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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934
Date of Report (Date of earliest event) April 14, 2000
ASSOCIATES CORPORATION OF NORTH AMERICA
(Exact name of registrant as specified in its charter)
DELAWARE 74-1494554
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification Number)
1-6154
(Commission File Number)
250 E. Carpenter Freeway, Irving, Texas 75062-2729
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (972) 652-4000
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Item 5. Other Events.
Associates Corporation of North America (the
"Company")released earnings for the three-month period ended
March 31, 2000. Below is a summary of the significant
transactions and other financial information.
Significant Transactions
------------------------
Home Equity Lending Receivable Portfolio Securitization and Sale
During the first quarter of 2000, the Company
securitized and sold a $1.5 billion home equity receivables
portfolio and retained an interest in the related
securitization trust totaling approximately $262 million. A
pre-tax gain of approximately $22 million was recorded on this
transaction.
Arcadia Acquisition
In April 2000, Associates First Capital Corporation
("First Capital"), the Company's parent, acquired Arcadia
Financial Ltd. ("Arcadia"). Arcadia is a leading independent
automobile finance company which services over $5 billion in
automobile loans. As part of the agreement and prior to the
closing of the acquisition, the Company entered into a
continuous asset purchase and sale agreement under which the
Company purchased retail installment and sales contracts from
Arcadia totaling approximately $500 million in November and
December 1999, and approximately $350 million in the first
quarter of 2000. Following the closing of the acquisition,
First Capital transferred Arcadia to the Company in the form
of a capital contribution.
Decline in Net Finance Receivables
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Net finance receivables decreased to $48.4 billion at
March 31, 2000 from $49.8 billion at December 31, 1999. The
Company recorded receivables growth during the first quarter
of 2000 of approximately $900 million. The increased growth was
offset by the $1.5 billion home equity securitization in the
first quarter of 2000 and the reclassification to other assets
of approximately $850 million in automobile loan receivables
held for securitization.
Total Asset Growth
------------------
Total assets increased to $62.2 billion at March 31,
2000 compared to $60.2 billion at December 31, 1999. The
primary causes for the increase in total assets were an
increase of approximately $2.1 billion in notes receivable
from related parties and receivable growth of approximately
$900 million. These increases were partially offset by the
securitization of home equity receivables discussed above.
Earnings
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Net earnings were $262.4 million for the three-month
period ended March 31, 2000 compared to $260.8 million for
the three-month period ended March 31, 1999. Earnings before
provision for income taxes were $409.0 million and $406.7
million for the three-month periods ended March 31, 2000 and
March 31, 1999, respectively. The primary factors affecting
earnings during the first quarter of 2000 as compared to the
prior year period are described below:
Total revenue. Total revenue for the three-month period ended
March 31, 2000 was $1,858.6 million, a $3.2 million decline
from the same period in the prior year. Finance charge
revenues decreased by approximately $70 million in the
three-month period ended March 31, 2000 from the comparable
period in the prior year. This decrease was primarily caused
by a decrease in average finance receivables outstanding due
to the 1999 sales of $1.7 billion in private label credit card
receivables and the securitization and sale of a $2.4 billion
home equity receivables portfolio in 1999. Revenue on
internal growth, primarily in the home equity and truck and
truck trailer portfolios, somewhat offset the effects of these
transactions.
Increases in servicing related income, insurance premium
revenue and investment and other income somewhat offset the
decline in total revenue caused by lower finance charge
revenues. Servicing related income increased by approximately
$36 million in the first quarter of 2000 from the comparable
prior year quarter due to the income resulting from the
aforementioned securitization transactions. Insurance premium
revenue and investment and other income increased by
approximately $9 million and $23 million, respectively, in the
first quarter of 2000 from the comparable prior year quarter.
The increase in investment and other income was primarily
caused by the pre-tax gain on securitization noted above.
Credit Quality. Net credit losses as a percent of average net
finance receivables ("Loss Ratio") increased in the
three-month period ended March 31, 2000 as compared to the
same period in the prior year. The increase in the Loss Ratio
was the result of increased losses in the Company's home
equity, truck and truck trailer and unsecured personal loan
portfolios.
Allowance for Losses/Coverage
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The allowance for losses declined $17.8 million from
$1,408.4 million at December 31, 1999 to $1,390.6 million at
March 31, 2000 principally due to lower allowance for loss
provision and the decline in finance receivables. The
allowance for losses to net finance receivables ("Allowance
Ratio")increased to 2.88% at March 31, 2000 from 2.83% at
December 31, 1999. The increase in the Allowance Ratio was
primarily due to the securitization of the $1.5 billion home
equity loan portfolio noted above. Home equity loans
historically have a lower loss experience and reserve
requirement than the Company's other loan products. The
Company's composite ratio of allowance for losses to trailing
net credit losses declined to 1.50x for the three-month period
ended March 31, 2000 from 1.61x in the fourth quarter of 1999.
Management believes the allowance for losses at March 31,
2000 is sufficient to provide adequate protection against
losses in its portfolios.
60+ Days Contractual Delinquencies
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The Company's 60+ days contractual delinquencies declined
from 2.81% at December 31, 1999 to 2.54% at March 31, 2000. The
decrease in the delinquency rate occurred primarily in the home
equity, personal lending and equipment product lines.
Certain unaudited financial information for the
three-month periods ended on or at March 31, 2000, December 31,
1999 and March 31, 1999 for Associates Corporation of North
America is as follows (dollar amounts in millions) (1):
<TABLE>
<CAPTION>
Three Months Ended
March 31
2000 1999
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<S> <C> <C>
TOTAL REVENUE $ 1,858.6 $ 1,861.8
EARNINGS BEFORE PROVISION FOR
INCOME TAXES 409.0 406.7
NET EARNINGS 262.4 260.8
</TABLE>
<TABLE>
<CAPTION>
March 31 December 31 March 31
2000 1999 1999
-------- ----------- --------
<S> <C> <C> <C>
NET FINANCE RECEIVABLES $48,367.7 $49,766.7 $49,839.1
TOTAL ASSETS 62,215.7 60,180.1 60,385.1
TOTAL DEBT 51,010.5 49,501.9 49,975.5
STOCKHOLDERS' EQUITY 9,530.1 9,279.3 8,901.4
60+DAYS CONTRACTUAL
DELINQUENCY (2) 2.54% 2.81% 2.50%
NET CREDIT LOSSES (as a % of
average net finance receivables) 2.02 1.99 1.82
ALLOWANCE FOR LOSSES ON
FINANCE RECEIVABLES
Amount $ 1,390.6 $ 1,408.4 $1,558.9
Percent of net finance
receivables 2.88% 2.83% 3.13%
Multiple to net losses (3) 1.50 1.61 1.68
(1) The financial information presented has been restated, as
applicable, to reflect the December 31, 1999 contribution of
Associates World Capital Corporation to the Company by First
Capital.
(2) This ratio previously included truck and truck trailer
repossessions with recourse to the dealer or manufacturer and
has been restated for comparability. Ratios of 2.86% and 2.54%
at December 31, 1999 and March 31, 1999, respectively, were
previously reported.
(3) The multiple to net losses is calculated as a ratio of the
allowance for losses to related trailing net credit losses on
receivables owned at the end of the period as adjusted to
exclude net credit losses related to the impact of certain
significant acquisitions.
</TABLE>
Related Party Transaction
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The Company, through its subsidiary Associates World
Capital Corporation ("AWCC"), is a party to an income sharing
agreement with AIC Corporation ("AIC"), a Japan affiliate. The
Japanese National Tax Authority ("NTA") has reviewed the income
sharing agreement and recommended an adjustment to AIC's
Japanese income tax. The Company expects the final
determination of this matter to be concluded later this year
and does not expect there will be a material affect on the
Company's effective tax rate. It is currently the intention of
management to amend the income sharing agreement on a
prospective basis to reflect the final arrangement with the
NTA. For financial reporting purposes, the impact of such an
amendment may reduce the amount of income allocable to AWCC in
future periods. For comparative purposes, the pre-tax income
recorded by the Company as a result of this agreement was $47.9
million and $40.3 million for the three months ended March 31,
2000 and 1999, respectively. Such income for the years ended
December 31, 1999 and 1998 was $169.4 million and $41.2
million, respectively.
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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 hereunto duly authorized.
ASSOCIATES CORPORATION OF NORTH AMERICA
/s/ John F. Stillo
BY: ---------------------------
Executive Vice President and
Comptroller
Date: April 14, 2000
