<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 September 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 September 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>
Nine Months Ended Three Months Ended
September 30 September 30
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUE
Finance charges $4,744.2 $4,102.3 $1,631.5 $1,439.8
Insurance premiums 272.7 260.6 92.2 90.8
Investment and other
income 270.0 212.3 102.3 78.1
-------- -------- -------- --------
5,286.9 4,575.2 1,826.0 1,608.7
EXPENSES
Interest expense 1,862.9 1,627.4 655.2 581.4
Operating expenses 1,360.8 1,168.2 478.3 425.8
Provision for losses on
finance receivables 897.2 714.8 294.1 237.8
Insurance benefits paid
or provided 104.9 105.3 33.7 37.3
-------- -------- --------- --------
4,225.8 3,615.7 1,461.3 1,282.3
-------- -------- --------- --------
EARNINGS BEFORE PROVISION
FOR INCOME TAXES 1,061.1 959.5 364.7 326.4
PROVISION FOR INCOME TAXES 390.0 353.1 134.7 119.3
-------- -------- -------- --------
NET EARNINGS $ 671.1 $ 606.4 $ 230.0 $ 207.1
======== ======== ======== ========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
ASSOCIATES CORPORATION OF NORTH AMERICA
CONSOLIDATED BALANCE SHEET
(Dollars In Millions)
<TABLE>
<CAPTION>
September 30 December 31
1997 1996
------------ -----------
ASSETS
<S> <C> <C>
CASH AND CASH EQUIVALENTS $ 335.8 $ 278.4
INVESTMENTS IN DEBT AND EQUITY SECURITIES
- NOTE 3 1,100.8 1,044.4
FINANCE RECEIVABLES, net of unearned finance
income, allowance for credit losses and
insurance policy and claims reserves - NOTE 4 44,538.1 39,714.5
OTHER ASSETS - NOTE 6 2,029.5 1,560.8
--------- ---------
Total assets $48,004.2 $42,598.1
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
NOTES PAYABLE, unsecured short-term
Commercial Paper $17,606.0 $14,712.6
Bank Loans 34.0 1,001.8
ACCOUNTS PAYABLE AND ACCRUALS 1,054.8 980.6
LONG-TERM DEBT, unsecured
Senior Notes 23,124.0 20,391.4
Subordinated and Capital Notes 425.4 425.5
--------- ---------
23,549.4 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 3,998.1 3,327.0
Unrealized Gain (Loss)on Available-for-Sale
Securities - NOTE 3 2.2 (0.5)
--------- ---------
Total stockholders' equity 5,760.0 5,086.2
--------- ---------
Total liabilities and stockholders' equity $48,004.2 $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>
Nine Months Ended
September 30
1997 1996
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 671.1 $ 606.4
Adjustments to net earnings for noncash items:
Provision for losses on finance receivables 897.2 714.8
Depreciation and amortization 191.1 145.2
Increase in insurance policy and claims
reserves 63.7 66.7
Increase in accounts payable and accruals 78.9 52.2
Deferred income taxes (6.0) (31.2)
Unrealized gain on trading securities (1.7) (0.3)
Purchase of trading securities (99.0)
Sales and maturities of trading securities 29.8 3.3
---------- ----------
Net cash provided from operating activities 1,825.1 1,557.1
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Finance receivables originated or purchased (32,953.2) (29,376.6)
Finance receivables liquidated 27,051.8 23,533.4
Excess of purchase price over historical value
of assets acquired from Ford affiliate (32.7)
Purchases of available-for-sale securities (230.5) (245.7)
Sales and maturities of available-for-sale
securities 248.7 109.9
Increase in real estate loans held for sale (15.3) (21.1)
Increase in other assets (527.2) (387.4)
---------- ----------
Net cash used for investing activities (6,425.7) (6,420.2)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of long-term debt 5,067.2 4,151.4
Retirement of long-term debt (2,334.8) (1,819.1)
Increase in notes payable 1,925.6 2,451.8
Capital contribution from parent 82.1
---------- -----------
Net cash provided from financing activities 4,658.0 4,866.2
---------- ----------
INCREASE IN CASH AND CASH EQUIVALENTS 57.4 3.1
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 278.4 309.2
---------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 335.8 $ 312.3
========== ==========
CASH PAID FOR:
Interest $ 1,784.7 $ 1,567.9
========== ==========
Income taxes $ 391.5 $ 354.9
========== ==========
</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. See Note 10 concerning the planned spin off of First Capital by
Ford.
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 September 30, 1997 and December 31, 1996 was $1,019.6 million and
$1,034.1 million, respectively. Amortized cost at September 30, 1997 and
December 31, 1996 was $1,016.3 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 preferred stock
and 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 September 30, 1997 and
December 31, 1996 was $81.2 million and $10.3 million, respectively.
Historical cost at September 30, 1997 and December 31, 1996 was $78.3
million and $7.8 million, respectively.
<PAGE>
NOTE 4 - FINANCE RECEIVABLES
At September 30, 1997 and December 31, 1996, finance receivables
consisted of the following (in millions):
<TABLE>
<CAPTION>
September 30 December 31
1997 1996
------------ -----------
<S> <C> <C>
Consumer Finance
Home equity lending $16,879.5 $15,435.9
Personal lending and retail sales finance 6,554.2 5,786.5
Credit card 7,346.0 5,517.1
Manufactured housing <F1> 1,178.2 1,257.6
--------- ---------
31,957.9 27,997.1
--------- ---------
Commercial Finance
Truck and truck trailer 8,512.0 8,077.6
Equipment 4,652.0 4,261.4
Auto fleet leasing and other 1,810.0 1,442.8
--------- ---------
14,974.0 13,781.8
--------- ---------
Finance receivables net of unearned
finance income ("net finance
receivables") 46,931.9 41,778.9
Allowance for losses on finance receivables (1,637.1) (1,371.4)
Insurance policy and claims reserves (756.7) (693.0)
--------- ---------
Finance receivables, net of unearned
finance income, allowance for credit
losses and insurance policy and claims
reserves $44,538.1 $39,714.5
========= =========
- -----------
<FN>
<F1> During 1997, First Capital securitized and sold approximately $800
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 the net finance
receivables of Associates.
In May 1997, Associates National Bank (Delaware), a subsidiary of
First Capital, acquired a portfolio of proprietary credit card receivables
and stock from Texaco Refining and Marketing, Inc. and its affiliate, Star
Enterprise. The fair market 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, acquired a portfolio of bankcard credit card receivables
from J.C. Penney, Inc. The fair market 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 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):
<TABLE>
<CAPTION>
Nine Months Ended Year Ended
September 30 December 31
1997 1996 1996
---- ---- ----
<S> <C> <C> <C>
Balance at beginning of
period $1,371.4 $1,109.2 $1,109.2
Provision for losses 897.2 714.8 963.4
Recoveries on receivables
charged off 133.6 96.4 127.7
Losses sustained (950.7) (663.7) (925.7)
Reserves of acquired
businesses and other 185.6 98.2 96.8
-------- -------- --------
Balance at end of period $1,637.1 $1,354.9 $1,371.4
======== ======== ========
</TABLE>
<PAGE>
NOTE 6 - OTHER ASSETS
The components of other assets at September 30, 1997 and December 31,
1996 were as follows (in millions):
<TABLE>
<CAPTION>
September 30 December 31
1997 1996
------------ -----------
<S> <C> <C>
Balances with related parties $ 765.9 $ 341.0
Goodwill 333.7 353.1
Collateral held for resale 199.7 161.5
Relocation client advances 175.2 159.3
Property and equipment 158.5 127.9
Other 396.5 418.0
-------- --------
Total other assets $2,029.5 $1,560.8
======== ========
</TABLE>
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 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, $610.3 million was available for dividends at
September 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 September 30, 1997, Associates tangible net worth was
approximately $5.4 billion.
NOTE 8 - RATIO OF EARNINGS TO FIXED CHARGES
The ratio of earnings to fixed charges of Associates for the nine
months ended September 30, 1997 and 1996 was 1.57 and 1.59, 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 to date have been limited
to interest rate swap and treasury lock agreements.
The Company manages its exposure to counterparty 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 and treasury lock agreements are held for purposes
other than trading and 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 September 30, 1997 was $1,040.0 million. The
fair value of such agreements at September 30, 1997 was $0.9 million.
Interest rate swap and treasury lock agreements mature on varying dates
over the next two years and two months, respectively. The Company had no
such agreements at December 31, 1996.
NOTE 10 - SUBSEQUENT EVENT
On October 8, 1997, Ford announced plans to spin off its 80.7%
interest in First Capital in the form of a distribution of its First
Capital shares to Ford common and class B stockholders. The transaction is
subject to a ruling from the U.S. Internal Revenue Service that the
transaction will be tax-free to Ford and its stockholders. The ruling
process is expected to take several months.
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.
Results of Operations
Net earnings for the nine-month period ended September 30, 1997 were
$671.1 million, an 11% increase over the same period in the previous year.
Net earnings for the three months ended September 30, 1997 were $230.0
million, an increase of 11% 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, both of which more than offset
increases in the provision for losses on net finance receivables.
Finance charge revenue, on a dollar basis, increased for the nine- and
three-months ended September 30, 1997, compared to the same periods 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 14.09% and 14.02%
for the nine- and three-month periods ended September 30, 1997,
respectively. This compares to 14.07% and 14.05% for the comparable periods
in 1996. The changes in the composite portfolio finance charge ratios for
both comparable periods were driven by changes in the mix of net finance
receivables, and slight declines in the finance charge rates of consumer
and commercial operations, partially offset by increases in credit card
portfolio finance charge rates.
Interest expense, on a dollar basis, increased for the nine- and
three-month periods ended September 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 $2.9
billion and $976.4 million for the nine- and three-month periods ended
September 30, 1997, respectively, compared to $2.5 billion and $858.4
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 8.56% and 8.39% for the nine- and three-month periods
ended September 30, 1997, respectively, compared to 8.49% and 8.38% for the
comparable 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 debt-to-equity ratio.
Nine- and three-month operating expenses for the periods ended
September 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 $714.8 million for
the first nine months of 1996 to $897.2 million for the same period in
1997. The provision for losses for the three-month period ended September
30, 1997 increased from $237.8 million in the prior-year period to $294.1
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 2.43% and 2.47% for the nine- and three-month periods ended
September 30, 1997, respectively, compared to 1.95% and 2.14% 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 the Company's
unsecured and real estate 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 higher consumer debt levels and increased
bankruptcies.
As a result of the aforementioned increase in net credit losses, the
Company increased its allowance for losses to 3.49% of net finance
receivables at September 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
1.56 times losses at September 30, 1997 compared to 1.72 times losses at
December 31, 1996. Company management believes the allowance for losses at
September 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 nine- and three-month periods ended September 30, 1997 compared to
the same periods in 1996, principally as a result of an increase in pretax
earnings.
<PAGE>
Financial Condition
Net finance receivables grew $5.2 billion (16.4% annualized) and $1.0
billion (9.0% annualized) during the nine- and three-month periods ended
September 30, 1997, respectively, compared to $5.3 billion (19.4%
annualized) and $2.2 billion (22.4% annualized) for the same periods in
1996. The higher growth levels in each 1996 period compared to 1997 was
primarily due to the timing of major acquisitions. The Company had growth
in both consumer and commercial operations in both periods. However, of
the total growth, 57% in the nine-month period ended September 30, 1997,
resulted from major acquisitions, principally of credit card portfolios.
There were no major acquisitions in the three-month period ended September
30, 1997.
Composite 60+days contractual delinquency was 2.47% of gross finance
receivables at September 30, 1997, which was higher than the 2.10% 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 most of the Company's portfolios.
During the nine months ended September 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 nine-month
period ended September 30, 1997 was 1.95%, 16.54% and 17.66%, respectively.
This compares to a return on average assets, average equity and average
tangible equity for the nine months ended September 30, 1996 of 2.03%,
17.11% and 18.49%, 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 principal sources of cash for the Company 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,
management believes that the Company 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 September 30, 1997, the Company had short- and long-term debt
outstanding of $17.6 billion and $23.5 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 nine- and three-month periods ended
September 30, 1997 and 1996, the Company raised debt aggregating $5.1
billion and $1.5 billion, and $4.2 billion and $2.3 billion, 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 September
30, 1997, these short-term bank lines, revolving credit facilities and
receivable purchase facilities totaled $14.4 billion, of which $1.0
billion was allocated for use by First Capital. The remaining $13.4
billion represents 76% of net short-term indebtedness outstanding at
September 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 September 30, 1997 the amount guaranteed by the
Company including principal and accrued interest totaled $1.2 billion.
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 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 neutralize the potential impact of such exposures on the
Company's financial position and results of operations. The Company
primarily 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 and treasury
lock agreements. See NOTE 9 of the consolidated financial statements 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
plans to adopt SFAS 131 in the year ended December 31, 1998. The effect of
adopting this standard is not expected to be material.
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.
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995.
Associates Corporation of North America (the "Company"), desires to take
advantage of the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995 (the "1995 Act"). The 1995 Act provides a
"safe harbor" for forward-looking statements to encourage companies to
provide information without fear of litigation so long as those statements
are identified as forward-looking and are accompanied by meaningful
cautionary statements identifying important factors that could cause actual
results to differ materially from those projected. Although the Company
does not anticipate that it will make forward-looking statements as a
general policy, the Company will make forward-looking statements as
required by law or regulation, and may from time to time make such
statements with respect to management's estimation of the future operating
results and business of the Company.
The following is a summary of the factors the Company believes important
that could cause actual results to differ from the Company's expectations.
The Company is publishing these factors pursuant to the 1995 Act. Such
factors should not be construed as exhaustive or as an admission regarding
the adequacy of disclosure made by the Company prior to the effective date
of the 1995 Act. Readers should understand that several factors govern
whether any forward-looking statement will be or can be achieved. Any one
of those factors could cause actual results to differ materially from those
projected. No assurance is or can be given that any important factor set
forth below will be realized in a manner so as to allow the Company to
achieve the desired or projected results. The words "believe," "expect,"
"anticipate," "intend," "aim," "will" and similar words identify
forward-looking statements. The Company cautions readers that the following
important factors, among others, could affect the Company's actual results
and could cause the Company's actual consolidated results to differ
materially from those expressed in any forward-looking statements made by
or on behalf of the Company.
* Rapid changes in interest rates, which could limit the Company's
ability to generate new finance receivables or decrease the
Company's net interest margins.
* Increase in non-performing loans and credit losses.
* The inability of the Company to access capital and financing on
terms acceptable to the Company.
* Changes in governmental regulation affecting the Company's ability
to conduct business, the manner in which it conducts business, or
the level of the interest rates charged by the Company.
* Heightened competition, including the intensification of price
competition, the entry of new competitors, and the introduction of
new products by new and existing competitors.
* Adverse publicity and news coverage about the Company or about any
of its proposed products or services.
* Adverse results in litigation matters involving the Company.
* General economic and inflationary conditions affecting consumer
debt levels and credit losses and overall increases in the cost of
doing business.
* Changes in social and economic conditions such as increasing
consumer bankruptcies, inflation and monetary fluctuations, and
changes in tax rates or tax laws.
* Changes in accounting policies and practices, and the application
of such policies and practices to the Company.
* Loss or retirement of key executives, employees or technical
personnel.
* The effect of changes within the Company's organization or in
compensation and benefit plans and the ability of the Company to
attract and retain experienced and qualified management personnel.
* Natural events and acts of God such as earthquakes, fires or
floods.
* Adverse changes, or any announcement relating to a possible or
contemplated adverse change, in the ratings obtained from any of
the independent rating agencies relating to the Company's debt
securities or other financial instruments.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
(12) Computation of Ratio of Earnings to Fixed Charges.
(27) Financial Data Schedule.
(b) Reports on Form 8-K
During the third quarter ended September 30, 1997, Associates
filed Current Reports on Form 8-K dated July 15, 1997
(related to the release of second quarter earnings) and July
9 and August 12, 1997 (related to issuances of debt
securities pursuant to Rule 415).
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
November 13, 1997
ASSOCIATES CORPORATION OF NORTH AMERICA
(registrant)
By/s/ John F. Stillo
-------------------------
John F. Stillo
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>
Nine Months Ended
September 30
1997 1996
---- ----
<S> <C> <C>
Fixed Charges <F1>
Interest expense $1,862.9 $1,627.4
Implicit interest in rent 13.3 11.3
-------- --------
Total fixed charges $1,876.2 $1,638.7
======== ========
Earnings <F2>
Earnings before provision for income
taxes $1,061.1 $ 959.5
Fixed charges 1,876.2 1,638.7
-------- --------
Earnings, as defined $2,937.3 $2,598.2
======== ========
Ratio of Earnings to Fixed Charges 1.57 1.59
==== ====
<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 September 30, 1997 and the nine
months then ended and is qualified in its entirety by reference to such
consolidated financial statements.
</LEGEND>
<CIK> 0000007973
<NAME> ASSOCIATES CORPORATION OF NORTH AMERICA
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1997
<CASH> 336
<SECURITIES> 1,101
<RECEIVABLES> 46,932
<ALLOWANCES> 1,637
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 48,004
<CURRENT-LIABILITIES> 0
<BONDS> 41,189
<COMMON> 147
0
0
<OTHER-SE> 5,613
<TOTAL-LIABILITY-AND-EQUITY> 48,004
<SALES> 5,287
<TOTAL-REVENUES> 5,287
<CGS> 0
<TOTAL-COSTS> 4,226
<OTHER-EXPENSES> 1,466
<LOSS-PROVISION> 897
<INTEREST-EXPENSE> 1,863
<INCOME-PRETAX> 1,061
<INCOME-TAX> 390
<INCOME-CONTINUING> 671
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 671
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
