0 18,311.5
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 1,530.6 1,530.6
Retained Earnings 2,948.0 2,754.2
Unrealized (Loss) Gain on Available-for-Sale
Securities - NOTE 3 (1.5) 12.2
Total stockholders' equity 4,624.1 4,444.0
Total liabilities and stockholders' equity $38,165.9 $37,023.7
See notes to consolidated financial statements.
<PAGE>
ASSOCIATES CORPORATION OF NORTH AMERICA
CONSOLIDATED STATEMENT OF CASH FLOWS
(In Millions)
Three Months Ended
March 31
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 193.8 $ 166.0
Adjustments to net earnings for noncash items:
Provision for losses on finance receivables 231.0 171.3
Increase in accounts payable and accruals 168.3 156.5
Depreciation and amortization 43.8 36.3
Increase in insurance policy and claims
reserves 10.9 21.2
Deferred income taxes (18.6) (2.5)
Unrealized gain on trading securities (3.0)
Purchases of trading securities (4.0)
Sales and maturities of trading securities 5.3
Net cash provided from operating activities 629.2 547.1
CASH FLOWS FROM INVESTING ACTIVITIES
Finance receivables originated or purchased (8,930.6) (7,685.2)
Finance receivables liquidated 7,563.9 6,377.2
Acquisition of other finance business, net (116.1)
Purchases of available-for-sale securities (265.9) (198.2)
Sales and maturities of available-for-sale
securities 194.6 34.7
Decrease in real estate loans held for sale 3.1 10.6
Increase in other assets (123.0) (102.3)
Net cash used for investing activities (1,557.9) (1,679.3)
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of long-term debt 911.3 1,474.7
Retirement of long-term debt (1,123.8) (387.7)
Increase (decrease) in notes payable 1,032.4 (90.2)
Net cash provided from financing activities 819.9 996.8
DECREASE IN CASH AND CASH EQUIVALENTS (108.8) (135.4)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 309.2 361.1
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 200.4 $ 225.7
CASH PAID FOR:
Interest $ 445.2 $ 425.7
Income taxes $ 1.9 $ 1.6
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 a principal operating
unit of Associates First Capital Corporation ("AFCC"), which in turn is a
majority-owned indirect subsidiary of Ford Motor Company ("Ford"). All the
outstanding Common Stock of Associates is owned by AFCC. All shares of Class
B Common Stock are owned by Associates World Capital Corporation, a wholly-
owned subsidiary of AFCC. 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 held by
the Company's insurance subsidiaries, 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 March 31, 1996
and December 31, 1995 was $922.2 million and $872.1 million, respectively.
Amortized cost at March 31, 1996 and December 31, 1995 was $924.6 million and
$853.4 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 are recorded at market value. The Company
classifies its investments in equity securities as trading securities and
includes in earnings unrealized gains or losses on such securities. The
estimated market value at March 31, 1996 and December 31, 1995 was $12.6
million. Historical cost at March 31, 1996 and December 31, 1995 was $8.5
million.
<PAGE>
NOTE 4 - FINANCE RECEIVABLES
At March 31, 1996 and December 31, 1995, net finance receivables consisted of
the following (in millions):
March 31 December 31
1996 1995
Consumer Finance
Home equity lending $13,436.4 $13,190.4
Personal lending and retail sales finance 4,996.1 4,752.7
Credit card 4,996.9 4,616.8
Manufactured housing 2,148.6 2,049.3
25,578.0 24,609.2
Commercial Finance
Truck and truck trailer 7,566.9 7,415.7
Equipment 4,044.7 3,959.4
Other 387.2 384.0
11,998.8 11,759.1
Net finance receivables $37,576.8 $36,368.3
NOTE 5 - ALLOWANCE FOR LOSSES ON FINANCE RECEIVABLES
Changes in the allowance for losses on finance receivables during the periods
indicated were as follows (in millions):
Three Months Ended Year Ended
March 31 December 31
1996 1995 1995
Balance at beginning of period $1,109.2 $ 932.4 $ 932.4
Provision for losses 231.0 171.3 729.7
Recoveries on receivables
charged off 31.5 31.5 112.3
Losses sustained (192.6) (161.5) (670.0)
Reserves of acquired businesses
and other 26.8 1.0 4.8
Balance at end of period $1,205.9 $ 974.7 $1,109.2
NOTE 6 - 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 certain issues of debt securities, the latest of
which matures on March 15, 1999, 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 March 31, 1996, $96.9 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 March 31, 1996, Associates tangible net worth was $4.3 billion.
NOTE 7 - RATIO OF EARNINGS TO FIXED CHARGES
The ratio of earnings to fixed charges of Associates for the three months
ended March 31, 1996 and 1995 was 1.60 and 1.56, 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.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
Net earnings for the three-month period ended March 31, 1996 were $193.8
million, a 16.8% increase over the same period in the previous year. The
increase in earnings was principally due to growth in net finance receivables,
an improvement in the ratio of net interest margin to average net receivables
and an increase in operating expense efficiency, all of which more than offset
an increase in the provision for losses on finance receivables.
Finance charge revenue, on a dollar basis, increased for the three months
ended March 31, 1996, compared to the same period in the prior year,
principally as a result of growth in average net finance receivables
outstanding. Finance charge revenue as a percentage of average net finance
receivables (the "Finance Charge Ratio") was 14.16% for the first quarter of
1996 compared to 14.19% for the same period in 1995. The consumer and
commercial portfolio finance charge ratios for the first quarter of 1996 were
17.08% and 10.14%, respectively, compared to 16.94% and 9.96%, respectively,
for the same period in 1995. The increases in consumer and commercial
portfolio finance charge ratios were principally due to changes in competitive
market conditions. The decrease in the composite portfolio finance charge
ratio was principally due to changes in the mix of finance receivables during
the period.
Interest expense increased for the first quarter of 1996 compared to 1995,
primarily due to an increase in average debt outstanding related to the
aforementioned growth in average net finance receivables. Debt is the primary
source of funding to support the Company's growth in net finance receivables.
The increase due to growth was partially offset by a decline in the Company's
average short- and long-term borrowing rates, principally due to changes in
market conditions. As a result, the Company's total average borrowing rate
for the first quarter of 1996 was 6.40% compared to 6.68% for the same quarter
in the prior year.
As a result of the aforementioned changes in finance charge revenue and
interest expense, the Company's net interest margin increased to $793.6
million for the first quarter of 1996 compared to $658.7 million for the
prior-year period. The Company's net interest margin expressed as a ratio to
average net finance receivables also improved to 8.59% compared to 8.34% for
the same period in the prior year. The principal cause of the increase was
the decline in the Company's average borrowing rate.
First quarter operating expenses were greater in 1996 than in 1995
reflecting growth in the size of the Company. However, operating expense
efficiency, measured as the ratio of total operating expenses divided by total
revenue net of interest expense and insurance benefits paid or provided,
improved to 40.5% for the first three months of 1996 compared to 43.6% for the
same period in the prior year. The improvement principally reflects the
benefit from certain initiatives designed to improve operating efficiency.
The Company's provision for losses increased from $171.3 million during
the first quarter of 1995 to $231.0 million for the same period in 1996,
principally due to increased losses. Total net losses as a percentage of
average net receivables were 1.74% for the first quarter of 1996 compared to
1.64% for the same period in 1995. The increase in net losses was principally
due to less favorable trends in economic conditions.
Financial Condition
Net finance receivables grew $1.2 billion (13.3% annualized) during the
first quarter of 1996 compared to $1.3 billion (16.4% annualized) for the same
period in 1995. The Company had growth in substantially all of its product
lines. However, of the total growth in the first quarter of 1996,
approximately 47% was from major acquisitions, principally of credit card
portfolios.
Total 60+days contractual delinquency was 1.79% of gross finance
receivables at March 31, 1996, which was higher than the 1.40% reported at
March 31, 1995, and 1.72% at December 31, 1995. The increase in contractual
delinquency was principally due to less favorable trends in economic
conditions. Contractual delinquency was higher at March 31, 1996 than at
March 31, 1995 and year-end 1995, (but moderated during the quarter after
January); the aforementioned increases in delinquency, net losses and the
uncertainty in economic conditions, led the Company to increase its allowance
for losses to 3.21% of net finance receivables at March 31, 1996 compared to
3.05% at December 31, 1995. The allowance for losses divided by annualized
net credit losses was 1.87 times losses at March 31, 1996 and 1995.
Management believes the allowance for losses at March 31, 1996 is sufficient
to provide adequate coverage against losses in its portfolios.
During the first quarter of 1996, stockholders' equity increased as a
result of the aforementioned increase in net earnings of the Company. The
Company classifies its investments in marketable debt securities, held by its
insurance subsidiaries, as available- for-sale securities and accordingly
adjusts its recorded value to market with a corresponding adjustment to
equity. As a result of changes in market conditions at March 31, 1996, the
Company recorded an unrealized loss, net of income taxes, in the amount of
$13.7 million which is included as a component of stockholders' equity.
LIQUIDITY
The principal sources of cash for the Company are proceeds from issuance
of short- and long-term debt and cash provided from the Company's operations.
Management believes that the Company has sufficient liquidity, from a
combination of cash provided from operations and external borrowing, to
support its operations.
At March 31, 1996, the Company had short- and long-term debt outstanding
of $14.5 billion and $18.1 billion, respectively. Short-term debt principally
consists of commercial paper issued by the Company and represents the
Company's primary source of short-term liquidity. Long-term debt principally
consists of unsecured long-term debt issued publicly and privately by the
Company in the United States. During the three months ended March 31, 1996
and 1995, the Company raised debt aggregating $911.3 million and $1.5 billion,
respectively, through public and private offerings.
<PAGE>
Substantial additional liquidity is available to the Company's operations
through established credit facilities in support of its net short-term
borrowings. Such credit facilities provide a means of refinancing its
maturing short-term obligations as needed. At March 31, 1996, short-term bank
lines, revolving credit facilities and receivable purchase facilities totaled
$11.1 billion, none of which was in use at that date. These facilities
represent 77% of net short-term indebtedness outstanding at March 31, 1996.
<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 5. OTHER INFORMATION.
On May 10, 1996, AFCC, the parent corporation of the Company, sold
a portion of its common stock, representing approximately a 19.3%
economic interest, to the public.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
(12) Computation of Ratio of Earnings to Fixed Charges.
(27) Financial Data Schedule.
(b) Reports on Form 8-K
During the first quarter ended March 31, 1996, Associates filed
Current Reports on Form 8-K dated January 19, 1996 and March 15,
1996, related to issuances of debt securities pursuant to Rule
415, and on February 13, 1996 relating to a proposed initial
public offering of equity by AFCC.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
May 14, 1996
ASSOCIATES CORPORATION OF NORTH AMERICA
(registrant)
By/s/ Roy A. Guthrie
Executive Vice President, Comptroller,
Principal Accounting Officer and
Principal Financial Officer
<PAGE>
EXHIBIT 12
ASSOCIATES CORPORATION OF NORTH AMERICA
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollar Amounts in Millions)
Three Months Ended
March 31
1996 1995
Fixed Charges (a)
Interest expense $514.7 $462.5
Implicit interest in rent 3.7 3.1
Total fixed charges $518.4 $465.6
Earnings (b)
Earnings before provision for income
taxes $308.8 $259.6
Fixed charges 518.4 465.6
Earnings, as defined $827.2 $725.2
Ratio of Earnings to Fixed Charges 1.60 1.56
(a) For purposes of such computation, the term "fixed charges" represents
interest expense and a portion of rentals representative of an implicit
interest factor for such rentals.
(b) For purposes of such computation, the term "earnings" represents earnings
before provision for income taxes, plus fixed charges.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
0 MEANS NOT APPLICABLE OR NOT SEPARATELY DISCLOSED. This schedule contains
summary financial information extracted from the Company's unaudited
consolidated financial statements as of March 31, 1996 and the three 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 200
<SECURITIES> 935
<RECEIVABLES> 37,577
<ALLOWANCES> 1,206
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 38,166
<CURRENT-LIABILITIES> 0
<BONDS> 32,566
<COMMON> 147
0
0
<OTHER-SE> 4,477
<TOTAL-LIABILITY-AND-EQUITY> 38,166
<SALES> 1,454
<TOTAL-REVENUES> 1,454
<CGS> 0
<TOTAL-COSTS> 1,145
<OTHER-EXPENSES> 399
<LOSS-PROVISION> 231
<INTEREST-EXPENSE> 515
<INCOME-PRETAX> 309
<INCOME-TAX> 115
<INCOME-CONTINUING> 194
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 194
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
