ASSOCIATES CORPORATION OF NORTH AMERICA, 10-K, 1999-03-03

ASSOCIATES CORPORATION OF NORTH AMERICA
10-K, 1999-03-03
PERSONAL CREDIT INSTITUTIONS

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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

FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998

[ ] 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)

<TABLE>
<S> <C>
DELAWARE 74-1494554
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)

250 EAST CARPENTER FREEWAY 75062-2729
IRVING, TEXAS (Zip Code)
(Address of principal executive offices)
</TABLE>

Registrant's telephone number, including area code
972-652-4000

Securities registered pursuant to Section 12(b) of the Act:

<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
------------------- ------------------------
<S> <C>
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, 1998, 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 I.(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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PART I

ITEM 1. BUSINESS.

COMPANY OVERVIEW

Associates Corporation of North America ("Associates" or the "Company"), a
Delaware corporation, is a wholly-owned subsidiary and the principal U.S.-based
operating unit of Associates First Capital Corporation ("First Capital"). The
Company is a leading diversified finance organization providing finance, leasing
and related services to individual consumers and businesses in the United States
and Puerto Rico. Associates had 1,485 branch offices and employed approximately
18,300 persons at December 31, 1998. Corporate headquarters are located in
Irving, Texas.

From October 31, 1989 to April 7, 1998, First Capital was a subsidiary of
Ford FSG, Inc. and an indirect-owned subsidiary of Ford Motor Company ("Ford").
On April 7, 1998, Ford completed a spin-off of its interest in First Capital in
the form of a tax-free distribution of its First Capital Class A common stock to
Ford common and Class B stockholders. Effective with this distribution, First
Capital was no longer a subsidiary of Ford and became a fully independent
company. First Capital's Class A common stock is traded on the New York Stock
Exchange under the symbol "AFS".

For the year ended December 31, 1998, the Company had total revenues of
$7.1 billion and net earnings of $952.0 million. At December 31, 1998, aggregate
net finance receivables were $46.0 billion, total assets were $56.6 billion and
stockholders' equity was $6.8 billion.

The Company's finance receivables are geographically dispersed across the
United States and Puerto Rico. At December 31, 1998, 11% of such receivables
were in California, 9% in Texas, 7% in Florida, and no other individual state
had more than 5%.

Although the Company's finance operations are confined to the United States
and Puerto Rico, certain subsidiaries of First Capital, which are also
affiliates of the Company, operate in countries outside the United States,
including Japan, Canada, the United Kingdom, Mexico, Costa Rica and Taiwan. The
Company provides certain management and other services to such affiliates
relating to these foreign operations. See NOTE 7 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.

Certain prior year amounts presented herein have been restated to conform
to current year methodology.

AVCO ACQUISITION

On January 6, 1999, First Capital purchased the assets and assumed the
liabilities of Avco Financial Services, Inc. ("Avco"). First Capital
subsequently transferred substantially all of the domestic and Puerto Rico
consumer finance operations of Avco to the Company, which included approximately
$4 billion in finance receivables. Prior to the acquisition, Avco had the fourth
largest U.S. consumer finance branch network with over 2 million customers and
over 4,000 dealer and merchant agreements. Avco's domestic and Puerto Rico
consumer finance product offerings include home equity lending, retail sales
finance and consumer loans.

Avco's headquarters in Costa Mesa, California, are expected to close in the
second quarter of 1999, as all corporate functions will be consolidated with the
Company's headquarters in Irving, Texas. Most of the 400 jobs at Avco
headquarters will be eliminated. The Avco Technology Center, also in Costa Mesa,
is expected to close in the third quarter of 1999 after Avco's information
systems have been integrated with the Company's systems. Avco's Denver
Purchasing Center, which has approximately 200 employees and duplicates many of
the operations of the Company's credit processing facility in Salt Lake City, is
expected to close in the first quarter of 1999.

PRODUCT INFORMATION

The Company offers a variety of consumer financing products and services,
including home equity and personal loans, retail sales finance and private label
credit cards and purchases participations in private label

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credit card receivables originated by an affiliate. The Company also offers
retail and wholesale financing, and leasing for heavy-duty and medium-duty
trucks and truck trailers, construction, material handling and other industrial
and communications equipment, auto fleet leasing and other products and services
to commercial customers. As part of these finance activities, the Company makes
available to its customers credit-related and other insurance products. In
addition, prior to December 31, 1997, the Company participated in First
Capital's manufactured housing finance activities. On December 31, 1997 this
participation was terminated and substantially all manufactured housing related
assets and liabilities were transferred, at book value, to First Capital.

For information on consumer and commercial product revenues see Item 6
"Selected Financial Data."

The Company's consumer finance customers span a wide range of income levels
and credit histories. These customers generally have a history of using credit
from a variety of sources and include homeowners, purchasers of consumer
durables (such as furniture, electronics and appliances) and college students.
In extending credit, the Company considers, among other things, the customer's
capacity to repay (e.g., income, debt ratio, and employment stability), credit
history and available collateral for secured loans (including home ownership).
In addition, credit scoring models are used extensively to evaluate risk.

The Company distributes its consumer finance products through multiple
delivery systems, which include (i) consumer branch offices and (ii) centralized
consumer lending and credit card operations. Home equity loans account for the
largest portion of the Company's consumer finance portfolio, and are distributed
through a branch delivery system and centralized lending operations. The Company
also offers personal installment and revolving loans and purchases consumer
retail sales finance contracts through its branch delivery and centralized
lending systems. In addition, the Company offers private label credit cards
through its subsidiary, Associates Capital Bank, Inc. ("ACB"), and purchases
participations in the private label credit card receivables of an affiliate. The
Company, through certain subsidiaries and third parties, makes available various
credit-related and other insurance products to its consumer finance customers,
including credit life, credit accident and health, accidental death and
dismemberment, involuntary unemployment and personal property insurance. The
Company also provides emergency roadside assistance and auto club services.

Delivery of Consumer Products and Services. The Company distributes its
consumer finance products through branch offices and centralized consumer and
credit card lending operations described below:

Consumer Branch System. At December 31, 1998, the Company's consumer
finance branch system consisted of 1,400 geographically dispersed office
locations in the United States and Puerto Rico. These locations operate
under four different nameplates -- Associates Financial Services, TranSouth
Financial, First Family Financial Services and Kentucky Finance. Products
distributed include direct origination of home equity loans, personal loans
and retail sales finance.

Centralized Lending. The Company's centralized home equity lending
operation is conducted through Associates Home Equity Services, Inc.
("AHES"). AHES offers both fixed and variable rate closed-end loans and
lines of credit, secured by residential property. At December 31, 1998, a
majority of the home equity loans in the Company's centralized home equity
lending operation were originated through unaffiliated mortgage brokers and
financial institutions. Mortgage brokers are independent agents who match
their customers with a lender based on the customer's needs and the credit
profile requirements of the lender. The remaining home equity loans in the
centralized lending operation at December 31, 1998 were originated as a
result of existing customer relationships, direct mail and telemarketing
efforts. The Company's centralized home equity lending operation covers
most of the United States through six regional service centers and 36
district sales offices located in 24 states.

Additionally, the Company has a centralized warehouse lending
operation, which is conducted through First Collateral Services, Inc.
("FCS"). FCS provides short-term lines of credit secured by residential
mortgages to small and mid-sized mortgage brokers throughout the United
States.

The Company also conducts centralized lending operations through ACB,
a Federal Deposit Insurance Corporation ("FDIC") insured Utah chartered
industrial loan company. ACB offers loans by

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mail on a nationwide basis and operates a number of private label retail
credit card programs throughout the United States.

The Company also offers a variety of finance products to commercial
customers including 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 and construction, material handling and other industrial and
communications equipment. Prior to December 31, 1997, the Company also provided
a wide range of retail and wholesale financing products and services to the
manufactured housing sector through its participation in First Capital's
manufactured housing activities. On December 31, 1997 this participation was
terminated and substantially all manufactured housing related assets and
liabilities were transferred, at book value, to First Capital. In addition, the
Company engages in a number of other commercial activities, including auto fleet
leasing and fleet management services, government guaranteed lending, employee
relocation services and municipal finance. The Company, through certain
subsidiaries and third parties, also makes available various credit-related and
other insurance products to its commercial finance customers, including
commercial auto and dealers' open lot physical damage, credit life and motor
truck cargo insurance. The Company also offers commercial auto liability
insurance in certain states.

Delivery of Commercial Products and Services. The Company distributes its
commercial finance products through branch and regional offices and centralized
commercial lending, leasing and service operations described below:

Commercial Branch System. The Company provides truck and truck trailer
financing, equipment financing and leasing services and manufactured
housing financing through 64 branch and six regional offices in the United
States and Puerto Rico. Additionally, the Company's sales force regularly
contacts truck and truck trailer dealers, construction equipment dealers
and manufactured home retailers to purchase finance contracts made between
those dealers and retailers and the ultimate end-user. The Company also
provides short-term trailer rentals through 21 U.S. branch offices.

Centralized Lending, Leasing and Services. The Company utilizes five
centralized operations to distribute lending, leasing and fee-based
products and services. The Company's auto fleet leasing and fleet
management services operation is directed through United States Fleet
Leasing. Additionally, the Company utilizes centralized operations to
provide material handling and other industrial and communications equipment
products, employee relocation services and government guaranteed lending
programs. Insurance products are marketed to commercial finance customers
through the same delivery systems used to market commercial finance
products and services.

The following table shows net finance receivables outstanding attributable
to the various types of financing products (in millions):

NET FINANCE RECEIVABLES OUTSTANDING

<TABLE>
<CAPTION>
AT DECEMBER 31
-------------------------------------------------------------
1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Home Equity Lending(1)............ $20,435.8 $17,437.3 $15,435.9 $13,190.4 $11,455.2
Truck and Truck Trailer........... 10,038.0 9,011.1 8,077.6 7,415.7 6,553.0
Personal Lending/Retail Sales
Finance......................... 6,566.2 6,920.6 5,786.5 4,752.7 4,188.9
Equipment(2)...................... 4,882.1 4,899.8 4,261.4 3,729.1 2,909.3
Auto Fleet Leasing................ 1,471.4 1,418.9 1,087.4 327.1 299.4
Credit Card(3).................... 1,398.0 7,333.6 5,517.1 4,616.8 3,834.6
Manufactured Housing(4)........... 20.7 24.1 1,257.6 2,049.3 1,681.1
Warehouse Lending and Other(5).... 1,226.3 809.1 355.4 287.2 54.2
--------- --------- --------- --------- ---------
Total................... $46,038.5 $47,854.5 $41,778.9 $36,368.3 $30,975.7
========= ========= ========= ========= =========
</TABLE>

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(1) In March 1998, the Company securitized and sold approximately $235 million
of home equity lending receivables.

(2) In March 1998, approximately $650 million of equipment finance receivables
were sold, at book value, to First Capital.

(3) As described in NOTE 5 to the consolidated financial statements, in April
1998, the Company sold, at book value, approximately $5.2 billion of the
Company's participation interest in the U.S. bankcard credit card
receivables of First Capital.

(4) During 1997 and 1996, First Capital or the Company securitized and sold
approximately $800 million and $1.3 billion, respectively, of manufactured
housing retail finance receivables which reduced the dollar amount of
participation owned by the Company in such receivables. In 1996, the
servicing rights to such securitization were transferred to Associates
Housing Finance Services, Inc. ("AHFS"), an affiliate of the Company and a
subsidiary of First Capital. During 1997, the Company sold, at net book
value, substantially all of its outstanding manufactured housing finance
receivables to AHFS. Immediately subsequent to the sale, the Company
repurchased a participation interest, at net book value, in substantially
all of such receivables. Such participation was included in the net finance
receivables of Associates until December 31, 1997 when the participation
agreement was terminated. As of December 31, 1998 and 1997, the receivables
of the manufactured housing business were included in the consolidated
accounts of First Capital and $20.7 million and $24.1 million, respectively,
of manufactured housing receivables (which were not included in the First
Capital participation agreement) were included in the accounts of the
Company.

(5) Includes warehouse lending, government guaranteed lending and municipal
finance (prior to 1997, municipal finance was included in truck and truck
trailer and equipment net finance receivables).

During 1998, the average finance charge yield (finance charge revenue
divided by average net receivables) on commercial finance products and consumer
finance products approximated 10% and 15%, respectively.

Home Equity Lending. Home equity lending activities consist of originating
and servicing fixed and variable rate mortgage loans that are secured primarily
by single-family residential properties. Typically, such loans are not used for
the acquisition of homes, but 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.

Home equity loans typically have initial maturities of up to 180 months.
Variable rates were charged on approximately 14% of home equity finance
receivables outstanding at December 31, 1998. Home equity loans may be secured
by either first or second mortgages. At December 31, 1998, approximately 78% of
the aggregate net outstanding balance of home equity lending receivables was
secured by first mortgages.

Truck and Truck Trailer Financing and Leasing. The Company believes that it
is one of the leading independent sources of financing and leasing for
heavy-duty trucks and truck trailers in the United States. The Company provides
retail financing and leasing for purchasers and users of medium-duty trucks,
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 Company provides retail financing of new and used medium-duty trucks,
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. Retail truck and truck trailer financing is also sourced directly with
truck or truck trailer purchasers.

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.

Fleet leasing is provided for users of medium-duty trucks, heavy-duty
trucks and truck trailers. Most 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 generally retains the tax depreciation benefit.

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The Company also provides truck trailer rental services through short-term
operating leases. Under these leases, the Company is the owner of the equipment
and the lessee enjoys the use of the equipment for periods from a few days to
several months.

In addition, new and used vehicle wholesale financing is provided to truck
and truck trailer dealers. Generally, such loans are short-term with variable
rates (prime rate based) and are secured by inventory.

Personal Lending/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 and consumer durables. Personal loan
contract terms range up to 60 months and generally require payments on an
installment basis. In general, personal loans are made for debt consolidations,
home improvements, education, vacations, taxes and purchases of automobiles,
appliances and other durable goods. Personal loans are marketed through direct
mail, advertising, referrals and the solicitation of existing retail sales
finance customers.

Retail sales finance contracts are generally for the purchase of items such
as household electronics and appliances, furniture and home improvements. These
contracts are generally purchased from retailers of such items, and provide an
important source of new loan customers. The sales finance relationship often
leads to other types of financing for the customer based on the individual's
credit needs. 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.

Equipment Financing and Leasing. The Company believes that it is one of the
leading independent sources of financing and leasing of new and used
construction, mining, forestry, industrial, machine tool, material handling,
communications and turf maintenance equipment and golf carts in the United
States. Wholesale and rental fleet financing is offered to dealers (who may
either sell or rent the equipment to end-users) and retail financing and leasing
is offered to equipment end-users.

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 depends on, among other things,
the credit quality of the purchaser, transaction size, term, down payment and
whether the collateral is new or used.

Leasing for end-users of equipment, either directly to the customer or
through dealers is also provided. 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 as part of residual risk management) and typically include an option
for the lessee to acquire the equipment at the end of the lease term for the
fair market value.

In addition, the Company 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.

Auto Fleet Leasing. The Company believes it is one of the leading providers
of auto fleet leasing and management services for corporations and
municipalities in the United States with auto and light truck fleets of
generally 100 or more vehicles. Management services, which are provided through
a centralized operation, primarily include vehicle purchasing and sales, license
and title administration, vehicle maintenance management, accident management,
fuel card management, driver expense report processing and other tailored
services to allow companies to fully outsource their fleet management
operations. Auto fleet leasing receivables have increased substantially since
1995 principally due to the July 1996 acquisition of certain auto leasing assets
of USL Capital, formerly an affiliate and Ford subsidiary, and the acquisition
of the commercial auto fleet leasing operation of AT&T Capital Corporation in
December 1997.

Credit Card Receivables. Credit card receivables consist of private label
credit cards which are marketed to the public directly and through co-operative
marketing programs with other companies. The private label

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credit card business has principally consisted of customized revolving credit
programs for customers of Amoco and Texaco.

The Company's credit card related revenues are derived from finance charges
on revolving accounts, the interchange fees resulting from merchant discounts,
annual membership and other account fees, as well as, fees earned from the sale
of insurance and other fee-based products. The Company's credit card receivables
typically bear variable (prime rate based) interest rates.

Manufactured Housing. Prior to December 31, 1997, the Company participated
in First Capital's manufactured housing activities. On December 31, 1997, this
participation was terminated and substantially all manufactured housing assets
and liabilities were transferred, at book value, to First Capital. Accordingly,
the manufactured housing receivable balance decreased from $1.3 billion on
December 31, 1996 to $24.1 million on December 31, 1997 and $20.7 million on
December 31, 1998. First Capital's manufactured housing activities consist of
purchasing manufactured housing retail installment contracts originated by
retail dealers, originating and servicing direct loans to purchasers, and
providing wholesale financing to approved manufactured housing dealers. First
Capital also offers commercial business loans to certain manufactured housing
dealers to provide capital to build new retail sales centers, update existing
facilities or expand into community park sales.

Warehouse Lending and Other. The Company's other activities principally
include the following:

Warehouse Lending. The Company provides short-term financing, secured
by real estate mortgages, to mortgage companies and other mortgage lenders.

Government Guaranteed Lending -- SBA and B&I Loans. The Company
extends credit to small businesses that is partially guaranteed by the
United States government under the Small Business Administration 7(a), 504,
LowDoc, and SBAExpress programs, as well as the USDA Business and
Industrial Loan program. These programs provide financing of $50,000 to $5
million for working capital, equipment, commercial real estate, debt
refinancing and business acquisitions. The Company maintains Preferred
Lender Status in eight SBA Districts in Texas and California and it plans
to extend its Preferred Lender Status to additional SBA districts in the
upcoming year.

Employee Relocation Services. The Company provides corporations and
certain federal government agencies with assistance in employee relocation,
origination of mortgages and management and disposition of residential real
estate.

Municipal Finance. The Company provides financing for the acquisition
of real and personal property by state and local government entities,
not-for-profit (sec.501(c)(3)) corporations and qualified industrial
companies.

Emergency Roadside Assistance and Auto Club Services. The Company
offers various emergency roadside assistance and related auto club services
to consumers through major corporations, primarily automobile
manufacturers.

Related Insurance. The Company, through certain of its subsidiaries and
other third party insurance providers, makes available various credit-related
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 and motor truck cargo insurance. In addition to
insurance underwriting, the Company also receives compensation for certain
insurance programs underwritten by other companies. The Company underwrites
liability insurance in certain states for its commercial auto physical damage
customers.

The purchase of insurance by a finance customer is optional, with the
exception of physical damage insurance on loan collateral, which is generally
required. The customer can purchase such insurance either from the Company or an
alternative carrier chosen by the customer. Premiums for insurance coverage are
generally financed as part of the insured's finance obligation.

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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
------------------------------------------
1998 1997 1996 1995 1994
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net Written Premium
Credit life, accident and other related......... $210.7 $252.3 $232.2 $187.9 $201.7
Physical damage................................. 194.7 210.3 186.2 180.3 168.7
Other casualty and liability.................... 53.4 64.2 51.4 46.4 35.5
------ ------ ------ ------ ------
Total................................... $458.8 $526.8 $469.8 $414.6 $405.9
====== ====== ====== ====== ======
Premium Revenue(2)
Credit life, accident and other related......... $187.5 $186.6 $170.5 $164.8 $136.1
Physical damage................................. 154.1 140.6 143.8 115.7 130.0
Other casualty and liability.................... 42.3 42.9 40.5 44.6 27.4
------ ------ ------ ------ ------
Total................................... $383.9 $370.1 $354.8 $325.1 $293.5
====== ====== ====== ====== ======
Investment Income................................. $ 90.5 $ 78.9 $ 68.4 $ 65.3 $ 44.9
====== ====== ====== ====== ======
Benefits Paid or Provided......................... $144.0 $142.1 $142.9 $135.7 $144.1
====== ====== ====== ====== ======
</TABLE>

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(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 policies underwritten by other
companies.

ADDITIONAL INFORMATION REGARDING THE COMPANY

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 generally charged to the provision for losses on finance
receivables. An analysis of changes in the allowance for losses is contained in
NOTE 6 to the consolidated financial statements.

Finance receivables are charged to the allowance for losses when they are
deemed to be uncollectible. Additionally, the Company's 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 contractually 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 contractually
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.

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The following table sets forth information as of the dates shown regarding
contractual delinquency, net credit losses and allowance for losses. 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."

60+DAYS CONTRACTUAL DELINQUENCY, NET CREDIT LOSSES, AND
ALLOWANCE FOR LOSSES TO NET FINANCE RECEIVABLES

<TABLE>
<CAPTION>
YEAR ENDED OR AT DECEMBER 31
--------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- ------
<S> <C> <C> <C> <C> <C>
60+Days Contractual Delinquency
Consumer finance products............... 3.30% 3.06% 2.90% 2.24% 1.81%
Commercial finance products............. 1.06 1.04 1.12 0.64 0.28
Total........................... 2.41% 2.35% 2.29% 1.72% 1.33%
Total dollars delinquent (in
millions)..................... $1,195.6 $1,211.0 $1,038.9 $ 698.6 $463.8
Net Credit Losses to Average Net
Receivables
Consumer finance products............... 2.85% 3.45% 2.82% 2.35% 2.29%
Commercial finance products............. 0.34 0.27 0.33 0.19 0.09
Total........................... 1.94% 2.43% 2.02% 1.66% 1.60%
Total dollars (in millions)..... $ 882.0 $1,107.8 $ 798.0 $ 557.7 $456.7
Allowance for Losses Amount (in
millions)............................... $1,378.9 $1,661.9 $1,371.4 $1,109.2 $932.4
Allowance for Losses to Net Finance
Receivables............................. 3.00% 3.47% 3.28% 3.05% 3.01%
Allowance for Losses to Net Credit
Losses(1)............................... 1.76x 1.50x 1.72x 1.99x 2.04x
</TABLE>

- ---------------

(1) The 1998 figure represents the ratio of allowance for losses to annualized
second, third and fourth quarter losses. The 1994-1997 amounts reflect the
allowance for losses to net credit losses for the respective year. First
quarter losses are not reflected in the 1998 ratio because they were
incurred before the second quarter sale of approximately $5.2 billion of
credit card receivables. Losses incurred after this transaction are more
representative of current loss levels.

The Company's ten largest accounts at December 31, 1998 (all of which were
current at December 31, 1998) represented less than 2% of the Company's total
gross finance receivables outstanding. All of such accounts are secured
commercial finance accounts.

COMPETITION

The markets in which the Company operates are highly competitive. Many
competitors are large companies that have substantial capital and technological
and marketing resources. 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 related businesses include
independent finance companies, 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. 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.

Competition varies across products offered. While there is considerable
competition in the home equity loan market, the market is fragmented with no
single competitor claiming a significant market share. The

8
<PAGE> 10

Company, as a portfolio lender, maintains considerable product and delivery
flexibility, which the Company believes is a competitive advantage.

Competition also varies by delivery system and geographic region. For
example, competitors of the Company's branch system are distinct from the
competitors of the Company's centralized lending operations.

In its commercial finance businesses, the Company competes with captive and
independent finance companies, commercial banks, thrifts and other financial
institutions, leasing companies, lease brokers, manufacturers, vendors and
others.

The Company believes, based on its experience in the industry, that the
primary competitive factors in the commercial finance and leasing business are
price, product quality, risk management, new account marketing and retention of
customers through emphasis on superior customer service. In addition, the
Company believes that innovation is necessary to compete in the industry,
including enhanced customer service, specialization in certain types of
equipment, exploitation of alternative channels of distribution and, in certain
lines of business, optimization of tax treatment between owner and user.
Purchasers of equipment financed by the Company generally seek transactions that
are simple, flexible and customer responsive.

Competitors in the insurance business include national, regional and local
insurance companies, as well as self-insurance programs and captive insurers.
Competition in the insurance business is based upon price, product design and
service levels rendered to producers and policyholders. The insurance business
is extremely competitive, in both price and services, and no single insurer is
dominant. The Company believes that its ability to market its insurance products
through its distribution systems gives it a distinct competitive advantage over
its competitors who do not have such ability.

REGULATION

The Company's operations are subject to extensive state and federal
regulation 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, as amended ("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 or their impact on the future
business, financial condition or prospects of the Company.

The Company's consumer finance businesses, including its credit card
business, are generally subject to detailed supervision by governmental
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 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 subject to the TILA and Regulation Z promulgated thereunder.
The 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. The TILA
also guarantees consumers a three-day right to cancel certain credit
transactions, including purchase money refinancing and home equity loans secured
by a consumer's primary residence. Section 32 of

9
<PAGE> 11

Regulation Z mandates that applicants for real estate loans which contain
certain rate and fee amounts be provided an additional three day waiting period
prior to signing loan documents.

In addition, the Company is subject to the ECOA which, in part, prohibits
credit discrimination on the basis of race, color, religion, sex, marital
status, national origin or age. Regulation B, promulgated under the 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.

ACB is regulated by the FDIC 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.

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 changed 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.

Although most jurisdictions do not regulate commercial finance, certain
jurisdictions do require licensing of lenders and financiers, 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 jurisdictions 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.

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, 1998
and are therefore not significant in relation to total assets. Branch finance
operations are generally conducted on leased premises under operating leases
with terms not normally exceeding five years. At December 31, 1998, the Company
had 1,485 offices in the United States and Puerto Rico.

ITEM 3. LEGAL PROCEEDINGS.

10
<PAGE> 12

claims which, if adversely held against the Company, would require large
expenditures or could affect the manner in which the Company conducts its
business.

In addition, the Company, like many other companies that operate in
regulated businesses, is from time to time the subject of various governmental
inquiries and investigations. The Company is currently the subject of certain
investigations and inquiries by federal and state governmental authorities
relating generally to the Company's lending practices. The Company does not have
sufficient information to predict with certainty the ultimate outcome of such
investigations and inquiries or their ultimate effect, if any, on the Company's
results of operations or financial condition or the manner in which the Company
operates its business.

Legal actions, governmental inquiries and investigations are subject to
many uncertainties, and the outcome of individual matters is not predictable
with assurance. Some of the matters discussed in the foregoing paragraphs could
be decided unfavorably to the Company or the subsidiary involved and could
require the Company or such subsidiary to pay damages or make other expenditures
in amounts or a range of amounts that cannot be estimated at December 31, 1998.
The Company does not reasonably expect, based on its analysis, that any adverse
outcome from such matters would have a material effect on future consolidated
financial statements for a particular year, although such an outcome is
possible.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

Omitted in accordance with General Instruction I.(2)(c) to Form 10-K.

11
<PAGE> 13

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

All of the outstanding common stock of Associates is owned by First Capital
and all of the Class B common stock is owned by Associates World Capital
Corporation, a wholly-owned subsidiary of First Capital. 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. A dividend of $28.4 million and $14.2 million
was paid on Class B common stock during the years ended December 31, 1998 and
1996, respectively. A common stock dividend of $201.6 million and $204.7 million
was paid during 1998 and 1996, respectively. No dividends were paid in 1997.

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 to not more than 50% of
consolidated net earnings for such year, subject to certain exceptions, plus
increases in contributed capital and extraordinary gains. Future issues of
Associates debt may also contain such a restriction. 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 $2.5 billion. At December 31, 1998,
Associates tangible net worth was $6.4 billion. In addition, ACB and the
Company's insurance subsidiaries may pay dividends and make certain other
transfers of funds to the Company only up to amounts permitted by applicable
banking and insurance regulations, respectively.

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, 1998. This information is being provided in lieu of the
information called for by item 6 of Form 10-K, in accordance with General
Instruction I.(2)(a) to Form 10-K. 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 notes included elsewhere in this report (dollar amounts in
millions):

<TABLE>
<CAPTION>
YEAR ENDED OR AT DECEMBER 31
---------------------------------------------------------
1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Results of Operations
Total revenue
Consumer finance products......... $ 5,159.3 $ 5,343.1 $ 4,493.2 $ 3,882.4 $ 3,147.6
Commercial finance products....... 1,940.0 1,808.0 1,728.2 1,502.0 1,240.3
--------- --------- --------- --------- ---------
Total........................ 7,099.3 7,151.1 6,221.4 5,384.4 4,387.9
Finance charge revenue............... 5,841.5 6,428.5 5,580.3 4,805.3 3,866.7
Interest expense..................... 2,842.2 2,543.9 2,206.7 1,979.8 1,509.7
Net interest margin.................. 2,999.3 3,884.6 3,373.6 2,825.5 2,357.0
Operating expenses................... 1,660.7 1,842.5 1,603.3 1,417.8 1,191.6
Provision for losses................. 949.4 1,195.6 963.4 729.7 569.9
Insurance benefits paid.............. 144.0 142.1 142.9 135.7 144.1
Earnings before provision for income
taxes............................. 1,503.0 1,427.0 1,305.1 1,121.4 972.6
Provision for income taxes........... 551.0 524.5 482.0 413.3 369.1
Net earnings......................... 952.0 902.5 823.1 708.1 603.5
Balance Sheet Data
Finance receivables, net of unearned
finance income.................... $46,038.5 $47,854.5 $41,778.9 $36,368.3 $30,975.7
Allowance for losses................. 1,378.9 1,661.9 1,371.4 1,109.2 932.4
Total assets......................... 56,577.3 50,531.1 42,598.1 37,023.7 31,687.2
Short-term debt (notes payable)...... 16,427.9 18,386.6 15,714.4 13,434.7 12,211.9
Long-term debt....................... 32,205.5 25,135.4 20,816.9 18,311.5 14,963.2
Stockholders' equity................. 6,756.2 6,048.7 5,086.2 4,444.0 3,786.1
Selected Data and Ratios
Net interest margin as a percentage
of average net finance
receivables....................... 6.59% 8.53% 8.53% 8.39% 8.24%
Return on average assets............. 1.78 1.93 2.03 2.06 2.04
Return on average equity............. 14.65 16.32 17.06 17.21 17.10
Earnings to fixed charges............ 1.53x 1.56x 1.59x 1.56x 1.64x
Total debt to equity................. 7.1:1 7.1:1 7.1:1 7.1:1 7.1:1
60+days contractual delinquency
Consumer finance products......... 3.30% 3.06% 2.90% 2.24% 1.81%
Commercial finance products....... 1.06 1.04 1.12 0.64 0.28
Total........................ 2.41% 2.35% 2.29% 1.72% 1.33%
Net credit losses to average net
receivables
Consumer finance products......... 2.85% 3.45% 2.82% 2.35% 2.29%
Commercial finance products....... 0.34 0.27 0.33 0.19 0.09
Total........................ 1.94% 2.43% 2.02% 1.66% 1.60%
Allowance for losses to net finance
receivables....................... 3.00 3.47 3.28 3.05 3.01
Allowance for losses to net credit
losses(1)......................... 1.76x 1.50x 1.72x 1.99x 2.04x
</TABLE>

- ---------------

13
<PAGE> 15

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.

GENERAL

The Company is a leading diversified finance organization providing
finance, leasing and related services to individual consumers and businesses in
the United States and Puerto Rico. The Company's revenues principally consist of
finance charge income and, to a lesser extent, insurance premiums and investment
and other fee income. The Company's primary expenses are interest expense from
the funding of its finance business, provision for loan losses and operating
expenses. A principal factor determining the profitability of the Company is
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. It has been prepared in accordance with
General Instruction I.(2)(a) to Form 10-K. This discussion should be read in
conjunction with the consolidated financial statements of the Company and the
related notes thereto.

RESULTS OF OPERATIONS

SUMMARY OF RESULTS OF OPERATIONS

The following table summarizes the Company's earnings and related data
(dollars in millions):

EARNINGS AND RELATED DATA

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Earnings before provision for income taxes............. $1,503.0 $1,427.0 $1,305.1
Net earnings........................................... 952.0 902.5 823.1
Return
On average assets.................................... 1.78% 1.93% 2.03%
On average equity.................................... 14.65 16.32 17.06
</TABLE>

The principal factors, which influenced the changes in the Company's
earnings before provision for income taxes and net earnings in each period are
net interest margin, investment and other income, operating expenses and
provision for loan losses, all of which are described in the sections that
follow.

NET INTEREST MARGIN

The Company's net interest margin was as follows (dollars in millions):

NET INTEREST MARGIN

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
---------------------------------------------------------------------
1998 1997 1996
--------------------- --------------------- ---------------------
AMOUNT PERCENT(1) AMOUNT PERCENT(1) AMOUNT PERCENT(1)
-------- ---------- -------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Finance Charge Revenue......... $5,841.5 12.83% $6,428.5 14.11% $5,580.3 14.12%
Interest Expense............... 2,842.2 6.13 2,543.9 6.34 2,206.7 6.34
-------- -------- --------
Net Interest Margin............ $2,999.3 6.59% $3,884.6 8.53% $3,373.6 8.53%
======== ======== ========
</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.

The decrease in net interest margin in 1998 compared to 1997 and 1996 was
primarily due to a shift in product mix towards more secured portfolios. Secured
portfolios typically have lower finance charge yields than unsecured portfolios.
The shift in product mix was principally due to the second quarter sale (the
"Credit Card Sale"), at book value, of approximately $5.2 billion of the
Company's participation interest in the U.S.

14
<PAGE> 16

bankcard credit card receivables of First Capital. See NOTE 5 to the
consolidated financial statements for more information on this transaction.

FINANCE CHARGES

Finance charge revenue and yield for the Company were as follows (dollars
in millions):

FINANCE CHARGES

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Finance Charge Revenue............................. $5,841.5 $6,428.5 $5,580.3
Yield(1)........................................... 12.83% 14.11% 14.12%
</TABLE>

- ---------------

(1) Calculated as finance charge revenue as a percentage of average net finance
receivables outstanding for the indicated period.

Finance charge revenue increased, on a dollar basis, in 1997 compared to
1996 primarily due to the growth in average net finance receivables outstanding.
Finance charge revenue decreased in 1998 compared to 1997 due to the decline in
average net finance receivables caused by the receivable sales and
securitization during 1998. See NOTE 5 to the consolidated financial statements
for more information on these transactions.

The principal factors which influence the trend of finance charge yields
are (i) the composition of the finance receivable portfolios (i.e., "product
mix"); (ii) the interest rate environment; and (iii) the level of business
competition. The shift in product mix towards more secured portfolios due to the
aforementioned Credit Card Sale was the primary cause of the decrease in finance
charge yields in 1998 compared to 1997 and 1996. Secured portfolios generally
have lower yields than unsecured portfolios. A generally declining interest rate
environment and increased competition also contributed to the decrease.

INTEREST EXPENSE

Total dollars of interest expense increased in each of the three years
ended 1998. In each year the increase was principally due to higher average
outstanding debt as a result of the Company's growth in total assets. The
increase in interest expense as a result of asset growth in 1998 was partially
offset by a decline in the Company's average borrowing rate in each period.
Declines in the Company's average borrowing rate were primarily caused by
decreasing market interest rates and by a modest shift toward a higher
percentage of floating-rate debt as a percentage of total debt. Floating-rate
debt rates were lower than long-term debt rates in each period.

INSURANCE PREMIUM REVENUE

Insurance premium revenue was $383.9 million, $370.1 million and $354.8
million for the years ended December 31, 1998, 1997 and 1996, respectively.
Insurance premium revenue, which is earned over the coverage term, increased
$13.8 million (3.7%) in 1998, $15.3 million (4.3%) in 1997, and $29.7 million
(9.1%) in 1996. 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 business activities and volume.

INVESTMENT AND OTHER INCOME

Investment income is derived from interest income on notes due from related
parties and gains and losses on the Company's investments in debt and equity
securities. Other income is primarily derived from service fees under master
servicing agreements related to securitized home equity lending receivables and
from other fee-based services, such as employee relocation services, emergency
roadside assistance and auto club services and from royalty, guarantee and
service fees the Company receives from its foreign affiliates. Investment and
other income for the years ended December 31, 1998, 1997 and 1996 was $873.9
million, $352.5 million and $286.3 million, respectively. The increase in other
income in 1998 compared to 1997 and 1996 was principally

15
<PAGE> 17

due to the earnings on the note receivable from First Capital resulting from the
second quarter Credit Card Sale described in NOTE 5 to the consolidated
financial statements. The growth of the Company's investment portfolio and in
fee-based services also contributed to the 1998 increase and were the primary
causes of the increase in 1997 compared to 1996.

OPERATING EXPENSES

Operating expenses, which do not include interest expense, were as follows
(dollars in millions):

OPERATING EXPENSES

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------------------------------
1998 1997 1996
---------------- ---------------- ----------------
AMOUNT % ANR AMOUNT % ANR AMOUNT % ANR
-------- ----- -------- ----- -------- -----
<S> <C> <C> <C> <C> <C> <C>
Salaries and Benefits......... $ 919.5 2.02% $ 961.5 2.11% $ 828.8 2.10%
Data Processing............... 141.0 0.31 145.2 0.32 120.4 0.30
Occupancy..................... 113.5 0.25 111.8 0.24 91.8 0.23
Other......................... 486.7 1.07 624.0 1.37 562.3 1.43
-------- ---- -------- ---- -------- ----
Total............... $1,660.7 3.65% $1,842.5 4.04% $1,603.3 4.06%
======== ==== ======== ==== ======== ====
Efficiency Ratio.............. 40.4% 41.3% 41.4%
==== ==== ====
</TABLE>

Operating expenses, on a dollar basis, declined in 1998 compared to 1997,
primarily as a result of lower levels of outstanding receivables during the
year. As a percentage of average net receivables ("ANR"), total operating
expenses decreased from 1996 to 1998. In addition, the Company's total operating
efficiency, as measured by the ratio of total operating expenses to revenues net
of interest expense and insurance benefits paid or provided (the "Efficiency
Ratio") improved in each year.

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 unit profitability, each business unit establishes an allowance for
loan loss when a loan is made through a 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 unit, the relationship of the allowance for losses to net finance
receivables outstanding and the relationship of the allowance for losses to
total net credit losses. The resulting charge is included in the provision for
losses.

Finance receivables are charged to the allowance for losses when they are
deemed to be uncollectible. Additionally, the Company's 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 contractually
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 one year contractually delinquent. A
contractually delinquent account is one on which the customer has not made
payments as contractually agreed. 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, 1998 and
1997, net finance receivables on which revenue was not accrued approximated $1.1
billion. The interest income that would have been recorded in 1998 if these
nonaccruing receivables had been current was approximately $24 million.

16
<PAGE> 18

The balance of the allowance for losses was principally influenced by the
provision for losses and by net credit loss experience. Additions to the
allowance, due to growth in finance receivables, were generally charged to the
provision for losses at the time the growth occurred. Losses were charged to the
allowance as incurred and recoveries on losses previously charged to the
allowance were credited to the allowance at the time the recovery was collected.
The components of the changes in the allowance for losses were as follows
(dollars in millions):

COMPONENTS OF CHANGES IN THE ALLOWANCE FOR LOSSES

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------------
1998 1997 1996
--------- --------- --------
<S> <C> <C> <C>
Balance at Beginning of Period....................... $ 1,661.9 $ 1,371.4 $1,109.2
Provision for losses............................... 949.4 1,195.6 963.4
Recoveries on receivables charged off.............. 150.5 190.5 127.7
Losses sustained................................... (1,032.5) (1,298.3) (925.7)
--------- --------- --------
Net credit loss experience................. (882.0) (1,107.8) (798.0)
--------- --------- --------
Reserves of receivables sold(1).................... (359.4) -- --
Reserves of acquired businesses and other.......... 9.0 202.7 96.8
--------- --------- --------
Balance at End of Period............................. $ 1,378.9 $ 1,661.9 $1,371.4
========= ========= ========
Allowance for Losses to Net Finance Receivables...... 3.00% 3.47% 3.28%
Loss Coverage Ratio(2)............................... 1.76x 1.50x 1.72x
</TABLE>

- ---------------

(1) The reserves related to receivables sold during 1997 and 1996 were not
significant.

(2) The 1998 figure represents the ratio of allowance for losses to annualized
second, third and fourth quarter losses. The 1997 and 1996 amounts reflect
the allowance for losses to net credit losses for the respective year. First
quarter losses are not reflected in the 1998 ratio because they were
incurred before the second quarter sale of approximately $5.2 billion of
credit card receivables. Losses incurred after this transaction are more
representative of current loss levels.

The allowance for losses as a percent of net finance receivables increased
in 1997 and declined in 1998. The decline in 1998 is principally due to the
aforementioned Credit Card Sale in the second quarter of 1998 that caused a
shift in product mix in 1998 towards more secured portfolios. Secured portfolios
generally have lower losses and therefore lower allowance requirements than
unsecured portfolios. An increase in consumer bankruptcy levels during 1998
somewhat offset the decline in the allowance in 1998 and was the primary factor
driving the increase in 1997. Management believes the allowance for losses at
December 31, 1998 is sufficient to provide adequate protection against losses in
its portfolios. Although the allowance for losses on finance receivables
reflected in the Company's consolidated balance sheet at December 31, 1998 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.

17
<PAGE> 19

The Company's 60+days contractual delinquency and net credit losses as a
percentage of average net finance receivables ("ANR") for each of these years
are set forth in the following table (dollars in millions):

CONTRACTUAL DELINQUENCY AND NET CREDIT LOSSES

<TABLE>
<CAPTION>
YEAR ENDED OR AT DECEMBER 31
------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
60+Days Contractual Delinquency
Consumer finance products............................ 3.30% 3.06% 2.90%
Commercial finance products.......................... 1.06 1.04 1.12
Total........................................ 2.41% 2.35% 2.29%
Total dollars delinquent..................... $1,195.6 $1,211.0 $1,038.9
Net Credit Losses to ANR
Consumer finance products............................ 2.85% 3.45% 2.82%
Commercial finance products.......................... 0.34 0.27 0.33
Total........................................ 1.94% 2.43% 2.02%
Total dollars................................ $ 882.0 $1,107.8 $ 798.0
</TABLE>

Consumer contractual delinquency levels and net credit losses increased
from 1996 through 1997, reflecting higher consumer debt and bankruptcy levels.
The rate of increase in consumer debt and bankruptcy levels slowed in 1998
resulting in a slight increase in the Company's contractual delinquency rates.
The decrease in net credit loss rates in 1998 reflects the shift in product mix
towards more secure portfolios caused by the aforementioned Credit Card Sale in
the second quarter of 1998. Secured portfolios typically have lower loss rates
than unsecured portfolios.

INSURANCE BENEFITS PAID OR PROVIDED

Insurance benefits paid or provided were $144.0 million in 1998, $142.1
million in 1997 and $142.9 million in 1996. Benefits paid or provided are
influenced by the amount of insurance in force, underwriting standards, loss
experience, term of coverage and product mix.

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
------------------------------------------------------------
1998 1997 1996
------------------ ------------------ ------------------
EFFECTIVE EFFECTIVE EFFECTIVE
AMOUNT TAX RATE AMOUNT TAX RATE AMOUNT TAX RATE
------ --------- ------ --------- ------ ---------
<S> <C> <C> <C> <C> <C> <C>
U.S. statutory rate.......... $526.4 35.0% $499.4 35.0% $456.8 35.0%
State income taxes......... 20.7 1.4 22.3 1.6 20.3 1.6
Non-deductible goodwill and
other................... 3.9 0.2 2.8 0.2 4.9 0.3
------ ----- ------ ---- ------ ----
Provision for income taxes... $551.0 36.6% $524.5 36.8% $482.0 36.9%
====== ===== ====== ==== ====== ====
</TABLE>

The provision for income taxes maintained consistent levels in each of the
comparable periods.

18
<PAGE> 20

FINANCIAL CONDITION

NET FINANCE RECEIVABLES

The net change in net finance receivables in 1998 and 1997 were as follows:

CHANGE IN NET FINANCE RECEIVABLES

<TABLE>
<CAPTION>
AT DECEMBER 31
---------------------
1998 1997
--------- ---------
<S> <C> <C>
Net finance receivables..................................... $46,038.5 $47,854.5
(Decrease) increase....................................... (1,816.0) 6,075.6
% change.................................................. (3.8)% 14.5%
</TABLE>

The decrease in net finance receivables in 1998 compared to 1997 was
primarily due to the aforementioned Credit Card Sale of $5.2 billion of the
Company's participation interest in First Capital's U.S. bankcard credit card
receivables in the second quarter of 1998. The participation interest was sold
to First Capital and financed by a loan between the Company and First Capital.
See NOTE 5 to the consolidated financial statement for more information on this
transaction. The decrease in net finance receivables caused by the Credit Card
Sale was partially offset by strong internal growth in the Company's home equity
lending portfolio driven by the Company's entrance into the Texas home equity
lending market during 1998, and strong internal growth in commercial
transportation financing portfolios. The increase in net finance receivables in
1997 compared to 1996 was due to the acquisitions described in NOTE 5 to the
consolidated financial statements and internal receivable growth.

DEBT

Total outstanding debt was $48.6 billion and $43.5 billion at December 31,
1998 and 1997, respectively. Such amounts of debt reflect net increases of $5.1
billion (11.7%) in 1998 and $7.0 billion (19.1%) in 1997. In both years, the
increase was primarily a result of the growth in total assets. At December 31,
1998 and 1997, short-term debt, including the current portion of long-term debt,
as a percent of total debt was 47% and 52%, respectively. The current portion of
long-term debt at December 31, 1998 and 1997 was $6.5 billion and $4.2 billion,
respectively.

STOCKHOLDERS' EQUITY

Stockholders' equity increased to $6.8 billion in 1998 from $6.0 billion in
1997. In each year, the increase was principally as a result of net earnings
during the period. Stockholders' equity was also adjusted in 1998 and 1997 by
net unrealized (losses) gains of $(14.5) million and $4.9 million, respectively,
related to investments in available-for-sale securities. During 1998 the Company
paid cash dividends to First Capital in the amount of $230.0 million. No common
stock dividends were paid in 1997. In addition, during 1997 the Company received
a contribution of $55.1 million from its parent in the form of shares of an
affiliate, Associates Financial Services Company of Puerto Rico, Inc., which
approximates its fair value.

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-term 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 it has
available sufficient liquidity, from a combination of cash provided from
operations and external borrowings, to support its operations.

19
<PAGE> 21

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 it is able
to meet its obligations as they mature. The Company's operations are principally
funded through commercial paper borrowings made domestically and long-term debt
borrowings made both domestically and internationally.

At December 31, 1998, the Company had short-term debt outstanding of $16.4
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 1998 and 1997 was 5.49% and 5.70%,
respectively.

At December 31, 1998, the Company had long-term debt outstanding of $32.2
billion. Long-term debt principally consists of senior unsecured long-term debt
issued publicly and privately by the Company in the United States and abroad.
During the years ended 1998 and 1997, the Company raised debt aggregating $11.3
billion and $7.4 billion, respectively, through public and private offerings at
weighted average effective interest rates and weighted average terms of 6.00%
and 6.8 years and 6.26% and 6.7 years, respectively. The change in effective
average interest rates was primarily caused by overall changes in market rates
during such years and a slight shift in debt mix to include more floating rate
debt instruments. A portion of the long-term debt raised was used to retire
outstanding indebtedness. For the years ended 1998 and 1997, the Company
replaced maturing long-term debt in the amount of $4.2 billion and $3.1 billion,
respectively.

Substantial additional liquidity is available to the Company's operations
through established credit facilities in support of its commercial paper
borrowings. Such credit facilities provide a means of refinancing its maturing
short-term obligations as needed. At December 31, 1998, these credit facilities
totaled $18.1 billion, of which $12.4 billion was allocated for use by First
Capital. These credit facilities provide at least 75% coverage of commercial
paper outstanding at December 31, 1998. See NOTE 9 to the Company's consolidated
financial statements.

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 capital,
including preferred stock.

MARKET RISK

The risk management discussion and the estimated amounts generated from the
analysis that follows are forward-looking statements of market risk assuming
certain adverse market conditions occur. Actual results in the future may differ
materially from these projected results due to changes in the Company's product
and debt mix and developments in the global financial markets. The analytical
methods used by the Company to assess and mitigate these risks should not be
considered projections of future events or operating performance.

The Company is exposed to a variety of market risks, primarily the effects
of movements in interest rates. These exposures are monitored and managed by the
Company as an integral part of its overall management program. The principal
goal of the Company's risk management program is to reduce the potential impact
of such exposures on the Company's financial position and operating performance.
The Company uses derivative financial instruments for the purpose of hedging
exposures as part of its risk management program. See NOTES 2 and 16 of the
consolidated financial statements for a further discussion of the Company's use
of derivative financial instruments. The Company also believes that its overall
balance sheet structure has repricing and cash flow characteristics that
mitigate the impact of interest rate movements.

INTEREST RATE RISK

Interest rate risk is measured and controlled through the use of static gap
analysis and financial forecasting, both of which incorporate assumptions as to
future events. The Company's gap position is defined as the sum of floating rate
asset balances and principal payments on fixed rate assets, less the sum of
floating

20
<PAGE> 22

rate liability balances and principal payments on fixed rate liabilities. The
Company measures its gap position at various time horizons, ranging from one
month to five years. The Company seeks to maintain a negative three- and
six-month gap, and a positive one-year gap.

First Capital acquired Avco on January 6, 1999. First Capital subsequently
transferred substantially all Avco domestic and Puerto Rico consumer finance
receivables to the Company. The December 31, 1998 computations set forth in
these sections have been adjusted to give effect to the Company's investment
activities in connection with the raising of the $3.9 billion purchase price of
Avco, which activities were initiated prior to December 31, 1998. At December
31, 1998 and 1997, the one-year gap was a positive 12% and 8%, respectively. The
Company's positive one year gap target range indicates that a greater percentage
of assets than liabilities reprice within a one-year time frame.

In addition to the gap analysis, the Company uses a simulation model to
evaluate the impact on earnings under a variety of scenarios. These scenarios
may include changes in the absolute level of interest rates, the shape of the
yield curve, prepayments, interest rate spread relationships and changes in the
volumes and rates of various asset and liability categories. For an immediate 1%
increase in rates, projected annual after-tax earnings would increase by
approximately $23 million and $1 million at December 31, 1998 and 1997,
respectively. An immediate 1% rise in interest rates is a hypothetical rate
scenario, used to calibrate risk, and does not currently represent management's
view of future market developments.

For purposes of the United States Securities and Exchange Commission
disclosure requirements, the Company has also performed an enterprise-wide value
at risk ("VAR") analysis of the Company's financial assets and liabilities and
their exposure to changes in interest rates. The VAR was calculated using an
historical simulation risk model to calculate changes in earnings due to changes
in interest rates on all significant on- and off-balance sheet exposures. The
simulation generates monthly interest rate scenarios over a forecast horizon of
12 months. The VAR analysis calculates the potential after-tax earnings at risk
associated from changes in interest rates, within a 95% confidence level. The
model assumes interest rates are normally distributed and draws volatilities
from various market sources. At December 31, 1998 and 1997, interest rate
movements would affect annual after-tax earnings by less than $9 million and $10
million, respectively, as calculated under the VAR methodology.

The Company utilizes a wide variety of risk management methods, including
those discussed above, and believes that no single risk model provides a
reliable method of monitoring and controlling risk. While these models are
relatively sophisticated, the quantitative risk information generated is limited
by the model parameters. Therefore, such models do not substitute for the
experience or judgment of the Company's management to adjust positions and
revise strategies as deemed necessary.

YEAR 2000 COMPLIANCE

The inability of computers, software and other equipment utilizing
microprocessors to recognize and properly process data fields containing a 2
digit year is commonly referred to as the Year 2000 Compliance issue. As the
year 2000 approaches, such systems may be unable to accurately process certain
date-based information.

The Company has a company-wide initiative to address the Year 2000
Compliance issue. A team of technology professionals began addressing the Year
2000 Compliance issue in 1995. Since then, the Company has identified all
significant third party and internal applications that require modification to
ensure Year 2000 Compliance.

The Company divides its Year 2000 Compliance initiative into two
components: information technology ("IT") and non-information technology
("Non-IT"). The IT initiative includes third party and the Company's mainframe
and desktop systems and applications. The Non-IT initiative includes third party
suppliers, embedded systems and the Company's larger commercial borrowers.

Internal and external resources are being used to make the required IT
modifications and test Year 2000 Compliance. While the modification and testing
process of all critical applications is substantially complete these
applications will undergo additional testing during 1999. In addition, the
Company is utilizing both

21
<PAGE> 23

internal and external resources to provide independent system verification and
validation of Year 2000 Compliance. The Company acquires businesses from time to
time. During its review of a potential acquisition, the Company performs a Year
2000 readiness review to determine that the potential acquisition's systems
either are or will be Year 2000 compliant in a timely manner. First Capital
acquired Avco on January 6, 1999 and subsequently contributed substantially all
of the Avco domestic and Puerto Rico finance receivables to the Company. The
Company plans to convert the Avco receivables to its Year 2000 compliant IT
systems by the third quarter of 1999.

The Company's Non-IT efforts include ensuring third party suppliers,
embedded systems and the Company's larger commercial borrowers are Year 2000
compliant. The Company has communicated with third party suppliers that provide
critical products or services, providers of significant embedded systems and
large commercial borrowers to determine their Year 2000 Compliance readiness and
is testing and monitoring the extent to which the Company may be vulnerable to
any significant Year 2000 issues. Initial phases of contingency plans are being
activated for these suppliers and borrowers who have not provided the Company
with certification of their Year 2000 Compliance.

Contingency planning is an integral part of the Company's Year 2000
readiness project. The Company has and is continuing to develop contingency
plans, which document the processes necessary to maintain critical business
functions should a significant third party system or critical internal system
fail. These contingency plans generally include the repair of existing systems
and, in some instances, the use of alternative systems or procedures.

There can be no guarantee that the systems of other companies on which the
Company's systems rely will be converted in a timely manner, or that a failure
to convert by another company, or a conversion that is incompatible with the
Company's systems, would not have a material adverse effect on the Company. In
addition, there are many risks associated with the Year 2000 Compliance issue,
including but not limited to the possible failure of the Company's computer and
information technology systems. Any such failure could have a material adverse
affect on the Company including the inability to properly bill and collect
payments from customers and errors or omissions in accounting and financial
data. In addition, the Company is exposed to the inability of third parties to
perform as a result of Year 2000 Compliance. Any such failure by a third party
bank, regulatory agency, group of investors, securities exchange or clearing
agency, software product or service provider, utility or other entity may have a
material adverse financial or operational effect on the Company.

Through December 31, 1998 the Company has incurred and expensed
approximately $17 million for incremental costs primarily related to third party
vendors, outside contractors and additional staff dedicated to the Year 2000
readiness project. The Company currently expects that it will incur future
incremental costs related to the project of approximately $7 million. These
incremental costs do not include existing resources allocated to the project
effort or the costs that will be incurred by the Company related to the
acquisitions that are expected to close during 1999. The incremental Year 2000
costs related to these future acquisitions are not expected to be material to
the Company.

These costs and the date on which the Company plans to complete the Year
2000 modification and testing processes are based on management's best
estimates, which were derived utilizing numerous assumptions of future events
including the continued availability of certain resources, third party
modification plans and other factors. However, there can be no guarantee that
these estimates will be achieved and actual results could differ from those
plans.

RECENT ACCOUNTING PRONOUNCEMENTS

Statement of Financial Accounting Standards No. 133 ("SFAS 133"),
Accounting for Derivative Instruments and Hedging Activities, was issued by the
Financial Accounting Standards Board in June 1998. This Statement requires
companies to record derivatives on the balance sheet as assets or liabilities,
measured at fair value. The accounting for gains or losses resulting from
changes in the values of derivatives would depend on the use of the derivatives
and whether they qualify for hedge accounting treatment. This statement is
effective for fiscal years beginning after June 15, 1999, with earlier adoption
encouraged. The Company has not yet determined the impact SFAS 133 will have on
its earnings or financial position.

22
<PAGE> 24

FORWARD-LOOKING STATEMENTS UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995

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 from time to time may 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
and 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 many 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, limiting the Company's ability to
generate new finance receivables and decreasing the Company's net
interest margins.

- Increase in non-performing loans and credit losses.

- Rapid changes in receivable prepayment rates.

- 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 product pricing.

- 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.

23
<PAGE> 25

- 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.

- The Company's ability and the ability of third parties with whom the
Company has relationships to become year 2000 compliant.

- The Company's ability to integrate the operations of acquisitions into
its operations.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

The information called for by Item 7A is incorporated by reference from the
information in Item 7 under the caption "Market Risk" in this Form 10-K.

24
<PAGE> 26

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY 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, 1998 and 1997, 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, 1998. 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, 1998 and 1997 and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 31, 1998, in conformity with generally
accepted accounting principles.

PricewaterhouseCoopers LLP

Dallas, Texas
January 19, 1999

25
<PAGE> 27

ASSOCIATES CORPORATION OF NORTH AMERICA

CONSOLIDATED STATEMENT OF EARNINGS
(IN MILLIONS)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
REVENUE
Finance charges........................................... $5,841.5 $6,428.5 $5,580.3
Insurance premiums........................................ 383.9 370.1 354.8
Investment and other income............................... 873.9 352.5 286.3
-------- -------- --------
7,099.3 7,151.1 6,221.4
EXPENSES
Interest expense.......................................... 2,842.2 2,543.9 2,206.7
Operating expenses........................................ 1,660.7 1,842.5 1,603.3
Provision for losses on finance receivables -- NOTE 6..... 949.4 1,195.6 963.4
Insurance benefits paid or provided....................... 144.0 142.1 142.9
-------- -------- --------
5,596.3 5,724.1 4,916.3
-------- -------- --------
EARNINGS BEFORE PROVISION FOR INCOME TAXES.................. 1,503.0 1,427.0 1,305.1
PROVISION FOR INCOME TAXES -- NOTE 12....................... 551.0 524.5 482.0
-------- -------- --------
NET EARNINGS................................................ $ 952.0 $ 902.5 $ 823.1
======== ======== ========
</TABLE>

See notes to consolidated financial statements.

26
<PAGE> 28

ASSOCIATES CORPORATION OF NORTH AMERICA

CONSOLIDATED BALANCE SHEET
(DOLLARS IN MILLIONS)

ASSETS

<TABLE>
<CAPTION>
DECEMBER 31
---------------------
1998 1997
--------- ---------
<S> <C> <C>
CASH AND CASH EQUIVALENTS................................... $ 2,619.7 $ 294.8
INVESTMENTS IN DEBT AND EQUITY SECURITIES -- NOTE 4......... 1,865.9 1,153.5
FINANCE RECEIVABLES, net of unearned finance income,
allowance for credit losses and insurance policy and
claims reserves -- NOTE 5................................. 43,895.8 45,430.2
NOTES RECEIVABLE FROM RELATED PARTIES -- NOTE 7............. 6,563.9 2,331.0
OTHER ASSETS -- NOTE 8...................................... 1,632.0 1,321.6
--------- ---------
Total assets...................................... $56,577.3 $50,531.1
========= =========

LIABILITIES AND STOCKHOLDERS' EQUITY

NOTES PAYABLE -- NOTE 10
Commercial Paper.......................................... $15,357.2 $17,184.5
Bank Loans................................................ 1,070.7 1,202.1
ACCOUNTS PAYABLE AND ACCRUALS............................... 1,187.7 960.4
LONG-TERM DEBT -- NOTE 11
Senior Notes.............................................. 31,780.2 24,710.0
Subordinated and Capital Notes............................ 425.3 425.4
--------- ---------
32,205.5 25,135.4
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........................................... 1,667.8 1,667.8
Retained Earnings......................................... 4,951.5 4,229.5
Accumulated Other Comprehensive Income -- NOTE 3.......... (10.1) 4.4
--------- ---------
Total stockholders' equity........................ 6,756.2 6,048.7
--------- ---------
Total liabilities and stockholders' equity........ $56,577.3 $50,531.1
========= =========
</TABLE>

See notes to consolidated financial statements.

27
<PAGE> 29

ASSOCIATES CORPORATION OF NORTH AMERICA

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(IN MILLIONS)

<TABLE>
<CAPTION>
ACCUMULATED
OTHER TOTAL
COMMON PAID-IN RETAINED COMPREHENSIVE STOCKHOLDERS'
STOCK CAPITAL EARNINGS INCOME (LOSS) EQUITY
------ -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C>
DECEMBER 31, 1995..................... $147.0 $1,530.6 $2,754.2 $ 12.2 $4,444.0
Comprehensive income
Net earnings..................... 823.1 823.1
Net unrealized losses on
available-for-sale securities,
net of tax..................... (12.7) (12.7)
-------- ------ --------
Total comprehensive income --
NOTE 3...................... 823.1 (12.7) 810.4
Contributions from Parent........... 82.1 82.1
Cash dividends
Class B Common stock............. (14.2) (14.2)
Common stock..................... (204.7) (204.7)
Other............................ (31.4) (31.4)
------ -------- -------- ------ --------
DECEMBER 31, 1996..................... 147.0 1,612.7 3,327.0 (0.5) 5,086.2
Comprehensive income
Net earnings..................... 902.5 902.5
Net unrealized gains on
available-for-sale securities,
net of tax..................... 4.9 4.9
-------- ------ --------
Total comprehensive income --
NOTE 3...................... 902.5 4.9 907.4
Contributions from Parent........... 55.1 55.1
------ -------- -------- ------ --------
DECEMBER 31, 1997..................... 147.0 1,667.8 4,229.5 4.4 6,048.7
Comprehensive income
Net earnings..................... 952.0 952.0
Net unrealized losses on
available-for-sale securities,
net of tax..................... (14.5) (14.5)
-------- ------ --------
Total comprehensive income --
NOTE 3...................... 952.0 (14.5) 937.5
Cash dividends
Class B Common stock............. (28.4) (28.4)
Common stock..................... (201.6) (201.6)
------ -------- -------- ------ --------
DECEMBER 31, 1998..................... $147.0 $1,667.8 $4,951.5 $(10.1) $6,756.2
====== ======== ======== ====== ========
</TABLE>

See notes to consolidated financial statements.

28
<PAGE> 30

ASSOCIATES CORPORATION OF NORTH AMERICA

CONSOLIDATED STATEMENT OF CASH FLOWS
(IN MILLIONS)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net earnings........................................... $ 952.0 $ 902.5 $ 823.1
Adjustments to reconcile net earnings to net cash
provided from operating activities:
Provision for losses on finance receivables......... 949.4 1,195.6 963.4
Depreciation and amortization....................... 239.2 268.2 204.5
Increase in insurance policy and claims reserves.... 1.3 69.4 90.3
Deferred income taxes............................... 58.4 17.5 42.8
Unrealized (gain) loss on trading securities........ (3.6) (3.1) 1.7
Purchases of trading securities..................... -- (174.0) --
Sales and maturities of trading securities.......... -- 56.3 0.6
Increase (decrease) in accounts payable and
accruals.......................................... 176.5 (102.9) 111.2
---------- ---------- ----------
Net cash provided from operating activities.... 2,373.2 2,229.5 2,237.6
---------- ---------- ----------
Cash Flows from Investing Activities
Finance receivables originated or purchased............ (39,433.0) (42,796.6) (38,876.6)
Finance receivables liquidated or sold................. 39,887.7 35,890.9 32,648.0
Purchases of available-for-sale securities............. (2,246.9) (253.3) (542.5)
Sales and maturities of available-for-sale
securities.......................................... 1,514.2 271.9 359.4
Increase in notes receivable from related parties and
other assets........................................ (4,651.7) (2,095.6) (473.7)
---------- ---------- ----------
Net cash used for investing activities......... (4,929.7) (8,982.7) (6,885.4)
---------- ---------- ----------
Cash Flows from Financing Activities
Issuance of long-term debt............................. 11,260.7 7,366.7 5,133.1
Retirement of long-term debt........................... (4,190.6) (3,085.5) (2,627.6)
(Decrease) increase in notes payable................... (1,958.7) 2,485.0 2,279.7
Cash contributions from parent......................... -- 3.4 82.1
Cash dividends......................................... (230.0) -- (250.3)
---------- ---------- ----------
Net cash provided from financing activities.... 4,881.4 6,769.6 4,617.0
---------- ---------- ----------
Increase (decrease) in cash and cash equivalents......... 2,324.9 16.4 (30.8)
Cash and cash equivalents at beginning of period......... 294.8 278.4 309.2
---------- ---------- ----------
Cash and cash equivalents at end of period............... $ 2,619.7 $ 294.8 $ 278.4
========== ========== ==========
Cash paid for:
Interest............................................... $ 2,870.2 $ 2,505.3 $ 2,190.8
========== ========== ==========
Income taxes........................................... $ 484.1 $ 558.2 $ 407.2
========== ========== ==========
</TABLE>

See notes to consolidated financial statements.

29
<PAGE> 31

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 the principal U.S.-based
operating unit of Associates First Capital Corporation ("First Capital"). The
Company is a leading diversified finance organization providing finance, leasing
and related services to individual consumers and businesses in the United States
and Puerto Rico. All of 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.

From October 31, 1989 to April 7, 1998, First Capital was a subsidiary of
Ford FSG, Inc. and an indirect-owned subsidiary of Ford Motor Company ("Ford").
On April 7, 1998, Ford completed a spin-off (the "Spin-Off") of its 80.7%
interest in First Capital in the form of a tax-free distribution of its First
Capital Class A common stock to Ford common and Class B stockholders. Effective
with this distribution, First Capital was no longer a subsidiary of Ford and
became a fully independent company.

NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES

The following is a summary of significant accounting policies:

Basis of Presentation and Consolidation

The consolidated financial statements include the accounts of the Company
and its subsidiaries, after elimination of all significant intercompany balances
and transactions, and have been prepared in accordance with generally accepted
accounting principles. Certain prior-period amounts have been reclassified to
conform to the current period presentation.

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.

The preparation of these consolidated financial statements in conformity
with generally accepted accounting principles requires the use of management
estimates. These estimates are subjective in nature and involve 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, 1998 and 1997, net finance receivables on
which revenue was not accrued approximated $1.1 billion. The interest income
that would have been recorded in 1998 if these nonaccruing receivables had been
current was approximately $24 million.

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 securities classified as available-for-sale are
included in investment and other income when realized. Unrealized gains or
losses on securities classified as available-for-sale are reported net

30
<PAGE> 32
ASSOCIATES CORPORATION OF NORTH AMERICA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

of tax as a component of accumulated other comprehensive income. Realized and
unrealized gains or losses on trading securities (principally preferred stock)
are included in investment and other income as incurred. The cost basis of
securities sold is determined by the first-in, first-out method.

Receivables Sold with Servicing Retained

The Company adopted Statement of Financial Accounting Standards No. 125
("SFAS 125"), Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities, on January 1, 1997. Periodically, the Company
securitizes and sells receivables although such activity has not been a
significant component of its funding plans. These transactions are recorded in
accordance with SFAS 125. Under SFAS 125, a sale is recognized when control over
the securitized receivable is relinquished. The difference between the net
proceeds received and the carrying amount of the receivable sold is recognized
as a gain or loss on sale. To date, no significant securitization related gains
or losses have been recorded by the Company. In addition, no servicing assets or
liabilities have been recorded from these transactions because the Company earns
service fees at a rate which approximates market.

Finance Receivables

Receivable origination and commitment fees generally are deferred and
amortized as interest income over the life of the related receivable.
Receivables, which are expected to be securitized and sold are included in other
assets as receivables held for sale and recorded at the lower of cost or market.
The aggregate method is used in determining the lower of cost or market of
receivables held for sale.

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 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
generally 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, the Company's 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 contractually
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 one year contractually delinquent. A
contractually 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.

Although the allowance for losses on finance receivables reflected in the
Company's consolidated balance sheet at December 31, 1998 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.

31
<PAGE> 33
ASSOCIATES CORPORATION OF NORTH AMERICA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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

Prior to the Spin-Off from Ford in April of 1998, First Capital and its
subsidiaries were included in the consolidated federal income tax return of
Ford. First Capital will file a consolidated federal income tax return for the
short taxable period of April 8, 1998, through December 31, 1998. First Capital,
and in certain circumstances certain subsidiaries, will be included in combined,
consolidated or unitary income tax groups for state income tax purposes for the
short taxable period. The provision for income taxes for both the period before
the Spin-Off and the period after the Spin-Off was 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.

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.

Segment Reporting

In 1998, the Company adopted Statement of Financial Accounting Standards
No. 131 ("SFAS 131") Disclosures about Segments of an Enterprise and Related
Information. SFAS 131 supersedes SFAS 14, Financial Reporting for Segments of a
Business Enterprise, replacing the "industry segment" approach with the
"management" approach. The management approach designates the internal
organization that is used by management for making operating decisions and
assessing performance as the source of the Company's reportable segments.
Pursuant to the provisions of SFAS 131, no segment disclosures are required
because the Company is not managed on a segment basis.

Derivative Financial Instruments

The Company uses derivative financial instruments for the purpose of
hedging exposures as part of its risk management program and holds all
derivatives for purposes other than trading. Deferral (hedge) accounting is
applied only if the derivative reduces the risk of the underlying hedged item
and is designated at inception as a hedge with respect to the underlying hedged
item. Additionally, the derivative must result in cash flows that are expected
to be inversely correlated to those of the underlying hedged item. Such
instruments to date have been limited to currency swap, interest rate swap and
treasury lock agreements and treasury futures and option contracts. See NOTE 16
to the consolidated financial statements for additional information related to
derivative financial instruments.

Currency and interest rate swap agreements are used to hedge debt
obligations and financing transactions. Accordingly, the differential paid or
received by the Company on these agreements is recognized as an adjustment to
interest expense over the term of the underlying transaction.

32
<PAGE> 34
ASSOCIATES CORPORATION OF NORTH AMERICA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Treasury lock agreements are used to hedge anticipated debt issuances of
the Company. Accordingly, the differential paid or received by the Company on
maturity of a treasury lock agreement is recognized as an adjustment to interest
expense over the term of the underlying financing transaction.

Treasury futures and option contracts are used to minimize fluctuations in
the value of certain investments classified as available-for-sale. Accordingly,
unrealized translation gains and losses on these agreements are recorded, net of
tax, as a separate component of stockholders' equity.

Recent Accounting Pronouncements

Statement of Financial Accounting Standards No. 133 ("SFAS 133"),
Accounting for Derivative Instruments and Hedging Activities, was issued by the
Financial Accounting Standards Board in June 1998. This Statement requires
companies to record derivatives on the balance sheet as assets or liabilities,
measured at fair value. Gains or losses resulting from changes in the values of
derivatives would be accounted for depending on the use of the derivatives and
whether they qualify for hedge accounting treatment. This statement is effective
for fiscal years beginning after June 15, 1999, with earlier adoption
encouraged. The Company has not yet determined the impact SFAS 133 will have on
its earnings or financial position.

NOTE 3 -- COMPREHENSIVE INCOME

The Company adopted Statement of Financial Accounting Standards No. 130
("SFAS 130"), Reporting Comprehensive Income, on January 1, 1998. SFAS 130
requires the reporting of all items which are required to be recognized under
generally accepted accounting standards as components of comprehensive income in
the financial statements. Accordingly, total comprehensive income for the years
ended 1998, 1997 and 1996 is reported in the Company's consolidated statement of
changes in stockholders' equity.

The components of other comprehensive income are as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
-----------------------------------
TAX
BEFORE TAX (EXPENSE) NET-OF-TAX
AMOUNT BENEFIT AMOUNT
---------- --------- ----------
<S> <C> <C> <C>
Unrealized losses on available-for-sale securities:
Unrealized holding losses arising during the
period.......................................... $(29.4) $10.8 $(18.6)
Less: reclassification for gains realized in net
income.......................................... 6.5 (2.4) 4.1
------ ----- ------
Other comprehensive income......................... $(22.9) $ 8.4 $(14.5)
====== ===== ======
</TABLE>

Total accumulated other comprehensive income is reported in the Company's
consolidated balance sheet and consists of net unrealized gains and losses on
available-for-sale securities.

NOTE 4 -- INVESTMENTS IN DEBT AND EQUITY SECURITIES

Available-for-Sale Securities

Available-for-sale securities consist of bonds, notes and preferred stock
and other equity securities. The Company invests in these securities with the
intention of holding them to maturity. However, if market conditions change, the
Company may sell them prior to maturity. Accordingly, the Company classifies
these securities as available-for-sale securities and adjusts their recorded
value to market.

During 1998 and 1997, gross realized gains and losses on sales amounted to
$26.0 million and $2.4 million, and $20.6 million and $3.5 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
available-for-sale

33
<PAGE> 35
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, 1998 and
1997 (in millions):

<TABLE>
<CAPTION>
1998
-----------------------------------------------
GROSS GROSS
UNREALIZED UNREALIZED ESTIMATED
AMORTIZED HOLDING HOLDING MARKET
COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Preferred stock............................. $ 718.7 $ 2.4 $(28.7) $ 692.4
Other....................................... 0.7 -- -- 0.7
Insurance subsidiaries
Mortgage-backed........................... 414.5 3.7 (0.6) 417.6
Municipal obligations..................... 190.0 2.9 -- 192.9
Corporate obligations..................... 150.1 1.4 (0.4) 151.1
Preferred Stock........................... 115.6 0.8 (0.6) 115.8
U.S. Government obligations............... 83.1 0.9 (1.0) 83.0
Other..................................... 191.2 0.8 (0.4) 191.6
-------- ----- ------ --------
Total available-for-sale
securities...................... $1,863.9 $12.9 $(31.7) $1,845.1
======== ===== ====== ========
</TABLE>

<TABLE>
<CAPTION>
1997
-----------------------------------------------
GROSS GROSS
UNREALIZED UNREALIZED ESTIMATED
AMORTIZED HOLDING HOLDING MARKET
COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Insurance subsidiaries
Mortgage-backed........................... $ 598.4 $5.4 $(0.3) $ 603.5
Corporate obligations..................... 219.5 1.1 (1.1) 219.5
U.S. Government obligations............... 182.6 2.4 (0.8) 184.2
Other..................................... 15.3 -- -- 15.3
-------- ---- ----- --------
Total available-for-sale
securities...................... $1,015.8 $8.9 $(2.2) $1,022.5
======== ==== ===== ========
</TABLE>

The amortized cost and estimated market value of available-for-sale
securities at December 31, 1998 by contractual maturity are shown below (in
millions):

<TABLE>
<CAPTION>
1998
---------------------
ESTIMATED
AMORTIZED MARKET
COST VALUE
--------- ---------
<S> <C> <C>
Due in one year or less..................................... $ 66.3 $ 66.8
Due after one year through five years....................... 279.5 282.4
Due after five years through ten years...................... 158.3 157.9
Due after ten years......................................... 525.5 529.8
-------- --------
Subtotal.................................................. 1,029.6 1,036.9
Preferred stock............................................. 834.3 808.2
-------- --------
Total............................................. $1,863.9 $1,845.1
======== ========
</TABLE>

Trading Securities

Trading securities consist of investments in equity securities which are
recorded at market value. Unrealized gains or losses on trading securities are
included in earnings. The estimated market value at December 31, 1998 and 1997
was $20.8 million and $131.0 million, respectively. Historical cost at

34
<PAGE> 36
ASSOCIATES CORPORATION OF NORTH AMERICA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

December 31, 1998 and 1997 was $15.5 million and $126.7 million, respectively.
On July 1, 1998, the Company's preferred stock investments of $582.5 million
were redesignated by management as available-for-sale securities. Previously,
preferred stock investments were designated as trading securities.

NOTE 5 -- FINANCE RECEIVABLES

Composition of Net Finance Receivables

At December 31, 1998 and 1997, net finance receivables consisted of the
following products (in millions):

<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Home equity lending(1)...................................... $20,435.8 $17,437.3
Truck and truck trailer..................................... 10,038.0 9,011.1
Personal lending and retail sales finance................... 6,566.2 6,920.6
Equipment(2)................................................ 4,882.1 4,899.8
Auto fleet leasing.......................................... 1,471.4 1,418.9
Credit card(3).............................................. 1,398.0 7,333.6
Manufactured housing(4)..................................... 20.7 24.1
Warehouse lending and other(5).............................. 1,226.3 809.1
--------- ---------
Finance receivables, net of unearned finance income
("net finance receivables")(6)....................... 46,038.5 47,854.5
Allowance for losses on finance receivables................. (1,378.9) (1,661.9)
Insurance policy and claims reserves........................ (763.8) (762.4)
--------- ---------
Finance receivables, net of unearned finance income,
allowance for losses and insurance policy and claims
reserves............................................. $43,895.8 $45,430.2
========= =========
</TABLE>

- ---------------

(1) In March 1998, the Company securitized and sold approximately $235 million
of home equity lending receivables. No significant gain or loss was recorded
on this transaction. The Company retained the servicing responsibilities for
these receivables.

(2) In March 1998, approximately $650 million of equipment finance receivables
were sold, at book value, to First Capital. No gain or loss was recorded on
the sale.

(3) In April 1998, the Company sold, at book value, approximately $5.2 billion
of the Company's participation interest in the U.S. bankcard credit card
receivables of First Capital. The sale was financed by a note between the
Company and First Capital -- See NOTE 7. Immediately subsequent to the sale,
First Capital securitized and sold, at book value, substantially all of its
U.S. bankcard credit card receivables to a master trust. First Capital
received $2.0 billion in proceeds from the transaction and retained a $3.2
billion certificated interest in the master trust. The proceeds were used to
pay down the loan between First Capital and the Company.

(4) During 1997, the Company sold, at net book value, substantially all of its
outstanding manufactured housing retail finance receivables to Associates
Housing Finance Services, Inc. ("AHFS"), a wholly-owned subsidiary of First
Capital. Immediately subsequent to the sale, the Company purchased a
participation interest, at net book value, in substantially all of such
receivables. 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.
Through its participation in AHFS manufactured housing receivables, the
Company recognized no significant gains on the sale of such receivables. At
December 31, 1997, the Company terminated its participation in the
manufactured housing receivables of AHFS and substantially all manufactured
housing receivables were transferred, at book value, to First Capital.

(5) Includes warehouse lending, government guaranteed lending and municipal
finance.

(6) Unearned finance income was approximately $3.5 billion and $3.6 billion at
December 31, 1998 and 1997, respectively.

35
<PAGE> 37
ASSOCIATES CORPORATION OF NORTH AMERICA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Contractual Maturities of Net Finance Receivables

At December 31, 1998, contractual maturities of net finance receivables
were as follows (in millions):

<TABLE>
<CAPTION>
YEAR DUE TOTAL
- -------- ---------
<S> <C>
1999........................................................ $10,812.6
2000........................................................ 6,722.2
2001........................................................ 5,054.6
2002........................................................ 3,337.8
2003 and thereafter......................................... 20,111.3
---------
$46,038.5
=========
</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.

Direct Financing Leases

Included in net finance receivables are direct financing leases as follows
(in millions):

<TABLE>
<CAPTION>
DECEMBER 31
--------------------
1998 1997
-------- --------
<S> <C> <C>
Minimum lease rentals....................................... $6,336.4 $5,448.9
Unearned finance income..................................... (941.9) (759.4)
-------- --------
Net investment in direct financing leases................... $5,394.5 $4,689.5
======== ========
</TABLE>

Future net minimum lease rentals on direct financing leases for each of the
years succeeding December 31, 1998 are as follows (in millions):
1999 -- $1,487.8; 2000 -- $1,106.7; 2001 -- $901.8; 2002 -- $681.3;
2003 -- $357.8 and 2004 and thereafter -- $859.1.

Dispersion of Finance Receivables

The Company has geographically dispersed finance receivables. The Company's
total receivables were dispersed at December 31, 1998 as follows: 11% in
California, 9% in Texas, 7% in Florida, and no other individual state had more
than 5%.

Acquisitions of Finance Businesses

There were no significant acquisitions by the Company during 1998. During
the year ended December 31, 1997, the Company acquired finance receivables and
finance businesses, the most significant of which were as follows:

In December 1997, Associates acquired the United States based
commercial auto fleet leasing operation of AT&T Capital Corporation. The
fair market value of the assets acquired was approximately $233 million.
The transaction was accounted for as a purchase.

In May 1997, Associates National Bank (Delaware) ("ANB"), 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

36
<PAGE> 38
ASSOCIATES CORPORATION OF NORTH AMERICA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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, ANB 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, ANB 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. 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.

The pro forma effect of the above acquisitions, when taken individually or
in the aggregate, was not significant.

NOTE 6 -- 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
--------------------------------
1998 1997 1996
--------- --------- --------
<S> <C> <C> <C>
Balance at beginning of period...................... $ 1,661.9 $ 1,371.4 $1,109.2
Provision for losses.............................. 949.4 1,195.6 963.4
Recoveries on receivables charged off............. 150.5 190.5 127.7
Losses sustained.................................. (1,032.5) (1,298.3) (925.7)
Reserves of receivables sold(1)................... (359.4) -- --
Reserves of acquired businesses and other......... 9.0 202.7 96.8
--------- --------- --------
Balance at end of period............................ $ 1,378.9 $ 1,661.9 $1,371.4
========= ========= ========
</TABLE>

- ---------------

(1) The reserves related to receivables sold during 1997 and 1996 were not
significant.

NOTE 7 -- NOTES RECEIVABLE FROM RELATED PARTIES AND OTHER RELATED PARTY
TRANSACTIONS

Notes receivable from related parties include debt financing and advances
provided by the Company to First Capital and certain affiliates. These notes are
unsecured demand notes and generally bear interest at a floating rate. The
weighted average interest rate at December 31, 1998 was 8.72%. During the years
ended December 31, 1998 and 1997, interest income on notes receivable from
related parties was approximately $515.2 million and $23.4 million,
respectively.

In April 1998, the Company sold, at book value, approximately $5.2 billion
of the Company's participation interest in the U.S. bankcard credit card
receivables of First Capital. The sale was financed by a note between the
Company and First Capital. Immediately subsequent to the sale, First Capital
securitized and sold, at book value, substantially all of its U.S. bankcard
credit card receivables to a master trust. First Capital received $2.0 billion
in proceeds from the transaction and retained a $3.2 billion certificated
interest in the master trust. The proceeds were used to pay down the loan
between First Capital and the Company.

In March 1998, approximately $650 million of equipment finance receivables
were sold, at book value, to First Capital. No gain or loss was recorded on the
sale.

37
<PAGE> 39
ASSOCIATES CORPORATION OF NORTH AMERICA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

In 1997, Associates began making advances to AHFS, a wholly-owned
subsidiary of First Capital, in the form of a participation in the finance
receivables of AHFS. On December 31, 1997, the participation agreement was
terminated and replaced with an advance to AHFS. The balance of such advance at
December 31, 1997 was $1.6 billion and is included in Notes Receivable from
Related Parties.

At December 31, 1998 and 1997, net finance receivables included
participations in credit card receivables owned or originated by ANB, an
affiliate of Associates. The balances of these receivables were $1.4 billion and
$7.3 billion at December 31, 1998 and 1997, respectively.

The Company provides certain services of an administrative nature, use of
certain tangible and intangible assets including trademarks, guarantees of debt
support agreements (comfort letters) and related interest, and other management
services to certain of its foreign affiliates. Services and usage are charged to
the affiliates based on the nature of the service. Fees for financial
accommodations range from 0.25% to 2.00% 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, 1998, 1997 and 1996 were $94.5
million, $84.8 million and $74.7 million, respectively.

The Company provides certain emergency roadside assistance and auto club
services and employee relocation services to Ford. Revenues related to these
services were $33.8 million, $36.0 million and $33.4 million for the years ended
December 31, 1998, 1997 and 1996, respectively.

At December 31, 1998, the Company was a guarantor on debt and related
accrued interest of its affiliate in Canada amounting to $2.7 billion.

Associates receives a fee for services it provides to First Capital. During
the years ended December 31, 1998, 1997 and 1996, Associates received $25.3
million, $15.0 million and $6.0 million, respectively in fees for these
services.

At December 31, 1998 and 1997, Associates current income taxes receivable
from First Capital amounted to $13.9 million and $8.1 million, respectively.

On December 31, 1997 the Company received a contribution of $55.1 million
from its parent in the form of shares of an affiliate, Associates Financial
Services Company of Puerto Rico, Inc. ("AFS-PR"). The contribution was recorded
at fair value. The effect of AFS-PR's operations on the Company's current and
prior year financial statements was not significant; accordingly, the operations
of AFS-PR have not been retroactively reflected in the Company's financial
statements.

In March 1997, ANB, an affiliate of the Company, acquired a portfolio of
approximately $800 million in credit card receivables from The Bank of New York.
Subsequently all of the receivables were sold to Associates in the form of a
participation and are included in the Company's net finance receivables. A
director of First Capital was Chairman and Chief Executive officer of The Bank
of New York during 1997. The Bank of New York and the Company are not otherwise
affiliated.

NOTE 8 -- OTHER ASSETS

The components of other assets at December 31, 1998 and 1997 were as
follows (in millions):

<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Goodwill.................................................... $ 331.5 $ 343.1
Property and equipment...................................... 238.7 164.2
Collateral held for resale.................................. 229.9 205.6
Other....................................................... 831.9 608.7
-------- --------
Total other assets................................ $1,632.0 $1,321.6
======== ========
</TABLE>

38
<PAGE> 40
ASSOCIATES CORPORATION OF NORTH AMERICA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 9 -- CREDIT FACILITIES

At December 31, 1998, Associates had the following credit facilities (in
millions):

<TABLE>
<CAPTION>
FACILITY
AMOUNTS(1)
----------
<S> <C>
Lines of credit............................................. $ 5,668.1
Syndicated credit facilities................................ 12,405.0
---------
Total............................................. $18,073.1
=========
</TABLE>

- ---------------

(1) Included in these amounts are $310.0 million and $3.7 billion of lines of
credit and syndicated credit facilities, respectively, that are available to
either First Capital or to the Company. The Company would not be responsible
for any borrowing by First Capital thereunder.

Lines of credit and syndicated credit 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
principally pays fees for the availability of its credit facilities ranging from
0.06 to 0.125 of 1% per annum of the facility amount.

NOTE 10 -- NOTES PAYABLE

Commercial paper notes are issued by Associates in the minimum amount of
$100,000 with terms from one to 270 days. Bank loan terms range from three to 18
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, 1998......................... $15,357.2 $1,070.7
Weighted average interest rate at December 31, 1998......... 5.16% 6.05%
Ending balance at December 31, 1997......................... $17,184.5 $1,202.1
Weighted average interest rate at December 31, 1997......... 5.91% 7.51%
</TABLE>

NOTE 11 -- LONG-TERM DEBT

Outstanding balances of long-term debt at December 31 were as follows (in
millions):

<TABLE>
<CAPTION>
1998 1998
INTEREST WEIGHTED-
RATE AVERAGE MATURITIES
RANGE RATE THROUGH 1998 1997
------------ --------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
Senior Notes................... 4.73%-11.40% 6.37% 2037 $31,780.2 $24,710.0
Subordinated and Capital Notes:
Subordinated................. 6.88%-8.15% 7.25% 2009 425.0 425.0
Capital...................... 4.68%-9.00% 6.73% 2002 0.3 0.4
--------- ---------
425.3 425.4
--------- ---------
Total long-term
debt............... $32,205.5 $25,135.4
========= =========
</TABLE>

The weighted average interest rate for total long-term debt was 6.38% at
December 31, 1998 and 6.77% at December 31, 1997.

Long-term borrowing maturities during the next five years, including the
current portion of notes payable after one year are: 1999, $6,548.0 million;
2000, $3,679.2 million; 2001, $4,912.1 million; 2002, $4,226.4 mil-

39
<PAGE> 41
ASSOCIATES CORPORATION OF NORTH AMERICA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

lion; 2003, $4,620.3 million and 2004 and thereafter, $8,219.5 million. Certain
debt issues are subject to put or call redemption provisions whereby repayment
may be prior to the maturity date. As applicable, the amount of the option
premium received by the Company is deferred and amortized over the expected life
of the debt obligation.

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. Future issues of Associates' debt may also contain such
a restriction. 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, $1.0 billion was
available for dividends at December 31, 1998.

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 $2.5
billion. At December 31, 1998, Associates tangible net worth was approximately
$6.4 billion.

NOTE 12 -- INCOME TAXES

The following table sets forth the components of the provision for income
taxes and deferred income tax for the periods indicated (in millions):

<TABLE>
<CAPTION>
FEDERAL STATE TOTAL
------- ----- ------
<S> <C> <C> <C>
Year Ended December 31, 1998
Current................................................... $460.7 $31.9 $492.6
Deferred.................................................. 58.4 -- 58.4
------ ----- ------
$519.1 $31.9 $551.0
====== ===== ======
Year Ended December 31, 1997
Current................................................... $472.7 $34.3 $507.0
Deferred.................................................. 17.5 -- 17.5
------ ----- ------
$490.2 $34.3 $524.5
====== ===== ======
Year Ended December 31, 1996
Current................................................... $407.9 $31.3 $439.2
Deferred.................................................. 42.8 -- 42.8
------ ----- ------
$450.7 $31.3 $482.0
====== ===== ======
</TABLE>

40
<PAGE> 42
ASSOCIATES CORPORATION OF NORTH AMERICA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

At December 31, 1998 and 1997, the components of the Company's net deferred
tax asset were as follows (in millions):

<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Deferred tax assets:
Provision for losses on finance receivables and other..... $ 707.9 $ 642.7
Post-retirement and other employee benefits............... 66.2 57.1
------- -------
774.1 699.8
Deferred tax liabilities:
Leasing transactions...................................... (512.8) (396.3)
Finance revenue and other................................. (173.3) (163.2)
------- -------
(686.1) (559.5)
------- -------
Net deferred tax asset............................ $ 88.0 $ 140.3
======= =======
</TABLE>

Prior to the Spin-Off in April of 1998, First Capital and its subsidiaries
were included in the consolidated federal income tax return of Ford. First
Capital and its subsidiaries will file a consolidated First Capital federal
income tax return for the period of April 8, 1998 through December 31, 1998. The
provision for income taxes for both the period before the Spin-Off and after the
Spin-Off was 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.

The effective tax rate differed from the statutory United States federal
income tax rate as follows:

<TABLE>
<CAPTION>
% OF PRETAX INCOME
YEAR ENDED DECEMBER 31
-----------------------
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
Statutory tax rate.......................................... 35.0% 35.0% 35.0%
State tax rate.............................................. 1.4 1.6 1.6
Other non-deductible items.................................. 0.2 0.2 0.3
---- ---- ----
Effective tax rate................................ 36.6% 36.8% 36.9%
==== ==== ====
</TABLE>

Effective with the April 1998 Spin-Off, Ford and First Capital entered into
an amended and restated tax sharing agreement which, among other matters,
required First Capital to pay a net amount of $22.4 million effectively settling
certain amounts due to and from Ford.

NOTE 13 -- LEASE COMMITMENTS

Leases on the Company's branch and operating center facilities are
primarily short-term and generally provide for renewal options not exceeding the
initial term. Total rent expense for the years ended December 31, 1998, 1997 and
1996 was $94.7 million, $91.9 million, and $77.7 million, respectively. Minimum
rental commitments as of December 31, 1998 for all noncancelable leases
(primarily office leases) for the years ending December 31, 1999, 2000, 2001,
2002 and 2003 are $80.6 million, $61.7 million, $47.2 million, $17.9 million and
$8.3 million, respectively, and $2.8 million thereafter.

NOTE 14 -- EMPLOYEE BENEFITS

Pension and Other Post-Retirement Benefits

The Company participates in various qualified and nonqualified pension and
other post-retirement benefit plans (the "Plan" or "Plans") sponsored by First
Capital, which together cover substantially all United

41
<PAGE> 43
ASSOCIATES CORPORATION OF NORTH AMERICA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

States-based employees who meet certain eligibility requirements. The benefits
of such plans can be modified or terminated at the discretion of First Capital.
The health care plans are contributory, with participants' contributions
adjusted annually; the life insurance plans are also contributory.

The funded status of the Plans is as follows (dollars in millions):

<TABLE>
<CAPTION>
PENSION BENEFITS OTHER BENEFITS
----------------- -----------------
1998 1997 1998 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year....... $492.7 $400.8 $ 129.8 $ 115.2
Service cost.................................. 24.7 20.1 5.9 7.1
Interest cost................................. 32.7 29.4 7.4 8.2
Plan participants' contributions.............. -- -- 0.2 0.2
Actuarial (gains)/losses...................... 24.6 53.9 (16.7) 2.0
Benefits paid................................. (11.9) (11.5) (3.2) (2.9)
------ ------ ------- -------
Benefit obligation at end of year..... $562.8 $492.7 $ 123.4 $ 129.8
====== ====== ======= =======
Change in plan assets:
Fair value of plan assets at beginning of
year....................................... $473.5 $376.1 $ -- $ --
Actual return on plan assets.................. 75.8 76.1 -- --
Employer contribution......................... 1.2 32.8 3.0 2.7
Plan participants' contributions.............. -- -- 0.2 0.2
Benefits paid................................. (11.9) (11.5) (3.2) (2.9)
------ ------ ------- -------
Fair value of plan assets at end of
year................................ $538.6 $473.5 $ -- $ --
====== ====== ======= =======
Funded status................................. $(24.2) $(19.2) $(123.4) $(129.8)
Unrecognized net transition liability......... 1.7 1.9 -- --
Unrecognized net actuarial (gain)/loss........ 13.8 30.0 (6.7) 9.8
Unrecognized prior service cost............... 1.5 3.2 (0.9) (2.5)
------ ------ ------- -------
Net amount recognized................. $ (7.2) $ 15.9 $(131.0) $(122.5)
====== ====== ======= =======
Amounts recognized in the consolidated balance
sheet:
Prepaid benefit cost.......................... $ 25.4 $ 43.7 $(131.0) $(122.5)
Accrued benefit liability..................... (41.6) (36.7) -- --
Intangible asset.............................. 8.9 8.9 -- --
------ ------ ------- -------
Net amount recognized................. $ (7.3) $ 15.9 $(131.0) $(122.5)
====== ====== ======= =======
Weighted-average assumptions as of December 31:
Discount rate................................. 6.50% 6.75% 6.50% 7.00%
Expected return on plan assets................ 9.00% 9.00% -- --
Rate of compensation increase................. 5.00% 5.00% -- --
</TABLE>

For measurement purposes, an 11.0% annual rate of increase in the per
capita cost of covered health care benefits was assumed for 1998. The rate was
assumed to decrease gradually to 5.5% by 2010 and remain at that level
thereafter. Additionally, no future increase in retiree premiums was assumed.

42
<PAGE> 44
ASSOCIATES CORPORATION OF NORTH AMERICA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The net periodic pension cost for the years indicated includes the
following components (in millions):

<TABLE>
<CAPTION>
PENSION BENEFITS OTHER BENEFITS
------------------------ ---------------------
1998 1997 1996 1998 1997 1996
------ ------ ------ ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Components of net periodic benefit
cost:
Service cost........................ $ 24.7 $ 20.1 $ 18.8 $ 5.9 $ 7.1 $ 7.5
Interest cost....................... 32.7 29.4 26.4 7.4 8.2 8.2
Expected return on plan assets...... (37.1) (31.2) (27.6) -- -- --
Amortization of transition
liability........................ 0.3 0.3 0.3 -- -- --
Amortization of prior service
cost............................. 1.6 1.6 1.6 (1.5) (1.5) (1.5)
Recognized net actuarial gain
(loss)........................... 2.2 2.6 5.1 (0.2) 0.1 0.8
------ ------ ------ ----- ----- -----
Net periodic benefit cost... $ 24.4 $ 22.8 $ 24.6 $11.6 $13.9 $15.0
====== ====== ====== ===== ===== =====
</TABLE>

For the pension plans with accumulated benefit obligations in excess of
plan assets, the projected benefit obligation and accumulated benefit obligation
were $53.5 million and $41.6 million, respectively, as of December 31, 1998 and
$47.8 million and $36.7 million, respectively as of December 31, 1997. The
assets of these plans had no fair value as of December 31, 1998 and 1997.

Assumed health care cost trend rates have a significant effect on the
amounts reported for the health care plans. A one-percentage-point change in the
assumed health care cost trend rates would have the following effects (in
millions):

<TABLE>
<CAPTION>
1-PERCENTAGE-POINT 1-PERCENTAGE-POINT
INCREASE DECREASE
------------------ ------------------
<S> <C> <C>
Effect on total of service and interest cost
components........................................ $1.0 $(1.1)
Effect on post-retirement benefit obligation........ 8.4 (9.0)
</TABLE>

Associates Savings and Profit-Sharing Plan

The Company participates in a defined contribution plan sponsored by First
Capital that covers substantially all United States-based employees who meet
certain eligibility requirements, is intended to provide assistance in
accumulating personal savings for retirement and is designed to qualify for
favorable tax treatment under Sections 401(a) and 401(k) of the United States
Internal Revenue Code of 1986, as amended. For the years ended December 31,
1998, 1997 and 1996, the Company's pre-tax contributions to the plan were $25.6
million, $21.9 million and $19.1 million, respectively.

INCENTIVE COMPENSATION PROGRAMS

The Company sponsors compensation plans covering certain officers and
employees.

Incentive Compensation Plan and Long-Term Performance Plan

The Company participates in the Incentive Compensation Plan (the "ICP"),
sponsored by First Capital, which beginning in 1997 has provided for corporate
annual performance pay bonuses, in addition to other types of compensation. The
bonuses are paid out of one of two pools. The size of each bonus pool is
determined based, in part, on the performance of the Company. Prior to 1997,
corporate annual performance pay bonuses were provided under the Corporate
Annual Performance Plan which was a separate plan prior to being incorporated
into the ICP in 1997. The Long Term Performance Plan ("LTPP") for 1998 was a
long term cash incentive plan. The size of the LTPP incentive pool was
determined for the performance period ending December 31, 1998, based, in part,
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

43
<PAGE> 45
ASSOCIATES CORPORATION OF NORTH AMERICA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

performance period. Bonuses reflect individual participants' performances during
the applicable performance period. Amounts charged to expense for these bonus
plans amounted to $29.0 million, $25.1 million and $23.3 million during the
years ended December 31, 1998, 1997 and 1996, respectively.

Stock-Based Compensation Plans

The Company participates in First Capital's ICP Plan, formerly known as the
Long-Term Equity Compensation Plan, which was established in 1996 and amended
and renamed effective January 1, 1998. First Capital had no outstanding grants
under any other stock-based compensation plan prior to 1996. The ICP allows
First Capital to issue to eligible employees awards of up to 41,598,536 shares
of First Capital Class A common stock. In addition to awards of corporate annual
performance pay, awards may be made as nonqualified or incentive stock options,
stock appreciation rights, restricted stock, performance units or performance
shares. Through December 31, 1998, First Capital had only issued stock options
and restricted stock under the ICP.

Stock Options -- Stock options have contractual terms of 10 years and an
exercise price equal to the fair market value of the stock underlying the option
at grant. Options generally vest at 33.33% each year beginning on the first
anniversary of the date of grant. A summary of the activity of option grants by
First Capital under the ICP for the years ended December 31, 1998, 1997 and 1996
is presented below:

<TABLE>
<CAPTION>
1998 1997 1996
--------------------------- --------------------------- --------------------------
WEIGHTED-AVG. WEIGHTED-AVG. WEIGHTED-AVG.
OPTIONS EXERCISE PRICE OPTIONS EXERCISE PRICE OPTIONS EXERCISE PRICE
---------- -------------- ---------- -------------- --------- --------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of
year............................ 8,389,702 $18.31 4,748,880 $14.54 -- $ --
Granted......................... 6,503,140 35.37 4,772,050 21.80 4,872,580 14.54
Exercised....................... (1,083,794) 18.18 (433,208) 15.05 -- --
Forfeited....................... (870,296) 29.02 (698,020) 18.48 (123,700) 14.50
---------- ---------- ---------
Outstanding at end of year...... 12,938,752 $26.17 8,389,702 $18.31 4,748,880 $14.54
========== ====== ========== ====== ========= ======
Options exercisable at year end... 3,206,324 $17.28 1,040,838 $14.55 -- $ --
========== ====== ========== ====== ========= ======
Weighted-average fair value of
options granted during the
year............................ $ 8.90 $ 5.62 $ 4.66
====== ====== ======
</TABLE>

The fair value of each stock option granted is estimated on the date of
grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions:

<TABLE>
<CAPTION>
ASSUMPTIONS 1998 1997 1996
----------- ----- ----- -----
<S> <C> <C> <C>
Expected Term in years...................................... 4.00 4.00 4.55
Expected Volatility......................................... 21.28% 22.00% 30.44%
Expected Dividend Yield..................................... 0.58% 0.51% 1.38%
Risk-Free Interest Rate..................................... 5.59% 6.24% 6.53%
</TABLE>

44
<PAGE> 46
ASSOCIATES CORPORATION OF NORTH AMERICA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The weighted-average remaining life and weighted-average exercise price for
total options outstanding and exercisable options outstanding at December 31,
1998 is summarized below:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------- ---------------------------
RANGE OF WEIGHTED-AVG. WEIGHTED-AVG. WEIGHTED-AVG.
EXERCISE PRICE OPTIONS REMAINING LIFE EXERCISE PRICE OPTIONS EXERCISE PRICE
-------------- ---------- -------------- -------------- --------- --------------
(YEARS)
<S> <C> <C> <C> <C> <C>
$14.50 to $21.63........... 6,838,462 7.35 $18.13 3,159,438 $17.12
21.64 to 31.10........... 204,870 8.24 28.32 46,886 27.32
31.11 to 39.88........... 5,895,420 9.84 35.42 -- --
---------- ---------
14.50 to 39.88........... 12,938,752 8.50 26.17 3,206,324 17.27
========== =========
</TABLE>

Restricted Stock -- Under the ICP, in 1998, 1997 and 1996 First Capital
issued 115,000, 84,000 and 339,260 respective shares of restricted common stock
to employees, of which 465,780 were outstanding at December 31, 1998.
Restrictions generally will lapse on the fifth anniversary of the date of
issuance.

Deemed Investment in Stock -- Prior to 1996, First Capital sponsored a
long-term cash incentive plan, the Phantom Stock Appreciation Right Plan (the
"PSAR Plan"). First Capital terminated the PSAR Plan as of December 1995 and
extinguished, principally by cash payment, all outstanding phantom stock
appreciation rights ("PSAR"). A PSAR granted under the PSAR Plan entitled the
holder to receive a specified amount of cash upon the exercise of the PSAR. Upon
termination of the PSAR Plan, certain officers of the Company were required to
defer a portion of the amount payable in satisfaction of the termination of the
PSAR Plan. The amounts deferred are administered in accordance with the terms of
the Equity Deferral Plan (the "EDP"), sponsored by First Capital.

In 1998 and 1997 under the EDP, First Capital credited PSAR amounts
deferred by selected employees to unfunded accounts that are deemed to be
invested in shares of First Capital common stock, which amounts are then deemed
to be reinvested in First Capital common stock. Amounts deferred are fully
vested and payable beginning in May 2001, subject to earlier distribution upon a
participant's death, disability, retirement or termination of employment, in
cash and/or shares of First Capital common stock. Approximately 1,160, 1,720 and
263,780 deemed shares were issued during 1998, 1997 and 1996, respectively,
including 1,160, 1,720 and 1,216 respective shares related to the reinvestment
of dividends, of which 205,348 were outstanding at December 31, 1998. The value
of all such shares at year end based on $42 3/8 per common share was $8.7
million.

Accounting for Stock-Based Compensation Plans -- First Capital has elected
to apply Accounting Principles Board Opinion 25 ("APB 25") rather than the
optional provisions of Statement of Financial Accounting Standards No. 123
("SFAS 123") in accounting for its stock-based compensation plans. Had the
compensation cost of First Capital's stock-based compensation plans been
determined based on the optional provisions of SFAS 123, in the years ended
December 31, 1998, 1997 and 1996 the Company's net income would have been $934
million, $894 million and $820 million respectively.

All shares, per share, option and fair value amounts, as applicable, in
this NOTE have been adjusted to reflect a First Capital Class A common stock
dividend in the fourth quarter of 1998.

NOTE 15 -- COMMITMENTS, CONTINGENCIES AND LEGAL PROCEEDINGS

The Company grants revolving lines of credit to certain of its credit card
and other revolving customers. At December 31, 1998, the unused portion of these
lines aggregated $2.8 billion. The potential risk associated with, and the
estimated fair value of, the unused credit lines are not considered to be
significant.

45
<PAGE> 47
ASSOCIATES CORPORATION OF NORTH AMERICA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Company also grants lines of credit to certain dealers of trucks,
construction equipment and manufactured housing. At December 31, 1998, the
unused portion of these lines aggregated $183.4 million. The potential risk
associated with, and the estimated fair value of, the unused credit lines are
not considered to be significant.

Various legal actions and proceedings and claims are pending or may be
instituted or asserted in the future against the Company and its subsidiaries.
Certain of the pending legal actions are, or purport to be, class actions. Some
of the foregoing matters involve or may involve compensatory, punitive or treble
damage claims which, if adversely held against the Company, would require large
expenditures or could affect the manner in which the Company conducts its
business.

In addition, the Company like many other companies that operate in
regulated businesses is from time to time the subject of various governmental
inquiries and investigations. The Company is currently the subject of certain
investigations and inquiries by federal and state governmental authorities
relating generally to the Company's lending practices. The Company does not have
sufficient information to predict with certainty the ultimate outcome of such
investigations and inquiries or their ultimate effect, if any, on the Company's
results of operations or financial condition or the manner in which the Company
operates its business.

NOTE 16 -- 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.

The Company uses derivative financial instruments for the purpose of
hedging exposures as part of its risk management program. Such instruments to
date have been limited to currency swap, interest rate swap and treasury lock
agreements and treasury futures and option contracts.

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 Company's experience there has never been
a failure by a counterparty; however, 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.

Foreign currency swap agreements are held for purposes other than trading
and have been designated for accounting purposes as hedges of foreign currency
exposures under certain debt obligations. Under these agreements, the Company
and the agreement counterparties are obligated to exchange foreign currencies at
varying times over the next five years. The aggregate notional amount of these
agreements at December 31, 1998 and 1997 was $1.1 billion and $272.7 million,
respectively. The fair value of such agreements at December 31, 1998 and 1997
was $65.0 million and $1.2 million, respectively.

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 existing debt and anticipated debt and asset securitization
transactions. The aggregate notional amount of interest rate swap and treasury
lock agreements

46
<PAGE> 48
ASSOCIATES CORPORATION OF NORTH AMERICA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

at December 31, 1998 and 1997 was $3.3 billion and $2.0 billion, respectively.
The fair value of such agreements at December 31, 1998 and 1997 was $(59.2)
million and $(6.8) million, respectively. Interest rate swap and treasury lock
agreements mature on varying dates over the next five years and two months,
respectively.

Treasury futures and option contracts are used to minimize fluctuations in
the value of preferred stock investments and are held for purposes other than
trading. The aggregate notional amount and fair value of futures and option
contracts at December 31, 1998 was $711.4 million and $(5.0) million,
respectively. Such contracts mature on varying dates through 1999. The Company
had no treasury futures or option contracts outstanding on December 31, 1997.

NOTE 17 -- FAIR VALUE OF FINANCIAL INSTRUMENTS

The information provided below is required by Statement of Financial
Accounting Standards No. 107, ("SFAS 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.

At December 31, 1998 and 1997, the carrying value and estimated fair value
of certain of the Company's financial instruments were as follows (in millions):

<TABLE>
<CAPTION>
DECEMBER 31
-----------------------------------------------
1998 1997
---------------------- ----------------------
CARRYING ESTIMATED CARRYING ESTIMATED
VALUE FAIR VALUE VALUE FAIR VALUE
--------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Cash and cash equivalents(1)............. $ 2,619.7 $ 2,619.7 $ 294.8 $ 294.8
Investment securities(2)................. 1,865.9 1,865.9 1,153.5 1,153.5
Net finance receivables(3)............... 46,038.5 48,309.4 47,854.5 50,635.2
Notes payable(1)
Commercial paper....................... 15,357.2 15,357.2 17,184.5 17,184.5
Bank loans............................. 1,070.7 1,070.7 1,202.1 1,202.1
Long-term debt(4)........................ 32,205.5 33,459.3 25,135.4 25,664.0
</TABLE>

- ---------------

(1) The estimated fair value approximates their carrying value.

(2) Estimated market values of investment securities are based on quoted market
prices, if available. If quoted prices are not available, the fair value was
estimated by discounting the expected cash flows from the investments at
discount rates which approximate the rates that would achieve an expected
return on assets with similar risk characteristics.

(3) 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.

(4) The fair value of long-term debt was determined by discounting expected cash
flows at discount rates currently available to the Company for debt with
similar terms and remaining maturities.

See NOTE 16 for fair value information regarding derivative financial
instruments.

47
<PAGE> 49
ASSOCIATES CORPORATION OF NORTH AMERICA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 18 -- SUBSEQUENT EVENT

On January 6, 1999, First Capital purchased the assets and assumed the
liabilities of Avco Financial Services, Inc. ("Avco"). First Capital
subsequently transferred substantially all of Avco's domestic and Puerto Rico
consumer finance operations to the Company, which included approximately $4
billion in finance receivables. Avco's domestic and Puerto Rico consumer finance
product offerings include home equity lending, retail sales finance and consumer
loans.

NOTE 19 -- UNAUDITED QUARTERLY FINANCIAL DATA

The following table sets forth the unaudited quarterly results of
operations (in millions):

<TABLE>
<CAPTION>
1998
-----------------------------------------
FOURTH THIRD SECOND FIRST
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Finance charges.............................. $1,404.9 $1,388.6 $1,375.8 $1,672.2
======== ======== ======== ========
Interest expense............................. $ 725.0 $ 714.3 $ 710.7 $ 692.2
======== ======== ======== ========
Earnings before provision for income taxes... $ 380.5 $ 381.3 $ 374.3 $ 366.9
Provision for income taxes................... 140.4 141.4 137.8 131.4
-------- -------- -------- --------
Net earnings................................. $ 240.1 $ 239.9 $ 236.5 $ 235.5
======== ======== ======== ========
</TABLE>

<TABLE>
<CAPTION>
1997
-----------------------------------------
FOURTH THIRD SECOND FIRST
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Finance charges.............................. $1,684.3 $1,631.5 $1,595.5 $1,517.2
======== ======== ======== ========
Interest expense............................. $ 681.0 $ 655.2 $ 623.6 $ 584.1
======== ======== ======== ========
Earnings before provision for income taxes... $ 365.9 $ 364.7 $ 358.6 $ 337.8
Provision for income taxes................... 134.5 134.7 132.9 122.4
-------- -------- -------- --------
Net earnings................................. $ 231.4 $ 230.0 $ 225.7 $ 215.4
======== ======== ======== ========
</TABLE>

48
<PAGE> 50

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

None.

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 I.(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................. 25
Consolidated Statement of Earnings for the years
ended December 31, 1998, 1997 and 1996........... 26
Consolidated Balance Sheet at December 31, 1998
and 1997......................................... 27
Consolidated Statement of Changes in Stockholders'
Equity for the years ended December 31, 1998,
1997 and 1996.................................... 28
Consolidated Statement of Cash Flows for the years
ended December 31, 1998, 1997 and 1996........... 29
Notes to consolidated financial statements........ 30
</TABLE>

(b) Reports on Form 8-K

During the quarter ended December 31, 1998, Associates filed Current
Reports on Form 8-K dated October 28, 1998 and December 4, 1998 (related to
the issuance of debt securities pursuant to Rule 415) and October 13, 1998
(related to the release of third quarter earnings).

49
<PAGE> 51

<TABLE>
<C> <S>
(3) -- (1) 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.
-- (2) By-laws.
(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 I.(2)(b) to Form 10-K.
(23) -- Consent of Independent Accountants.
(24) -- Powers of Attorney.
(27) -- Financial Data Schedule.
</TABLE>

50
<PAGE> 52

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/ JOHN F. STILLO
-----------------------------------------
John F. Stillo
Senior Vice President and Comptroller
March 2, 1999

Pursuant to the requirements of the Securities 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
(Keith W. Hughes) Officer and Director

/s/ ROY A. GUTHRIE* Senior Executive Vice March 2, 1999
- ----------------------------------------------------- President, Principal
(Roy A. Guthrie) Financial Officer and
Director

/s/ JOHN F. STILLO Senior Vice President,
- ----------------------------------------------------- Comptroller and Principal
(John F. Stillo) Accounting Officer
</TABLE>

By signing his name hereto, John F. Stillo 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/ JOHN F. STILLO
----------------------------------
Attorney-in-fact

51
<PAGE> 53

INDEX TO EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
(3) -- (1) 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.
-- (2) By-laws.
(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 I.(2)(b) to Form 10-K.
(23) -- Consent of Independent Accountants.
(24) -- Powers of Attorney.
(27) -- Financial Data Schedule.
</TABLE>

<PAGE> 1
EXHIBIT 3.2

09/25/96
Rev. 01/01/99
BY-LAWS
OF
ASSOCIATES CORPORATION OF NORTH AMERICA
(DELAWARE)

ARTICLE I

STOCKHOLDERS

Section 1. PLACE OF MEETING: Meetings of the stockholders (whether annual or
special) may be held at such place, within or without the State of Delaware, as
the board of directors shall from time to time designate, provided, however, in
the absence of such designation, meetings shall be held at the principal office
of the company in Irving, Texas.

Section 2. ANNUAL MEETING: The annual meeting of stockholders shall be held at
such time as may from time to time be fixed by resolution of the board of
directors. Should said day be a Saturday, Sunday or legal holiday, such annual
meeting shall be held on the preceding regular business day. If, for any reason,
the annual meeting be not held at the time aforesaid, the directors shall fix
another date for such meeting.

Section 3. NOTICE OF ANNUAL MEETING: The secretary shall mail, in the manner
provided in Section 2 of Article V of these by-laws, or shall deliver, a written
or printed notice of each annual meeting to each stockholder of record entitled
to vote thereat, at least ten (10) days before the date of such meeting.

Section 4. PURPOSE OF ANNUAL MEETING: Annual meetings of stockholders shall be
held for the purpose of receiving the reports of officers, electing directors
and transacting such other business as may be properly presented thereat.

Section 5. SPECIAL MEETINGS: Special Meetings of the stockholders may be held at
any time on call of the chairman of the board of directors, or of a vice
chairman of the board of directors, or of the board of directors, or of the
president, or of the stockholders holding not less than one-fourth (1/4) of the
outstanding shares entitled, by the Certificate of Incorporation and by the
General Corporation Law of the State of Delaware, to vote on the business
proposed to be transacted thereat.

Section 6. NOTICE OF SPECIAL MEETINGS: The person or persons calling a special
meeting, or the secretary at their direction, shall mail, in the manner provided
in Section 2 of Article V of these by-laws, or shall deliver, a written or
printed notice thereof to each holder of outstanding shares entitled, by the
Certificate of Incorporation and by the General Corporation Law of the State of
Delaware, to vote on the business proposed to be transacted at such meeting, at
least ten (10) days before the date of such meeting. Such notice shall specify
by whom such meeting was called and the time and place thereof and the purpose
or purposes for which such meeting was called.

Section 7. WAIVER OF NOTICE: Any stockholder may waive, in writing, notice of
any meeting of stockholders. Presence of a stockholder, in person or by proxy,
at any meeting of stockholders, and participation in such meeting, shall
constitute a waiver of notice thereof on the part of such stockholder.

Section 8. QUORUM: A majority of the shares of issued and outstanding capital
stock entitled, by the Certificate of Incorporation and by the General
Corporation Law of the State of Delaware, to vote on the business proposed to be
transacted at such meeting represented by the holders of record thereof, in
person or by proxy, shall constitute a quorum for the transaction of business.

Section 9. VOTING RIGHTS: Shares which have been transferred on the books of the
company after the record date of such meeting fixed by the board of directors,
or, if no such record date is fixed, within ten (10) days next preceding the
date of the meeting, shall not be entitled to vote at such meeting.

At all meetings of the holders of common stock, each share of stock
shall be entitled to one (1) vote.

<PAGE> 2

Section 10. PROXIES: Any stockholder entitled to vote at any meeting of
stockholders may vote either in person or by proxy executed in writing by the
stockholder or any authorized attorney in fact. All proxies shall be delivered
to the secretary at or before the time of such meeting. No proxy shall be valid
after eleven (11) months from the date of its execution unless a longer time is
expressly provided therein.

Section 11. ORDER OF BUSINESS: The order of business at the annual meeting and,
so far as practical, at all other meetings shall be as follows:

1. Determination of shares present.
2. Reading and disposal of any unapproved minutes.
3. Reports of officers and committees.
4. Election of directors.
5. Unfinished business.
6. New business.

ARTICLE II

DIRECTORS

Section 1. NUMBER AND ELECTION: The number of directors of this company shall be
not less than one (1) nor more than twenty-five (25). Hereafter, the number of
directors shall be such number between one (1) and twenty-five (25), inclusive,
as may be elected from time to time by resolution of the board of directors
adopted by the vote of a majority of the then number of directors, or by
resolution of the stockholders adopted by the vote of a majority of the shares
entitled to vote thereon. Each director shall be elected each year by a majority
vote of the stockholders present in person or by proxy at the annual meeting of
stockholders and shall hold office until his successor is elected and qualified
or until his earlier death, resignation or removal. Any vacancy occurring in the
board of directors caused by death, resignation, increase in number of directors
or otherwise may be filled by a majority vote of the remaining members of the
board, and any director so elected shall hold office until the next annual
meeting of stockholders and until his successor is elected and qualified.

Section 2. PLACE OF MEETING: Meetings of the board of directors may be held at
such place, either within or without the State of Delaware, as may from time to
time be designated by the chairman of the board of directors, or by a vice
chairman of the board of directors, or by the president, or by resolution of the
board of directors or as may be specified in the call of any meeting. In the
absence of any such designation, the meetings shall be held at the principal
office of the company in Irving, Texas.

Section 3. REGULAR MEETINGS: Regular meetings of the board of directors shall be
held immediately after each annual meeting of stockholders and at such other
times as may from time to time be fixed by resolution of the board of directors.
Notice need not be given of regular meetings of the board of directors.

Section 4. SPECIAL MEETINGS: Special meetings of the board of directors may be
held at any time on the call of the chairman of the board of directors, or of a
vice chairman of the board of directors, or of the president, or of the board of
directors, or of the executive committee. Special meetings may be held at any
time or place without notice if all the directors are present or if those not
present waive notice of the meeting in writing.

Section 5. NOTICE OF SPECIAL MEETINGS: The person or persons calling a special
meeting, or the secretary, at their discretion, shall do so by oral, telegraphic
or written notice duly delivered to each director not less than one day before
such meeting. Notice of any special meeting need not specify the purpose
thereof.

Section 6. WAIVER OF NOTICE: Any director may waive, in writing, notice of any
meeting of directors. The presence of a director at any meeting of the board and
his participation in such meeting shall constitute a waiver of notice thereof on
the part of such director.

Section 7. QUORUM: A majority of the duly elected and qualified directors then
holding such positions shall constitute a quorum for the transaction of
business.

2
<PAGE> 3

Section 8. COMPENSATION OF DIRECTORS: Each director who is not an officer or
employee of this company or of the parent company of this company or of any
affiliate of either shall (1) be paid a fee of Twelve Thousand Five Hundred
Dollars ($12,500.00) per annum, (2) be paid a fee of One Thousand Two Hundred
Fifty Dollars ($1,250.00) per meeting of the board of directors attended, (3) be
paid a fee of Five Hundred Dollars ($500.00) per meeting of committees of the
board of directors attended, and (4) be reimbursed for travel expenses incurred
in attending any meetings held outside the county of his residence.

Section 9. ORDER OF BUSINESS: The regular order of business of the meetings of
directors, so far as practical, shall be as follows:

1. Reading and disposal of unapproved minutes.
2. Reports of officers and committees.
3. Unfinished business.
4. New business.

Section 10. EXECUTIVE COMMITTEE: The board of directors may, by resolution
adopted by a majority of the whole board, designate three (3) or more of their
number to constitute an executive committee, which committee shall have and
exercise all of the authority of the board of directors in the management of the
company, including but not limited to the power and authority to declare regular
or special dividends and to authorize the issuance of stock. The committee shall
appoint a secretary who need not be a member of the committee. He shall keep
minutes of all meetings which minutes shall be read at the following meeting of
the board of directors. The committee shall from time to time make such rules as
it deems proper for the convening and conducting of its meetings.

Section 11. OTHER COMMITTEES: The board of directors may, by resolution adopted
by a majority of the whole board, designate from time to time such standing and
special committees as may be necessary or desirable to manage the affairs of the
company, fix the number of members thereof, and specify the duties thereof.

Section 12. TEMPORARY COMMITTEE MEMBERS: In the absence or disqualification of a
member of a committee, the member or members thereof present at any meeting and
not disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the board of directors to serve on such
committee until the next regular meeting of the board of directors.

ARTICLE III

OFFICERS

Section 1. OFFICERS: The Officers of the Company shall include a Chairman of the
Board of Directors and may include one or more Vice Chairmen of the Board of
Directors, each of whom shall be chosen from among the directors, a President
and a Secretary, each of whom shall be elected by the Board of Directors to hold
office until his or her successor shall have been chosen and shall have
qualified. The Chairman of the Board of Directors or the President may elect or
appoint one or more Senior Executive Vice Presidents, one or more Executive Vice
Presidents, one or more Senior Vice Presidents, one or more Vice Presidents, a
Treasurer, a Comptroller, a General Counsel, one or more Assistant Vice
Presidents, one or more Assistant Treasurers, one or more Assistant
Comptrollers, one or more Assistant General Counsels, one or more Assistant
Secretaries, and the Chairman of the Board of Directors or President may elect
or appoint such other officers as such officer may deem necessary, or desirable,
each of whom shall have such authority, shall perform such duties and shall hold
office for such term as may be prescribed by the Board of Directors from time to
time. Any person may hold at one time more than one office, excepting that the
duties of the President and Secretary shall not be performed by one person.

Section 2. ELECTION: At the first meeting after their election the directors
shall elect annually the officers enumerated in Section 1 of this Article to
hold office until the regular meeting of directors following the next annual
meeting of the stockholders and until others are elected and shall have
qualified in their stead, excepting as in this Article otherwise provided.

Section 3. APPOINTMENT: The chairman of the board or the president may, from
time to time, designate and appoint one or more senior executive vice
presidents, one or more executive vice presidents, one or more senior vice
presidents, one or more vice president, a treasurer, a comptroller, a general
counsel, one

<PAGE> 4

or more assistant vice presidents, one or more assistant treasurers, one or more
assistant comptrollers, one or more assistant general counsels, one or more
assistant secretaries, and the chairman of the board or president may elect or
appoint such other officers as such officer may deem necessary, or desirable,
each of whom shall have such authority, shall perform such duties and shall hold
office until the regular meeting of the board of directors following the next
annual meeting of the stockholders, excepting as in this Article otherwise
provided.

Section 4. CHAIRMAN OF THE BOARD OF DIRECTORS: The chairman of the board of
directors shall be a director. He shall preside at all meetings of stockholders
and at all meetings of the directors and of the executive committee thereof. As
chief executive officer he shall have general supervision of the affairs of the
company. He is charged with the responsibility for the prudential affairs of the
company and for the maintenance of harmony and accord and may at his discretion
discharge subordinate officers, employees, clerks and agents under his
supervision, excepting officers who are also directors, and appoint their
successors who shall hold office until the next annual meeting of directors. He
shall also perform all such other duties as are incidental to his office or
properly required of him by the board of directors.

Section 5. VICE CHAIRMAN OF THE BOARD OF DIRECTORS: Each vice chairman of the
board of directors shall be a director and shall be assigned specific areas of
responsibility by the chairman of the board of directors. He shall have general
supervision of those affairs of the corporation designated by the chairman for
his attention and may employ and discharge subordinate officers, employees,
clerks and agents under his supervision, excepting officers who are also
directors. He shall perform such duties as are incidental to his office or
properly required of him by the chairman of the board of directors.

Section 6. PRESIDENT: The president shall be a director. In the absence of the
chairman of the board of directors he shall preside at all meetings of
stockholders and at meetings of the board of directors. As chief operating
officer the president shall have general supervision of the affairs of the
corporation designated by the chairman for his attention and may employ and
discharge subordinate officers, employees, clerks and agents under his
supervision, excepting officers who are also directors. He shall perform all
such duties as are incidental to his office or properly required of him by the
chairman of the board of directors.

Section 7. VICE PRESIDENTS: Each vice president shall have general supervision
of those affairs of the company designated for his attention by the chairman of
the board of directors and such other officer to whom he is directly responsible
and may employ and discharge subordinate officers, employees, clerks and agents
under his supervision. Each vice president shall perform all such duties as are
incidental to his office or properly required of him by the chairman of the
board of directors and such other officer or officers to whom he is directly
responsible.

Section 8. SECRETARY: The secretary shall keep full and accurate minutes of the
meetings of stockholders and of directors in the proper record book of the
company provided therefor, give due notice of all annual meetings of
stockholders and of all special meetings of stockholders and directors on proper
call therefor being filed with him. He shall have custody of the seal of the
company and shall perform all such duties as are incidental to his office or
properly required of him by the chairman of the board of directors and such
other officer or officers to whom he is directly responsible.

Section 9. TREASURER: The treasurer shall perform all such duties as are
incidental to his office or properly required of him by the chairman of the
board of directors and such other officer or officers to whom he is directly
responsible.

Section 10. COMPTROLLER: The comptroller shall keep and maintain the books of
account of the company in such manner that they fairly present the financial
condition of the company and its subsidiaries. The comptroller shall perform all
such duties as are incidental to his office or properly required of him by the
chairman of the board of directors and such other officer or officers to whom he
is directly responsible.

Section 11. GENERAL COUNSEL: The general counsel shall have general supervision
of the legal affairs and litigation of the company. He shall perform all such
duties as are incidental to this office or are properly required of him by the
chairman of the board of directors and such other officer or officers to whom he
is directly responsible.

<PAGE> 5

Section 12. ASSISTANT VICE PRESIDENTS; ASSISTANT SECRETARIES; ASSISTANT
TREASURERS AND OTHER SUBORDINATE OFFICERS: Each assistant vice president,
assistant secretary, assistant treasurer and other subordinate officers shall
perform such duties as may be incidental to his office or properly required of
him by the chairman of the board and such other officer or officers to whom he
is directly responsible.

Section 13. VACANCIES: A vacancy in any office filled by election of the board
of directors existing at the time of any meeting of the board of directors or of
the executive committee of the board of directors may be filled by the board of
directors or by the executive committee of the board of directors by the
election of a new officer who shall hold office, subject to the provisions of
this Article, until the regular meeting of directors following the next annual
meeting of stockholders and until his successor is elected.

Section 14. REMOVAL OR DISCHARGE: Any officer may be removed or discharged by
the chairman of the board of directors at any time excepting an officer who is
also a director. Any officer who is a director may be discharged at any time by
the board of directors.

ARTICLE IV

CAPITAL STOCK

Section 1. CERTIFICATE OF STOCK: Each stockholder of the company whose stock has
been paid in full shall be entitled to a certificate or certificates showing the
amount of stock of the company standing on the books in his or her name. Each
certificate of stock shall be numbered and bear the manual or facsimile
signatures of the chairman of the board of directors, a vice chairman of the
board of directors, the president, or vice president and secretary or assistant
secretary.

Section 2. FORM OF CERTIFICATE: The form of stock certificates shall be as
prescribed from time to time by resolution of the board of directors.

Section 3. RECORD HOLDER OF SHARES: The company shall be entitled to treat the
holder of record of any share or shares as the holder in fact thereof, and
accordingly shall not be bound to recognize any equitable or other claims to or
interest in such shares on the part of any other person, whether or not it shall
have express or other notice thereof, save as expressly provided by the General
Corporation Law of the State of Delaware. The company shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends and to vote as such owner.

Section 4. LOST STOCK CERTIFICATE: In case of loss or destruction of a
certificate of stock, a new certificate shall be issued upon satisfactory proof
of such loss or destruction and the giving of security by bond, or the giving of
security otherwise satisfactory to the board of directors, the chairman of the
board of directors, a vice chairman of the board of directors, the executive
committee or the president.

ARTICLE V

MISCELLANEOUS

Section 1. FISCAL YEAR: The fiscal year of the company shall be the calendar
year.

Section 2. MAILING OF NOTICES: Mailing of notices to stockholders or directors
shall be by depositing the same in a post office or letter box in a postpaid
sealed wrapper, addressed to such stockholder or director at his, her or its
address, as the same appears on the books of the company. Such notice shall be
deemed to be given at the time when the same shall be thus mailed.

Section 3. CORPORATE SEAL: The corporate seal of the company shall be in such
form as the board of directors shall from time to time prescribe.

5
<PAGE> 6

ARTICLE VI

AMENDMENTS

These by-laws may be amended or repealed at any meeting of the board of
directors by a vote of a majority of all members of the board of directors then
elected and qualified; provided, however, that such power, having been conferred
upon the board of directors, shall not divest the stockholders of the power to
adopt, amend, or repeal by-laws.

<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
----------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Fixed Charges(a)
Interest expense......................... $2,842.2 $2,543.9 $2,206.7 $1,979.8 $1,509.7
Implicit interest in rent................ 13.7 13.3 13.0 11.4 9.6
-------- -------- -------- -------- --------
Total fixed charges.............. 2,855.9 $2,557.2 $2,219.7 $1,991.2 $1,519.3
======== ======== ======== ======== ========
Earnings(b)................................ $1,503.0 $1,427.0 $1,305.1 $1,121.4 $ 972.6
Fixed charges.............................. 2,855.9 2,557.2 2,219.7 1,991.2 1,519.3
-------- -------- -------- -------- --------
Earnings, as defined............. $4,358.9 $3,984.2 $3,524.8 $3,112.6 $2,491.9
======== ======== ======== ======== ========
Ratio of Earnings to Fixed Charges......... 1.53 1.56 1.59 1.56 1.64
======== ======== ======== ======== ========
</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 Form S-3 (File No. 333-62861) of
our report dated January 19, 1999, on our audits of the consolidated financial
statements of Associates Corporation of North America and Subsidiaries as of
December 31, 1998 and 1997, and for the years ended December 31, 1998, 1997 and
1996, which report is included in this Annual Report on Form 10-K.

/s/PRICEWATERHOUSECOOPERS LLP

PRICEWATERHOUSECOOPERS LLP

Dallas, Texas
March 2, 1999

<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, KEITH W. HUGHES, FREDERIC C. LISKOW, CHESTER D.
LONGENECKER and JOHN F. STILLO, and each of them, his true and lawful attorneys,
for him and in the 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, 1998, 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,
KEITH W. HUGHES, FREDERIC C. LISKOW, CHESTER D. LONGENECKER and JOHN F. STILLO,
and each of them, full power and authority to do and perform each and every act
and that 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 of all that said ROY A.
GUTHRIE, KEITH W. HUGHES, FREDERIC C. LISKOW, CHESTER D. LONGENECKER and JOHN F.
STILLO, or any of them, as said attorneys, may or shall lawfully do or cause to
be done by virtue hereof.

IN WITNESS WHEREOF, each of the undersigned has subscribed his or her
name this 2nd day of March, 1999.

Signature: /s/ KEITH W. HUGHES
--------------------------------------
Name: Keith W. Hughes
Title: Chairman of the Board, Principal
Executive Officer and Director

Signature: /s/ ROY A. GUTHRIE
--------------------------------------
Name: Roy A. Guthrie
Title: Director, Senior Executive Vice
President and Chief Financial
Officer

Signature: /s/ JOHN F. STILLO
--------------------------------------
Name: John F. Stillo
Title: Senior Vice President, Comptroller
and Principal Accounting Officer

<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, 1998 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-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 2,620
<SECURITIES> 1,866
<RECEIVABLES> 46,038
<ALLOWANCES> 1,379
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 239
<DEPRECIATION> 0
<TOTAL-ASSETS> 56,577
<CURRENT-LIABILITIES> 0
<BONDS> 48,633
0
0
<COMMON> 147
<OTHER-SE> 6,609
<TOTAL-LIABILITY-AND-EQUITY> 56,577
<SALES> 7,099
<TOTAL-REVENUES> 7,099
<CGS> 0
<TOTAL-COSTS> 5,596
<OTHER-EXPENSES> 1,805
<LOSS-PROVISION> 949
<INTEREST-EXPENSE> 2,842
<INCOME-PRETAX> 1,503
<INCOME-TAX> 551
<INCOME-CONTINUING> 952
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 952
<EPS-PRIMARY> 0
<EPS-DILUTED> 0

</TABLE>