SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1994
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 1-6594
COMMERCIAL CREDIT COMPANY
(Exact name of registrant as specified in its charter)
Delaware 52-0883351
(State or other jurisdiction of
incorporation or organization) (I.R.S. Employer
Identification No.)
300 St. Paul Place, Baltimore, Maryland 21202
(Address of principal executive offices) (Zip Code)
(410) 332-3000
(Registrant's telephone number, including area code)
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
----- -----
The registrant is an indirect wholly owned subsidiary of The
Travelers Inc. As of the date hereof, one share of the
registrant's Common Stock, $.01 par value, was outstanding.
REDUCED DISCLOSURE FORMAT
THE REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL
INSTRUCTION H(1)(a) AND (b) OF FORM 10-Q AND IS THEREFORE FILING
THIS FORM 10-Q WITH THE REDUCED DISCLOSURE FORMAT.
<PAGE>
Commercial Credit Company and Subsidiaries
TABLE OF CONTENTS
-----------------
Part I - Financial Information
Item 1. Financial Statements: Page No.
--------
Condensed Consolidated Statement of Income (Unaudited) -
Three Months Ended March 31, 1994 and 1993 3
Condensed Consolidated Statement of Financial Position -
March 31, 1994 (Unaudited) and December 31, 1993 4
Condensed Consolidated Statement of Cash Flows (Unaudited) -
Three Months Ended March 31, 1994 and 1993 5
Notes to Condensed Consolidated Financial Statements -
(Unaudited) 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K 11
Exhibit Index 12
Signatures 13
2
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Commercial Credit Company and Subsidiaries
Condensed Consolidated Statement of Income (Unaudited)
(In millions of dollars)
Three months ended March 31, 1994 1993
-------------------------------------------------------------------------
Revenues
Finance related interest and other charges $245.6 $232.1
Insurance premiums 90.4 83.2
Net investment income 17.5 19.0
Equity in income of old Travelers - 10.0
Other income 30.8 45.4
-------------------------------------------------------------------------
Total revenues 384.3 389.7
-------------------------------------------------------------------------
Expenses
Interest 93.2 87.8
Policyholder benefits and claims 55.7 51.6
Insurance underwriting, acquisition and operating 23.9 22.8
Non-insurance compensation and benefits 46.2 41.4
Provision for credit losses 38.8 34.9
Other operating 39.3 37.3
------------------------------------------------------------------------
Total expenses 297.1 275.8
------------------------------------------------------------------------
Income before income taxes, minority interest and
cumulative effect of changes in accounting principles 87.2 113.9
Provision for income taxes 30.9 38.6
------------------------------------------------------------------------
Income before minority interest and cumulative
effect of changes in accounting principles 56.3 75.3
Minority interest, net of income taxes (3.7) (8.2)
Cumulative effect of changes in accounting principles,
net of income taxes -. (5.8)
------------------------------------------------------------------------
Net income $ 52.6 $ 61.3
========================================================================
See Notes to Condensed Consolidated Financial Statements.
3
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<TABLE><CAPTION>
Commercial Credit Company and Subsidiaries
Condensed Consolidated Statement of Financial Position
(In millions of dollars, except per share amounts)
March 31, 1994 December 31,1993
- - ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets (Unaudited)
Cash and cash equivalents $ 16.2 $25.6
Investments:
Fixed maturities:
Available for sale (1994, cost - $818.3; 1993, market - $784.1) 798.2 752.5
Held to maturity (market $19.3 and $35.0) 18.6 33.7
Equity securities (1994, cost - $284.7; 1993, market - $368.5) 288.2 300.0
Mortgage loans 211.0 205.1
Short-term and other 140.6 246.7
- - ------------------------------------------------------------------------------------------------------------------
Total investments 1,456.6 1,538.0
- - ------------------------------------------------------------------------------------------------------------------
Consumer finance receivables 6,482.4 6,383.1
Allowance for losses (170.4) (167.5)
- - ------------------------------------------------------------------------------------------------------------------
Net consumer finance receivables 6,312.0 6,215.6
Other receivables 557.1 560.9
Deferred policy acquisition costs 28.1 26.7
Cost of acquired businesses in excess of net assets 104.9 105.8
Other assets 407.4 421.1
- - ------------------------------------------------------------------------------------------------------------------
Total assets $8,882.3 $8,893.7
==================================================================================================================
Liabilities
Certificates of deposit $ 62.9 $ 56.7
Short-term borrowings 2,482.8 2,206.1
Long-term debt 3,726.0 3,969.8
- - ------------------------------------------------------------------------------------------------------------------
Total debt 6,271.7 6,232.6
Insurance policy and claims reserves 904.6 894.7
Accounts payable and other liabilities 613.3 655.7
- - ------------------------------------------------------------------------------------------------------------------
Total liabilities 7,789.6 7,783.0
- - ------------------------------------------------------------------------------------------------------------------
Stockholder's equity
Common stock ($.01 par value; authorized shares: 1,000; share issued: 1) - -
Additional paid-in-capital 142.3 94.7
Retained earnings 950.3 1,002.6
Other 0.1 13.4
- - ------------------------------------------------------------------------------------------------------------------
Total stockholder's equity 1,092.7 1,110.7
- - ------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholder's equity $8,882.3 $8,893.7
==================================================================================================================
See Notes to Condensed Consolidated Financial Statements
</TABLE>
4
<PAGE>
Commercial Credit Company and Subsidiaries
Condensed Consolidated Statement of Cash Flows (Unaudited)
(In millions of dollars)
<TABLE><CAPTION>
Three months ended March 31, 1994 1993
-------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash Flows From Operating Activities
Income before income taxes, minority interest and cumulative effect of
changes in accounting principle $ 87.2 $ 113.9
Adjustments to reconcile income before income taxes, minority interest and
cumulative effect of changes in accounting principle to net cash provided by
(used in) operating activities:
Amortization of deferred policy acquisition costs and value of insurance in force 12.8 13.7
Additions to deferred policy acquisition costs (14.2) (13.9)
Provision for credit losses 38.8 34.9
Undistributed equity earnings of affiliates -- (6.4)
Changes in:
Insurance policy and claims reserves 9.9 1.8
Other assets and liabilities 61.0 65.4
Other, net (88.4) (30.2)
---------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operations 107.1 179.2
Income taxes paid (8.6) (8.8)
---------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities 98.5 170.4
---------------------------------------------------------------------------------------------------------------
Cash Flows From Investing Activities
Net change in credit card receivables 9.1 19.8
Loans originated or purchased (684.0) (541.0)
Loans repaid or sold 523.6 485.4
Purchases of investments (299.7) (346.8)
Proceeds from sales of investments 238.9 274.7
Proceeds from maturities of investments 123.7 67.7
Other, net (8.6) (6.4)
---------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities (97.0) (46.6)
---------------------------------------------------------------------------------------------------------------
Cash Flows From Financing Activities
Dividends paid (50.0) (40.0)
Issuance of long-term debt -- 200.0
Payments of long-term debt (243.8) (22.1)
Net change in short-term borrowings 276.7 (266.7)
Net change in savings accounts, certificates and deposits 6.2
---------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities (10.9) (128.8)
---------------------------------------------------------------------------------------------------------------
Change in cash and cash equivalents (9.4) (5.0)
Cash and cash equivalents at beginning of period 25.6 22.0
---------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 16.2 $17.0
================================================================================================================
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 89.1 $ 72.7
=================================================================================================================
See Notes to Condensed Consolidated Financial Statements
</TABLE>
5
<PAGE>
Commercial Credit Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
(In millions of dollars)
1. Basis of Presentation
---------------------
Commercial Credit Company (the Company) is a wholly owned
subsidiary of CCC Holdings, Inc. which is a wholly owned
subsidiary of The Travelers Inc. (the Parent). The condensed
consolidated financial statements include the accounts of the
Company and its subsidiaries.
The accompanying condensed consolidated financial statements
as of March 31, 1994 and for the three month period ended
March 31, 1994 and 1993 are unaudited. In the opinion of
management, all adjustments, consisting of normal recurring
adjustments, necessary for a fair presentation have been
reflected. The accompanying condensed consolidated financial
statements should be read in conjunction with the consolidated
financial statements and related notes included in the
Company's Annual Report on Form 10-K for the year ended
December 31, 1993.
Certain financial information that is normally included in
financial statements prepared in accordance with generally
accepted accounting principles but is not required for interim
reporting purposes has been condensed or omitted.
FAS 115. Effective January 1, 1994, the Company adopted
Statement of Financial Accounting Standards No. 115 (FAS 115),
"Accounting for Certain Investments in Debt and Equity
Securities," which addresses accounting and reporting for
investments in equity securities that have a readily
determinable fair value and for all debt securities. Debt
securities that the Company has the positive intent and
ability to hold to maturity have been classified as "held to
maturity" and have been reported at amortized cost.
Securities that are not classified as "held to maturity" have
been classified as "available for sale" and are reported at
fair value, with unrealized gains and losses, net of income
taxes, charged or credited directly to stockholder's equity.
Initial adoption of this standard resulted in a net increase
of $80.8 (net of taxes) to net unrealized gains on investment
securities in stockholder's equity.
2. Consumer Finance Receivables
----------------------------
Consumer finance receivables, net of unearned finance charges
of $617.9 and $613.0 at March 31, 1994 and December 31, 1993,
respectively, consisted of the following:
March 31, 1994 December 31, 1993
-------------- -----------------
Real estate-secured loans $2,757.8 $2,705.8
Personal loans 2,563.3 2,495.2
Credit cards 684.6 697.1
Sales finance and other 439.1 443.7
-------- --------
Consumer finance receivables 6,444.8 6,341.8
Accrued interest receivable 37.6 41.3
Allowance for credit losses (170.4) (167.5)
------ ------
Net consumer finance receivables $6,312.0 $6,215.6
======= =======
6
<PAGE>
Notes to Condensed Consolidated Financial Statements (continued)
3. Debt
----
The Company issues commercial paper directly to investors
and maintains unused credit availability under its bank
lines of credit at least equal to the amount of its
outstanding commercial paper. At March 31, 1994 and
December 31, 1993, short-term borrowings consisted of
commercial paper totaling $2,482.8 and $2,206.1,
respectively. The Company may borrow under its revolving
credit facility at various interest rate options and
compensates the banks for the facilities through commitment
fees. The Parent and the Company have agreements with
certain banks totaling $800 whereby the Parent, with the
consent of the Company, may assign certain amounts (swing
facilities) to the Company for specific periods of time.
At March 31, 1994, $550 of the swing facility was allocated
to the Company.
At March 31, 1994, the Company had committed and available
revolving credit facilities of $2,670, of which $250 expires
in 1994, $920 expires in 1995 and $1,500 expires in 1997.
Long-term debt, including its current portion, totaled
$3,726.0 and $3,969.8 at March 31, 1994 and December 31,
1993, respectively.
4. Related Party Transactions
--------------------------
On December 31, 1993, the Parent acquired the approximately
73% it did not already own of The Travelers Corporation (old
Travelers), by means of a merger of old Travelers into the
Parent. As a result of the merger, the Company's investment
in the common stock of old Travelers, which through that
date had been carried on the equity basis of accounting, was
exchanged for 7.2 million shares of common stock of the
Parent at a ratio of 0.80423 of a share of the Parent common
stock for each share of old Travelers common stock. At
December 31, 1993, the investment was reflected at a
carrying amount of $211.3. On March 31, 1994, 6.3 million
of the Company's shares of the Parent's common stock were
exchanged for 2,342 shares of Convertible Adjustable
Rate Series Y Preferred Stock of the Parent, with a
liquidation value of $100,000 per share, which is
redeemable at the option of the holder at certain times and
callable by the Parent at certain times. The preferred
stock had a value equal to the market value of the common
shares at the time the exchange was agreed upon.
Subsequently 550 shares of preferred stock were
distributed to the Parent as a dividend. The balance of
common shares, which are held by an insurance subsidiary,
will be exchanged upon receipt of regulatory approval.
The Company recorded $0.7 and $1.4 for the three months
ended March 31, 1994 and 1993, respectively, of dividend
income on its investment in the Parent's Cumulative
Redeemable Preferred Stock, Series Z. The Company's
investment in such stock was $100.0 at March 31, 1994 and
$200.0 at March 31, 1993.
To facilitate cash management the Company has entered into
an agreement with the Parent under which the Company or
the Parent may borrow from the other party at any time an
amount up to the greater of $50.0 or 1% of the Company's
consolidated assets. The agreement may be terminated by
either party at any time. The interest rate to be charged
on borrowings outstanding will be equivalent to an
appropriate market rate.
7
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION and ANALYSIS of FINANCIAL CONDITION
and RESULTS of OPERATIONS
Consolidated Results of Operations
Three Months Ended March 31,
----------------------------
1994 1993
(in millions, except per share amounts)
Revenues $384.3 $389.7
====== ======
Income before cumulative effect of changes
in accounting principles $52.6 $67.1
===== =====
Net income $52.6 $61.3
===== =====
Results of Operations
Commercial Credit Company's earnings for the quarter
ended March 31, 1994 include reported after-tax net
investment portfolio gains of $1.0 million, compared to $6.8
million of after-tax net investment portfolio gains in the prior
year period. Also included in earnings for 1993 is an after-tax
charge of $3.4 million resulting from the adoption of Statement
of Financial Accounting Standards No. 112 (FAS 112), "Employers'
Accounting for Postemployment Benefits," and an after-tax charge
of $2.4 million resulting from the adoption of Statement of
Financial Accounting Standards No. 106 (FAS 106), "Employers'
Accounting for Postretirement Benefits Other Than Pensions."
Excluding these items and the after-tax equity in earnings of old
Travelers of $7.5 million in 1993, earnings for the three months
ended March 31, 1994 decreased slightly by $1.2 million, or 2%,
over the 1993 period, reflecting primarily lower earnings from
Insurance Services offset by improved performance at Consumer
Finance Services.
The following discussion presents in more detail each segment's
performance.
Segment Results for the Three Months Ended March 31, 1994 and 1993
------------------------------------------------------------------
Consumer Finance Services
Three Months Ended March 31,
-----------------------------------------------
($ in millions) 1994 1993
- - ----------------------------------------------------------------------------
Revenues Net income Revenues Net income
- - ----------------------------------------------------------------------------
Consumer Finance Services $299.3 $51.2 $284.1 $48.0
============================================================================
The 6% increase in Consumer Finance net income in the first
quarter of 1994 over the same period last year reflects a
continued growth in receivables outstanding to $6.445 billion.
During the first three months of 1994, 31 new branch offices were
added, bringing the total to 799 at March 31, 1994. About 40 more
offices are planned to be opened by year-end 1994.
Charge-offs remained at low levels for the 1994 period -- 2.26%
versus 2.61% in the prior year quarter -- while the 60+ day
delinquencies hit a record low of 2.00% versus 2.36%.
The average yield on the portfolio declined to 15.22% from
15.91%, although net margins rose to 8.51%. This reflects a
shift in product mix toward more variable rate loans and lower
funding costs.
8
<PAGE>
<TABLE><CAPTION>
As of, and for, the
Three Months Ended March 31,
-------------------------------
<S> <C> <C>
1994 1993
-------------------------------
Allowance for losses as % of
consumer finance receivables 2.64% 2.87%
Charge-off rate 2.26% 2.61%
60 + days past due on a contractual
basis as % of gross consumer
finance receivables at quarter end 2.00% 2.36%
</TABLE>
Insurance Services
<TABLE><CAPTION>
Three Months Ended March 31,
-----------------------------------------------
(In millions) 1994 1993
- - ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues Net income Revenues Net income
- - ---------------------------------------------------------------------------------------------------
Gulf property and casualty* $74.4 $ 7.4 $84.8 $16.4
Minority interest - Gulf - (3.7) - (8.2)
Other 0.6 0.6 1.4 (0.3)
- - ---------------------------------------------------------------------------------------------------
Total Insurance Services $75.0 $ 4.3 $86.2 $ 7.9
===================================================================================================
</TABLE>
* Net income includes $9.0 of reported investment portfolio
gains in 1993.
Operating earnings for the 1994 period for Gulf remained about
even with the prior year period, and continued to reflect
emphasis on the higher margin specialty businesses,
particularly financial services. Gulf's combined ratio was
97.2% for the quarter ended March 31, 1994 versus 96.4% in the
quarter last year.
<TABLE><CAPTION>
Corporate and Other
Three Months Ended March 31,
---------------------------------------------------------
<S> <C> <C> <C> <C>
(In millions) 1994 1993
- - ------------------------------------------------------------------------------------------------
Revenues Net income Revenues Net income
- - ------------------------------------------------------------------------------------------------
Corporate and other $(2.9) $ 3.7
Equity in income of Travelers - 7.5
- - ------------------------------------------------------------------------------------------------
Total Corporate and Other $10.0 $(2.9) $19.4 $11.2
================================================================================================
</TABLE>
The decline in Corporate and Other net income for 1994 is
primarily attributable to higher net interest costs in the 1994
period.
9
<PAGE>
Liquidity and Capital Resources
The Company issues commercial paper directly to investors and
maintains unused credit availability under committed revolving
credit agreements at least equal to the amount of commercial
paper outstanding. As of March 31, 1994, the Company had unused
credit availability of $2.670 billion. The Company may borrow
under its revolving credit facilities at various interest rate
options and compensates the banks for the facilities through
commitment fees.
The Company maintains public debt shelf registrations and as of
May 13, 1994 had $850 million available for debt offerings.
Recent Accounting Standards
FAS 114
Statement of Financial Accounting Standards No. 114, "Accounting
by Creditors for Impairment of a Loan," describes how impaired
loans should be measured when determining the amount of a loan
loss accrual. The Statement also amends existing guidance on the
measurement of restructured loans in a troubled debt
restructuring involving a modification of terms. The Company has
not yet determined the impact, if any, this statement will have
on its financial statements. The Statement has an effective date
of January 1, 1995.
10
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
See Exhibit Index.
(b) Reports on Form 8-K:
The Company did not file any Current Reports on Form 8-K
during the quarter ended March 31, 1994.
11
<PAGE>
EXHIBIT INDEX
<TABLE><CAPTION>
Exhibit Filing
Number Description of Exhibit Method
- - ------ ---------------------- ------
<S> <C> <C>
4.01.1 Indenture, dated as of December 1, 1986 (the "Indenture"), between the
Company and Citibank, N.A., relating to the Company's debt securities,
incorporated by reference to Exhibit 4.01 to the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1988 (File No. 1-
6594).
4.01.2 First Supplemental Indenture, dated as of June 13, 1990, to the Indenture,
incorporated by reference to Exhibit 1 to the Company's Current Report on
Form 8-K dated June 13, 1990 (File No. 1-6594).
The total amount of securities authorized pursuant to any other
instrument defining rights of holders of long-term debt of the
Company does not exceed 10% of the total assets of the Company and
its consolidated subsidiaries. The Company will furnish copies of
any such instrument to the Securities and Exchange Commission upon
request.
10.01 $1,500,000,000 Three Year Credit Agreement dated as of February 24, 1994
among the Company, the Banks party thereto and Morgan Guaranty Trust
Company of New York, as Agent, incorporated by reference to Exhibit 10.01
to the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1993 (File No. 1-6594)
12.01 Computation of Ratio of Earnings to Fixed Charges. Electronic
</TABLE>
12
<PAGE>
SIGNATURES
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.
Commercial Credit Company
Date: May 13, 1994 By /s/ William R. Hofmann
-----------------------------
William R. Hofmann
Vice President
(Principal Financial Officer)
13
Exhibit 12.01
Commercial Credit Company and Subsidiaries
Computation of Ratio of Earnings to Fixed Charges
(In millions of dollars, except for ratio)
<TABLE><CAPTION>
Three months ended March 31,
--------------------------------
1994 1993
---- ----
<S> <C> <C>
Income before income taxes, minority interest
and cumulative effect of changes in accounting
principle $87.2 $113.9
Elimination of undistributed equity earnings (0.1) (6.4)
Pre-tax minority interest (5.1) (11.9)
Interest expense 93.2 87.8
Portion of rentals deemed to be interest 2.3 2.9
---- -----
Earnings available for fixed charges $177.5 $186.3
===== =====
Fixed charges
- - -------------
Interest incurred $93.2 $87.8
Portion of rentals deemed to be interest 2.3 2.9
----- -----
Fixed charges $95.5 $90.7
==== ====
Ratio of earnings to fixed charges 1.86x 2.05x
==== ====
</TABLE>
