<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-1004
------------------------
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission file number 1-6154
ASSOCIATES CORPORATION OF NORTH AMERICA
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 74-1494554
(State or other jurisdiction of incorporation or (I.R.S. Employer Identification No.)
organization)
250 EAST CARPENTER FREEWAY 75062-2729
IRVING, TEXAS (ZIP CODE)
(Address of principal executive offices)
</TABLE>
Registrant's telephone number, including area code
214-541-4000
Securities registered pursuant to Section 12(b) of the Act
<TABLE>
<S> <C>
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
- --------------------------------------------------------------------------------------------
6.00% Senior Debentures due June 15, 2001 New York Stock Exchange
8.15% Subordinated Debentures due August 1, New York Stock Exchange
2009
</TABLE>
Securities registered pursuant to Section 12(g) of the Act:
None
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 / /
State the aggregate market value of the voting stock held by non-affiliates of
the registrant - None.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. - Not Applicable.
As of December 31, 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 J.(1)(a) and
(b) to Form 10-K and is therefore filing this Form 10-K with the reduced
disclosure format.
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<PAGE> 2
PART I
ITEM 1. BUSINESS
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 ("AFCC"), which in turn is an indirect
subsidiary of Ford Motor Company ("Ford"). All the outstanding stock of
Associates is owned directly or indirectly by AFCC. Unless the context otherwise
requires, reference to Associates or to the Company includes Associates and all
its subsidiaries.
On February 9, 1996, AFCC announced that it filed a registration statement
with the Securities and Exchange Commission for a potential initial public
offering (the "Offering") of up to a 19.8% interest in AFCC's common stock.
Immediately following the Offering, Ford will continue to own a controlling
interest in the common stock of AFCC. No assurance can be made with respect to
future capital contributions by AFCC to the Company after the Offering.
The Company is a leading, diversified consumer and commercial finance
organization which provides finance, leasing and related services to individual
consumers and businesses in the United States. At or for the year ended December
31, 1995, the Company had aggregate net finance receivables of $36.4 billion,
total assets of $37.0 billion, net earnings of $708.1 million and stockholders'
equity of $4.4 billion. The Company believes that it is the second largest
independent finance company in the United States based on aggregate net finance
receivables outstanding. The Company's finance receivables are geographically
dispersed across the United States. At December 31, 1995, 12% of such
receivables were in California, 7% in Florida, 6% in Texas, and no other
individual state had more than 4%.
The Company divides its diverse activities into consumer finance and
commercial finance. The Company's consumer finance operations consist of a
variety of specialized consumer financing products and services, including home
equity lending, personal lending, retail sales financing and purchasing
participations in credit card receivables originated by an affiliate, Associates
National Bank (Delaware) ("ANB"). The Company's commercial finance operations
primarily provide retail financing, leasing and wholesale financing for
heavy-duty and medium-duty trucks and truck trailers, construction, material
handling and other industrial equipment and manufactured housing. Although
financial and statistical information relating to manufactured housing financing
presented herein is included with consumer finance information, the Company
manages its manufactured housing financing as part of its commercial finance
operations. Accordingly, manufactured housing financing operations are described
under "-- Commercial Finance" below.
As part of its consumer finance and commercial finance activities, the
Company makes available to its customers credit-related and other insurance
products. See NOTE 17 to the consolidated financial statements for financial
information by business segment.
Although the Company's finance operations are confined to the United
States, certain affiliates of the Company operate outside the United States,
including in Japan, the United Kingdom, Canada, Puerto Rico and Mexico. The
Company provides certain management and other services relating to these foreign
operations. See NOTE 14 to the consolidated financial statements. The results of
such foreign operations are not included in the financial or statistical
information of the Company presented herein.
At December 31, 1995, Associates had 1,543 branch offices geographically
dispersed throughout the United States and employed approximately 14,500
persons. Corporate headquarters are located in Irving, Texas.
Certain prior year ratios presented herein have been restated to conform to
current year methodology.
CONSUMER FINANCE
GENERAL
The Company's consumer finance business consists of a variety of consumer
financing services, including home equity lending, personal lending, retail
sales financing and purchasing participations in credit card
1
<PAGE> 3
receivables originated by an affiliate, ANB. The Company, through certain
subsidiaries and others, also makes available various credit-related and
non-credit-related insurance products to its consumer finance customers,
including credit life, credit accident and health, accidental death and
dismemberment, involuntary unemployment and personal property insurance. See
"-- Related Insurance."
The following table shows net finance receivables outstanding attributable
to the various types of consumer financing products (dollars in millions):
CONSUMER NET FINANCE RECEIVABLES OUTSTANDING
<TABLE>
<CAPTION>
AT DECEMBER 31
---------------------------------------------------------
1995 1994 1993 1992 1991
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Home Equity Lending........................ $13,273.9 $11,362.0 $ 9,832.5 $ 8,991.6 $ 7,639.6
Personal Lending/Sales Finance............. 4,736.1 4,153.8 3,454.3 2,855.2 2,408.1
Credit Card................................ 4,459.7 3,682.6 2,949.6 2,483.9 2,534.9
Manufactured Housing(1).................... 2,034.1 1,669.2 1,290.2 983.9 697.2
Accruals and Other......................... 105.4 292.2 453.2 493.1 386.1
--------- --------- --------- --------- ---------
Total Consumer............................. $24,609.2 $21,159.8 $17,979.8 $15,807.7 $13,665.9
========= ========= ========= ========= =========
</TABLE>
- ---------------
(1) Information concerning manufactured housing is set forth below under
"-- Commercial Finance". The Company considers its manufactured housing
activities to be a commercial business principally because the predominant
portion of its financing receivables is obtained from its relationships with
manufacturers and dealers, notwithstanding that the credit and related risks
typically are that of the consumer purchaser of the housing.
At December 31, 1995, the finance charge yield on all types of consumer net
finance receivables averaged approximately 16% per annum. Variable rates were
charged on approximately 32% of the consumer net finance receivables outstanding
at such date. State laws often establish maximum allowable finance charges for
certain consumer loans; approximately 92% of the outstanding consumer net
finance receivables were either not subject to such state maximums, or if
subject, such maximum finance charges did not, in most cases, materially
restrict the interest rates charged. See "-- Regulation".
Although acquisitions have represented less than 16% of consumer finance
growth in 1994 and 1995, acquisitions accounted for an important part of net
receivables growth in certain prior years. See NOTE 3 to the consolidated
financial statements for certain acquisitions of finance businesses over the
past three years.
HOME EQUITY LENDING
At December 31, 1995, home equity loans accounted for the largest share
(54%) of the Company's consumer finance portfolio. The Company's home equity
lending activities consist of originating and servicing fixed and variable rate
mortgage loans that are primarily secured by single family residential
properties. Such loans are made to borrowers primarily for the purpose of debt
consolidation, including the refinancing of existing mortgage loans, home
improvements and a variety of other purposes. Relatively few of the Company's
originations of home equity loans are mortgages used for the acquisition of
homes.
The following table shows certain information with respect to the Company's
home equity lending receivables:
HOME EQUITY LENDING
<TABLE>
<CAPTION>
AT DECEMBER 31
--------------------------------------------------------------
1995 1994 1993 1992 1991
--------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Receivables (In Millions)...... $13,273.9 $11,362.0 $9,832.5 $8,991.6 $7,639.6
Average Account Balance............ $ 40,784 $ 39,542 $ 35,934 $ 34,608 $ 33,171
Number of Accounts................. 325,470 287,343 273,630 259,810 230,309
</TABLE>
2
<PAGE> 4
The Company's home equity loans typically have maturities of up to 180
months. Approximately 32% of the Company's home equity loans are variable rate
loans. While home equity loans may be secured by either first or second
mortgages, at December 31, 1995, approximately 77% of the aggregate net
outstanding balance of home equity lending receivables was secured by first
mortgages.
PERSONAL LOANS/RETAIL SALES FINANCE
The Company's personal lending business consists of direct origination and
servicing of secured and unsecured personal loans to individuals. Personal loans
are direct consumer loans that are generally not secured by real estate. Such
loans may be secured by existing personal property (the realizable value of
which may be less than the amount of the loan secured), including automobiles,
as well as consumer durables and/or guarantees by third parties. Personal loans
generally involve disbursements at the inception of the loan with installment
payments leading to full amortization by maturity, which ranges up to 60 months.
In general, personal loans are made for debt consolidation, home improvement,
education, vacation, taxes and major purchases of appliances and other durable
goods. The Company sources personal loan customers through solicitation of
existing retail sales finance customers, direct mail, advertising and referrals.
Retail sales finance contracts are generally for the purchase of items such
as household electronic appliances, furniture and home improvements. The Company
generally purchases retail finance sales contracts from retailers of such items.
These activities provide an important source of new loan customers, since,
following the purchase of a retail sales finance contract, the Company has a
direct relationship with the borrower. The newly-established relationship often
leads to other types of financing for the customer based on the individual's
credit needs. As with personal loans, the terms of retail sales finance
contracts differ based on the amount financed and the credit quality of the
customer. Generally, retail sales finance contracts have terms ranging from 24
to 36 months.
Statistical information for average personal loan and average retail sales
finance contract receivables is generally similar. For example, at December 31,
1995, the average balance of the Company's outstanding personal loans was
$2,269, and the average balance of the Company's outstanding retail sales
finance contracts was $1,827.
The following table shows certain information with respect to the Company's
aggregate personal lending and retail sales finance contract receivables:
PERSONAL LENDING/RETAIL SALES FINANCE
<TABLE>
<CAPTION>
AT DECEMBER 31
------------------------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Receivables (In Millions)..... $ 4,736.1 $ 4,153.8 $ 3,454.3 $ 2,855.2 $ 2,408.1
Average Account Balance........... $ 2,078 $ 2,078 $ 2,065 $ 2,004 $ 2,050
Number of Accounts................ 2,279,006 1,999,316 1,673,150 1,424,604 1,174,617
</TABLE>
CREDIT CARDS
The Company purchases participations in credit card receivables originated
by Associates National Bank (Delaware) ("ANB"), an affiliate of the Company.
ANB's credit card business consists primarily of VISA(R) and MasterCard(R)
bankcards and private label credit cards to consumers directly to the public and
through co-marketing programs. ANB issues its credit cards across a wide
spectrum with interest rates based on customer credit profiles.
The private label credit card business of ANB principally consists of a
customized private label revolving charge program for customers of Amoco Oil
Company ("Amoco"), who utilize the cards to purchase gasoline and other
automotive products at Amoco gasoline stations nationwide.
3
<PAGE> 5
The following table shows certain information regarding the Company's
participations in credit card receivables:
CREDIT CARD
<TABLE>
<CAPTION>
AT DECEMBER 31
--------------------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Receivables (In Millions)......... $ 4,459.7 $ 3,682.6 $ 2,949.6 $ 2,483.9 $ 2,534.9
Average Account Balance(1)............ $ 761 $ 694 $ 1,385 $ 1,522 $ 1,566
Number of Accounts.................... 5,860,315 5,302,709 2,129,227 1,631,507 1,618,319
</TABLE>
- ---------------
(1) In 1994, ANB acquired Amoco's private label gasoline credit card program,
which added 3.2 million accounts. These accounts generally carried smaller
balances than ANB's bankcard accounts, which had the effect of decreasing
the average balance for the Company's credit card receivables in 1994 and
1995.
The Company's revenues from its participations are derived from finance
charges on revolving accounts, the interchange fees derived from merchant
discounts, annual membership and other account fees and fees earned from the
sale of insurance and other fee-based products. ANB's credit card receivables
typically bear variable interest rates.
COMMERCIAL FINANCE
GENERAL
The Company's commercial finance business provides a variety of retail and
wholesale financing and leasing products and services for heavy-duty (Class 8)
and medium-duty (Classes 3 through 7) trucks and truck trailers, construction
and material handling equipment and other industrial equipment. The Company
believes that it is the leading independent source of financing for heavy-duty
trucks, truck trailers and heavy construction equipment in the United States
based on units financed. The Company also engages in a number of other
commercial activities, including auto fleet leasing and management, Small
Business Administration lending, relocation services and auto club and roadside
assistance services. The Company also makes available various credit-related and
non-credit-related insurance products to its commercial finance customers,
including commercial auto and dealers' open lot physical damage, credit life,
motor truck cargo and extended coverage insurance. See "-- Related Insurance."
The following table shows net finance receivables outstanding attributable
to the various types of commercial financing products (dollars in millions):
COMMERCIAL NET FINANCE RECEIVABLES OUTSTANDING
<TABLE>
<CAPTION>
AT DECEMBER 31
---------------------------------------------------------
1995 1994 1993 1992 1991
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Truck and Truck Trailer.................... $ 7,341.0 $ 6,495.0 $ 5,420.3 $ 4,320.9 $ 3,968.4
Equipment.................................. 3,702.3 2,883.3 2,423.6 2,246.9 2,131.0
Other Commercial(1)........................ 412.5 332.7 345.3 324.7 269.8
Accruals and Other......................... 303.3 104.9 30.1 (8.5) (31.1)
--------- --------- -------- -------- --------
Total Commercial........................... $11,759.1 $ 9,815.9 $ 8,219.3 $ 6,884.0 $ 6,338.1
========= ========= ======== ======== ========
Manufactured Housing(2).................... $ 2,034.1 $ 1,669.2 $ 1,290.2 $ 983.9 $ 697.2
========= ========= ======== ======== ========
</TABLE>
- ---------------
(1) Includes auto fleet leasing, Small Business Administration lending and
fee-based businesses.
(2) Except as otherwise indicated, the dollar amount of manufactured housing
receivables is included in the dollar amount of total consumer net finance
receivables throughout this document, because the credit and related risks
of the manufactured housing business are similar to those of the Company's
consumer finance business. Manufactured housing receivables are included
with consumer net finance receivables in determining the percentage of total
net finance receivables which are consumer net finance receivables. However,
manufactured housing operations are described below under "-- Commercial
Finance -- Manufactured Housing" as part of the Company's commercial
activities because the marketing and management of manufactured housing
products are more closely related to commercial finance products.
4
<PAGE> 6
At December 31, 1995, the interest rates charged on approximately 17% of
the commercial net finance receivables were variable rates. Commercial finance
receivables are generally not subject to maximum finance charges established by
state law, and where such restrictions apply, at the present time, they do not
materially restrict the interest rates charged. See "-- Regulation". At December
31, 1995, the finance charge yield on all types of commercial finance
receivables averaged approximately 10% per annum, and original maturities of
such receivables averaged 52 months.
Except for lease or rental transactions in which the Company owns the
equipment, liens on the equipment financed secure the receivables. Generally,
the dealer and/or manufacturer provides some form of loss protection to the
Company.
TRUCK AND TRUCK TRAILER FINANCING AND LEASING
The Company provides retail financing and leasing for purchasers and users
of medium-duty through heavy-duty trucks and truck trailers, as well as
wholesale financing, accounts receivable financing and working capital loans to
dealers and trucking companies. The Company also provides financing and leasing
for truck and truck trailer purchases by truck leasing and rental companies.
The following table shows certain information regarding the Company's truck
and truck trailer financing and leasing receivables:
TRUCK AND TRUCK TRAILER
<TABLE>
<CAPTION>
AT DECEMBER 31
------------------------------------------------------
1995 1994 1993 1992 1991
--------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Receivables (In Millions)............ $ 7,341.0 $ 6,495.0 $5,420.3 $4,320.9 $3,968.4
Retail and Leasing Receivables
Average account balance................ $ 36,641 $ 35,899 $ 32,454 $ 29,201 $ 27,794
Number of accounts..................... 172,826 161,029 150,091 137,178 133,093
Wholesale Receivables
Average balance per dealer............. $1,442,143 $1,021,429 $819,403 $551,754 $471,754
</TABLE>
The Company provides retail financing of new and used medium-duty through
heavy-duty trucks and truck trailers primarily on an indirect basis through
truck and truck trailer dealers. Under an installment sales contract, the dealer
and purchaser enter into a financing arrangement for the installment purchase of
a truck or truck trailer. Subject to credit approval by the Company, the dealer
assigns the installment contract to the Company. The Company funds the
transaction by a payment to the dealer for the net amount financed in the
contract. The Company also sources retail truck and truck trailer financing on a
direct basis with the truck or truck trailer purchaser.
Generally, retail financing transactions provide for terms up to 60 months
for trucks and up to 84 months for truck trailers at fixed rates of interest.
The interest rate varies depending on, among other things, the credit quality of
the purchaser, the transaction size, the term and down payment, and whether the
collateral is new or used.
The Company also provides fleet leasing for users of medium-duty through
heavy-duty trucks and truck trailers. Most of the Company's truck and truck
trailer leases are non-maintenance, net open-end leases. Under such leases, the
customer is responsible for the maintenance and residual value of the vehicle
and the Company retains the depreciation benefit.
The Company also provides new and used vehicle wholesale financing to truck
and truck trailer dealers throughout the United States and provides wholesale
financing for truck and truck trailer manufacturers' dealer organizations.
Generally, wholesale loans are short-term loans with variable rates (prime rate
based) and are secured by inventory.
5
<PAGE> 7
EQUIPMENT FINANCING AND LEASING
The Company is a leading independent source of financing and leasing of new
and used construction, mining, forestry, industrial, machine tool, material
handling, communications and turf maintenance equipment and golf cars in the
United States. The Company offers wholesale and rental fleet financing to
dealers (who may either sell or rent the equipment to end-users) and retail
financing and leasing to end-users of equipment in niche markets.
The following table shows certain information regarding the Company's
equipment financing and leasing receivables:
EQUIPMENT
<TABLE>
<CAPTION>
AT DECEMBER 31
----------------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Receivables (In Millions)............... $3,702.3 $2,883.3 $2,423.6 $2,246.9 $2,131.0
Retail and Leasing Receivables
Average account balance................... $ 25,145 $ 21,672 $ 19,175 $ 17,678 $ 15,257
Number of accounts........................ 124,121 110,691 105,076 103,395 118,552
Wholesale Receivables
Average balance per dealer................ $723,889 $597,444 $458,764 $558,667 $401,875
</TABLE>
The Company provides retail financing for the purchase of new and used
equipment through installment sales contracts purchased from dealers and
distributors, and through direct loans to purchasers. Generally, retail
financing transactions for equipment provide for maturities of up to 60 months
at fixed rates of interest. The interest rate varies depending on, among other
things, the credit quality of the purchaser, transaction size, term, down
payment and whether the collateral is new or used.
The Company also provides leasing for end-users of equipment, either
directly to the customer or through dealers. As part of residual risk
management, finance leases typically include an option for the lessee to acquire
the equipment at a set time before the termination of the lease for a specified
price (designed to offer the lessee an incentive to purchase) and typically
include an option for the lessee to acquire the equipment at the end of the
lease term for the fair market value.
The Company also provides wholesale and rental fleet financing for selected
dealers. Generally, wholesale loans are short-term loans with variable rates
(prime rate based) and are secured by inventory.
MANUFACTURED HOUSING
The Company provides financing both to dealers and purchasers of
manufactured housing. The Company purchases manufactured housing retail
installment contracts originated by retail dealers, originates and services
direct loans to purchasers, and provides wholesale financing to approved
manufactured housing dealers. The Company also offers commercial business loans
to selected dealers to provide capital to build new retail sales centers, update
existing facilities or expand into community park sales.
6
<PAGE> 8
The following table sets forth certain information regarding the Company's
manufactured housing receivables:
MANUFACTURED HOUSING
<TABLE>
<CAPTION>
AT DECEMBER 31
----------------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Receivables (in Millions)................ $2,034.1 $1,669.2 $1,290.2 $ 983.9 $ 697.2
Retail Receivables
Average account balance.................... $ 23,990 $ 22,134 $ 20,306 $ 19,045 $ 17,732
Number of accounts......................... 66,762 60,052 51,339 42,656 33,713
Wholesale Receivables
Average balance per dealer................. $443,135 $354,906 $312,753 $283,471 $261,579
</TABLE>
Retail finance products provided by the Company include (i) the purchase of
a retail installment contract or a direct loan for the purchase of a
manufactured home only, (ii) a retail installment contract or loan on a
manufactured home and added amenities such as furnishings, air conditioning,
skirting, appliances and patios and (iii) loans covering both a manufactured
home and the related real estate. Additionally, the Company purchases retail
loans from captive finance companies of manufacturers which normally carry some
form of loss protection. Retail financing products are generally secured by a
lien on the home and have varying maturities, down payments and interest rates.
Original loan terms range up to 25 years. Rates offered include fixed, variable
and graduated rate programs.
The Company also provides revolving lines of credit to approved
manufactured housing retailers in connection with their inventory purchases of
manufactured homes from pre-approved manufacturers. Generally, wholesale loans
are short-term loans with variable rates (prime rate based) and are secured by
inventory.
OTHER COMMERCIAL ACTIVITIES
The Company's other commercial activities include: (i) providing leasing
and management services for corporations and municipalities that generally have
auto and light truck fleets of 100 or more vehicles; (ii) extending the credit
that is partially guaranteed by the federal government under the Small Business
Administration loan program; (iii) providing corporations and certain agencies
of the federal government with assistance in employee relocation, origination of
mortgages and management and disposal of residential real estate; and (iv)
offering various emergency roadside assistance and related auto club services to
consumers through major corporations, primarily automobile manufacturers,
including Ford (the largest client of the Company's auto club).
RELATED INSURANCE
The Company, through certain subsidiaries, makes available various credit
and non-credit insurance products to its finance customers. Insurance products
offered to the Company's consumer finance customers include credit life, credit
accident and health, accidental death and dismemberment, involuntary
unemployment and personal property insurance. Insurance products offered to the
Company's commercial finance customers include commercial auto and dealers' open
lot physical damage, credit life, motor truck cargo and extended coverage
insurance. In addition to insurance underwriting, the Company also receives
compensation for certain insurance programs underwritten by other companies. The
Company does not underwrite liability insurance.
The purchase of insurance by a finance customer is optional with the
exception of physical damage insurance on loan collateral, which is required.
The customer can purchase such insurance either from the Company or an
alternative carrier. Premiums for insurance coverage are generally financed as
part of the insured's finance obligation.
7
<PAGE> 9
The following table sets forth certain information relating to the
Company's insurance operations (in millions):
INSURANCE STATISTICAL DATA(1)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------------------------------
1995 1994 1993 1992 1991
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net Written Premium
Credit life, accident and other related..... $187.9 $201.7 $158.9 $116.7 $ 93.6
Physical damage............................. 180.3 168.7 138.9 107.7 85.0
Other casualty.............................. 46.4 35.5 20.1 25.0 23.6
------ ------ ------ ------ ------
Total.................................... $414.6 $405.9 $317.9 $249.4 $202.2
====== ====== ====== ====== ======
Premium Revenue(2)
Credit life, accident and other related..... $164.8 $136.1 $111.4 $ 92.6 $ 83.5
Physical damage............................. 115.7 130.0 114.3 95.2 93.1
Other casualty.............................. 44.6 27.4 16.5 22.1 25.9
------ ------ ------ ------ ------
Total.................................... $325.1 $293.5 $242.2 $209.9 $202.5
====== ====== ====== ====== ======
Investment Income............................. $ 65.3 $ 44.9 $ 38.4 $ 41.5 $ 53.3
====== ====== ====== ====== ======
Benefits Paid or Provided..................... $135.7 $144.1 $114.9 $100.0 $ 91.1
====== ====== ====== ====== ======
</TABLE>
- ---------------
(1) This table does not reflect any direct or indirect expenses that may be
associated with the Company's insurance operations. The Company markets its
insurance products through its consumer and commercial distribution systems
and, accordingly, does not allocate overhead and related expenses to its
insurance operations.
(2) Includes compensation for insurance proceeds underwritten by other
companies.
ALLOWANCE FOR LOSSES, CREDIT LOSSES AND CONTRACTUAL DELINQUENCY
The Company maintains an allowance for losses on finance receivables at an
amount which it believes is sufficient to provide adequate protection against
anticipated 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 underlying finance receivables. Additions to the
allowance are charged to the provision for losses on finance receivables. An
analysis of changes in the allowance for losses is contained in NOTE 4 to the
consolidated financial statements.
Finance receivables are charged to the allowance for losses when they are
deemed to be uncollectible. Additionally, Company policy generally provides for
charge-off of various types of accounts on a contractual basis. Consumer direct
and other installment and credit card receivables are charged to the allowance
for losses when they become 180 days delinquent. All other finance receivables
are charged to the allowance for losses when any of the following conditions
occur: (i) the related security has been converted or destroyed; (ii) the
related security has been repossessed and sold or held for sale for one year; or
(iii) the related security has not been repossessed and the receivable has
become contractually delinquent for one year. A delinquent account is one on
which the customer has not made payments as contractually agreed. Recoveries on
losses previously charged to the allowance are credited to the allowance at the
time recovery is collected.
Although the allowance for losses on finance receivables reflected in the
Company's consolidated balance sheet at December 31, 1995 is considered adequate
by the Company's management, there can be no assurance that this allowance will
prove to be adequate over time to cover ultimate losses in connection with the
Company's finance receivables. This allowance may prove to be inadequate due to
unanticipated adverse changes in the economy or discrete events adversely
affecting specific customers or industries. The Company's results of operations
and financial condition could be materially adversely affected to the extent
that the Company's allowance is insufficient to cover such changes or events.
8
<PAGE> 10
The following table sets forth information as of the dates shown concerning
net credit losses, allowance for losses and contractual delinquency. This
information should be read in conjunction with the discussion of the Company's
financial condition under the caption "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Financial Condition".
NET CREDIT LOSSES, ALLOWANCE FOR LOSSES TO NET FINANCE RECEIVABLES AND
60 + DAYS CONTRACTUAL DELINQUENCY
<TABLE>
<CAPTION>
YEAR ENDED OR AT DECEMBER 31
----------------------------------------------
1995 1994 1993 1992 1991
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net Credit Losses
Amount (In Millions)............................. $557.7 $456.7 $387.5 $416.4 $379.2
As a Percentage of Average Net Receivables
Consumer...................................... 2.35% 2.29% 2.16% 2.54% 2.73%
Commercial.................................... 0.19 0.09 0.30 0.63 0.58
Total.................................... 1.66% 1.60% 1.59% 1.95% 2.04%
Allowance for Losses to Net Finance Receivables.... 3.05% 3.01% 3.05% 3.04% 2.91%
60 + Days Contractual Delinquency
Amount (In Millions)............................. $698.6 $463.8 $406.8 $429.6 $524.8
As a Percentage of Finance Receivables
Consumer...................................... 2.24% 1.81% 1.77% 2.06% 2.61%
Commercial.................................... 0.64 0.28 0.53 0.82 1.79
Total.................................... 1.72% 1.33% 1.38% 1.69% 2.34%
</TABLE>
The Company's ten largest accounts at December 31, 1995 (all of which were
current at December 31, 1995) represented 0.8% of the Company's total gross
finance receivables outstanding. All ten of such accounts are commercial finance
accounts and are secured.
COMPETITION
The markets in which the Company operates are highly competitive. Many of
the competitors of the Company in different segments and regions are large
companies that have substantial capital, technological and marketing resources,
and some of these competitors are larger than the Company and may have access to
capital at a lower cost than the Company. The Company believes that the finance
charge rate is one of the primary competitive factors in many of its markets.
From time to time, competitors of the Company may seek to compete aggressively
on the basis of pricing, and the Company may lose market share to the extent it
is not willing to match competitor pricing, in order to maintain interest
margins.
Traditional competitors in the consumer finance business include captive
and independent finance companies, commercial banks and thrift institutions,
credit unions, industrial banks, credit card issuers, leasing companies,
manufacturers and vendors. On a local level, community banks and smaller
independent finance and/or mortgage companies are a competitive force.
Additionally, substantial national financial services networks have been formed
by major brokerage firms, insurance companies and bank holding companies. Some
competitors have substantial local market positions; others are part of large,
diversified organizations. Because of their longstanding insured deposit base,
many banks that compete with the Company are able to offer financial services on
very competitive terms.
In its commercial finance business, the Company competes with captive and
independent finance companies, commercial banks, thrift and other financial
institutions, leasing companies, lease brokers, manufacturers, vendors and
others who extend or arrange credit for the acquisition of trucks and truck
trailers and equipment.
9
<PAGE> 11
REGULATION
The Company's operations are subject to extensive state and Federal
regulations including, but not limited to, the following Federal statutes and
regulations: the Consumer Credit Protection Act of 1968, as amended (including
certain provisions thereof, commonly known as the "Truth-in-Lending Act" or
"TILA"), the Equal Credit Opportunity Act of 1974, as amended (the "ECOA"), the
Fair Credit Reporting Act of 1970, as amended (the "FCRA") and the Real Estate
Settlement Procedures Act (the "RESPA"). In addition, the Company is subject to
state laws and regulations with respect to the amount of interest and other
charges which lenders can collect on loans.
In the judgment of the Company, existing statutes and regulations have not
had a materially adverse effect on the operations of the Company. However, it is
not possible to forecast the nature of future legislation, regulations, judicial
decisions, orders or regulatory interpretations with respect to the foregoing or
their impact on the future business, financial condition or prospects of the
Company.
Consumer Finance. The Company's consumer finance business, including its
participations in credit card receivables, is subject to detailed supervision by
Federal and state authorities under legislation and regulations which generally
require licensing of the lender, limitations on the amount, duration and charges
for various categories of loans, adequate disclosure of certain contract terms
and limitations on certain collection practices and creditor remedies. Licenses
are renewable, and may be subject to revocation for violations of such laws and
regulations. In addition, most states have usury laws which limit interest
rates. Federal legislation preempts state interest rate ceilings on first
mortgage loans and state laws which restrict various types of alternative home
equity receivables, except in those states which have specifically opted out of
such preemption.
The Company is required to comply with TILA and Regulation Z promulgated
thereunder. TILA requires, among other things, disclosure of pertinent elements
of consumer credit transactions, including the finance charges and the
comparative costs of credit expressed in terms of an annual percentage rate. The
TILA disclosure requirements are designed to provide consumers with uniform,
understandable information with respect to the terms and conditions of loans and
credit transactions in order to enable them to compare credit terms. TILA also
guarantees consumers a three-day right to cancel certain credit transactions,
including refinanced mortgages and junior mortgage loans on a consumer's primary
residence. Section 32 of Regulation Z mandates that applicants for real estate
loans which contain certain rate and fee amounts be provided an additional three
days waiting period prior to signing loan documents.
In addition, the Company is required to comply with the ECOA which, in
part, prohibits credit discrimination on the basis of race, color, religion,
sex, marital status, national origin and age. Regulation B promulgated under
ECOA restricts the type of information that may be obtained by creditors in
connection with a credit application. It also requires certain disclosures by
the lender regarding consumer rights and requires lenders to advise applicants
who are denied credit of the reasons therefor. In instances where a loan
application is denied or the rate or charge on a loan is increased as a result
of information obtained from a consumer credit agency, the FCRA requires the
lender to supply the applicant with the name and address of the reporting
agency.
RESPA has been extended to cover real estate secured loans that are
subordinated to other mortgage loans. RESPA and Regulation X thereunder require
disclosure of certain information to customers within prescribed time frames and
regulate the receipt or payment of fees or charges for services performed.
Associates Investment Corporation, a Utah industrial loan company
("Associates Investment"), is regulated by the Federal Deposit Insurance
Corporation and the Utah Department of Financial Institutions in regard to
capital adequacy, leverage, loans, deposits, consumer protection, community
reinvestment, the payment of dividends, transactions with affiliates and other
aspects of operations.
The right of federally insured depositary institutions, including
Associates Investment, to export certain charges to consumers, such as late
fees, overlimit fees and returned check fees, is not settled in some states
under existing law. The restrictions imposed by such laws and regulations could
limit the operations of Associates Investment.
10
<PAGE> 12
Federal and state legislation seeking to regulate the maximum interest rate
and/or other charges on consumer finance receivables has been introduced in the
past, and may from time to time be introduced in the future. However, it is not
possible to predict the nature of future legislation with respect to the
foregoing or its impact on the future business, financial condition or prospects
of the Company.
Commercial Finance. Although most states do not regulate commercial
finance, certain states do require licensing of lenders and financers,
limitations on interest rates and other charges, adequate disclosure of certain
contract terms and limitations on certain collection practices and creditor
remedies. The Company is also required to comply with certain provisions of the
ECOA which are applicable to commercial loans.
Small Business Administration loans made by the Company are governed by the
Small Business Act and the Small Business Investment Act of 1958, as amended,
and may be subject to the same regulations by certain states as are other
commercial finance operations. The federal statutes and regulations specify the
types of loans and loan amounts which are eligible for the Small Business
Administration's guaranty as well as the servicing requirements imposed on the
lender to maintain Small Business Administration guarantees.
Insurance. The insurance operations of the Company are subject to detailed
regulation and supervision in each state or other jurisdiction in which they
conduct business. The laws of the various jurisdictions establish supervisory
and regulatory agencies with broad administrative powers. Generally, such laws
cover, among other things, types of insurance that may be sold, policy forms,
reserve requirements, permissible investments, premiums charged, trade
practices, limitations on the amount of dividends payable by any insurance
company and guidelines and standards with respect to dealings between insurance
companies and affiliates.
ITEM 2. PROPERTIES.
The furniture, equipment and other physical property owned by Associates
and its subsidiaries represent less than 1% of total assets at December 31, 1995
and are therefore not significant in relation to total assets. The branch
finance operations are generally conducted on leased premises under short-term
operating leases normally not exceeding five years.
ITEM 3. LEGAL PROCEEDINGS.
The Company is a defendant in various lawsuits arising in the ordinary
course of its business. While, in the opinion of management, the resolution of
any of these matters is not expected to have a material adverse effect on the
Company's financial condition or results of operations, there can be no
assurance that an adverse decision in one or more of such lawsuits will not have
such a material adverse effect. The outcome of various individual lawsuits,
however, may affect the manner in which the Company conducts its business, as
further described below.
The Company is a defendant in a relatively higher concentration of lawsuits
in the State of Alabama than in the remainder of the United States. Management
believes that the aggregate number of lawsuits instituted in Alabama represents
additional exposure to the Company because of the recent history of juries in
Alabama awarding significant damages, both compensatory and punitive, in civil
cases. For example, in 1994, a jury in Alabama awarded damages in excess of
$30,000,000 against the Company in one case relating to a $25,000 real
estate-secured loan. The Company's post-trial motion in that case was granted,
and the jury verdict overturned. The case was subsequently settled. At February
28, 1996, there were approximately 100 lawsuits pending against the Company in
Alabama. In addition, a recent Alabama Supreme Court decision, McCullar v.
Universal Underwriters Life Ins. Co., et al. (a case in which the Company was
not a party), has cast doubt on the method many lenders, including the Company,
have used to calculate coverage amounts and premiums with respect to credit
insurance. A motion for reconsideration is currently pending in that case.
Although the impact of this decision on the Company's past activities and
pending litigation is not clear, as a result of this ruling the Company has
changed its practices in this area to conform to the Court's opinion as it
currently stands. At February 28, 1996, the Company was a defendant in
approximately 10 class action lawsuits in Alabama involving similar claims
related to the sale of credit insurance.
11
<PAGE> 13
In various states consumers have filed lawsuits against credit card issuers
that claim the issuer does not have the authority to export fees and charges
that exceed the numerical interest rate authorized by the law of the state where
the issuer is domiciled. For example, the California and Colorado State Supreme
Courts have upheld the ability of an out-of-state bank to export all fees and
charges, while the New Jersey State Supreme Court and a Pennsylvania state
appeals court have ruled that only the numerical interest rate can be exported.
In a similar case against ANB, an affiliate of the Company, Szydlik v.
Associates National Bank (Delaware), ANB was sued in a Pennsylvania class action
that alleged ANB's late fees, overlimit fees and returned check fees were in
excess of those allowed by Pennsylvania law. The trial court in Szydlik
dismissed the case, and the United States Court of Appeals for the Third Circuit
has held that such fees constitute interest and may be exported by a national
bank from its state of domicile. With respect to certain issues relating to fees
allowed under California law relating to a predecessor bank, the case was
remanded to federal district court for further proceedings. An adverse ultimate
judgment in Szydlik or an adverse United States Supreme Court ruling in a
similar case could affect ANB's future ability to export fees and charges, which
could adversely impact ANB's results of operations and, accordingly, the
Company's participations in ANB's credit card receivables. The United States
Supreme Court has recently agreed to hear arguments in one such case.
PART II
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Omitted in accordance with General Instruction J.(2)(c) to Form 10-K.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
All of the outstanding Common Stock of Associates is owned by AFCC and all
of the Class B Common Stock is owned by Associates World Capital Corporation, a
directly wholly-owned subsidiary of AFCC. There is no market for Associates
stock.
Dividends on the Common Stock and Class B Common Stock are paid when
declared by the Board of Directors. Dividends of $14.20 per share per annum on
the Class B Common Stock outstanding must be paid each year before any dividends
may be paid on the Common Stock. Dividends of $14.2 million were paid on Class B
Common Stock during each of the years ended December 31, 1995 and 1994. Annual
Common Stock dividends of $265.8 million and $255.8 million were paid during the
years ended December 31, 1995 and 1994, respectively.
Associates is subject to various limitations under the provisions of its
outstanding debt and revolving credit agreements, including limitations on the
payment of dividends. A restriction contained in one series of public debt
securities, maturing March 15, 1999, generally limits payments of cash dividends
on the Company's Common Stock during any fiscal year, beginning with the fiscal
year ending December 31, 1996, 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 any fiscal year and not so paid, may be paid in any one or more of
the five subsequent fiscal years. A restriction contained in certain revolving
credit agreements requires Associates to maintain a minimum tangible net worth,
as defined, of $1.5 billion. At December 31, 1995, Associates tangible net worth
was $4.1 billion.
12
<PAGE> 14
ITEM 6. SELECTED FINANCIAL DATA.
The following table sets forth selected consolidated financial information
regarding the Company's financial position and operating results which has been
extracted from the Company's consolidated financial statements for the five
years ended December 31, 1995. The information should be read in conjunction
with Item 7 -- Management's Discussion and Analysis of Financial Condition and
Results of Operations and the consolidated financial statements and accompanying
footnotes included elsewhere in this report (dollar amounts in millions):
<TABLE>
<CAPTION>
YEAR ENDED OR AT DECEMBER 31
----------------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Results of Operations
Total revenue............................ $5,384.4 $4,387.9 $3,689.6 $3,324.6 $3,119.0
Finance charge revenue................... 4,805.3 3,866.7 3,250.7 2,931.9 2,753.2
Interest expense......................... 1,979.8 1,509.7 1,291.8 1,222.8 1,278.5
Net interest margin...................... 2,825.5 2,357.0 1,958.9 1,709.1 1,474.7
Operating expenses....................... 1,417.8 1,191.6 979.6 807.4 705.4
Provision for losses..................... 729.7 569.9 468.9 504.0 423.7
Insurance benefits paid.................. 135.7 144.1 114.9 100.0 91.1
Earnings before provision for income
taxes and cumulative effect of changes
in accounting principles.............. 1,121.4 972.6 834.4 690.4 620.3
Provision for income taxes............... 413.3 369.1 310.7 240.7 219.6
Net earnings............................. 708.1 603.5 523.7 439.7 400.7
Balance Sheet Data
Net finance receivables:
Consumer.............................. 24,609.2 21,159.8 17,979.8 15,807.7 13,665.9
Commercial............................ 11,759.1 9,815.9 8,219.3 6,884.0 6,338.1
-------- -------- -------- -------- --------
Total............................ 36,368.3 30,975.7 26,199.1 22,691.7 20,004.0
======== ======== ======== ======== ========
Allowance for losses..................... (1,109.2) (932.4) (798.0) (690.0) (582.0)
Total assets............................. 37,023.7 31,687.2 27,365.1 23,624.5 21,130.6
Short-term debt (notes payable).......... 13,434.7 12,211.9 10,208.2 8,844.6 8,327.6
Long-term debt........................... 18,311.5 14,963.2 13,042.5 11,277.2 9,562.9
Stockholders' equity..................... 4,444.0 3,786.1 3,274.2 2,790.2 2,522.7
Selected Data and Ratios
Net interest margin as a percentage of
average net finance receivables....... 8.39% 8.24% 8.01% 8.01% 7.95%
Earnings to fixed charges(a)............. 1.56x 1.64x 1.64x 1.56x 1.48x
Total debt to equity..................... 7.1:1 7.1:1 7.0:1 7.2:1 7.0:1
60 + days contractual delinquency........ 1.72% 1.33% 1.38% 1.69% 2.34%
Net credit losses to average net finance
receivables........................... 1.66 1.60 1.59 1.95 2.04
Allowance for losses to net finance
receivables........................... 3.05 3.01 3.05 3.04 2.91
Allowance for losses to net credit
losses................................ 1.99x 2.04x 2.06x 1.66x 1.53x
</TABLE>
- ---------------
(a) For purposes of computing the Ratio of Earnings to Fixed Charges, "earnings"
represent earnings before provision for income taxes and cumulative effect
of changes in accounting principles, plus fixed charges. "Fixed charges"
represent interest expense and a portion of rentals representative of an
implicit interest factor for such rentals.
13
<PAGE> 15
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
The Company is in the consumer and commercial finance business, providing
finance, leasing and related insurance products as well as other services. The
Company's revenues principally consist of income through finance charges and, to
a lesser extent, insurance premiums and investment income. The Company's primary
expenses are interest expense for the funding of its finance business, provision
for loan losses and operating expenses. A principal factor determining the
profitability of the Company is the Company's finance charge revenue less
interest expense ("net interest margin").
The following discussion and analysis provides information that management
believes to be relevant to understanding the Company's consolidated financial
condition and results of operations. This discussion should be read in
conjunction with the consolidated financial statements of the Company and the
related notes thereto included herein.
RESULTS OF OPERATIONS
Summary of Results of Operations
The following table summarizes the Company's net earnings and related data
(dollars in millions):
NET EARNINGS AND RELATED DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Net Earnings............................................. $708.1 $603.5 $523.7
Change in Net Earnings
Amount................................................. $104.6 $ 79.8 $ 84.0
Percent................................................ 17.3% 15.2% 19.1%
</TABLE>
The primary factors influencing the changes in net earnings are finance
charge revenue and interest expense, operating expenses and loan losses, all of
which are described below.
Finance Charge Revenue and Interest Expense
The Company's net interest margin was as follows (dollars in millions):
NET INTEREST MARGIN
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------------------------------------------------
1995 1994 1993
------------------- ------------------- -------------------
PERCENT PERCENT PERCENT
AMOUNT (1) AMOUNT (1) AMOUNT (1)
-------- ------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Finance Charge Revenue........ $4,805.3 14.27% $3,866.7 13.53% $3,250.7 13.30%
Interest Expense.............. 1,979.8 6.72 1,509.7 5.99 1,291.8 5.96
-------- -------- --------
Net Interest Margin........... $2,825.5 8.39% $2,357.0 8.24% $1,958.9 8.01%
======== ======== ========
</TABLE>
- ---------------
(1) Finance charge revenue and net interest margin are expressed as a percent of
average net finance receivables outstanding for the indicated period;
interest expense is expressed as a percent of average debt outstanding for
the indicated period.
14
<PAGE> 16
Finance charge revenue increased in each of the years presented. The
increase principally resulted from growth in net finance receivables in each of
the periods which caused corresponding increases in the average net finance
receivables outstanding ("ANR"). To a lesser extent, an increase in the
composite finance charge yield (finance charges as a percent of ANR) contributed
to the increase in 1995 and 1994. However, in 1993, a decrease in the composite
finance charge yield partially offset the increase in finance charge revenue due
to growth in ANR. The components of the change in finance charge revenue
attributable to net receivable growth and changes in finance charge yields are
set forth in the following table (in millions):
COMPONENTS OF CHANGES IN FINANCE CHARGE REVENUE
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Change Due to:
Growth in receivables.................................. $725.6 $560.2 $411.9
Finance charge yield................................... 213.0 55.8 (93.1)
------ ------ ------
Total.......................................... $938.6 $616.0 $318.8
====== ====== ======
</TABLE>
For further discussion regarding growth in the Company's net finance
receivables, see "-- Financial Condition". The finance charge yields to ANR for
each of the Company's business segments were as follows:
FINANCE CHARGE YIELDS TO ANR
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------------------
1995 1994 1993 1992
----- ----- ----- -----
<S> <C> <C> <C> <C>
Consumer Segment.................................... 16.41% 15.92% 16.00% 16.15%
Commercial Segment.................................. 10.08 9.62 10.06 10.78
Total Company............................. 14.27% 13.53% 13.30% 13.73%
</TABLE>
The principal factors which influence finance charge yields are (i) the
interest rate environment, (ii) the level of business competition and (iii) the
varying composition of the finance receivable portfolios (i.e., "product mix").
The consumer segment composite finance charge yield is principally influenced by
shifts in product mix between higher yielding unsecured finance products and
lower yielding secured finance products. Change in product mix was the principal
cause of the movements in finance charge yield from 1993 to 1995. The commercial
segment composite finance charge yield is principally influenced by the level of
business competition and the interest rate environment and not by the mix of
secured and unsecured products since substantially all commercial finance
receivables are secured. The commercial segment experienced increased
competition from other lenders entering the commercial markets during the period
from 1992 to 1995, which caused the finance charge yields to decrease as a
result of competitive pricing. Changes in the prime lending rate over this
period introduced additional sensitivity in the composite finance charge yields
because commercial business pricing is substantially tied to the prime lending
rate. However, the Company's initiatives to increase pricing more than offset
the changes due to competition and the interest rate environment in 1995.
15
<PAGE> 17
Total interest expense increased from 1993 through 1995. The increases were
principally due to higher average outstanding debt, primarily resulting from the
Company's growth in net finance receivables (see "-- Financial Condition") and,
to a lesser extent, an overall increase in the Company's borrowing rate
(interest expense divided by average outstanding debt). Interest expense and
average borrowing rates were as follows (dollars in millions):
INTEREST EXPENSE AND AVERAGE BORROWING RATES
<TABLE>
<CAPTION>
YEAR ENDED OR AT DECEMBER 31
------------------------------------------------------------------------------
1995 1994 1993 1992
-------------------- -------------------- -------------------- ---------
AVERAGE AVERAGE AVERAGE AVERAGE
INTEREST BORROWING INTEREST BORROWING INTEREST BORROWING BORROWING
EXPENSE RATE EXPENSE RATE EXPENSE RATE RATE
-------- --------- -------- --------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Short-term Debt..... -- 5.93% -- 4.32% -- 3.23% 3.76%
Long-term Debt(1)... -- 7.33 -- 7.32 -- 8.09 8.63
Total
Debt.... $1,979.8 6.72% $1,509.7 5.99% $1,291.8 5.96% 6.43%
======== ======== ========
</TABLE>
- ---------------
(1) Includes the current portion of long-term debt.
The increases in the short-term average borrowing rate from 1993 to 1995,
which principally relate to commercial paper issued by the Company, generally
reflect the overall market increases in short-term interest rates over the
three-year period. The changes in the long-term average borrowing rates are the
result of changes in long-term market rates and the refinancing of maturing debt
at the prevailing rates. The Company seeks to match fund its total finance
receivables through the issuance of debt with maturity and interest rate
characteristics that reasonably match the characteristics of its composite
portfolio.
For purposes of measuring business segment profitability, the Company
generally allocates the interest expense incurred to the business segments based
on ANR. Management believes that analysis of the principal components of changes
in interest expense is only meaningful on a total Company basis. The change in
interest expense attributable to growth in average outstanding debt and changes
in average borrowing rates are set forth in the following table (in millions):
COMPONENTS OF CHANGES IN INTEREST EXPENSE
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Change Due to:
Growth in debt......................................... $285.5 $211.2 $159.6
Borrowing rate......................................... 184.6 6.7 (90.6)
------ ------ ------
Total.......................................... $470.1 $217.9 $ 69.0
====== ====== ======
</TABLE>
As a result of the forgoing changes in finance charge revenue and interest
expense, the Company's net interest margin increased in each of the three years
ended December 31, 1995, 1994 and 1993, respectively.
Insurance Premium Revenue
Insurance premium revenue was $325.1 million, $293.5 million and $242.2
million for the years ended December 31, 1995, 1994 and 1993, respectively.
Insurance premium revenue, which is earned over the coverage term, increased
$31.6 million (10.8%) in 1995, $51.3 million (21.2%) in 1994, and $32.3 million
(15.4%) in 1993. The insurance operation is engaged in underwriting
credit-related and other specialized insurance products for customers of the
consumer and commercial finance businesses. Therefore, insurance sales, and
resulting revenue, are largely dependent on the business activities and volumes
of the consumer and commercial finance businesses. The increase in insurance
revenue in each of the years was principally caused by increased sales of
insurance products associated with the increase in net finance receivables
outstanding.
16
<PAGE> 18
Investment and Other Revenue
Investment and other revenue for the years ended December 31, 1995, 1994
and 1993 was $254.0 million, $227.7 million and $196.7 million, respectively.
Investment income is derived from investments in marketable securities which are
principally owned by the Company's insurance operation. Other revenue is
primarily derived from the Company's fee-based financial services (i.e.,
relocation services and auto club and roadside assistance services). In each of
the years 1995, 1994 and 1993, the year-over-year increase in investment and
other revenue principally resulted from increases in the Company's investments
in marketable securities and related returns and, to a lesser extent, an
increase in other revenue related to the growth in the fee-based businesses.
Operating Expenses
Operating expenses, which do not include interest expense, were as follows
(dollars in millions):
OPERATING EXPENSES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------------------------------
1995 1994 1993
--------------- --------------- --------------
AMOUNT % ANR AMOUNT % ANR AMOUNT % ANR
------- ----- ------- ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Salaries and Benefits............. $ 711.9 2.11 % $ 628.8 2.20 % $559.2 2.29 %
Occupancy, Data Processing,
and Other....................... 705.9 2.10 562.8 1.97 420.4 1.72
-------- ---- -------- ---- ------ ----
Total................... $1,417.8 4.21 % $1,191.6 4.17 % $979.6 4.01 %
======== ==== ======== ==== ====== ====
</TABLE>
Total operating expenses increased from 1993 to 1995, principally due to
higher levels of business volume and outstanding receivables in each of the
years. The increases in salaries and benefits in total dollars is primarily due
to increases in the number of employees to support the higher business volume
and outstanding receivables. As a percentage of ANR, salaries and benefits
decreased in each of the years. This decrease reflects continued reductions in
the proportion of employee labor required to support the higher business volumes
and outstanding net receivables and results from improved operating efficiency.
The Company has achieved improved operating efficiency through focused
initiatives it has undertaken over the last three years, such as electronic
credit applications, centralized payment processing and automated loan
documentation. The principal cause for the increases in occupancy, data
processing and other expenses in total dollars was growth in the number of
business locations, the aforementioned increase in employees and the cost to
implement its efficiency improvement initiatives. The increases in the
percentage of these expenses to ANR were primarily due to the Company's
investments in certain start-up expenses to expand the number of locations, fund
and implement its efficiency initiatives, and support its increased number of
employees, which are in part incurred in advance of generating expected
incremental finance receivables outstanding.
Allowance for Losses, Losses and Asset Quality
The Company maintains an allowance for losses on finance receivables at an
amount which it believes is sufficient to provide adequate protection against
losses in its 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 underlying finance receivables. For purposes of measuring
business segment profitability, each business segment establishes an allowance
for loan loss when a loan is made with a corresponding charge to the provision
for losses. The Company manages its allowance for losses on finance receivables
on a Company-wide basis taking into account actual and expected losses in each
business segment and the relationship of the allowance to net finance
receivables and total net credit losses; the resulting charge is included in the
provision for losses.
17
<PAGE> 19
The components of the changes in the aggregate allowance for losses on
finance receivables during the periods indicated were as follows (dollars in
millions):
COMPONENTS OF CHANGES IN THE ALLOWANCE FOR LOSSES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
---------------------------
1995 1994 1993
------- ------ ------
<S> <C> <C> <C>
Balance at Beginning of Period............................ $ 932.4 $798.0 $690.0
Provision for losses.................................... 729.7 569.9 468.9
Recoveries on receivables charged off................... 112.3 99.8 87.5
Losses sustained........................................ (670.0) (556.5) (475.0)
Reserves of acquired businesses and other............... 4.8 21.2 26.6
-------- ------ ------
Balance at End of Period........................ $1,109.2 $932.4 $798.0
======== ====== ======
Allowance for Losses to Net Finance Receivables........... 3.05% 3.01% 3.05%
Allowance for Losses to Net Credit Losses................. 1.99x 2.04x 2.06x
</TABLE>
The provision for losses is principally influenced by growth in net finance
receivables and, to a lesser extent, net credit loss experience. Additions to
the allowance are charged to the provision for losses. Losses are charged to the
allowance as incurred and recoveries on losses previously charged to the
allowance are credited to the allowance at the time the recovery is collected.
The provision for losses increased in each of the years 1995, 1994 and 1993 as a
result of growth in finance receivables. The components of the changes in the
provision for losses in each of the years ended 1995, 1994 and 1993 are as
follows (in millions):
COMPONENTS OF CHANGES IN PROVISION FOR LOSSES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
---------------------------
1995 1994 1993
------ ------ -------
<S> <C> <C> <C>
Change Due to:
Growth in receivables................................... $156.8 $130.7 $ 79.4
Net loss experience..................................... 3.0 (29.7) (114.5)
------ ------ -------
Total........................................... $159.8 $101.0 $ (35.1)
====== ====== =======
</TABLE>
For further discussion regarding growth in net finance receivables, see
"-- Financial Condition". Net loss experience improved year-over-year in 1994
and 1993, with the improved loss experience in 1993 more than offsetting the
increase in the provision resulting from growth. Loss experience increased
moderately in 1995 in substantially all of the Company's portfolios as reflected
in the following table (dollars in millions):
CONTRACTUAL DELINQUENCY AND NET CREDIT LOSSES
<TABLE>
<CAPTION>
YEAR ENDED OR AT DECEMBER 31
------------------------------------
1995 1994 1993 1992
------ ------ ------ ------
<S> <C> <C> <C> <C>
60 + Days Contractual Delinquency
Consumer......................................... 2.24% 1.81% 1.77% 2.06%
Commercial....................................... 0.64 0.28 0.53 0.82
Total.................................... 1.72% 1.33% 1.38% 1.69%
Total dollars delinquent................. $698.6 $463.8 $406.8 $429.6
Net Credit Losses to ANR
Consumer......................................... 2.35% 2.29% 2.16% 2.54%
Commercial....................................... 0.19 0.09 0.30 0.63
Total.................................... 1.66% 1.60% 1.59% 1.95%
Total dollars............................ $557.7 $456.7 $387.5 $416.4
</TABLE>
18
<PAGE> 20
Contractual delinquency and net credit losses generally improved, on a
ratio basis, across all portfolios from 1992, approaching historical lows in
1994, reflecting similar trends in overall economic conditions. These trends
reversed across all portfolios in 1995, principally as a result of generally
less favorable trends in economic conditions, including decreased manufacturing
capacity utilization and rising consumer debt levels. The relationship of the
allowance for losses to net finance receivables at December 31, 1995 increased
from 1994, reflecting management's opinion that delinquency and net credit
losses will continue to increase in 1996. Management believes the allowance for
losses at December 31, 1995 is sufficient to provide adequate protection against
losses in its portfolios.
Insurance Benefits Paid or Provided
Insurance benefits paid or provided were $135.7 million in 1995, $144.1
million in 1994 and $114.9 million in 1993. Benefits paid or provided are
influenced by the amount of insurance in force, underwriting standards, loss
experience, term of coverage and product mix. Benefits paid or provided
increased in 1994 compared to 1993 primarily as a result of more insurance in
force. For 1995, benefits paid or provided decreased when compared to 1994
primarily as a result of favorable loss experience.
Provision for Income Taxes
The Company's provision for income taxes and effective tax rates were as
follows (dollars in millions):
PROVISION FOR INCOME TAXES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------------------------------------
1995 1994 1993
------------------ ------------------ -----------------
EFFECTIVE EFFECTIVE EFFECTIVE
AMOUNT TAX RATE AMOUNT TAX RATE AMOUNT TAX RATE
------ --------- ------ --------- ------ ---------
<S> <C> <C> <C> <C> <C> <C>
U.S. Statutory Rate............... $392.5 35.0% $340.4 35.0% $292.0 35.0%
State income taxes.............. 13.6 1.2 20.2 2.1 13.0 1.6
Other non-deductible items...... 7.2 0.7 8.5 0.8 5.7 0.6
------ ---- ------ ---- ------ ----
Provision for Income Taxes........ $413.3 36.9% $369.1 37.9% $310.7 37.2%
====== ==== ====== ==== ====== ====
</TABLE>
The state income tax provision, and impact on the Company's effective tax
rate, increased from 1993 to 1994 due to changes in the Company's state
tax-sharing arrangement with Ford, which generally had the effect of increasing
the amount of taxable income in certain states in which the Company does
business. The provision and resulting impact on effective tax rate decreased
from 1994 to 1995 principally due to a one-time benefit provided to the Company
by Ford under its state tax-sharing agreement. Had the Company not received such
benefit, the 1995 provision and resulting impact on the effective rate would
have been substantially the same as that in 1994.
19
<PAGE> 21
FINANCIAL CONDITION
Growth in Net Finance Receivables
The Company experienced growth in its consumer and commercial finance
receivable portfolios in 1995 and 1994 as follows (dollars in millions):
GROWTH IN NET FINANCE RECEIVABLES
<TABLE>
<CAPTION>
YEAR ENDED OR AT DECEMBER 31
---------------------------------------------------------------
1995 1994
----------------------------- -----------------------------
INCREASE FROM INCREASE FROM
PRIOR YEAR PRIOR YEAR
---------------- ----------------
BALANCE AMOUNT % BALANCE AMOUNT %
-------- ------- ---- -------- ------- ----
<S> <C> <C> <C> <C> <C> <C>
Consumer Finance......... $24,609.2 $3,449.4 16.3% $21,159.8 $3,180.0 17.7%
Commercial Finance....... 11,759.1 1,943.2 19.8 9,815.9 1,596.6 19.4
--------- -------- --------- --------
Total.......... $36,368.3 $5,392.6 17.4% $30,975.7 $4,776.6 18.2%
========= ======== ========= ========
</TABLE>
The growth in net finance receivables, in both the consumer and commercial
finance segments, during 1994 and 1995, was principally due to expansion through
the addition of 95 branches in 1994 and 71 branches in 1995, as well as
increased penetration of existing markets through expanded lines of business,
new products, acquisitions and other activities.
Debt
Total outstanding debt was $31.7 billion, $27.2 billion, and $23.3 billion
at December 31, 1995, 1994, and 1993, respectively. Such amounts of debt reflect
net increases of $4.5 billion (16.8%) in 1995 and $3.9 billion (16.9%) in 1994.
In both years, the increase was primarily a result of the growth in net finance
receivables. Debt is the primary source of funding to support the Company's
growth in net finance receivables. At December 31, 1995 and 1994, short-term
debt, including the current portion of long-term debt, as a percent of total
debt was 50% and 52%, respectively. The current portion of long-term debt at
December 31, 1995 and 1994 was $2.6 billion and $2.0 billion, respectively.
Stockholders' Equity
Stockholders' equity increased to $4.4 billion in 1995 from $3.8 billion in
1994. The primary cause for this increase was the amount of net earnings from
the Company's operations in the amount of $708.1 million in 1995 and $603.5
million in 1994. In 1995 and 1994, the Company paid dividends to AFCC of $280.0
million and $270.0 million, respectively. The Company received capital
contributions from Ford, through AFCC, in 1995 and 1994 of $200.0 million in
each year.
LIQUIDITY AND CAPITAL RESOURCES
Through its asset and liability management function, the Company maintains
a disciplined approach to the management of liquidity, capital, interest rate
risk and foreign exchange risk. The Company has a formal process for managing
its liquidity to ensure that funds are available at all times to meet the
Company's commitments.
The Company's principal sources of cash are proceeds from the issuance of
short-term and long-term debt and cash provided from the Company's operations.
While AFCC has made periodic capital contributions to the Company in the past,
no assurance can be made with respect to future capital contributions by AFCC to
the Company after the Offering. See Item 1 "Business" above. Nevertheless, the
Company believes that it has available sufficient liquidity, from a combination
of cash provided from operations and external borrowings, to support its
operations.
20
<PAGE> 22
A principal strength of the Company is its ability to access the global
debt markets in a cost-efficient manner. Continued access to the public and
private debt markets is critical to the Company's ability to continue to fund
its operations. The Company seeks to maintain a conservative liquidity position
and actively manage its liability and capital levels, debt maturities,
diversification of funding sources and asset liquidity to ensure that the
Company is able to meet its obligations. The Company's operations are
principally funded through domestic borrowings made by the Company.
At December 31, 1995, the Company had short-term debt outstanding of $13.4
billion. Short-term debt principally consists of commercial paper issued by the
Company and represents the Company's primary source of short-term liquidity.
Commercial paper is issued with maturities ranging from 1 to 270 days. The
average interest rate on short-term debt in 1995 and 1994 was 5.93% and 4.32%,
respectively. The change in average rates was principally due to the overall
changes in market rates during such years.
At December 31, 1995, the Company had long-term debt outstanding of $18.3
billion. Long-term debt principally consists of unsecured long-term debt issued
publicly and privately by the Company in the United States and abroad. During
the years ended 1995 and 1994, the Company raised debt aggregating $5.2 billion
and $3.9 billion, respectively, through public and private offerings at weighted
average effective interest rates and weighted average terms of 6.87% and 6.0
years and 7.13% and 4.9 years, respectively. The change in effective average
interest rates was primarily caused by overall changes in market rates during
such years. A portion of the long-term debt raised was used to retire
outstanding indebtedness. For the years ended 1995 and 1994, the Company
replaced maturing long-term debt in the amount of $2.0 billion in each year.
Management believes that the Company has limited exposure to exchange rate
risk related to certain transactions with its foreign affiliates. At December
31, 1995, the Company had $55.7 million of outstanding hedged borrowings with
its affiliates. The Company has entered into various support agreements on
behalf of certain non-U.S. affiliates. Under these support agreements, the
Company has either guaranteed specific issues of such affiliates' debt
denominated in foreign currency or agreed to supervise operations in a
responsible manner and to provide additional support on a lender's reasonable
request. See NOTES 6, 7 and 15 to the consolidated financial statements for a
further description of the Company's borrowings and currency hedging activities.
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 December 31, 1995, short-term bank lines,
revolving credit facilities and receivable purchase facilities totaled $10.3
billion, none of which was in use at that date. These facilities represented 77%
of net short-term indebtedness outstanding at December 31, 1995.
Additionally, the Company believes it has access to other sources of
liquidity, which to date it has not accessed, including, among others, the
securitization or sale of its assets and issuance of alternative forms of
capital, including preferred stock.
RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation", ("SFAS
No. 123") effective in 1996. The Company has not determined whether it will
adopt the fair value-based method prescribed by SFAS No. 123 or use the
accounting prescribed by APB No. 25, "Accounting for Stock Issued to Employees".
In any event, the effect is not expected to be significant to the Company's
results of operations or financial condition.
21
<PAGE> 23
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors
Associates Corporation of North America
We have audited the accompanying consolidated balance sheets of Associates
Corporation of North America (a wholly owned subsidiary of Associates First
Capital Corporation) as of December 31, 1995 and 1994, and the related
consolidated statements of earnings, changes in stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements 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 Associates
Corporation of North America as of December 31, 1995 and 1994 and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1995, in conformity with generally
accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Dallas, Texas
January 26, 1996
22
<PAGE> 24
ASSOCIATES CORPORATION OF NORTH AMERICA
CONSOLIDATED STATEMENT OF EARNINGS
(IN MILLIONS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
REVENUE
Finance charges.............................................. $4,805.3 $3,866.7 $3,250.7
Insurance premiums........................................... 325.1 293.5 242.2
Investment and other income.................................. 254.0 227.7 196.7
-------- -------- --------
5,384.4 4,387.9 3,689.6
EXPENSES
Interest expense............................................. 1,979.8 1,509.7 1,291.8
Operating expenses........................................... 1,417.8 1,191.6 979.6
Provision for losses on finance receivables -- NOTE 4........ 729.7 569.9 468.9
Insurance benefits paid or provided.......................... 135.7 144.1 114.9
-------- -------- --------
4,263.0 3,415.3 2,855.2
-------- -------- --------
EARNINGS BEFORE PROVISION FOR INCOME TAXES..................... 1,121.4 972.6 834.4
PROVISION FOR INCOME TAXES -- NOTE 8........................... 413.3 369.1 310.7
-------- -------- --------
NET EARNINGS................................................... $ 708.1 $ 603.5 $ 523.7
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
23
<PAGE> 25
ASSOCIATES CORPORATION OF NORTH AMERICA
CONSOLIDATED BALANCE SHEET
(IN MILLIONS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31
----------------------
1995 1994
-------- --------
<S> <C> <C>
CASH AND CASH EQUIVALENTS............................................. $ 309.2 $ 361.1
INVESTMENTS IN DEBT AND EQUITY SECURITIES -- NOTE 16.................. 884.7 609.5
FINANCE RECEIVABLES, net of unearned finance income -- NOTE 3
Consumer Finance.................................................... 24,609.2 21,159.8
Commercial Finance.................................................. 11,759.1 9,815.9
--------- ---------
Total net finance receivables.................................... 36,368.3 30,975.7
ALLOWANCE FOR LOSSES ON FINANCE RECEIVABLES -- NOTE 4................. (1,109.2) (932.4)
INSURANCE POLICY AND CLAIMS RESERVES.................................. (602.8) (545.6)
OTHER ASSETS -- NOTE 13............................................... 1,173.5 1,218.9
--------- ---------
Total assets................................................ $37,023.7 $31,687.2
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
NOTES PAYABLE -- NOTE 6
Commercial Paper.................................................... $12,732.7 $11,640.5
Bank Loans.......................................................... 702.0 571.4
ACCOUNTS PAYABLE AND ACCRUALS......................................... 833.5 726.0
LONG-TERM DEBT -- NOTES 7 and 9....................................... 18,311.5 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..................................................... 1,530.6 1,330.6
Retained Earnings................................................... 2,754.2 2,326.1
Unrealized Gain (Loss) on Available-for-Sale Securities -- NOTES 2
and 16........................................................... 12.2 (17.6)
--------- ---------
Total stockholders' equity.................................. 4,444.0 3,786.1
--------- ---------
Total liabilities and stockholders' equity.................. $37,023.7 $31,687.2
========= =========
</TABLE>
See notes to consolidated financial statements.
24
<PAGE> 26
ASSOCIATES CORPORATION OF NORTH AMERICA
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(IN MILLIONS)
<TABLE>
<CAPTION>
UNREALIZED
GAIN
(LOSS) ON
AVAILABLE- TOTAL
COMMON PAID-IN RETAINED FOR-SALE STOCKHOLDERS'
STOCK CAPITAL EARNINGS SECURITIES EQUITY
------ -------- -------- ---------- ------------
<S> <C> <C> <C> <C> <C>
DECEMBER 31, 1992........................ $147.0 $ 930.6 $1,708.9 $ 3.7 $2,790.2
Net Earnings........................... 523.7 523.7
Contributions from Parent.............. 200.0 200.0
Cash Dividends
Class B Common Shares............... (14.2) (14.2)
Common Shares....................... (225.8) (225.8)
Current Period Adjustment.............. 0.3 0.3
------ -------- -------- ------ --------
DECEMBER 31, 1993........................ 147.0 1,130.6 1,992.6 4.0 3,274.2
Net Earnings........................... 603.5 603.5
Contributions from Parent.............. 200.0 200.0
Cash Dividends
Class B Common Shares............... (14.2) (14.2)
Common Shares....................... (255.8) (255.8)
Current Period Adjustment.............. (21.6) (21.6)
------ -------- -------- ------ --------
DECEMBER 31, 1994........................ 147.0 1,330.6 2,326.1 (17.6) 3,786.1
Net Earnings........................... 708.1 708.1
Contributions from Parent.............. 200.0 200.0
Cash Dividends
Class B Common Shares............... (14.2) (14.2)
Common Shares....................... (265.8) (265.8)
Current Period Adjustment.............. 29.8 29.8
------ -------- -------- ------ --------
DECEMBER 31, 1995........................ $147.0 $1,530.6 $2,754.2 $ 12.2 $4,444.0
====== ======== ======== ====== ========
</TABLE>
See notes to consolidated financial statements.
25
<PAGE> 27
ASSOCIATES CORPORATION OF NORTH AMERICA
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN MILLIONS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------------------
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net earnings........................................... $ 708.1 $ 603.5 $ 523.7
Adjustments to net earnings for noncash items:
Provision for losses on finance receivables......... 729.7 569.9 468.9
Depreciation and amortization....................... 149.4 145.2 209.9
Increase (decrease) in accounts payable and
accruals.......................................... 61.3 (9.5) 187.8
Increase in insurance policy and claims reserves.... 57.2 115.8 69.3
Deferred income taxes............................... 18.5 (88.3) (69.4)
Unrealized gain on trading securities............... (3.6) (1.6)
Purchases of trading securities........................ (5.8) (23.8)
Sales and maturities of trading securities............. 38.7 17.4
Other.................................................. (6.8) (5.0)
--------- --------- ---------
Net cash provided from operating activities.... 1,753.5 1,321.8 1,385.2
--------- --------- ---------
Cash Flows from Investing Activities
Finance receivables originated or purchased............ (33,433.9) (28,127.4) (21,162.6)
Finance receivables liquidated......................... 27,772.2 23,287.1 17,903.6
Acquisitions of other finance businesses, net.......... (143.9) (463.4) (293.0)
Proceeds from sale of investment in mortgage servicing
rights.............................................. 97.1
(Increase) decrease in real estate loans held for
sale................................................ (3.7) 51.9 0.8
(Increase) decrease in other assets.................... (20.6) 67.1 (249.2)
Purchases of available-for-sale securities............. (893.9) (274.1)
Sales and maturities of available-for-sale
securities.......................................... 636.8 285.0
Purchases of marketable securities..................... (639.6)
Sales and maturities of marketable securities.......... 514.1
--------- -------- ---------
Net cash used for investing activities......... (6,087.0) (5,076.7) (3,925.9)
--------- -------- ---------
Cash Flows from Financing Activities
Issuance of long-term debt............................. 5,154.5 3,932.2 3,561.4
Retirement of long-term debt........................... (2,015.7) (2,011.5) (1,796.1)
Increase in notes payable.............................. 1,222.8 2,003.7 895.9
Capital contributions.................................. 200.0 200.0 200.0
Cash dividends......................................... (280.0) (270.0) (240.0)
--------- --------- ---------
Net cash provided from financing activities.... 4,281.6 3,854.4 2,621.2
--------- --------- ---------
(Decrease) increase in cash and cash equivalents......... (51.9) 99.5 80.5
Cash and cash equivalents at beginning of period......... 361.1 261.6 181.1
--------- --------- ---------
Cash and cash equivalents at end of period............... $ 309.2 $ 361.1 $ 261.6
========= ========= =========
Cash paid for:
Interest............................................... $ 1,950.6 $ 1,516.7 $ 1,277.9
========= ========= =========
Income taxes........................................... $ 431.8 $ 486.5 $ 406.2
========= ========= =========
</TABLE>
See notes to consolidated financial statements.
26
<PAGE> 28
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 ("AFCC"), which in turn is an 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 -- SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies:
Basis of Consolidation
The accompanying consolidated financial statements consolidate Associates
and its subsidiaries. Amounts of goodwill relating to acquisitions are being
amortized by the straight-line method over periods not exceeding forty years.
The carrying value of goodwill is reviewed if the facts and circumstances
suggest that it may be impaired. If the review indicates that goodwill will not
be recoverable, as determined based on undiscounted cash flows, the carrying
value of the goodwill is reduced by the estimated short-fall of discounted cash
flows.
All significant intercompany balances and transactions have been eliminated
in consolidation. Certain prior period financial statement amounts have been
reclassified to conform to the current year presentation.
The preparation of these consolidated financial statements in conformity
with generally accepted accounting principles requires the use of management's
estimates. These estimates are subjective in nature and involves matters of
judgment. Actual results could differ from these estimates.
Revenue Recognition
Finance charges on receivables are recognized as revenue using the interest
(actuarial) method. Premiums and discounts on purchased receivables are
considered as yield adjustments. The unamortized balance is included in finance
receivables and the associated amortization is included in finance charge
revenue. Finance charge accruals are suspended on accounts when they become 60
days contractually delinquent. The accrual is resumed when the loan becomes
contractually current. At December 31, 1995 and 1994, net finance receivables on
which revenue was not accrued approximated $625.5 million and $418.2 million,
respectively.
Insurance premiums are recorded as unearned premiums when collected or when
written and are subsequently amortized into income based on the nature and term
of the underlying insurance contracts. The methods of amortization used are pro
rata, sum-of-the-years-digits and a combination thereof.
Gains or losses on sales of debt securities are included in revenue when
realized. Unrealized gains or losses on debt securities are reported as a
component of stockholders' equity, net of tax. Realized and unrealized gains or
losses on equity securities are included in revenue as incurred. The cost of
debt and equity securities sold is determined by the specific identification
method.
Allowance for Losses on Finance Receivables
The Company maintains an allowance for losses on finance receivables at an
amount which it believes is sufficient to provide adequate protection against
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 underlying finance
27
<PAGE> 29
ASSOCIATES CORPORATION OF NORTH AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
receivables. The allowance is managed on an aggregate basis considering the
relationship of the allowance to net finance receivables and net credit losses.
Additions to the allowance are charged to the provision for losses on finance
receivables.
Finance receivables are charged to the allowance for losses when they are
deemed to be uncollectible. Additionally, Company policy provides for charge-off
of various types of accounts on a contractual basis described as follows:
Consumer direct and other installment and credit card receivables are charged to
the allowance for losses when they become 180 days delinquent. All other finance
receivables are charged to the allowance for losses when any of the following
conditions occur: (i) the related security has been converted or destroyed; (ii)
the related security has been repossessed and sold or held for sale for one
year; or (iii) the related security has not been repossessed and the receivable
has become contractually delinquent for one year. A delinquent account is one on
which the customer has not made payments as contractually agreed. Extensions are
granted on receivables from customers with satisfactory credit and with prior
approval of management. Recoveries on losses previously charged to the allowance
are credited to the allowance at the time the recovery is collected.
Insurance Reserves
The reserves for future benefits and refunds upon cancellation of credit
life and health insurance and property and casualty insurance are provided for
in the unearned premium reserve for each class of insurance. In addition,
reserves for reported claims on credit accident and health insurance are
established based on standard morbidity tables used in the insurance business
for such purposes. Claim reserves for reported property and casualty insurance
claims are based on estimates of costs and expenses to settle each claim.
Additional amounts of reserves, based on prior experience and insurance in
force, are provided for each class of insurance for claims which have been
incurred but not reported as of the balance sheet date.
Income Taxes
Associates and its subsidiaries are included in the consolidated Federal
income tax return of Ford. The provision for income taxes is computed on a
separate-return basis. Deferred tax assets and liabilities are determined based
on the difference between the financial statement and tax basis of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse.
In 1993, the Company entered into a tax-sharing agreement with Ford whereby
state income taxes are provided on a separate-return basis.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents. The amounts reported
in the consolidated balance sheet approximate fair value.
Disclosures about Fair Value of Financial Instruments
The consolidated financial statements present the information required by
Statement of Financial Accounting Standards ("SFAS") No. 107, "Disclosures about
Fair Value of Financial Instruments". Amounts disclosed represent estimates of
fair values at a particular point in time. Significant assumptions regarding
economic conditions, loss experience and risk characteristics associated with
particular financial instruments and other factors were used for purposes of
this disclosure. These assumptions are subjective in nature and involve matters
of judgment. Changes in assumptions could have a material impact on these
estimates.
28
<PAGE> 30
ASSOCIATES CORPORATION OF NORTH AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Derivative Financial Instruments
The Company does not hold or issue derivative financial instruments for
trading purposes. The Company's derivative activity is limited to currency swap
transactions designed to hedge its currency risk on specific foreign currency
denominated-assets to certain foreign affiliates denominated in British
Sterling. Gains and losses on qualifying hedges are deferred and are recognized
in income or as adjustments of carrying amounts when the hedged transaction
occurs. See NOTE 15 to the consolidated financial statements for additional
information related to currency swap transactions.
NOTE 3 -- NET FINANCE RECEIVABLES
Composition of Net Finance Receivables
At December 31, 1995 and 1994, net finance receivables consisted of the
following (in millions):
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Consumer Finance
Home equity lending......................................... $13,190.4 $11,455.2
Personal lending and retail sales finance................... 4,752.7 4,188.9
Credit card................................................. 4,616.8 3,834.6
Manufactured housing........................................ 2,049.3 1,681.1
--------- ---------
24,609.2 21,159.8
--------- ---------
Commercial Finance
Truck and truck trailer..................................... 7,415.7 6,553.0
Equipment................................................... 3,959.4 2,970.1
Other....................................................... 384.0 292.8
--------- ---------
11,759.1 9,815.9
--------- ---------
Net finance receivables............................. $36,368.3 $30,975.7
========= =========
</TABLE>
At December 31, 1995, contractual maturities of net finance receivables
were as follows (in millions):
<TABLE>
<CAPTION>
CONSUMER COMMERCIAL
YEAR DUE FINANCE FINANCE TOTAL
- -------- -------- ---------- --------
<S> <C> <C> <C> <C>
1996............................................... $ 3,572.3 $ 5,298.5 $ 8,870.8
1997............................................... 2,966.6 2,921.8 5,888.4
1998............................................... 2,615.1 1,966.4 4,581.5
1999............................................... 1,995.8 1,056.0 3,051.8
2000 and thereafter................................ 13,459.4 516.4 13,975.8
--------- --------- ---------
$24,609.2 $11,759.1 $36,368.3
========= ========= =========
</TABLE>
It is the Company's experience that a substantial portion of the consumer
loan portfolio generally is renewed or repaid prior to contractual maturity
dates. The above maturity schedule should not be regarded as a forecast of
future cash collections.
29
<PAGE> 31
ASSOCIATES CORPORATION OF NORTH AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Included in commercial finance receivables are direct financing leases as
follows (in millions):
<TABLE>
<CAPTION>
DECEMBER 31
-------------------
1995 1994
------- -------
<S> <C> <C>
Minimum lease rentals........................................... $3,080.8 $2,291.4
Unguaranteed residual values.................................... 76.6 52.4
-------- --------
Future minimum lease rentals.................................. 3,157.4 2,343.8
Unearned finance income......................................... (437.1) (328.7)
-------- --------
Net investment in direct financing leases..................... $2,720.3 $2,015.1
======== ========
</TABLE>
Future net minimum lease rentals on direct financing leases for each of the
years succeeding December 31, 1995 are as follows (in millions): 1996 -- $839.4;
1997 -- $713.0; 1998 -- $567.5; 1999 -- $374.7; 2000 -- $157.4 and 2001 and
thereafter -- $68.3.
Estimated Fair Value of Net Finance Receivables
The estimated fair value of net finance receivables at December 31, 1995
and 1994 was $39.4 billion and $33.2 billion, respectively. In order to
determine the fair values of loans, the loan portfolio was segmented based on
loan type, credit quality and repricing characteristics. The fair value was
estimated by discounting the expected cash flows from such loans at discount
rates which approximate gross finance charge rates that would achieve an
expected return on assets with similar risk characteristics. The estimated fair
value of the credit card receivables was based on the Company's experience in
pricing similar portfolios for acquisition purposes.
Dispersion of Finance Receivables
The Company has geographically dispersed finance receivables. The Company's
total receivables were dispersed across the United States at December 31, 1995
as follows: 12% were in California, 7% in Florida, 6% in Texas, and no other
individual state had more than 4%.
Acquisitions of Finance Businesses
During the years ended December 31, 1995, 1994 and 1993, the Company made
acquisitions of finance businesses accounted for as purchases, the most
significant of which were as follows:
On January 1, 1995, Associates acquired $116 million of net home
equity receivables and certain other assets from Ford Motor Credit Company,
an affiliate. The transaction was recorded at historical cost, which
approximated market.
In October 1995, Associates acquired the assets of LCA Corporation,
principally consisting of leasing receivables. The fair market value of
total assets acquired and liabilities assumed was $253 million and $225
million, respectively.
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.
In December 1994, Associates acquired the assets of First Collateral
Services, Inc., principally consisting of warehouse loan facilities
extended to mortgage brokers secured by mortgage contracts. The fair market
value of total assets acquired and liabilities assumed was $62 million and
$3 million, respectively.
In April 1993, Associates purchased the stock of Allied Finance
Company, with assets primarily consisting of $146 million of net consumer
finance receivables, principally comprised of home equity and
30
<PAGE> 32
ASSOCIATES CORPORATION OF NORTH AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
personal lending and sales finance receivables. The fair market value of
total assets acquired and liabilities assumed was $197 million and $112
million, respectively.
In September 1993, 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 market value of total assets
acquired and liabilities assumed was $587 million and $380 million,
respectively.
The pro forma effect of the above acquisitions, when taken in aggregate for
each reporting period, was not significant.
NOTE 4 -- ALLOWANCE FOR LOSSES ON FINANCE RECEIVABLES
Changes in the allowance for losses on finance receivables during the
periods indicated were as follows (in millions):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------
1995 1994 1993
-------- ------- -------
<S> <C> <C> <C>
Balance at beginning of period.......................... $ 932.4 $ 798.0 $ 690.0
Provision for losses.................................. 729.7 569.9 468.9
Recoveries on receivables charged off................. 112.3 99.8 87.5
Losses sustained...................................... (670.0) (556.5) (475.0)
Reserves of acquired businesses and other............. 4.8 21.2 26.6
-------- ------- -------
Balance at end of period................................ $1,109.2 $ 932.4 $ 798.0
======== ======= =======
</TABLE>
NOTE 5 -- CREDIT FACILITIES
At December 31, 1995, available credit facilities were as follows (in
millions):
<TABLE>
<CAPTION>
FACILITY
ENTITY CREDIT FACILITY DESCRIPTION AMOUNT
- ----------- ---------------------------- ---------
<S> <C> <C>
Associates Lines of Credit $ 3,959.7*
Revolving Lines 5,105.0*
Receivables Purchase
Facilities 1,275.0
---------
$10,339.7
=========
</TABLE>
- ---------------
* Included in Associates Lines of Credit and Revolving Lines are $90.0 million
and $1,080.0 million of Lines of Credit and Revolving Lines, respectively,
that are available either to AFCC or to the Company. The Company would not be
responsible for any borrowing by AFCC thereunder.
Lines of Credit, Revolving Lines and Receivables Purchase Facilities may be
withdrawn only under certain standard conditions, including failure to pay
principal or interest when due, breach of representations, warranties or
covenants, default on other debt, or bankruptcy or other insolvency-type
proceedings. Associates pays fees for the availability of its credit facilities.
Bank fees incurred during 1995, 1994 and 1993 were $11.5 million, $11.0 million
and $9.6 million, respectively, and are .07 to .25 of 1% per annum of the amount
of the facilities.
31
<PAGE> 33
ASSOCIATES CORPORATION OF NORTH AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6 -- NOTES PAYABLE
Commercial paper notes are issued by Associates in the minimum amount of
$100,000 with terms from 1 to 270 days. Bank loan terms are all 4 days.
Information pertaining to the Company's commercial paper notes and bank loans is
set forth below for the periods indicated (dollar amounts in millions):
<TABLE>
<CAPTION>
COMMERCIAL BANK
PAPER NOTES LOANS
----------- ------
<S> <C> <C>
Ending balance at December 31, 1995.............................. $12,732.7 $702.0
Weighted average interest rate at December 31, 1995.............. 5.73% 6.42%
Ending balance at December 31, 1994.............................. $11,640.5 $571.4
Weighted average interest rate at December 31, 1994.............. 5.88% 6.88%
</TABLE>
The amounts reported in the consolidated balance sheet approximate fair
value.
NOTE 7 -- LONG-TERM DEBT
Outstanding balances of long-term debt at December 31 were as follows (in
millions):
<TABLE>
<CAPTION>
INTEREST
RATE RANGE MATURITIES 1995 1994
----------- ---------- --------- ---------
<S> <C> <C> <C> <C>
Senior Notes.......................... 3.63-11.40% 1996-2010 $18,169.7 $14,821.4
Subordinated and Capital:
Subordinated........................ 7.63- 8.15 1998-2009 141.2 141.2
Capital............................. 4.68- 9.00 1996-2002 0.6 0.6
--------- ---------
141.8 141.8
--------- ---------
Total long-term debt............. $18,311.5 $14,963.2
======== ========
</TABLE>
The weighted average interest rate for total long-term debt was 7.08% at
December 31, 1995 and 7.26% at December 31, 1994.
The estimated fair value of long-term debt at December 31, 1995 and 1994
was $19.2 billion and $14.5 billion, respectively. The fair value was determined
by discounting expected cash flows at discount rates currently available to the
Company for debt with similar terms and remaining maturities.
Long-term borrowing maturities during the next five years, including the
current portion of notes payable after one year are: 1996, $2,611.4 million;
1997, $3,080.5 million; 1998, $3,266.3 million; 1999, $2,132.3 million; 2000,
$2,368.2 million and 2001 and thereafter, $4,852.8 million.
Certain debt issues contain call provisions or may be subject to repayment
provisions at the option of the holder on specified dates prior to the maturity
date. At December 31, 1995, 3,509 warrants were outstanding to purchase $154.8
million aggregate principal amount of senior notes at par with interest rates
ranging from 7.00% to 10.50%. The warrants are exercisable at various dates
through October 1, 1999 at prices ranging from $1,000 to $25,000,000 per
warrant. All of the above issues are unsecured.
32
<PAGE> 34
ASSOCIATES CORPORATION OF NORTH AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 8 -- INCOME TAXES
The following table sets forth the components of the provision for income
taxes and deferred income tax (benefit) for the periods indicated (in millions):
<TABLE>
<CAPTION>
FEDERAL STATE TOTAL
------- ----- -------
<S> <C> <C> <C>
Year Ended December 31, 1995
Current................................................. $ 373.9 $ 20.9 $ 394.8
------
-
------- -------
Deferred:
Leasing transactions................................. 66.7 66.7
Finance revenue...................................... 14.0 14.0
Provision for losses on finance receivables and
other.............................................. (62.2) (62.2)
------
-
------- -------
Total deferred.................................. 18.5 18.5
------
-
------- -------
$ 392.4 $ 20.9 $ 413.3
======= ====== =======
Year Ended December 31, 1994
Current................................................. $ 426.4 $ 31.0 $ 457.4
------
-
------- -------
Deferred:
Leasing transactions................................. 29.2 29.2
Finance revenue...................................... (5.7) (5.7)
Provision for losses on finance receivables and
other.............................................. (111.8) (111.8)
------
-
------- -------
Total deferred.................................. (88.3) (88.3)
------
-
------- -------
$ 338.1 $ 31.0 $ 369.1
======= ====== =======
Year Ended December 31, 1993
Current................................................. $ 360.0 $ 20.1 $ 380.1
------
-
------- -------
Deferred:
Leasing transactions................................. 3.6 3.6
Finance revenue...................................... 3.4 3.4
Provision for losses on finance receivables and
other.............................................. (76.4) (76.4)
------
-
------- -------
Total deferred.................................. (69.4) (69.4)
------
-
------- -------
$ 290.6 $ 20.1 $ 310.7
======= ====== =======
</TABLE>
At December 31, 1995 and 1994, the components of the Company's net deferred
tax asset were as follows (in millions):
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Deferred tax assets:
Provision for losses on finance receivables and other.......... $ 577.1 $ 498.6
Postretirement and other employee benefits..................... 55.9 73.9
------- -------
633.0 572.5
Deferred tax liabilities:
Leasing transactions........................................... (241.8) (175.1)
Finance revenue and other...................................... (235.4) (209.6)
------- -------
(477.2) (384.7)
------- -------
Net deferred tax asset...................................... $ 155.8 $ 187.8
======= =======
</TABLE>
33
<PAGE> 35
ASSOCIATES CORPORATION OF NORTH AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Due to the Company's earnings level, no valuation allowance related to the
deferred tax asset has been recorded.
The effective tax rate differed from the statutory U.S. Federal income tax
rate as follows:
<TABLE>
<CAPTION>
% OF PRETAX INCOME
YEAR ENDED DECEMBER 31
----------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Statutory tax rate............................................. 35.0% 35.0% 35.0%
State tax rate................................................. 1.2 2.1 1.6
Other non-deductible items..................................... 0.7 0.8 0.6
---- ---- ----
Effective tax rate................................... 36.9% 37.9% 37.2%
==== ==== ====
</TABLE>
NOTE 9 -- DEBT RESTRICTIONS
Associates is subject to various limitations under the provisions of its
outstanding debt and credit facilities. 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 December 31,
1995, $727.6 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 December 31, 1995, Associates tangible net worth was $4.1 billion.
NOTE 10 -- LEASE COMMITMENTS
Leases are primarily short-term and generally provide for renewal options
not exceeding the initial term. Total rent expense for the years ended December
31, 1995, 1994 and 1993 was $67.0 million, $53.1 million, and $50.9 million,
respectively. Minimum rental commitments as of December 31, 1995 for all
noncancelable leases (primarily office leases) for the years ending December 31,
1996, 1997, 1998, 1999 and 2000 are $59.1 million, $46.9 million, $36.6 million,
$23.9 million and $11.4 million, respectively, and $2.4 million thereafter.
NOTE 11 -- EMPLOYEE BENEFITS
Defined Benefit Plans
The Company participates in various qualified and nonqualified pension
plans (the "Plan" or "Plans") sponsored by AFCC, which together cover
substantially all permanent employees who meet certain eligibility requirements.
34
<PAGE> 36
ASSOCIATES CORPORATION OF NORTH AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Net periodic pension cost for the years indicated includes the following
components (in millions):
<TABLE>
<CAPTION>
DECEMBER 31
----------------------------
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Service cost............................................. $ 13.1 $ 13.7 $ 10.0
Interest cost............................................ 23.1 21.3 18.1
Actual return on Plan assets............................. (51.1) (0.4) (21.6)
Net amortization......................................... 33.9 (10.9) 7.4
------ ------ ------
Net periodic pension cost.............................. $ 19.0 $ 23.7 $ 13.9
====== ====== ======
Assumed discount rate, beginning of year................. 8.25% 7.00% 8.00%
</TABLE>
The funded status of the Plan is as follows (in millions):
<TABLE>
<CAPTION>
DECEMBER 31
------------------------------------------------------
1995 1994
------------------------- -------------------------
QUALIFIED NONQUALIFIED QUALIFIED NONQUALIFIED
PLAN PLANS PLAN PLANS
--------- ------------ --------- ------------
<S> <C> <C> <C> <C>
Actuarial present value of benefit
obligation:
Vested................................... $ 255.9 $ 23.7 $ 187.6 $ 16.8
Nonvested................................ 11.5 0.3 9.0 0.8
------ ----- ------ -----
Accumulated benefit obligation............. 267.4 24.0 196.6 17.6
Effect of projected future salary
increases................................ 76.1 9.3 50.4 6.2
------ ----- ------ -----
Projected benefit obligation............... 343.5 33.3 247.0 23.8
Plan assets at fair market value........... 322.0 204.7
------ ----- ------ -----
Excess of plan obligation over plan
assets................................... 21.5 33.3 42.3 23.8
Unamortized transition obligation and
amendments............................... (5.1) (3.8) (6.5) (4.3)
Unamortized net loss....................... (53.0) (8.8) (13.3) (1.5)
Adjustment required to recognize minimum
liability................................ 3.3
------ ----- ------ -----
(Prepaid)/accrued pension liability...... $ (36.6) $ 24.0 $ 22.5 $ 18.0
====== ===== ====== =====
Assumed discount rate...................... 7.00% 7.00% 8.25% 8.25%
Projected compensation increases........... 6.00% 6.00% 6.00% 6.00%
Expected return............................ 9.00% 9.00% 9.00% 9.00%
</TABLE>
- ---------------
Amounts in the previous two tables are presented using AFCC data as all
calculations are made at the AFCC level. The corresponding amounts for the
Company are not significantly different.
Retirement Savings and Profit Sharing Plan
The Company participates in a defined contribution plan sponsored by AFCC
intended to provide assistance in accumulating personal savings for retirement
and is designed to qualify under Sections 401(a) and 401(k) of the Internal
Revenue Code. For the years ended December 31, 1995, 1994 and 1993, the
Company's pretax contributions to the plan were $16.6 million, $15.0 million and
$13.1 million, respectively.
35
<PAGE> 37
ASSOCIATES CORPORATION OF NORTH AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Employers' Accounting for Postretirement Benefits Other Than Pensions
The Company provides certain postretirement benefits through unfunded plans
sponsored by AFCC. These benefits are currently provided to substantially all
permanent employees who meet certain eligibility requirements. The benefits of
the plan can be modified or terminated at the discretion of the Company. The
amount paid for postretirement benefits for the years ended December 31, 1995,
1994 and 1993 was approximately $2.0 million, $1.8 million and $1.5 million,
respectively.
Net periodic postretirement benefit cost for 1995, 1994 and 1993 includes
the following components (in millions):
<TABLE>
<CAPTION>
DECEMBER 31
-----------------------
1995 1994 1993
----- ----- -----
<S> <C> <C> <C>
Service cost.................................................. $ 5.5 $ 5.5 $ 4.2
Interest cost................................................. 7.7 6.3 6.3
Net amortization.............................................. (1.3) (1.0) (0.7)
----- ----- -----
Net periodic postretirement benefit cost.................... $11.9 $10.8 $ 9.8
===== ===== =====
Assumed discount rate, beginning of year...................... 8.75% 7.50% 8.50%
</TABLE>
Accrued postretirement benefit cost at December 31, 1995 and 1994 is
composed of the following (in millions):
<TABLE>
<CAPTION>
DECEMBER 31
----------------
1995 1994
------ -----
<S> <C> <C>
Accumulated postretirement benefit obligation ("APBO"):
Retired participants.............................................. $ 45.2 $33.9
Fully eligible participants....................................... 26.9 18.6
Other active participants......................................... 45.7 29.5
------ -----
Total APBO................................................ 117.8 82.0
Unamortized amendments.............................................. 5.4 9.8
Unrecognized actuarial loss......................................... (24.2) (2.7)
------ -----
Accrued postretirement benefit cost............................... $ 99.0 $89.1
====== =====
Assumed discount rate............................................... 7.25% 8.75%
</TABLE>
- ---------------
Amounts in the previous two tables are presented using AFCC data as all
calculations are made at the AFCC level. The corresponding amounts for the
Company are not significantly different.
For measurement purposes, a 13.00% and 12.10% weighted average annual rate
of increase in per capita cost of covered health care benefits was assumed for
1995 and 1994, respectively, decreasing gradually to 5.50% by the year 2010.
Increasing the assumed health care cost trend rate by one percentage point each
year would increase the APBO as of December 31, 1995 and 1994 by $8.6 million
and $6.0 million, respectively, and the aggregate of the service and interest
cost components of the net periodic postretirement benefit cost by $1.0 million
and $0.9 million, respectively.
INCENTIVE COMPENSATION PROGRAMS
The Company sponsors compensation plans covering certain officers and
employees.
36
<PAGE> 38
ASSOCIATES CORPORATION OF NORTH AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Corporate Annual Performance Plan and Long-Term Performance Plan
The Corporate Annual Performance Plan ("CAPP") is an annual bonus plan.
CAPP bonuses are determined based on the performance of the Company, the
business unit in which a participant is employed, and the participant,
personally. The Long-Term Performance Plan ("LTPP") is a long-term cash
incentive plan. LTPP awards are determined for a performance period based on the
success of the Company in achieving a target level of profits established for
each year of the performance period, with such annual performance then averaged
for the performance period. Amounts charged to expense under CAPP and LTPP
amounted to $16.1 million, $16.2 million and $14.8 million during the years
ended December 31, 1995, 1994 and 1993, respectively.
Phantom Stock Appreciation Right Plan
The Company participates in a long-term cash plan, the Phantom Stock
Appreciation Right Plan (the "PSAR Plan"). AFCC terminated the PSAR Plan as of
December 1995 and intends to cash out all outstanding phantom stock appreciation
rights ("PSARs"). A PSAR granted under the PSAR Plan entitled the holder thereof
to receive from the Company, upon exercise of such PSAR, a specified amount of
cash. A PSAR had a term of five years and vested 100% on the first anniversary
of the date of grant. Amounts charged to expense by the Company under the PSAR
Plan amounted to $30.1 million, $4.1 million and $36.1 million during the years
ended December 31, 1995, 1994 and 1993, respectively. AFCC also amended the PSAR
Plan to provide that certain officers of the Company (all of whom were granted
PSARs in 1995) are required to defer one-half of the amount payable in
satisfaction of their respective PSARs granted in 1995. The amounts so deferred
will be administered by the Company in accordance with the terms of the
Associates First Capital Corporation Equity Deferral Plan.
Long-Term Equity Compensation Plan
The Long-Term Equity Compensation Plan ("ECP") is a stock-based incentive
plan sponsored by AFCC in which the Company will participate and which will be
adopted in 1996. The ECP provides for the grant of incentive and nonqualified
stock options, stock appreciation rights, restricted stock, performance shares
and performance units of First Capital. Awards granted under the ECP are based
on shares of Class A Common Stock of First Capital.
NOTE 12 -- COMMITMENTS, CONTINGENCIES AND LEGAL PROCEEDINGS
The Company is a defendant in various lawsuits arising in the ordinary
course of its business. The Company aggressively manages its litigation and
assesses appropriate responses to its lawsuits in light of a number of factors,
including potential impact of the actions on the conduct of the Company's
operations. In the opinion of management, the resolution of any of these matters
is not expected to have a material adverse effect on the Company's financial
condition or results of operations.
NOTE 13 -- OTHER ASSETS
The components of Other Assets at December 31, 1995 and 1994 were as
follows (in millions):
<TABLE>
<CAPTION>
DECEMBER 31
-------------------
1995 1994
------- -------
<S> <C> <C>
Balances with related parties -- NOTE 14........................ $ 256.3 $ 385.8
Goodwill........................................................ 345.7 362.0
Other........................................................... 571.5 471.1
-------- --------
Total other assets.................................... $1,173.5 $1,218.9
======== ========
</TABLE>
37
<PAGE> 39
ASSOCIATES CORPORATION OF NORTH AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 14 -- TRANSACTIONS AND BALANCES WITH RELATED PARTIES
Associates provides debt financing or advances to certain of its former
foreign subsidiaries. At December 31, 1995 and 1994, amounts due from foreign
affiliates totaled $70.7 million and $68.7 million, respectively, and were
included in Other Assets. These receivables or advances bear fluctuating
interest rates (as applicable) and are payable on demand. Interest income
related to these transactions was $7.9 million, $14.4 million and $21.3 million
for the years ended December 31, 1995, 1994 and 1993, respectively. The
estimated fair value of these receivables was $72.2 million and $70.4 million at
December 31, 1995 and 1994, respectively.
Associates, from time to time, invests a portion of its working capital
funds in variable rate demand notes of AFCC. The balances of its investment at
December 31, 1995 and 1994 were $3.7 million and $195.5 million, respectively,
and were included in Other Assets. Income from such investments totaled $14.3
million, $16.4 million and $10.7 million for the years ended December 31, 1995,
1994, and 1993, respectively.
Associates occasionally makes advances to Associates National Bank
(Delaware) ("ANB"), a wholly-owned subsidiary of AFCC. The balances of such
advances at December 31, 1995 and 1994 were $181.9 million and $124.1 million,
respectively, and were included in Other Assets. Income from such advances
totaled $6.9 million, $4.2 million and $2.9 million for the years ended December
31, 1995, 1994 and 1993, respectively.
At December 31, 1995 and 1994, the net consumer finance receivables
included participations in credit card receivables owned or originated by ANB,
an affiliate of Associates. The balances of these receivables were $4.6 billion
and $3.8 billion at December 31, 1995 and 1994, respectively, and were included
in Finance Receivables.
The Company provides certain services of an administrative nature, use of
certain tangible and intangible assets, including trademarks, guarantees of debt
and related interest, and other management services to certain of its foreign
affiliates in Japan, Canada, Puerto Rico and the United Kingdom. Services and
usage are charged to the affiliates based on the nature of the service. Fees for
financial accommodations range from .25% to 1% of the average outstanding debt
guaranteed. Management believes such charges reflect the market value for such
services, usage and guarantees. The amounts paid or accrued under these
arrangements for the years ended December 31, 1995, 1994 and 1993 were $68.4
million, $53.7 million, and $40.1 million, respectively.
The Company provides certain auto club and relocation services to Ford.
Revenues related to these services were $29.7 million, $19.4 million and $12.1
million for the years ended December 31, 1995, 1994 and 1993, respectively.
At December 31, 1995 and 1994, the Company was a guarantor on debt and
related accrued interest of its foreign affiliates in Canada and Puerto Rico
amounting to $487.2 million and $339.9 million, respectively.
Associates receives a fee for services it provides to AFCC. During each of
the years ended December 31, 1995, 1994 and 1993, Associates received $6.0
million in fees for these services.
At December 31, 1995 and 1994, Associates current income taxes
(receivable)/payable to AFCC amounted to $(9.0) million and $11.1 million,
respectively.
NOTE 15 -- FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISKS
The Company maintains cash, cash equivalents, investments, and certain
other financial instruments with various major financial institutions. To the
extent such deposits exceed maximum insurance levels, they are uninsured.
38
<PAGE> 40
ASSOCIATES CORPORATION OF NORTH AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
As explained in NOTE 2 to the consolidated financial statements, the
Company does not hold or issue derivative financial instruments for trading
purposes. The Company's derivative activity is limited to currency swap
transactions designed to hedge its currency risk on specific foreign
currency-denominated assets to certain subsidiaries denominated in British
Sterling. One interest rate swap transaction for $40.0 million, assumed in 1993
as part of a business acquisition, matured in April 1995 and is no longer
outstanding. The Company is a buyer in each transaction.
The Company's currency swap transactions are not material to its
consolidated balance sheet and do not represent a material exposure to its
consolidated net earnings. Amounts under currency and interest rate swap
contracts at December 31, 1995 and 1994 were $55.7 million and $95.7 million,
respectively. At December 31, 1995, the Company was at market risk for any
currency differential should a counterparty to these contracts fail to meet the
terms of the contracts. The contracts expire in October 1996. At December 31,
1995, the Company's estimated exposure to loss resulting from currency
differentials, in the event of nonperformance by certain counterparties, was
$1.1 million; the Company estimates its benefit resulting from currency
differentials, in the event of nonperformance by certain counterparties, was
$0.2 million. The estimated fair value of amounts under contract approximated
$0.9 million and $0.7 million at December 31, 1995 and 1994, respectively. Such
value was determined based on the foreign currency exchange rates/interest rate
for similar transactions in effect at the balance sheet date. It is the
Company's policy that each counterparty's public debt rating must be rated Aa3,
AA- or better by at least two nationally recognized rating agencies at the time
any such contract is entered into. The Company monitors such ratings on an
ongoing basis. The Company does not employ other methods to assess credit risk,
because swap transactions are not a significant part of its operating activities
and because the Company does not enter into complex derivative transactions.
The consumer finance business grants revolving lines of credit to certain
of its customers. At December 31, 1995 and 1994, the unused portion of these
lines aggregated $661.1 million and $455.2 million, respectively. The potential
risk associated with, and the estimated fair value of, the unused credit lines
are not considered to be significant.
The commercial finance business grants lines of credit to certain dealers
of truck, construction equipment and manufactured housing. At December 31, 1995
and 1994, the unused portion of these lines aggregated $1.2 billion and $849.7
million, respectively. The potential risk associated with, and the estimated
fair value of, the unused credit lines are not considered to be significant.
NOTE 16 -- 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, concurrent with the adoption of SFAS
No. 115 in 1994, the Company classified its investments in debt securities as
available for sale and adjusted its recorded value to market. Prior to adoption
of this standard, the Company carried these investments at amortized cost.
During 1995, gross realized gains on sales amounted to $0.2 million. Gross
realized gains and losses on sales during 1994 amounted to $2.1 million and $0.3
million, respectively. Unrealized gains or losses are reported as a component of
stockholders' equity, net of tax. The following tables set forth, by type of
39
<PAGE> 41
ASSOCIATES CORPORATION OF NORTH AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
security issuer, the amortized cost, gross unrealized holding gains, gross
unrealized holding losses, and estimated market value at December 31, 1995 and
1994 (in millions):
<TABLE>
<CAPTION>
1995
-----------------------------------------------------
GROSS GROSS
UNREALIZED UNREALIZED ESTIMATED
AMORTIZED HOLDING HOLDING MARKET
COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
U.S. Government obligations.............. $ 400.2 $ 14.4 $ $ 414.6
Corporate obligations.................... 222.3 3.5 225.8
Mortgage-backed.......................... 215.6 0.8 216.4
Other.................................... 15.3 15.3
------ ----- ------ ------
Total debt securities.......... $ 853.4 $ 18.7 $ -- $ 872.1
====== ===== ====== ======
</TABLE>
<TABLE>
<CAPTION>
1994
-----------------------------------------------------
GROSS GROSS
UNREALIZED UNREALIZED ESTIMATED
AMORTIZED HOLDING HOLDING MARKET
COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
U.S. Government obligations.............. $ 422.4 $ 0.7 $(25.2) $ 397.9
Corporate obligations.................... 66.8 0.2 (0.5) 66.5
Mortgage-backed.......................... 96.3 (2.3) 94.0
Other.................................... 9.2 9.2
------ ----- ------ ------
Total debt securities.......... $ 594.7 $ 0.9 $(28.0) $ 567.6
====== ===== ====== ======
</TABLE>
The amortized cost and estimated market value of debt securities at
December 31, 1995 and 1994, by contractual maturity, are shown below (in
millions):
<TABLE>
<CAPTION>
1995 1994
---------------------- ----------------------
ESTIMATED ESTIMATED
AMORTIZED MARKET AMORTIZED MARKET
COST VALUE COST VALUE
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Due in one year or less...................... $ 158.5 $ 159.0 $ 95.7 $ 94.5
Due after one year through five years........ 384.3 394.9 386.8 372.1
Due after five years through ten years....... 187.2 194.3 110.2 99.0
Due after ten years.......................... 123.4 123.9 2.0 2.0
------ ------ ------ ------
$ 853.4 $ 872.1 $ 594.7 $ 567.6
====== ====== ====== ======
</TABLE>
Equity Securities
Equity security investments are recorded at market value. Concurrent with
the adoption of SFAS No. 115 in 1994, the Company classified its investments in
equity securities as trading securities and included in earnings unrealized
gains or losses on such securities. Prior to adoption, unrealized gains or
losses were reported as a component of stockholders' equity, net of tax. The
estimated market value at December 31, 1995 and 1994 was $12.6 million and $41.9
million, respectively. Historical cost at December 31, 1995 and 1994 was $8.5
million and $38.9 million, respectively.
Estimated market values of debt and equity securities are based on quoted
market prices.
NOTE 17 -- BUSINESS SEGMENT INFORMATION
Associates primary business activities are consumer finance and commercial
finance. The consumer finance operation is engaged in making and investing in
home equity, personal lending and sales finance
40
<PAGE> 42
ASSOCIATES CORPORATION OF NORTH AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
receivables, purchasing participations in credit card receivables, and providing
sales financing for manufactured housing. The commercial finance operation is
principally engaged in financing sales of transportation and industrial
equipment and leasing, and sales of other financial services, including auto
fleet leasing and management, relocation services and auto club and roadside
assistance services. The Company has an insurance operation which is engaged in
underwriting credit life, credit accident and health, property and casualty, and
accidental death and dismemberment insurance, principally for customers of the
finance operations. Such insurance activity is conducted by the Company's
licensed insurance agents and managed as a separate activity. Insurance sales
are dependent on the business activities and volumes of the consumer and
commercial business. Accordingly, insurance revenues and related claims are
included in the consumer and commercial business to which they relate.
The following table sets forth information by business segment (in
millions):
<TABLE>
<CAPTION>
BUSINESS SEGMENT
-----------------------
CONSUMER COMMERCIAL
FINANCE FINANCE(A) CONSOLIDATED
--------- ---------- ------------
<S> <C> <C> <C>
Year Ended or at December 31, 1995
Revenue.......................................... $ 3,882.4 $ 1,502.0 $ 5,384.4
========= ========= ==========
Operating income(b).............................. $ 795.9 $ 325.5 $ 1,121.4
========= ========= ==========
Total assets..................................... $23,278.0 $13,745.7 $ 37,023.7
========= ========= ==========
Year Ended or at December 31, 1994
Revenue.......................................... $ 3,147.6 $ 1,240.3 $ 4,387.9
========= ========= ==========
Operating income(b).............................. $ 665.1 $ 307.5 $ 972.6
========= ========= ==========
Total assets..................................... $20,032.4 $11,654.8 $ 31,687.2
========= ========= ==========
Year Ended or at December 31, 1993
Revenue.......................................... $ 2,604.1 $ 1,085.5 $ 3,689.6
========= ========= ==========
Operating income(b).............................. $ 557.0 $ 277.4 $ 834.4
========= ========= ==========
Total assets..................................... $17,427.9 $ 9,937.2 $ 27,365.1
========= ========= ==========
</TABLE>
- ---------------
(a) Includes information pertaining to the financing of manufactured housing
purchases which are managed by the commercial operation.
(b) Includes operating income pertaining to the Company's non-operating
subsidiaries.
Capital expenditures and depreciation and amortization expense are not
significant.
41
<PAGE> 43
ASSOCIATES CORPORATION OF NORTH AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 18 -- UNAUDITED QUARTERLY FINANCIAL DATA
The following table sets forth the unaudited quarterly results of
operations (in millions):
<TABLE>
<CAPTION>
1995
-----------------------------------------------
FOURTH THIRD SECOND FIRST
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Finance charges........................... $1,268.3 $1,234.2 $1,181.6 $1,121.2
======== ======== ======== ========
Interest expense.......................... $ 519.1 $ 507.5 $ 490.7 $ 462.5
======== ======== ======== ========
Earnings before provision for income
taxes................................... $ 288.2 $ 298.7 $ 274.9 $ 259.6
Provision for income taxes................ 107.0 110.5 102.2 93.6
-------- -------- -------- --------
Net earnings.............................. $ 181.2 $ 188.2 $ 172.7 $ 166.0
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
1994
-----------------------------------------------
FOURTH THIRD SECOND FIRST
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Finance charges........................... $1,072.1 $ 984.6 $ 917.9 $ 892.1
======== ======== ======== ========
Interest expense.......................... $ 426.8 $ 391.2 $ 358.3 $ 333.4
======== ======== ======== ========
Earnings before provision for income
taxes................................... $ 259.9 $ 257.8 $ 230.2 $ 224.7
Provision for income taxes................ 100.7 96.0 88.2 84.2
-------- -------- -------- --------
Net earnings.............................. $ 159.2 $ 161.8 $ 142.0 $ 140.5
======== ======== ======== ========
</TABLE>
42
<PAGE> 44
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not Applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
ITEM 11. EXECUTIVE COMPENSATION.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by Items 10-13 has been omitted in accordance with
General Instruction J.(2)(c) to Form 10-K.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K.
(a) Financial Statements
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants..................................... 22
Consolidated Statement of Earnings for the years ended December 31,
1995, 1994 and 1993................................................. 23
Consolidated Balance Sheet at December 31, 1995 and 1994.............. 24
Consolidated Statement of Changes in Stockholders' Equity for the
years ended December 31, 1995, 1994 and 1993........................ 25
Consolidated Statement of Cash Flows for the years ended December 31,
1995, 1994 and 1993................................................. 26
Notes to consolidated financial statements............................ 27
</TABLE>
(b) Reports on Form 8-K
During the quarter ended December 31, 1995, Associates filed Current
Reports on Form 8-K dated October 27, 1995, November 17, 1995 and
December 5, 1995, related to issuances of debt securities pursuant to
Rule 415, and dated October 17, 1995, related to the announcement of a
potential partial sale of AFCC by Ford.
43
<PAGE> 45
(c) Exhibits
<TABLE>
<S> <C>
(3) (a) Certificate of Incorporation. Incorporated by reference
to Exhibit 3(a) to the Company's Form 10-K for the
fiscal year ended October 31, 1986.
(b) By-laws. Incorporated by reference to Exhibit 3 to the
Company's Form 10-K for the year ended December 31,
1990.
(4) Instruments with respect to issues of long-term debt have
not been filed as exhibits to this annual report on Form
10-K as the authorized principal amount of any one of such
issues does not exceed 10% of the total assets of the
registrant and its consolidated subsidiaries. Registrant
agrees to furnish to the Commission a copy of each such
instrument upon its request.
(12) Computation of Ratio of Earnings to Fixed Charges.
(21) Subsidiaries of the registrant. Omitted in accordance with
General Instruction J.(2)(b) to Form 10-K.
(23) Consent of Independent Accountants.
(24) Powers of Attorney.
(27) Financial Data Schedule.
</TABLE>
44
<PAGE> 46
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
ASSOCIATES CORPORATION OF NORTH AMERICA
By /s/ ROY A. GUTHRIE
----------------------------------------
Executive Vice President and Comptroller
March 29, 1996
Pursuant to the requirements of the Securities and Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ KEITH W. HUGHES* Chairman of the Board,
---------------------------------------- Principal Executive Officer
(Keith W. Hughes) and Director
/s/ ROY A. GUTHRIE Executive Vice President,
---------------------------------------- Comptroller, Principal
(Roy A. Guthrie) Accounting Officer, Principal March 29, 1996
Financial Officer and
Director
/s/ HAROLD D. MARSHALL* Director
----------------------------------------
(Harold D. Marshall)
/s/ JOSEPH M. McQUILLAN* Director
----------------------------------------
(Joseph M. McQuillan)
</TABLE>
By signing his name hereto, Roy A. Guthrie signs this document on behalf of
himself and each of the other persons indicated above pursuant to powers of
attorney duly executed by such persons.
*By /s/ ROY A. GUTHRIE
----------------------------------------
Attorney-in-fact
45
<PAGE> 47
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER EXHIBIT PAGE
------ ------- ------------ -
<C> <S> <C>
(3) (a) Certificate of Incorporation. Incorporated by reference to Exhibit
3(a) to the Company's Form 10-K for the fiscal year ended October
31, 1986.
(b) By-laws. Incorporated by reference to Exhibit 3 to the Company's
Form 10-K for the year ended December 31, 1990.
(4) Instruments with respect to issues of long-term debt have not been
filed as exhibits to this annual report on Form 10-K as the
authorized principal amount of any one of such issues does not
exceed 10% of the total assets of the registrant and its
consolidated subsidiaries. Registrant agrees to furnish to the
Commission a copy of each such instrument upon its request.
(12) Computation of Ratio of Earnings to Fixed Charges.
(21) Subsidiaries of the registrant. Omitted in accordance with General
Instruction J.(2)(b) to Form 10-K.
(23) Consent of Independent Accountants.
(24) Powers of Attorney.
(27) Financial Data Schedule.
</TABLE>
<PAGE> 1
EXHIBIT 12
ASSOCIATES CORPORATION OF NORTH AMERICA
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(DOLLAR AMOUNTS IN MILLIONS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Fixed Charges (a)
Interest expense......................... $1,979.8 $1,509.7 $1,291.8 $1,222.8 $1,278.5
Implicit interest in rent................ 11.4 9.6 9.7 9.5 8.5
-------- -------- -------- -------- --------
Total fixed charges.............. $1,991.2 $1,519.3 $1,301.5 $1,232.3 $1,287.0
======== ======== ======== ======== ========
Earnings (b)............................... $1,121.4 $ 972.6 $ 834.4 $ 690.4 $ 620.3
Fixed charges.............................. 1,991.2 1,519.3 1,301.5 1,232.3 1,287.0
-------- -------- -------- -------- --------
Earnings, as defined............. $3,112.6 $2,491.9 $2,135.9 $1,922.7 $1,907.3
======== ======== ======== ======== ========
Ratio of Earnings to Fixed Charges......... 1.56 1.64 1.64 1.56 1.48
======== ======== ======== ======== ========
</TABLE>
- ---------------
(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 and cumulative effect of changes in
accounting principles, plus fixed charges.
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements
of Associates Corporation of North America on Forms S-3 (File No. 33-63577 and
33-55949) of our report dated January 26, 1996, on our audits of the
consolidated financial statements of Associates Corporation of North America and
Subsidiaries as of December 31, 1995 and 1994, and for the years ended December
31, 1995, 1994, and 1993, which report is included in this Annual Report on Form
10-K.
COOPERS & LYBRAND L.L.P.
Dallas, Texas
March 27, 1996
<PAGE> 1
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer and/or a
director of ASSOCIATES CORPORATION OF NORTH AMERICA (the "Company"), has made,
constituted and appointed and by these presents does hereby make, constitute
and appoint ROY A. GUTHRIE, TIMOTHY M. HAYES, KEITH W. HUGHES and CHESTER D.
LONGENECKER, and each of them, his true and lawful attorneys, for him and in
his name, place and stead, and in his office and capacity as aforesaid, to sign
and file the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995, and any and all amendments thereto and any and all other
documents to be signed and filed with the Securities and Exchange Commission in
connection therewith, hereby granting to said ROY A. GUTHRIE, TIMOTHY M. HAYES,
KEITH W. HUGHES and CHESTER D. LONGENECKER, and each of them, full power and
authority to do and perform each and every act and thing whatsoever requisite
and necessary to be done in the premises, as fully, to all intents and
purposes, as he might or could do if personally present, hereby ratifying and
confirming in all respects all that said ROY A. GUTHRIE, TIMOTHY M. HAYES,
KEITH W. HUGHES and CHESTER D. LONGENECKER, or any of them, as said attorneys,
may or shall lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has set his hand this 18th day of March,
1996.
SIGNATURE: /s/ KEITH W. HUGHES
-------------------------------
Keith W. Hughes
OFFICE: Chairman of the Board, Principal
Executive Officer and Director
<PAGE> 2
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer and/or a
director of ASSOCIATES CORPORATION OF NORTH AMERICA (the "Company"), has made,
constituted and appointed and by these presents does hereby make, constitute
and appoint ROY A. GUTHRIE, TIMOTHY M. HAYES, KEITH W. HUGHES and CHESTER D.
LONGENECKER, and each of them, his true and lawful attorneys, for him and in
his name, place and stead, and in his office and capacity as aforesaid, to sign
and file the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995, and any and all amendments thereto and any and all other
documents to be signed and filed with the Securities and Exchange Commission in
connection therewith, hereby granting to said ROY A. GUTHRIE, TIMOTHY M. HAYES,
KEITH W. HUGHES and CHESTER D. LONGENECKER, and each of them, full power and
authority to do and perform each and every act and thing whatsoever requisite
and necessary to be done in the premises, as fully, to all intents and
purposes, as he might or could do if personally present, hereby ratifying and
confirming in all respects all that said ROY A. GUTHRIE, TIMOTHY M. HAYES,
KEITH W. HUGHES and CHESTER D. LONGENECKER, or any of them, as said attorneys,
may or shall lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has set his hand this 18th day of March,
1996.
SIGNATURE: /s/ ROY A. GUTHRIE
-------------------------------
Roy A. Guthrie
OFFICE: Executive Vice President,
Comptroller, Principal Accounting
Officer, Principal Financial Officer
and Director
<PAGE> 3
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer and/or a
director of ASSOCIATES CORPORATION OF NORTH AMERICA (the "Company"), has made,
constituted and appointed and by these presents does hereby make, constitute
and appoint ROY A. GUTHRIE, TIMOTHY M. HAYES, KEITH W. HUGHES and CHESTER D.
LONGENECKER, and each of them, his true and lawful attorneys, for him and in
his name, place and stead, and in his office and capacity as aforesaid, to sign
and file the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995, and any and all amendments thereto and any and all other
documents to be signed and filed with the Securities and Exchange Commission in
connection therewith, hereby granting to said ROY A. GUTHRIE, TIMOTHY M. HAYES,
KEITH W. HUGHES and CHESTER D. LONGENECKER, and each of them, full power and
authority to do and perform each and every act and thing whatsoever requisite
and necessary to be done in the premises, as fully, to all intents and
purposes, as he might or could do if personally present, hereby ratifying and
confirming in all respects all that said ROY A. GUTHRIE, TIMOTHY M. HAYES,
KEITH W. HUGHES and CHESTER D. LONGENECKER, or any of them, as said attorneys,
may or shall lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has set his hand this 18th day of March,
1996.
SIGNATURE: /s/ HAROLD D. MARSHALL
-------------------------------
Harold D. Marshall
OFFICE: Director
<PAGE> 4
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer and/or a
director of ASSOCIATES CORPORATION OF NORTH AMERICA (the "Company"), has made,
constituted and appointed and by these presents does hereby make, constitute
and appoint ROY A. GUTHRIE, TIMOTHY M. HAYES, KEITH W. HUGHES and CHESTER D.
LONGENECKER, and each of them, his true and lawful attorneys, for him and in
his name, place and stead, and in his office and capacity as aforesaid, to sign
and file the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995, and any and all amendments thereto and any and all other
documents to be signed and filed with the Securities and Exchange Commission in
connection therewith, hereby granting to said ROY A. GUTHRIE, TIMOTHY M. HAYES,
KEITH W. HUGHES and CHESTER D. LONGENECKER, and each of them, full power and
authority to do and perform each and every act and thing whatsoever requisite
and necessary to be done in the premises, as fully, to all intents and
purposes, as he might or could do if personally present, hereby ratifying and
confirming in all respects all that said ROY A. GUTHRIE, TIMOTHY M. HAYES,
KEITH W. HUGHES and CHESTER D. LONGENECKER, or any of them, as said attorneys,
may or shall lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has set his hand this 18th day of March,
1996.
SIGNATURE: /s/ JOSEPH M. MCQUILLAN
-------------------------------
Joseph M. McQuillan
OFFICE: Director
<TABLE> <S> <C>
<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 DECEMBER 31, 1995 AND THE YEAR THEN ENDED AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 309
<SECURITIES> 885
<RECEIVABLES> 36,368
<ALLOWANCES> 1,109
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 37,024
<CURRENT-LIABILITIES> 0
<BONDS> 31,746
<COMMON> 147
0
0
<OTHER-SE> 4,297
<TOTAL-LIABILITY-AND-EQUITY> 37,024
<SALES> 5,384
<TOTAL-REVENUES> 5,384
<CGS> 0
<TOTAL-COSTS> 4,263
<OTHER-EXPENSES> 1,553
<LOSS-PROVISION> 730
<INTEREST-EXPENSE> 1,980
<INCOME-PRETAX> 1,121
<INCOME-TAX> 413
<INCOME-CONTINUING> 708
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 708
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
