10-Q 1 0001.txt ACONA QUARTERLY REPORT ON FORM 10Q FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549-1004 (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2000 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 June 30, 2000, 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. PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS. ASSOCIATES CORPORATION OF NORTH AMERICA CONSOLIDATED STATEMENT OF EARNINGS (In Millions) (Unaudited)

See notes to consolidated financial statements. ASSOCIATES CORPORATION OF NORTH AMERICA CONSOLIDATED BALANCE SHEET (Dollars In Millions, Except Per Share Amounts)

See notes to consolidated financial statements. ASSOCIATES CORPORATION OF NORTH AMERICA CONSOLIDATED STATEMENT OF CASH FLOWS (In Millions) (Unaudited)

See notes to consolidated financial statements. ASSOCIATES CORPORATION OF NORTH AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - THE COMPANY Associates Corporation of North America (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, insurance and related services to consumers and businesses in the United States and internationally. All of the outstanding common stock of the Company is directly or indirectly owned by First Capital. In August 2000, First Capital contributed several of its wholly-owned subsidiaries to the Company. 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 in accordance with generally accepted accounting principles. Accordingly, the September 30, 1999 financial statements have been restated to conform to the current period presentation. In September 2000, the 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. 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 and transactions. These statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. Certain prior period financial statement amounts have been reclassified to conform to the current period presentation. In the opinion of the management, all adjustments, consisting only of normal, recurring accruals, necessary to present fairly the results of operations and financial position have been made. The financial position and results of operations as of and for any interim period are unaudited and not necessarily indicative of the results of operations for a full year. These consolidated interim financial statements should be read in conjunction with the restated consolidated financial statements and footnotes thereto for the year ended December 31, 1999 included in the Form 8-K dated August 30, 2000. 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 In April 2000, the Company acquired the common stock of Arcadia Financial Ltd. ("Arcadia") for $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. 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 $0.6 billion. The balance sheet reflects the minority interest in equity of consolidated subsidiary. Goodwill and other intangibles were approximately $0.3 billion. At the time of the acquisition, the fair market value of Unimat's net assets was approximately $0.4 billion. The Company expects to acquire the remaining minority interest, as set forth in the purchase agreement, in the first quarter of 2001. All of the transactions described above were accounted for as purchases. The results of operations are included in the consolidated results of the Company from the respective acquisition dates. The allocation of the purchase price for these transactions is based upon preliminary estimates and may be refined as additional information is available. In January 2000, First Capital, through its subsidiary, Associates National Bank ("ANB"), entered into an agreement with KeyCorp, under which the companies will jointly manage KeyCorp's credit card program. Additionally, First Capital 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. Although ANB maintains the relationship with Keycorp, the Company receives revenues from participation rights which were transferred to the Company as part of the August 30, 2000 contribution from First Capital. In July 2000, First Capital completed the purchase of approximately $0.6 billion in credit card receivables 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. NOTE 4 - COMPREHENSIVE INCOME (LOSS) The components of accumulated other comprehensive income (loss), net of tax, are as follows (in millions):

NOTE 5 - INVESTMENTS IN DEBT AND EQUITY SECURITIES Available-for-sale securities consist of retained securitization interests, bonds, notes and preferred stock and other equity securities primarily held by the Company's insurance subsidiaries. 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 September 30, 2000 and December 31, 1999 was $9.0 billion and $6.6 billion, respectively. The amortized cost at September 30, 2000 and December 31, 1999 was $9.1 billion and $6.7 billion, respectively. 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. NOTE 6 - FINANCE RECEIVABLES At September 30, 2000 and December 31, 1999, finance receivables consisted of the following (in millions):

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. In September 2000, the Company was notified by certain investors in its securitization transactions that such investors intended to exercise put options totaling approximately $2.0 billion during the fourth quarter of 2000. 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):

NOTE 8 - RELATED PARTIES The notes receivable from related parties initially are structured as unsecured non-interest bearing lines of credit. If the amount advanced remains outstanding at month-end, such amount is automatically converted into an unsecured, interest bearing demand note. The weighted average interest rate at September 30, 2000 and 1999 was 7.69% and 7.17%, respectively. During the nine month period ended September 30, 2000 and 1999, interest income on notes receivable from related parties was $289.3 million and $217.8 million, respectively. The notes payable to related parties initially are structured as unsecured non-interest bearing lines of credit. If the amount advanced remains outstanding at month-end, such amount is automatically converted into an unsecured, interest bearing demand note. The weighted average interest rate at September 30, 2000 and 1999 was 5.91% and 5.38%, respectively. During the nine month period ended September 30, 2000 and 1999, interest expense on notes payable to related parties was $347.4 million and $90.2 million, respectively. NOTE 9 - OTHER ASSETS The components of other assets at September 30, 2000 and December 31, 1999 were as follows (in millions):

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, 1999. PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. The Federal Trade Commission has referred to the Department of Justice its investigation into the pricing practices of Detroit area mortgage brokers doing business with a Company subsidiary in 1995 and 1996. The FTC has asked the Justice Department to consider whether to file a lawsuit against the Company for alleged broker loan pricing disparities based on race. Even if the Justice Department files suit against the Company, the Company does not believe any such suit, even if decided against the Company, would have a material effect on the Company's financial condition or results of operations. 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. See Item 3 - "Legal Proceedings" on page 19 of the Form 8-K dated August 30, 2000 for further information. 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 8-K dated August 30, 2000 the cautionary statements found on page 4-5 of such Form 8-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 third quarter ended September 30, 2000, Associates filed Current Reports on Form 8-K as of July 21, 2000 (announcing earnings for the second quarter of 2000); and September 8, 2000 (announcing the contribution by First Capital of several of its subsidiaries to the Company). SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. November 14, 2000 ASSOCIATES CORPORATION OF NORTH AMERICA (registrant) By: /s/David J. Keller -------------------------- Executive Vice President and Principal Accounting Officer