<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-1004
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-6154
ASSOCIATES CORPORATION OF NORTH AMERICA
(Exact name of registrant as specified in its charter)
Delaware 74-1494554
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
250 East Carpenter Freeway, Irving, Texas 75062-2729
(Address of principal executive offices)
(Zip Code)
972-652-4000
(Registrant's telephone number, including area code)
Not applicable
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes..X.. No.....
As of June 30, 1997, the registrant had 260 shares of Common Stock and
1,000,000 shares of Class B Common Stock issued and outstanding, all of which
were owned directly or indirectly by Associates First Capital Corporation.
The registrant meets the conditions set forth in General Instruction H.(1)(a)
and (b) to Form 10-Q and is therefore filing this Form 10-Q with the reduced
disclosure format.
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
ASSOCIATES CORPORATION OF NORTH AMERICA
CONSOLIDATED STATEMENT OF EARNINGS
----------------------------------
(In Millions)
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
June 30 June 30
1997 1996 1997 1996
---------------- ------------------
<S> <C> <C> <C> <C>
REVENUE
Finance charges $3,112.7 $2,662.5 $1,595.5 $1,354.2
Insurance premiums 180.5 169.8 92.9 88.2
Investment and other
income 167.7 134.2 93.0 69.9
-------- -------- -------- --------
3,460.9 2,966.5 1,781.4 1,512.3
EXPENSES
Interest expense 1,207.7 1,046.0 623.6 531.3
Operating expenses 882.5 742.4 455.9 375.7
Provision for losses on
finance receivables 603.1 477.0 307.5 246.0
Insurance benefits paid
or provided 71.2 68.0 35.8 35.0
-------- -------- -------- --------
2,764.5 2,333.4 1,422.8 1,188.0
-------- -------- -------- --------
EARNINGS BEFORE PROVISION
FOR INCOME TAXES 696.4 633.1 358.6 324.3
PROVISION FOR INCOME TAXES 255.3 233.8 132.9 118.8
-------- -------- -------- --------
NET EARNINGS $ 441.1 $ 399.3 $ 225.7 $ 205.5
======== ======== ======== ========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
ASSOCIATES CORPORATION OF NORTH AMERICA
CONSOLIDATED BALANCE SHEET
--------------------------
(Dollars In Millions)
<TABLE>
<CAPTION>
June 30 December 31
1997 1996
------- -----------
ASSETS
<S> <C> <C>
CASH AND CASH EQUIVALENTS $ 74.7 $ 278.4
INVESTMENTS IN DEBT AND EQUITY SECURITIES
- NOTE 3 1,150.4 1,044.4
FINANCE RECEIVABLES, net of unearned finance
income, allowance for credit losses and
insurance policy and claims reserves - NOTE 4 43,576.7 39,714.5
OTHER ASSETS - NOTE 6 1,930.1 1,560.8
--------- ---------
Total assets $46,731.9 $42,598.1
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
NOTES PAYABLE, unsecured short-term
Commercial Paper $17,568.3 $14,712.6
Bank Loans 21.8 1,001.8
ACCOUNTS PAYABLE AND ACCRUALS 850.6 980.6
LONG-TERM DEBT, unsecured
Senior Notes 22,340.4 20,391.4
Subordinated and Capital Notes 425.4 425.5
--------- ---------
22,765.8 20,816.9
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 1,612.7 1,612.7
Retained Earnings 3,768.1 3,327.0
Unrealized Loss on Available-for-Sale
Securities - NOTE 3 (2.4) (0.5)
--------- ---------
Total stockholders' equity 5,525.4 5,086.2
--------- ---------
Total liabilities and stockholders' equity $46,731.9 $42,598.1
========= =========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
ASSOCIATES CORPORATION OF NORTH AMERICA
CONSOLIDATED STATEMENT OF CASH FLOWS
------------------------------------
(In Millions)
<TABLE>
<CAPTION>
Six Months Ended
June 30
1997 1996
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 441.1 $ 399.3
Adjustments to net earnings for noncash items:
Provision for losses on finance receivables 603.1 477.0
Depreciation and amortization 124.3 93.3
Increase in insurance policy and claims
reserves 35.0 32.1
Deferred income taxes (3.0) (39.3)
Decrease in accounts payable and accruals (125.9) (53.0)
Unrealized gain on trading securities (0.9) (0.1)
Sales and maturities of trading securities 4.7 0.7
--------- ----------
Net cash provided from operating activities 1,078.4 910.0
--------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Finance receivables originated or purchased (21,927.6) (19,271.3)
Finance receivables liquidated 17,350.5 15,848.5
Purchases of available-for-sale securities (164.5) (175.4)
Sales and maturities of available-for-sale
securities 51.4 72.5
(Increase) decrease in real estate loans
held for sale (10.8) 7.4
Increase in other assets (405.6) (311.7)
---------- ----------
Net cash used for investing activities (5,106.6) (3,830.0)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of long-term debt 3,565.4 1,813.2
Retirement of long-term debt (1,616.5) (1,392.4)
Increase in notes payable 1,875.6 2,463.6
---------- ----------
Net cash provided from financing activities 3,824.5 2,884.4
---------- ----------
DECREASE IN CASH AND CASH EQUIVALENTS (203.7) (35.6)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 278.4 309.2
---------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 74.7 $ 273.6
========== ==========
CASH PAID FOR:
Interest $ 1,222.6 $ 1,080.8
========== ==========
Income taxes $ 257.6 $ 267.4
========== ==========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
ASSOCIATES CORPORATION OF NORTH AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
NOTE 1 - THE COMPANY
Associates Corporation of North America ("Associates" or the "Company"),
a Delaware corporation, is a wholly-owned subsidiary and principal operating
unit of Associates First Capital Corporation ("First Capital"), which in turn
is a majority indirect-owned subsidiary of Ford Motor Company ("Ford"). All
the outstanding Common Stock of Associates is owned by First Capital. All
shares of Class B Common Stock are owned by Associates World Capital
Corporation, a wholly-owned subsidiary of First Capital. Class B Common Stock
is redeemable only at the option of the issuer.
NOTE 2 - BASIS OF CONSOLIDATION
The accompanying consolidated financial statements consolidate Associates
and its subsidiaries. In the opinion of the management of Associates, all
adjustments necessary to present fairly the results of operations and
financial position have been made and are of a normal recurring nature. The
results of operations for any interim period are not necessarily indicative
of the results of operations for a full year. Certain prior period financial
statement amounts have been reclassified to conform to the current period
presentation.
NOTE 3 - INVESTMENTS IN DEBT AND EQUITY SECURITIES
DEBT SECURITIES
The Company invests in debt securities, principally bonds and notes held
by the Company's insurance subsidiaries, with the intention of holding them
to maturity. However, if market conditions change, the Company may sell these
securities prior to maturity. Accordingly, the Company classifies its
investments in debt securities as available-for-sale securities and adjusts
its recorded value to market. The estimated market value at June 30, 1997 and
December 31, 1996 was $1,143.9 million and $1,034.1 million, respectively.
Amortized cost at June 30, 1997 and December 31, 1996 was $1,147.6 million and
$1,034.9 million, respectively. Realized gains or losses on sales are
included in investment and other income. Unrealized gains or losses are
reported as a component of stockholders' equity, net of tax.
EQUITY SECURITIES
The Company invests in equity securities, principally units of the
Fidelity Magellan Fund, which are recorded at market value. The Company
classifies its investments in equity securities as trading securities and
includes in earnings unrealized gains or losses on such securities. The
estimated market value at June 30, 1997 and December 31, 1996 was $6.5 million
and $10.3 million, respectively. Historical cost at June 30, 1997 and
December 31, 1996 was $4.4 million and $7.8 million, respectively.
<PAGE>
ASSOCIATES CORPORATION OF NORTH AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
------------------------------------------
NOTE 4 - FINANCE RECEIVABLES
At June 30, 1997 and December 31, 1996, finance receivables consisted of
the following (in millions):
<TABLE>
<CAPTION>
June 30 December 31
1997 1996
------- -----------
<S> <C> <C>
Consumer Finance
Home equity lending $16,136.2 $15,435.9
Personal lending and retail sales finance 6,436.1 5,786.5
Credit card 7,527.9 5,517.1
Manufactured housing <F1> 1,299.6 1,257.6
--------- ---------
31,399.8 27,997.1
--------- ---------
Commercial Finance
Truck and truck trailer 8,356.5 8,077.6
Equipment 4,546.9 4,261.4
Auto fleet leasing and other 1,590.9 1,442.8
--------- ---------
14,494.3 13,781.8
--------- ---------
Finance receivables net of unearned
finance income ("net finance receivables") 45,894.1 41,778.9
Allowance for losses on finance receivables (1,589.4) (1,371.4)
Insurance policy and claims reserves (728.0) (693.0)
--------- ---------
Finance receivables, net of unearned
finance income, allowance for credit losses
and insurance policy and claims reserves $43,576.7 $39,714.5
========= =========
- -----------
<FN> <F1> During 1997, First Capital securitized and sold approximately $400
million of manufactured housing finance receivables which reduced the
dollar amount of participation owned by the Company in such receivables.
</FN>
</TABLE>
During the first quarter of 1997, the Company sold, at net book value,
substantially all of its outstanding manufactured housing finance receivables
to an affiliate and subsidiary of First Capital. Immediately subsequent to
the sale, the Company repurchased an interest, at net book value, in
substantially all of such receivables in the form of a participation. Such
participation is included in net finance receivables of Associates.
In May 1997, Associates National Bank (Delaware), a subsidiary of First
Capital, completed its previously announced acquisition of proprietary credit
card receivables and stock from Texaco Refining and Marketing, Inc. and its
affiliate, Star Enterprise. The fair value of the assets acquired was
approximately $704 million. The transaction was accounted for as a purchase
by First Capital. Substantially all of the acquired receivables were sold to
Associates in the form of a participation and are included in the net finance
receivables of Associates.
In April 1997, Associates National Bank (Delaware), a subsidiary of First
Capital, completed its previously announced acquisition of bankcard credit
card receivables from J.C. Penney, Inc. The fair value of the assets acquired
was approximately $700 million. The transaction was accounted for as a
purchase by First Capital. Substantially all of the acquired receivables were
sold to Associates in the form of a participation and are included in the net
finance receivables of Associates.
In March 1997, Associates National Bank (Delaware), a subsidiary of First
Capital acquired a portfolio of bankcard credit card receivables from The Bank
ASSOCIATES CORPORATION OF NORTH AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
------------------------------------------
of New York. The fair market value of such assets acquired totaled
approximately $800 million of which substantially all were sold to Associates
in the form of a participation interest in such receivables. Such
participation is included in the net finance receivables of Associates.
In August 1996, Associates acquired $1.2 billion of net finance
receivables, principally home equity and personal lending receivables and
other assets and liabilities, from Fleet Financial Group. The fair market
value of total assets acquired and liabilities assumed was $1.3 billion and
$1.0 million, respectively.
In July 1996, Associates acquired $837.6 million of certain assets of USL
Capital, an affiliate and Ford subsidiary. Such assets acquired consisted
principally of vehicle fleet leasing receivables. The transaction was
accounted for at historical cost. The excess of purchasing price over the
historical value of assets acquired was $31.4 million which was recorded as
an adjustment to stockholders' equity.
NOTE 5 - ALLOWANCE FOR LOSSES ON FINANCE RECEIVABLES
Changes in the allowance for losses on finance receivables during the
periods indicated were as follows (in millions):
Six Months Ended Year Ended
June 30 December 31
1997 1996 1996
---- ---- ----
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Balance at beginning of
period $1,371.4 $1,109.2 $1,109.2
Provision for losses 603.1 477.0 963.4
Recoveries on receivables
charged off 84.8 64.3 127.7
Losses sustained (614.5) (412.3) (925.7)
Reserves of acquired
businesses and other 144.6 61.7 96.8
-------- -------- --------
Balance at end of period $1,589.4 $1,299.9 $1,371.4
======== ======== ========
</TABLE>
NOTE 6 - OTHER ASSETS
The components of other assets at June 30, 1997 and December 31, 1996
were as follows (in millions):
June 30 December 31
1997 1996
------- -----------
Balances with related parties $ 707.9 $ 341.0
Goodwill 337.9 353.1
Relocation client advances 185.7 159.3
Collateral held for resale 178.8 161.5
Property and equipment 148.2 127.9
Other 371.6 418.0
-------- --------
Total other assets $1,930.1 $1,560.8
======== ========
NOTE 7 - 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 issue of debt securities, which matures on
ASSOCIATES CORPORATION OF NORTH AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
March 15, 1999, generally limits payments of cash dividends on the Company's
Common Stock in any year to not more than 50% of consolidated net earnings for
such year, subject to certain exceptions, plus increases in contributed
capital and extraordinary gains. Any such amounts available for the payment
of dividends in such fiscal year and not so paid, may be paid in any one or
more of the five subsequent fiscal years. In accordance with this provision,
$495.3 million was available for dividends at June 30, 1997.
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 $2.0
billion. At June 30, 1997, Associates tangible net worth was approximately
$5.2 billion.
NOTE 8 - RATIO OF EARNINGS TO FIXED CHARGES
The ratio of earnings to fixed charges of Associates for the six months
ended June 30, 1997 and 1996 was 1.57 and 1.60, respectively. For purposes
of such computation, the term "earnings" represents earnings before provision
for income taxes, plus fixed charges. The term "fixed charges" represents
interest expense and a portion of rentals representative of an implicit
interest factor for such rentals.
NOTE 9 - DERIVATIVE FINANCIAL INSTRUMENTS
The Company is exposed to a variety of market risks including the effects
of movements in interest rates on the Company's future borrowing costs. These
exposures are monitored and managed by the Company as an integral part of its
overall risk management program, the principal goal of which is to reduce the
potential impact of such exposures on the Company's financial position and
results of operations. The Company uses derivative financial instruments for
the purpose of hedging specific exposures as part of its risk management
program. Such instruments have to date been limited to interest rate swap
agreements and treasury lock agreements. It is the Company's policy not to
engage in the use of derivative financial instruments for speculative or
trading purposes.
The Company manages its exposure to counterparties credit risk by
limiting its total position with any single counterparty and monitoring the
financial condition of each counterparty. In the unlikely event that a
counterparty fails to meet the terms of an agreement, the Company's financial
exposure is limited to the fair value of the agreement. Estimated fair values
of such agreements are determined by the Company using available market
information and present value-based valuation methods.
Interest rate swap agreements and treasury lock agreements are used by
the Company to hedge the effect of interest rate movements on present and
anticipated debt issuances of the Company. Such agreements are executed as
an integral element of specific or anticipated financing transactions. On
interest rate swap agreements, the differential paid or received by the
Company is recognized as an adjustment to interest expense over the term of
the underlying financing transaction. On treasury lock agreements, the
differential paid or received by the Company on maturity of such agreements
is recognized as an adjustment to interest expense over the term of the
underlying financing transaction. The aggregate notional amount of interest
rate swap and treasury lock agreements at June 30, 1997 was $1,305.0 million.
The fair value of such agreements at June 30, 1997 was $1.6 million. Interest
rate swap and treasury lock agreements mature on varying dates over the next
two years and five months, respectively. The Company had no such agreements
at December 31, 1996.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis has been prepared in accordance with
General Instruction H.(2)(a) to Form 10-Q, and should be read in conjunction
with the consolidated financial statements of the Company and the related
notes thereto.
ASSOCIATES CORPORATION OF NORTH AMERICA
---------------------------------------
Results of Operations
Net earnings for the six-month period ended June 30, 1997 were $441.1
million, a 10.5% increase over the same period in the previous year. Net
earnings for the three months ended June 30, 1997 were $225.7 million, an
increase of 9.8% over the same period in the previous year. The increase in
net earnings in both comparative periods was principally due to growth in net
finance receivables and an improvement in the ratio of net interest margin to
average net receivables, which was partially offset by increases in the
provision for losses and operating expenses.
Finance charge revenue, on a dollar basis, increased for the six- and
three-months ended June 30, 1997, compared to the same period in the prior
year, principally as a result of growth in average net finance receivables
outstanding. Finance charge revenue as a percentage of average net finance
receivables (the "Finance Charge Ratio") was 14.17% and 14.15% for the six-
and three-month periods ended June 30, 1997, respectively. This compares to
14.11% and 14.08% for the comparable periods in 1996. The increase in the
composite finance charge ratio in each period was principally due to changes
in the mix of net finance receivables.
Interest expense, on a dollar basis, increased for the six- and three-
month periods ended June 30, 1997 compared to the same periods in 1996,
primarily due to an increase in average debt outstanding for each of the
comparative periods, principally resulting from the aforementioned growth in
average net finance receivables. Debt is the primary source of funding to
support the Company's growth in net finance receivables.
As a result of the aforementioned changes in finance charge revenue and
interest expense, the Company's net interest margin increased to $1.9 billion
and $971.9 million for the six- and three-month periods ended June 30, 1997,
respectively, compared to $1.6 billion and $822.9 million for the comparable
periods in the prior year. The Company's net interest margin expressed as a
ratio to average net finance receivables also improved to 8.67% and 8.62% for
the six- and three-month periods ended June 30, 1997, respectively, compared
to 8.56% for both periods in the prior year. The principal cause of the
increase in the Company's net interest margin ratio, in each period, was a
decline in the Company's total average borrowing rates and increase in the
Company's finance charge ratios.
Six- and three-month operating expenses for the periods ended June 30,
1997 were higher on a dollar basis than in the corresponding periods in 1996,
reflecting growth in the size of the Company.
The Company's provision for losses increased from $477.0 million for the
first six months of 1996 to $603.1 million for the same period in 1997. The
provision for losses for the three-month period ended June 30, 1997 increased
from $246.0 million in the prior-year period to $307.5 million for the current
period. In both cases, the provision increased principally as a result of
increased net credit losses. Total net credit losses as a percentage of
average net finance receivables (the "Loss Ratio") were 2.41% and 2.48% for
the six- and three-month periods ended June 30, 1997, respectively, compared
to 1.84% and 1.94% for the same periods in 1996. The increase in the Loss
Ratio in both periods was principally due to a shift toward a higher
percentage of unsecured net finance receivables and to increased net credit
losses across substantially all of the Company's portfolios. Unsecured
finance receivables generally have higher loss ratios than secured finance
receivables. Company management attributes the overall increase in net credit
losses to a number of factors including the elevated leverage of consumer
borrowers and the increased use of bankruptcy to extinguish debt obligations.
As a result of the aforementioned increase in net credit losses, the
Company increased its allowance for losses to 3.46% of net finance receivables
at June 30, 1997 compared to 3.28% of net finance receivables at December 31,
1996. The allowance for losses divided by net credit losses (trailing four
quarter losses), one measurement used by Company management to assess the
adequacy of the allowance for losses, was 1.62 times losses at June 30, 1997
compared to 1.72 times losses at December 31, 1996. Company management
ASSOCIATES CORPORATION OF NORTH AMERICA
---------------------------------------
believes the allowance for losses at June 30, 1997 is sufficient to provide
adequate coverage against losses in its portfolios.
The provision for income taxes, expressed in dollars, increased for both
the six- and three-month periods ended June 30, 1997 compared to the same
periods in 1996, principally as a result of an increase in pretax earnings.
Financial Condition
Net finance receivables grew $4.1 billion (19.7% annualized) and $3.0
billion (28.5% annualized) during the six- and three-month periods ended June
30, 1997, respectively, compared to $3.1 billion (17.0% annualized) and $1.9
billion (20.0% annualized) for the same periods in 1996. The Company had
growth in substantially all of its product lines in both periods. However,
of the total growth, 71% in the six-month period and 59% in the three-month
period, resulted from significant acquisitions, principally of credit card
portfolios.
Composite 60+days contractual delinquency was 2.36% of gross finance
receivables at June 30, 1997, which was higher than the 2.29% at December 31,
1996. The increase in the composite delinquency ratio was principally due to
shifts in the mix of the Company's finance receivables portfolios and
increased delinquency in several of the Company's individual portfolios.
However, a number of the Company's portfolios experienced declines in 60+days
contractual delinquency at June 30, 1997 compared to December 31, 1996.
During the six months ended June 30, 1997, stockholders' equity increased
principally as a result of the aforementioned increase in net earnings.
As a result of the aforementioned, the Company's return on average assets,
average equity and average tangible equity for the six-month period ended June
30, 1997 was 1.97%, 16.66% and 17.83%, respectively. This compares to a
return on average assets, average equity and average tangible equity for the
six months ended June 30, 1996 of 2.07%, 17.26% and 18.64%, respectively.
LIQUIDITY/CAPITAL RESOURCES
Through its asset and liability management function, the Company maintains
a disciplined approach to the management of liquidity, capital and interest
rate 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- and long-term debt and cash provided from the Company's operations.
While First Capital has made periodic capital contributions to the Company in
the past, no assurance can be made with respect to future capital
contributions by First Capital to the Company. 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.
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 commercial paper borrowings made domestically
and long-term debt borrowings made both domestically and internationally.
At June 30, 1997, the Company had short- and long-term debt outstanding
of $17.6 billion and $22.8 billion, respectively. Short-term debt principally
consists of commercial paper issued by the Company and represents the
Company's primary source of short-term liquidity. Long-term debt principally
consists of unsecured long-term debt issued publicly and privately by the
Company. During the six- and three-month periods ended June 30, 1997, and
1996, the Company raised debt aggregating $3.6 billion and $3.1 billion, and
ASSOCIATES CORPORATION OF NORTH AMERICA
---------------------------------------
$1.8 billion and $901.9 million, respectively, through public and private
offerings.
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 June 30, 1997, these short-term
bank lines, revolving credit facilities and receivable purchase facilities
totaled $14.1 billion, of which $0.9 billion was allocated for use by First
Capital. The remaining $13.2 billion represents 75% of net short-term
indebtedness outstanding at June 30, 1997.
Associates has entered into various support agreements on behalf of its
foreign affiliates. Under these support agreements, Associates has either
guaranteed specific issues of such affiliates' debt denominated in foreign
currency or agreed to provide additional support on a lender's reasonable
request. As of June 30, 1997 the amount guaranteed by the Company including
principal and accrued interest totaled $958.0 million.
Additionally, the Company believes it has access to other sources of
liquidity, which to date it has either accessed only on a limited basis, such
as securitization of assets, or has not accessed, such as the issuance of
alternative forms of capital, including preferred stock.
The Company is exposed to a variety of market risks including effects of
movements in interest rates on the Company's future borrowing costs. These
exposures are monitored and managed by the Company as an integral part of its
overall risk management program, the principal goal of which is to reduce the
potential impact of such exposures on the Company's financial position and
results of operations. The Company uses derivative financial instruments for
the purpose of hedging specific exposures as part of its risk management
program. Such instruments have to date been limited to interest rate swap
agreements and treasury lock agreements. It is the Company's policy not to
engage in the use of derivative financial instruments for speculative or
trading purposes. See NOTE 9 for a further discussion of the Company's use
of derivative financial instruments.
Year 2000 Compliance
The Company has a formal program to ensure it will be year 2000 compliant.
The ultimate cost of this program has not been and is not anticipated to be
material to the Company's financial position or results of operations.
Recent Accounting Pronouncements
Statement of Financial Accounting Standards No. 130 ("SFAS 130"),
"Reporting Comprehensive Income", was issued by the Financial Accounting
Standards Board in June 1997. This Statement requires that all items that are
required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed
with the same prominence as other financial statements. The Company will
adopt SFAS 130 beginning January 1, 1998. The effect of adopting this
standard is not expected to be material.
Statement of Financial Accounting Standards No. 131 ("SFAS 131"),
"Disclosures about Segments of an Enterprise and Related Information", was
issued by the Financial Accounting Standards Board in June 1997. This
Statement establishes standards for reporting information about operating
segments in annual financial statements and requires reporting of selected
information about operating segments in interim financial reports issued to
stockholders. It also establishes standards for related disclosures about
products and services, geographic areas, and major customers. The Company
will adopt SFAS 131 beginning January 1, 1998. The effect of adopting this
standard is not expected to be material.
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None to report.
In accordance with General Instruction H.(2)(b), the following items have been
omitted: Item 2, Changes in Securities; Item 3, Defaults Upon Senior
Securities; and Item 4, Submission of Matters to a Vote of Security Holders.
ITEM 5. OTHER INFORMATION.
None to report.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
(12) Computation of Ratio of Earnings to Fixed Charges.
(27) Financial Data Schedule.
(b) Reports on Form 8-K
During the second quarter ended June 30, 1997, Associates filed
Current Reports on Form 8-K dated April 15, 1997 (related to the
release of first quarter earnings) and May 19, May 22, and June
11, 1997 (related to issuances of debt securities pursuant to
Rule 415).
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
August 13, 1997
ASSOCIATES CORPORATION OF NORTH AMERICA
(registrant)
By/s/ Keven P. Hegarty
------------------------------
Senior Vice President, Comptroller and
Principal Accounting Officer
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
NUMBER EXHIBIT PAGE
-----------------------------------------------------------------------------
<S> <C> <C>
12 -- Computation of Ratio of Earnings to Fixed Charges
27 -- Financial Data Schedule
</TABLE>
------------
<PAGE>
EXHIBIT 12
ASSOCIATES CORPORATION OF NORTH AMERICA
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
-------------------------------------------------
(Dollar Amounts in Millions)
<TABLE>
<CAPTION>
Six Months Ended
June 30
1997 1996
--------------------
<S> <S> <S>
Fixed Charges <F1>
Interest expense $1,207.7 $1,046.0
Implicit interest in rent 8.5 7.4
-------- --------
Total fixed charges $1,216.2 $1,053.4
======== ========
Earnings <F2>
Earnings before provision for income
taxes $ 696.4 $ 633.1
Fixed charges 1,216.2 1,053.4
-------- --------
Earnings, as defined $1,912.6 $1,686.5
======== ========
Ratio of Earnings to Fixed Charges 1.57 1.60
==== ====
<FN>
<F1> 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.
<F2> For purposes of such computation, the term "earnings" represents
earnings before provision for income taxes, plus fixed charges.
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
0 MEANS NOT APPLICABLE OR NOT SEPARATELY DISCLOSED. This schedule contains
summary financial information extracted from the Company's unaudited
consolidated financial statements as of June 30, 1997 and the six months then
ended and is qualified in its entirety by reference to such consolidated
financial statements.
</LEGEND>
<CIK> 0000007973
<NAME> ASSOCIATES CORPORATION OF NORTH AMERICA
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1997
<CASH> 75
<SECURITIES> 1,150
<RECEIVABLES> 45,894
<ALLOWANCES> 1,589
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 46,732
<CURRENT-LIABILITIES> 0
<BONDS> 40,356
<COMMON> 147
0
0
<OTHER-SE> 5,378
<TOTAL-LIABILITY-AND-EQUITY> 46,732
<SALES> 3,461
<TOTAL-REVENUES> 3,461
<CGS> 0
<TOTAL-COSTS> 2,765
<OTHER-EXPENSES> 954
<LOSS-PROVISION> 603
<INTEREST-EXPENSE> 1,208
<INCOME-PRETAX> 696
<INCOME-TAX> 255
<INCOME-CONTINUING> 441
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 441
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
