<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-1004
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-6154
ASSOCIATES CORPORATION OF NORTH AMERICA
(Exact name of registrant as specified in its charter)
Delaware 74-1494554
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
250 East Carpenter Freeway, Irving, Texas 75062-2729
(Address of principal executive offices)
(Zip Code)
972-652-4000
(Registrant's telephone number, including area code)
Not applicable
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes..X.. No.....
As of March 31, 1999, the registrant had 260 shares of Common Stock and
1,000,000 shares of Class B Common Stock issued and outstanding, all of
which were owned directly or indirectly by Associates First Capital
Corporation. The registrant meets the conditions set forth in General
Instruction H.(1)(a) and (b) to Form 10-Q and is therefore filing this
Form 10-Q with the reduced disclosure format.
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
ASSOCIATES CORPORATION OF NORTH AMERICA
CONSOLIDATED STATEMENT OF EARNINGS
(In Millions)
<TABLE>
<CAPTION>
Three Months Ended
March 31
1999 1998
---- ----
<S> <C> <C>
REVENUE
Finance charges $1,517.5 $1,672.2
Insurance premiums 95.2 98.2
Investment and other income - NOTE 3 199.5 117.2
-------- --------
1,812.2 1,887.6
EXPENSES
Interest expense 703.3 692.2
Operating expenses 460.2 460.6
Provision for losses on finance
receivables - NOTE 7 236.6 326.1
Insurance benefits paid or provided 36.6 41.8
-------- --------
1,436.7 1,520.7
-------- --------
EARNINGS BEFORE PROVISION FOR INCOME TAXES 375.5 366.9
PROVISION FOR INCOME TAXES 138.8 131.4
-------- --------
NET EARNINGS $ 236.7 $ 235.5
======== ========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
ASSOCIATES CORPORATION OF NORTH AMERICA
CONSOLIDATED BALANCE SHEET
(Dollars In Millions)
<TABLE>
<CAPTION>
March 31 December 31
1999 1998
-------- -----------
ASSETS
<S> <C> <C>
CASH AND CASH EQUIVALENTS $ 564.8 $ 2,619.7
INVESTMENTS IN DEBT AND EQUITY SECURITIES
- NOTE 5 1,901.7 1,865.9
FINANCE RECEIVABLES, net of unearned finance
income, allowance for credit losses and
insurance policy and claims reserves
- NOTE 6 47,527.8 43,895.8
NOTES RECEIVABLE FROM RELATED PARTIES
- NOTE 3 and 8 2,609.0 6,563.9
OTHER ASSETS - NOTE 9 3,665.4 1,632.0
--------- ---------
Total assets $56,268.7 $56,577.3
========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
NOTES PAYABLE, unsecured short-term
Commercial Paper $13,499.4 $15,357.2
Bank Loans 50.0 1,070.7
ACCOUNTS PAYABLE AND ACCRUALS 1,369.5 1,187.7
LONG-TERM DEBT
Senior Notes 32,056.7 31,780.2
Subordinated and Capital Notes 425.3 425.3
--------- ---------
32,482.0 32,205.5
STOCKHOLDERS' EQUITY
Class B Common Stock, $100 par value,
2,000,000 shares authorized, 1,000,000
shares issued and outstanding 100.0 100.0
Common Stock, no par value, 5,000 shares
authorized, 260 shares issued and
outstanding, at stated value 47.0 47.0
Paid-in Capital 3,553.3 1,667.8
Retained Earnings 5,179.8 4,951.5
Accumulated Other Comprehensive Loss
- NOTE 4 (12.3) (10.1)
--------- ---------
Total stockholders' equity 8,867.8 6,756.2
--------- ---------
Total liabilities and stockholders' equity $56,268.7 $56,577.3
========= =========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
ASSOCIATES CORPORATION OF NORTH AMERICA
CONSOLIDATED STATEMENT OF CASH FLOWS
(In Millions)
<TABLE>
<CAPTION>
Three Months Ended
March 31
1999 1998
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 236.7 $ 235.5
Adjustments to reconcile net earnings to
net cash provided from operating activities:
Provision for losses on finance receivables 236.6 326.1
Depreciation and amortization 67.8 78.9
Other operating activities 25.2 (86.1)
--------- ---------
Net cash provided from operating
activities 566.3 554.4
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Finance receivables originated or purchased (10,226.5) (10,398.5)
Finance receivables liquidated and sold 10,328.2 10,082.6
Other investing activities (120.9) (1,294.9)
---------- ---------
Net cash used for investing activities (19.2) (1,610.8)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of long-term debt 2,052.2 1,551.9
Retirement of long-term debt (1,775.7) (1,510.2)
(Decrease) increase in notes payable (2,878.5) 1,192.6
--------- ---------
Net cash (used for) provided from
financing activities (2,602.0) 1,234.3
--------- ---------
(DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS (2,054.9) 177.9
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 2,619.7 294.8
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 564.8 $ 472.7
========= =========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
ASSOCIATES CORPORATION OF NORTH AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - THE COMPANY
Associates Corporation of North America ("Associates" or the
"Company"), a Delaware corporation, is a wholly-owned subsidiary and
principal 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.
NOTE 2 - 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. Certain prior period financial statement amounts
have been reclassified to conform to the current period presentation.
In the opinion of management, all adjustments necessary to present
fairly the results of operations and financial position have been made.
The results of operations for any interim period are not necessarily
indicative of the results of operations for a full year.
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.
NOTE 3 - SIGNIFICANT TRANSACTIONS
AVCO FINANCIAL SERVICES INC.
On January 6, 1999, First Capital purchased the assets and assumed
the liabilities of Avco Financial Services, Inc. ("Avco"). During the
first quarter of 1999, First Capital transferred the domestic and Puerto
Rico consumer finance operations of Avco to the Company. This transfer was
in the form of a $1.9 billion capital contribution of certain Avco domestic
assets, and the $3.4 billion sale, at book value, of substantially all of
Avco's remaining domestic and Puerto Rico net assets to the Company. The
sale was financed through a reduction on the Company's outstanding notes
receivable from First Capital. Included in these transactions was
approximately $4 billion of consumer net finance receivables.
DOMESTIC BRANCH SALE
In March 1999, the Company sold 128 consumer finance branches,
acquired from Avco, for approximately $640 million to Commercial Credit
Corporation, a subsidiary of Citigroup, Inc. The operating results of
these branches from January 1, 1999 through the date of sale were included
in investment and other income.
NOTE 4 - COMPREHENSIVE INCOME
Accumulated other comprehensive loss consisted of net unrealized
losses on available-for-sale securities of $12.3 million and $10.1 million,
net of tax, at March 31, 1999 and December 31, 1998, respectively.
Comprehensive income for the three-month periods ended March 31, 1999
and 1998 consisted of the following components, net of tax (in millions):
Three Months Ended
March 31
1999 1998
---- ----
Net earnings $236.7 $235.5
Unrealized loss on available-for-sale
securities (2.2) (2.9)
------ ------
Comprehensive income $234.5 $232.6
====== ======
NOTE 5 - 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 generally invests in debt
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 debt and equity securities as
available-for-sale securities and adjusts their recorded value to market.
The estimated market value at March 31, 1999 and December 31, 1998 was $1.9
billion and $1.8 billion, respectively. The amortized cost at both March
31, 1999 and December 31, 1998 was $1.9 billion. Realized gains or losses
on sales are included in investment and other income. Unrealized gains or
losses are included, net of tax, in other comprehensive income, a component
of stockholders' equity.
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 March
31, 1999 and December 31, 1998 was $22.8 million and $20.8 million,
respectively. Historical cost at March 31, 1999 and December 31, 1998 was
$16.0 million and $15.5 million, respectively.
<PAGE>
NOTE 6 - FINANCE RECEIVABLES
At March 31, 1999 and December 31, 1998, finance receivables
consisted of the following (in millions):
<TABLE>
<CAPTION>
March 31 December 31
1999 1998
-------- -----------
<S> <C> <C>
Home equity lending $21,877.7 $20,435.8
Truck and truck trailer 10,486.1 10,038.0
Personal lending and retail sales finance 8,406.5 6,566.2
Equipment 4,949.2 4,882.1
Credit card 1,610.6 1,398.0
Auto fleet leasing 1,458.4 1,471.4
Warehouse lending and other 1,050.6 1,247.0
-------- ---------
Finance receivables net of unearned
finance income ("net finance
receivables")(1) 49,839.1 46,038.5
Allowance for losses on finance receivables (1,558.9) (1,378.9)
Insurance policy and claims reserves (752.4) (763.8)
--------- --------
Finance receivables, net of unearned
finance income, allowance for credit
losses and insurance policy and claims
reserves $47,527.8 $43,895.8
========= =========
(1) Unearned finance income was approximately $3.8 billion and $3.5 billion
at March 31, 1999 and December 31, 1998, respectively.
</TABLE>
NOTE 7 - 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>
Three Months Ended Year Ended
March 31 December 31
1999 1998 1998
---- ---- -----------
<S> <C> <C> <C>
Balance at beginning of period $1,378.9 $1,661.9 $1,661.9
Provision for losses 236.6 326.1 949.4
Recoveries on receivables
charged off 40.9 51.9 150.5
Losses sustained (266.3) (347.9) (1,032.5)
Reserves of receivables sold - - (359.4)
Reserves of acquired
businesses 174.8 - -
Other (6.0) 2.1 9.0
-------- -------- --------
Balance at end of period $1,558.9 $1,694.1 $1,378.9
======== ======== ========
</TABLE>
NOTE 8 - NOTES RECEIVABLE FROM RELATED PARTIES
Notes receivable from related parties include amounts due from the
Company's affiliates and First Capital. These notes are unsecured demand
notes and generally bear interest at a floating rate. The weighted average
interest rate at March 31, 1999 was 8.34%. During the three month period
ended March 31, 1998, interest income on notes receivable from related
parties was approximately $146.9 million.
NOTE 9 - OTHER ASSETS
The components of other assets at March 31, 1999 and December 31,
1998 were as follows (in millions):
<TABLE>
<CAPTION>
March 31 December 31
1999 1998
-------- -----------
<S> <C> <C>
Goodwill $1,777.9 $ 331.5
Notes and other receivables 772.4 382.3
Property and equipment 248.2 238.7
Collateral held for resale 241.3 229.9
Relocation client advances 150.7 171.8
Customer lists and operating agreements 150.6 -
Other 324.3 277.8
-------- --------
Total other assets $3,665.4 $1,632.0
-------- --------
</TABLE>
NOTE 10 - DEBT RESTRICTIONS
Associates is subject to various limitations under the provisions of
its outstanding debt and credit facilities. The most significant of these
limitations are summarized as follows:
LIMITATION ON PAYMENT OF DIVIDENDS
A restriction contained in one issue of debt securities generally
limits payments of cash dividends on the Company's Common Stock in any year
to not more than 50% of consolidated net earnings for such year, subject
to certain exceptions, plus increases in contributed capital and
extraordinary gains. Any such amounts available for the payment of
dividends in such fiscal year and not so paid, may be paid in any one or
more of the five subsequent fiscal years. Under this restriction,
approximately $3.0 billion would have been available for dividends at March
31, 1999. The Company is no longer subject to this restriction because it
matured on March 15, 1999.
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 March 31, 1999, Associates tangible net worth was
approximately $7.1 billion.
NOTE 11 - DERIVATIVE FINANCIAL INSTRUMENTS
The Company uses derivative financial instruments for the purpose of
hedging specific exposures as part of its risk management program. Such
instruments to date have been limited to currency swap, interest rate swap,
treasury lock agreements and treasury futures and option contracts.
Foreign currency swap agreements are held for purposes other than
trading and have been designated for accounting purposes as hedges of
specific foreign currency exposures under certain debt obligations. Under
these agreements, the Company and the agreement counterparties are
obligated to exchange specific foreign currencies at varying times over the
next 5 years. The aggregate notional amount of these agreements at both
March 31, 1999 and December 31, 1998 was $1.1 billion. The fair value of
such agreements at March 31, 1999 and December 31, 1998 would have been a
liability of $27.2 million and an asset of $65.0 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 at both March 31, 1999 and December
31, 1998 was $3.3 billion. The fair value of such agreements at March 31,
1999 and December 31, 1998 would have been a liability of $21.8 million and
$59.2 million, respectively. Interest rate swap and treasury lock
agreements mature on varying dates over the next 4 years.
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 of futures and
options contracts at March 31, 1999 and December 31, 1998 was $613.9
million and $711.4 million, respectively. The fair value of these contracts
at March 31, 1999 would have been an asset of $17.0 million and a liability
of $5.0 million at December 31, 1998. Such contracts mature on varying
dates through 1999.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis has been prepared in accordance
with General Instruction H.(2)(a) to Form 10-Q, and should be read in
conjunction with the consolidated financial statements of the Company and
the related notes thereto.
Results of Operations
Net Earnings
Net earnings for the three-month period ended March 31, 1999 were
$236.7 million, a 1% increase over the same period in the previous year.
The principal factors which influenced net earnings during the period are
described below.
Finance Charges
Finance charge revenue on a dollar basis decreased for the first
quarter of 1999, to $1.5 billion from $1.7 billion for the first quarter
of 1998. Finance charge revenue as a percentage of average net finance
receivables (the "Finance Charge Ratio") was 12.26% for the first quarter
of 1999 compared to 13.98% for the same period in 1998. The decrease in
the finance revenue and the Finance Charge Ratio was principally due to a
shift in product mix toward more secured receivables. Secured receivables
generally have lower finance charge rates than unsecured receivables. The
shift in product mix was principally caused by the second quarter 1998
sale, at book value, of $5.2 billion of the Company's participation
interest in First Capital's U.S. bankcard credit card receivables (the
"Bankcard Sale").
Interest Expense
Interest expense for the first quarter of 1999 increased slightly to
$703.3 million from the $692.2 million recorded in the first quarter of
1998. The primary cause for the increase was a modest shift toward a
higher percentage of fixed rate debt as a percentage of total debt. Fixed
rate debt rates were higher than floating rate debts in each period.
Declining market debt rates during the current period partially offset this
increase.
Net Interest Margin
As a result of the above fluctuations, the Company's net interest
margin decreased to $814.2 million for the first quarter of 1999 compared
to $979.9 million for the first quarter of 1998. The Company's net
interest margin expressed as a ratio to average net finance receivables
declined to 6.58% from 8.19% for the same period in the prior year.
Operating Expenses
First quarter operating expenses were $460.2 million for the first
quarter of 1999 compared to $460.6 million for the first quarter of 1998,
reflecting consistent total asset levels in both comparable periods.
Provision for Losses
The Company's provision for losses decreased to $236.6 million during
the first quarter of 1999 compared to $326.1 million for the same period
in 1998. Total net credit losses as a percentage of average net finance
receivables (the "Loss Ratio") was 1.82% for the first quarter of 1999
compared to 2.47% for the same period in 1998. The primary cause of these
decreases was a shift in product mix toward more secured portfolios caused
by the aforementioned Bankcard Sale in the second quarter of 1998. Secured
portfolios typically have lower loss levels than unsecured portfolios.
Financial Condition
During the first quarter of 1999, net finance receivables increased
by $3.8 billion. The Avco acquisition described in NOTE 3 to the
consolidated financial statements was the primary cause for the increase.
Composite 60+days contractual delinquency was 2.54% of gross finance
receivables at March 31, 1999, slightly higher than the 2.41% recorded at
December 31, 1998. Accordingly, the allowance for losses to net finance
receivables increased slightly to 3.13% at March 31, 1999 from 3.00% at
December 31, 1998. Company management believes the allowance for losses
at March 31, 1999 is sufficient to provide adequate coverage against losses
in its portfolios.
At March 31, 1999, stockholders' equity increased to $8.9 billion
from $6.8 billion at December 31, 1998. The $1.9 billion capital
contribution received from First Capital, described in NOTE 3 to the
consolidated financial statements, and first quarter net earnings were the
primary causes of the increase.
Liquidity and Capital Resources
Through its asset and liability management function, the Company
maintains a disciplined approach to the management of liquidity, capital
and interest rate risk. The Company has a formal process for managing its
liquidity to ensure that funds are available at all times to meet the
Company's commitments.
The principal sources of cash for the Company are proceeds from the
issuance of short- and long-term debt and cash provided from the Company's
operations. While First Capital has made periodic capital contributions
to the Company in the past, no assurance can be made with respect to future
capital contributions by First Capital to the Company. Nevertheless,
management believes that the Company has available sufficient liquidity,
from a combination of cash provided from operations and external
borrowings, to support its operations.
A principal strength of the Company is its ability to access the
global debt markets in a cost-efficient manner. Continued access to the
public and private debt markets is critical to the Company's ability to
continue to fund its operations. The Company seeks to maintain a
conservative liquidity position and actively manage its liability and
capital levels, debt maturities, diversification of funding sources and
asset liquidity to ensure that it is able to meet its obligations as they
mature. The Company's operations are principally funded through domestic
and international borrowings.
At March 31, 1999, the Company had short- and long-term debt
outstanding of $13.5 billion and $32.5 billion, respectively. Short-term
debt principally consists of commercial paper issued by the Company and
represents the Company's primary source of short-term liquidity. Long-term
debt principally consists of senior unsecured long-term debt issued
publicly and privately by the Company in the United States and abroad.
During the three months ended March 31, 1999 and 1998, the Company raised
debt aggregating $2.1 billion and $1.6 billion, respectively, through
public and private offerings.
Substantial additional liquidity is available to the Company's
operations through established credit facilities in support of its
commercial paper program. Such credit facilities provide a means of
refinancing its maturing short-term obligations as needed. At March 31,
1999, these credit facilities totaled $18.1 billion, of which $4.0 billion
was allocated for use by First Capital. These credit facilities provide
at least 75% coverage of commercial paper outstanding at March 31, 1999.
Year 2000 Compliance
The inability of computers, software and other equipment utilizing
microprocessors to recognize and properly process date fields containing
a 2-digit year is commonly referred to as the Year 2000 Compliance issue.
As the year 2000 approaches, if such systems are not repaired they 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 Company 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
process of all critical applications is substantially complete these
applications will undergo additional testing during 1999. In addition, the
Company is utilizing both 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.
The Company's Non-IT efforts include evaluating Year 2000 Compliance
of third party suppliers, embedded systems and the Company's larger
commercial borrowers. 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. In addition, the Company required these suppliers and borrowers
to certify that they will be Year 2000 compliant. If they could not make
this certification, or the Company's testing shows potential Year 2000
Compliance problems, contingency plans are being implemented.
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.
From the inception of the Company's Year 2000 readiness project
through March 31, 1999, the Company incurred and expensed approximately $19
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 $10 million.
These incremental costs do not include existing resources allocated to the
project effort.
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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Management has no material changes to report from the disclosure set
forth in the Company's Form 10-K for the year ended December 31, 1998.<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None to report.
In accordance with General Instruction H.(2)(b), the following items
have been omitted: Item 2, Changes in Securities; Item 3, Defaults Upon
Senior Securities; and Item 4, Submission of Matters to a Vote of Security
Holders.
ITEM 5. OTHER INFORMATION.
Forward-Looking Statements
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 Company hereby incorporates into this report by reference to its
Form 10-K for the year ended December 31, 1998 the cautionary statements
found on page 23-24 of such Form 10-K.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
(12) Computation of Ratio of Earnings to Fixed Charges.
(27) Financial Data Schedule.
(b) Reports on Form 8-K
During the first quarter ended March 31, 1999, Associates filed
Current Reports on Form 8-K dated January 21, 1999 (announcing
financial results for the year ended December 31, 1998); February
5, 1999, February 8, 1998, February 8, 1999 (Form 8-K/A)and March
18, 1999 (related to a debt issuance or registration pursuant to
Rule 415); February 12, 1999 (announcing the transfer of
substantially all of the domestic and Puerto Rico consumer finance
operations of Avco Financial Services, Inc. to the Company); and
March 17, 1999 (announcing that the Company publicly released a
1998 annual report supplement containing financial information for
the years ended December 31, 1994 through December 31, 1998).
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
May 13, 1999
ASSOCIATES CORPORATION OF NORTH AMERICA
(registrant)
By /s/ John F. Stillo
Executive Vice President, Comptroller and
Principal Accounting Officer
<PAGE>
EXHIBIT 12
ASSOCIATES CORPORATION OF NORTH AMERICA
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollar Amounts in Millions)
<TABLE>
<CAPTION>
Three Months Ended
March 31
1999 1998
---- ----
<S> <C> <C>
Fixed Charges (a)
Interest expense $ 703.3 $ 692.2
Implicit interest in rent 4.6 4.7
-------- --------
Total fixed charges $ 707.9 $ 696.9
Earnings (b)
Earnings before provision for income
taxes $ 375.5 $ 366.9
Fixed charges 707.9 696.9
-------- --------
Earnings, as defined $1,083.4 $1,063.8
Ratio of Earnings to Fixed Charges 1.53 1.53
==== ====
(a) For purposes of such computation, the term "fixed charges" represents
interest expense and a portion of rentals representative of an
implicit interest factor for such rentals.
(b) For purposes of such computation, the term "earnings" represents
earnings before provision for income taxes, plus fixed charges.
/TABLE
<PAGE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
0 MEANS NOT APPLICABLE OR NOT SEPARATELY DISCLOSED. This schedule contains
summary financial information extracted from the Company's unaudited
consolidated financial statements as of March 31, 1999 and the three months
then ended and is qualified in its entirety by reference to such
consolidated financial statements.
</LEGEND>
<CIK> 0000007973
<NAME> ASSOCIATES CORPORATION OF NORTH AMERICA
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1999
<CASH> 565
<SECURITIES> 1,902
<RECEIVABLES> 49,839
<ALLOWANCES> 2,311
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 56,269
<CURRENT-LIABILITIES> 0
<BONDS> 46,031
<COMMON> 100
0
0
<OTHER-SE> 8,768
<TOTAL-LIABILITY-AND-EQUITY> 56,269
<SALES> 1,812
<TOTAL-REVENUES> 1,812
<CGS> 0
<TOTAL-COSTS> 1,437
<OTHER-EXPENSES> 497
<LOSS-PROVISION> 237
<INTEREST-EXPENSE> 703
<INCOME-PRETAX> 375
<INCOME-TAX> 138
<INCOME-CONTINUING> 237
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 237
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
