<PAGE>
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) October 26, 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
<PAGE>
Item 5. Other Events.
Associates Corporation of North America (the "Company")released
earnings for the nine- and three-month periods ended September 30, 2000.
The discussion that follows includes amounts reported in the historical
financial statements adjusted on a pro forma basis to include certain
effects of receivables held for securitization and receivables sold with
servicing retained ("Managed Basis"). This presentation excludes the
serviced assets of Arcadia originated and sold with servicing retained
prior to the acquisition of Arcadia by the Company. On an Owned Basis, the
net earnings on the Company's retained securitization interests and
receivables held for securitization or sale, as well as gains from
subsequent sales in revolving securitization structures, are included in
servicing related income in the consolidated statement of earnings. On a
Managed Basis, these earnings are reclassified and presented as if the
receivables had neither been held for securitization nor sold. The initial
gains recorded on securitization transactions are recorded in investment
and other income on both an Owned and Managed Basis. Management believes
the discussion of Managed Basis information is useful in evaluating the
Company's operating performance.
As described in the Company's Form 8-K dated August 30, 2000, in
August 2000, Associates First Capital Corporation ("First Capital")
contributed several of its wholly-owned subsidiaries to the Company. The
subsidiaries include ACONA B.V., AIC Associates Canada Holdings, Associates
Capital Corporation of Canada, Associates Credit Card Services Limited, The
Northland Company, and several other subsidiaries, collectively referred to
hereafter as "Contributed Entities". The Contributed Entities are a group
of diversified financial services companies providing finance, leasing,
insurance and related services to individual consumers and businesses in
the United States and international markets, primarily Japan, Canada and
the United Kingdom. The consolidated financial statements of the Company
have been restated retroactively to reflect the results of these
contributions in a manner similar to a pooling-of-interests.
Below is a summary of the significant transactions and other
financial information for the nine-and three-month periods ended September
30, 2000.
Significant Transactions
Securitization transactions
During the nine months ended September 30, 2000, the Company
securitized and sold home equity, credit card and automobile retail sales
finance receivables portfolios totaling $4.4 billion and retained interests
in the related securitization trusts totaling $794 million. Pre-tax gains
of approximately $90 million were recorded on these transactions.
Acquisitions
In January 2000, the Company entered into an agreement with KeyCorp,
under which the companies will jointly manage KeyCorp's credit card
program. Additionally, the Company acquired KeyCorp's credit card
receivables portfolio with a fair market value of $1.3 billion and
intangible assets, primarily related to customer lists and operating
agreements, of approximately $350 million for $1.7 billion.
In April 2000, First Capital acquired Arcadia Financial Ltd.
("Arcadia") for approximately $195 million which approximated the fair
value of the intangible assets established in the acquisition. Arcadia had
approximately $470 million in senior and subordinated notes at the time of
the acquisition. At September 30, 2000, the Company managed approximately
$3.0 billion of Arcadia's serviced assets originated and sold with
servicing retained prior to the acquisition. In addition, the Company
continues to securitize new originations. Subsequent to the acquisition,
First Capital contributed the assets and liabilities of Arcadia to the
Company.
In September 2000, the Company acquired a 73% interest (22% of which
was transferred to the Company from escrow on October 20, 2000) in Unimat
Life Kabushiki Kaisha ("Unimat") for approximately $609 million. The
Company recorded a minority interest in equity of consolidated subsidiary
of approximately $77 million and goodwill and other intangibles of
approximately $313 million. At the time of the acquisition, the fair
market value of Unimat's net assets was approximately $373 million. The
Company expects to acquire the remaining minority interest, as set forth
in the Purchase Agreement, in the first quarter of 2001.
Other Transactions
In July 2000, First Capital completed the purchase of a credit card
receivables portfolio for approximately $630 million, which approximated
fair market value, from Zale Corporation ("Zale") and entered into an
operating agreement for Zale's on-going credit card business. These
receivables were participated to the Company through a participation
agreement with a subsidiary of First Capital.
In September 2000, First Capital and Citigroup Inc. announced they
had entered into a definitive merger agreement. Pursuant to an Agreement
and Plan of Merger dated as of October 6, 2000 (the "Agreement"), First
Capital and Citigroup Inc. have agreed to merge a wholly-owned subsidiary
of Citigroup Inc. with and into First Capital. Under the Agreement,
holders of First Capital common stock will receive 0.7334 shares of
Citigroup Inc. common stock for each share of First Capital's common
stock. The merger is expected to be completed prior to December 31, 2000.
Upon consummation of the merger, First Capital will become an indirect
wholly-owned subsidiary of Citigroup, Inc.
Managed Finance Receivables Growth
During the first nine months of 2000, managed finance receivables
increased $9.6 billion to $86.7 billion. The increase in managed finance
receivables was primarily caused by the acquisitions described above and
growth in the home equity, credit card and personal lending and sales
finance portfolios.
Earnings
Net earnings on an Owned and Managed Basis for the nine- and three-
month periods ended September 30, 2000 were $1.5 billion and $490.6
million, respectively, compared to $1.3 billion and $484.9 million for the
same periods in the previous year. The primary factors affecting earnings
and the Company's operating results are discussed below:
Total revenue. Total revenue on a managed basis for the nine- and
three-month periods ended September 30, 2000 was $11.1 billion and
$3.9 billion, respectively, as compared to $9.3 billion and $3.2
billion for the corresponding periods in the prior year. Managed Basis
finance charge revenues increased by approximately $1.5 billion and
$568 million for the nine- and three-month periods ended September 30,
2000 from the comparable periods in the prior year. This increase was
primarily caused by an increase in average managed finance receivables
outstanding during the comparable periods and an increase in new
volume yields.
Investment and other income increased approximately $226 million and
$108 million for the nine- and three-month periods ended September 30,
2000 which also contributed to the increase in total revenue on a
managed basis. The increase in investment and other income primarily
is related to an increase in interest income on notes receivable from
related parties, the previously mentioned securitization gains, an
increase in investment income and an increase in fee related income.
Credit Quality. Net credit losses as a percent of average managed
finance receivables ("Loss Ratio") increased to 2.82% and 2.85% in the
nine- and three-month periods ended September 30, 2000 as compared to
2.70% and 2.63% for the same periods in the prior year. The increase
in the Loss Ratio was the result of increased losses in the Company's
personal lending and sales finance and truck and truck trailer product
lines.
Allowance for Losses/Coverage
The allowance for losses on finance receivables was $2.2 billion at
September 30, 2000 compared to $2.1 billion at December 31, 1999. The
increase in allowance for losses resulted from a $4.0 billion increase in
Owned Basis finance receivables to $69.1 billion at September 30, 2000,
primarily caused by the acquisition described above and growth in the home
equity, credit card, and personal lending and sales finance portfolios.
Management believes the allowance for losses at September 30, 2000 is
sufficient to provide adequate protection against possible losses in its
portfolios.
60+Days Contractual Delinquencies
Composite 60+days contractual delinquency declined to 2.60% of gross
managed finance receivables at September 30, 2000, compared to 2.83% at
December 31, 1999. This decline is primarily a result of lower delinquency
rates in the Company's home equity and personal lending and retail sales
finance portfolios.
Certain unaudited financial information for the nine- and three-month
periods ended September 30, 2000 and 1999, and as of September 30, 2000,
December 31, 1999 and September 30, 1999 for Associates Corporation of North
America is as follows (dollar amounts in millions) (1)(2):
<TABLE>
<CAPTION>
KEY DATA (MANAGED BASIS) Nine Months Ended Three Months Ended
September 30 September 30
2000 1999 2000 1999
<S> <C> <C> <C> <C>
TOTAL REVENUE $11,051.1 $9,281.0 $3,881.9 $3,172.2
EARNINGS BEFORE PROVISION FOR
INCOME TAXES 2,301.4 2,092.1 743.9 762.1
NET EARNINGS 1,478.3 1,310.7 490.6 484.9
NET CREDIT LOSSES (as a % of
average managed receivables) 2.82% 2.70% 2.85% 2.63%
KEY DATA (OWNED BASIS)
TOTAL REVENUE $10,055.9 $8,646.1 $3,517.4 $2,965.2
EARNINGS BEFORE PROVISION FOR
INCOME TAXES 2,301.4 2,092.1 743.9 762.1
NET EARNINGS 1,478.3 1,310.7 490.6 484.9
NET CREDIT LOSSES (as a % of
average finance receivables) 2.37% 2.03% 2.43% 2.07%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
September 30 December 31 September 30
2000 1999 1999
<S> <C> <C> <C>
MANAGED RECEIVABLES $ 86,728.6 $77,139.3 $74,357.2
NET FINANCE RECEIVABLES (Owned Basis) 69,149.0 65,187.5 65,384.5
TOTAL MANAGED ASSETS 108,229.4 86,944.3 84,609.4
TOTAL DEBT 73,984.6 57,557.5 59,938.8
STOCKHOLDERS' EQUITY 11,988.8 13,434.6 13,448.7
ALLOWANCE FOR LOSSES ON
FINANCE RECEIVABLES
Amount $ 2,178.0 $ 2,054.6 $ 2,051.9
Percent of net finance
receivables 3.15% 3.15% 3.14%
Multiple to net losses (3) 1.39x 1.52x 1.64x
60+DAYS CONTRACTUAL
DELINQUENCY (Managed Basis) 2.60% 2.83% 2.86%
(1) Prior period financial information presented has been restated to reflect the December 31,
1999 contribution of Associates World Capital Corporation and August 30, 2000 contribution of the
Contributed Entities (as described in the second paragraph of this Form 8-K) to the Company by
First Capital.
(2) Excludes the receivables of Arcadia securitized prior to the acquisition of Arcadia by the
Company.
(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 transactions.
</TABLE>
<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 hereunto duly authorized.
ASSOCIATES CORPORATION OF NORTH AMERICA
By: /s/ David J. Keller
--------------------------------------
Executive Vice President and Principal
Accounting Officer
Date: October 26, 2000
