UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1995
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 (I.R.S. Employer
incorporation or organization) 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)
--------------------
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange
------------------- on which registered
-------------------
8% Notes due September 1, 1996 New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
REDUCED DISCLOSURE FORMAT
The registrant meets the conditions set forth in General Instruction J (1) (a)
and (b) of Form 10-K and is therefore filing this Form 10-K with the reduced
disclosure format.
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (229.405 of this chapter) is not contained herein, and will
not be contained, to the best of the registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. [X]
Because the registrant is an indirect wholly owned subsidiary of Travelers Group
Inc., none of the registrant's outstanding voting stock is held by nonaffiliates
of the registrant. As of the date hereof, one share of the registrant's Common
Stock, $.01 par value, was issued and outstanding.
<PAGE>
COMMERCIAL CREDIT COMPANY
Annual Report on Form 10-K
For Fiscal Year Ended December 31, 1995
______________________________
TABLE OF CONTENTS
Form 10-K
Item Number Page
- ----------- ----
Part I
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1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
4. Omitted Pursuant to General Instruction J
Part II
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5. Market for Registrant's Common Equity and
Related Stockholder Matters . . . . . . . . . . . . . . . . . . . . . 10
6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . 11
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . . . . . 12
8. Financial Statements and Supplementary Data . . . . . . . . . . . . . . 18
9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure . . . . . . . . . . . . . . . . . 18
Part III
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10-13. Omitted Pursuant to General Instruction J
Part IV
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14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Exhibit Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Index to Consolidated Financial Statements and Schedules . . . . . . F-1
<PAGE>
PART I
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Item 1. BUSINESS.
THE COMPANY
Commercial Credit Company (the "Company") is a financial services
holding company engaged, through its subsidiaries, principally in consumer
finance services. The Company's predecessor was founded in 1912. The Company
is a wholly owned subsidiary of Travelers Group Inc. ("Travelers Group"), a
financial services holding company engaged, through its subsidiaries,
principally in four business segments: (i) Investment Services; (ii) Consumer
Finance Services (through the Company); (iii) Life Insurance Services; and (iv)
Property & Casualty Insurance Services. The periodic reports of Travelers Group
provide additional business and financial information concerning that company
and its consolidated subsidiaries.
On December 30, 1994, the Company sold its 50% interest in Commercial
Insurance Resources, Inc. ("CIRI"), the parent of Gulf Insurance Company
("Gulf"), to an affiliate, The Travelers Indemnity Company ("Travelers
Indemnity"), for $150 million. See Note 2 of Notes to Consolidated Financial
Statements. The Company's Consolidated Financial Statements include the results
of operations of Gulf for 1993 and 1994, and Travelers Indemnity's interest in
Gulf for those periods is shown as minority interest.
The principal executive offices of the Company are located at 300 St.
Paul Place, Baltimore, Maryland 21202; telephone number 410-332-3000.
CONSUMER FINANCE SERVICES
The Company's Consumer Finance Services segment includes consumer
lending services conducted primarily under the name "Commercial Credit," as well
as credit-related insurance and credit card services.
Consumer Finance
As of December 31, 1995, the Company maintained 850 loan offices in 43
states. The Company owns two state-chartered banks headquartered in Newark,
Delaware, which generally limit their activities to offering credit card
services nationwide. Total consumer finance receivables of this segment at
December 31, 1995, 1994 and 1993 were approximately $7.2 billion, $6.9 billion
and $6.3 billion, respectively. For an analysis of consumer finance
receivables, net of unearned finance charges ("Consumer Finance Receivables"),
see Note 5 of Notes to Consolidated Financial Statements.
Loans to consumers by the Consumer Finance Services unit include both
fixed and variable rate secured and unsecured personal loans and real estate-
secured loans and fixed rate loans to finance consumer goods purchases. Credit
card loans are discussed below. The Company's loan offices are generally
located in small to medium-sized
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communities in suburban or rural areas, and are managed by individuals who
generally have considerable consumer lending experience. The primary market for
the Company's consumer loans consists of households with an annual income of
$20,000 to $50,000. The number of loan customers (excluding credit card
customers) was approximately 1,408,000 at December 31, 1995, as compared to
1,306,000 at December 31, 1994 and approximately 1,142,000 at December 31, 1993.
A loan program of the Company solicits applications for loans through the sales
force of the Primerica Financial Services group of companies, which are
subsidiaries of Travelers Group. At December 31, 1995, the total loans
outstanding generated from this program were $1.258 billion, as compared to
$1.107 billion at December 31, 1994 and $765 million at December 31, 1993.
The average amount of cash advanced per personal loan made was
approximately $4,200 in each of 1995 and 1994 and approximately $3,800 in 1993.
The average amount of cash advanced per real estate-secured loan made was
approximately $26,300 in 1995, $28,400 in 1994 and $28,800 in 1993. The average
annual yield for loans in 1995 was 15.64%, as compared to 15.41% in 1994 and
15.83% in 1993. The average annual yield for personal loans in 1995 was 20.23%,
as compared to 20.20% in 1994 and 20.11% in 1993 and for real estate-secured
loans it was 12.33% in 1995, as compared to 12.20% in 1994 and 13.14% in 1993.
The average yield for real estate-secured loans has been affected by the
availability of a variable rate product and by decreases generally in prevailing
market interest rates. The Company's average net interest margin for loans was
8.79% in 1995, 8.76% in 1994 and 8.44% in 1993.
The Company's delinquency and charge-off rates reached historically
low levels in 1994 and rose in 1995, consistent with recent industry trends.
The Company expects this upward trend to continue in 1996. See "Delinquent
Receivables and Loss Experience," below.
Delinquent Receivables and Loss Experience
Due to the nature of the finance business, some customer delinquency
and loss is unavoidable. The management of the consumer finance business
attempts to control customer delinquency through careful evaluation of each
borrower's application and credit history at the time the loan is made or
acquired, and appropriate collection activity. An account is considered
delinquent for financial reporting purposes when a payment is more than 60 days
past due, based on the original or extended terms of the contract. The
delinquency and loss experience on real estate-secured loans is generally more
favorable than on personal loans.
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The table below shows the ratio of receivables delinquent for 60 days
or more on a contractual basis (i.e., more than 60 days past due) to gross
receivables outstanding:
RATIO OF RECEIVABLES DELINQUENT 60 DAYS OR MORE TO GROSS RECEIVABLES
OUTSTANDING (1)
Real
Estate-
Personal Secured Credit Sales Total
Loans Loans Cards Finance Consumer
----- ----- ------ ------- --------
As of December 31,
- ------------------
1995 2.89% 1.42% 1.40% 2.17% 2.14%
1994 2.40% 1.48% 1.05% 1.79% 1.88%
1993 2.62% 2.15% 1.03% 1.54% 2.21%
__________________________
(1) The receivable balance used for these ratios is before the deduction of
unearned finance charges and excludes accrued interest receivable.
Receivables delinquent 60 days or more include, for all periods presented,
accounts in the process of foreclosure.
The following table shows the ratio of net charge-offs to average
Consumer Finance Receivables. For all periods presented, the following ratios
give effect to all deferred origination costs.
Ratio of Net Charge-Offs to Average Consumer Finance Receivables
Real
Estate-
Personal Secured Credit Sales Total
Loans Loans Cards Finance Consumer
----- ----- ------ ------- --------
Year Ended
December 31,
------------
1995 4.01% 0.64% 2.04% 2.46% 2.28%
1994 3.50% 0.82% 1.83% 2.03% 2.08%
1993 4.08% 0.84% 2.56% 1.78% 2.36%
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The following table sets forth information regarding the ratio of
allowance for losses to Consumer Finance Receivables.
Ratio of Allowance For Losses to Consumer Finance Receivables
As of December 31,
------------------
1995 2.66%
1994 2.64%
1993 2.64%
Credit-Related Insurance
American Health and Life Insurance Company ("AHL"), a subsidiary of
the Company, underwrites or arranges for credit-related insurance, which is
offered to customers of the consumer finance business. AHL has an A+ (superior)
rating from the A.M. Best Company, whose ratings may be revised or withdrawn at
any time. At a minimum, credit life insurance covers the declining balance of
unpaid indebtedness. Credit disability insurance provides monthly benefits
during periods of covered disability. Credit property insurance covers the loss
of property given as security for loans. Other insurance products offered or
arranged for by AHL include auto single interest and involuntary unemployment
insurance. Most of AHL's products are single premium, which premiums are earned
over the related contract period.
The following table sets forth gross written insurance premiums, net
of refunds, for consumer finance customers:
Consumer Finance Insurance Premiums Written
(in millions)
Year Ended December 31,
-----------------------
1995 1994 1993
---- ---- ----
Premiums written by AHL and its affiliates(1)
Writings for consumer finance:
Credit life . . . . . . . . . . . . . $41.8 $43.3 $36.4
Credit disability and other . . . . . 65.5 69.7 49.2
----- ------ -----
Total $107.3 $113.0 $85.6
====== ====== =====
Premiums written by other insurance companies(2)
Credit property and other. . . . . . . $51.6 $52.8 $38.7
===== ===== =====
_________________________
(1) Premiums are written by AHL and other subsidiaries of Travelers Group.
(2) Premiums are written by nonaffiliated insurers for consumer finance
customers.
Net premiums written were relatively flat in 1995 compared to 1994
primarily due to slower growth in loan receivables. The increase in 1994
written premiums over 1993 is primarily
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the result of the increase in receivables and expanded availability of certain
products in additional states.
See Note 7 of Notes to Consolidated Financial Statement for
information regarding reinsurance activities.
Investments
The investment holdings of the insurance companies at December 31,
1995 were composed primarily of fixed income securities and short-term
investments with a weighted average quality rating of A1. State insurance laws
prescribe the types, quality and diversity of permissible investments for
insurance companies. See Note 4 of Notes to Consolidated Financial Statements
for additional information regarding the investment portfolios.
Credit Card Services
The Travelers Bank, a subsidiary of the Company, is a state-chartered
bank located in Newark, Delaware, which provides credit card services, including
upper market gold credit card services, to individuals and to affinity groups
(such as nationwide professional associations and fraternal organizations). The
Travelers Bank USA, another state-chartered bank subsidiary of the Company, was
formed in September 1989. The Travelers Bank USA is not subject to certain
regulatory restrictions relating to growth and cross-marketing activities to
which The Travelers Bank is subject. See "Regulation" below. These banks
generally limit their activities to credit card operations.
The following table sets forth aggregate information regarding credit
cards issued by The Travelers Bank and The Travelers Bank USA:
Credit Cardholders and Total Outstandings
(outstandings in millions of dollars)
As of and for the year ended December 31,
-----------------------------------------
1995 1994 1993
---- ---- ----
Approximate total credit cardholders 753,000 621,000 534,000
Approximate gold credit cardholders 615,000 519,000 478,000
Total outstandings $761.8 $712.5 $697.1
Average annual yield 12.51% 11.88% 11.66%
The primary market for the banks' credit cards consists of households
with annual incomes of $40,000 and above.
The banks offer deposit-taking services (which as to The Travelers
Bank USA are limited to deposits of at least $100,000 per account). At December
31, 1995, deposits of
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unaffiliated entities were $98.3 million as compared to $73.5 million at
December 31, 1994 and $56.5 million at December 31, 1993.
Competition
The consumer finance business competes with banks, savings and loan
associations, credit unions, credit card issuers and other consumer finance
companies. Additionally, substantial national financial services networks have
been formed by major brokerage firms, insurance companies, retailers and bank
holding companies. Some competitors have substantial local market positions;
others are part of large, diversified organizations. Deregulation of banking
institutions has greatly expanded the consumer lending products permitted to be
offered by these institutions, and because of their long-standing insured
deposit base, many of them are able to offer financial services on very
competitive terms. The Company believes that it is able to compete effectively
with such institutions. In particular, the Company believes that the diversity
and features of the products it offers, personal service, and cultivation of
repeat and referral business support and strengthen its competitive position in
its Consumer Finance Services businesses.
Regulation
Most consumer finance activities are subject to extensive federal and
state regulation, including examination and review by state authorities of
consumer finance offices. Personal loan, real estate-secured loan and sales
finance laws generally require licensing of the lender, limitations on the
amount, duration and charges for various categories of loans, adequate
disclosure of certain contract terms and limitations on certain collection
practices and creditor remedies. Federal consumer credit statutes primarily
require disclosure of credit terms in consumer finance transactions. The
Company's banks, which must undergo periodic examination, are subject to
additional regulations relating to capitalization, leverage, reporting,
dividends and permitted asset and liability products. These banks are also
covered by the Competitive Equality Banking Act of 1987 (the "Banking Act"),
which, among other things, prevents the Company from acquiring or forming most
types of new banks or savings and loan institutions and, with respect to The
Travelers Bank, restricts cross-marketing of products by or of certain
affiliates. The Company's banks are also subject to the Community Reinvestment
Act, which assesses the bank's record in helping to meet the credit needs of low
and moderate income persons in such bank's delineated community. The Company
believes that it complies in all material respects with applicable regulations.
The Real Estate Settlement Procedures Act of 1974 ("RESPA") covers
real estate-secured loans that are subordinated to other mortgage loans.
Generally, RESPA requires disclosure of certain information to customers and
regulates the receipt or payment of fees or charges for services performed.
The Company's insurance subsidiaries are subject to considerable
regulation and supervision by insurance departments or other authorities in each
state or other jurisdiction in
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which they transact business. The extent of regulation varies but generally has
its source in statutes that delegate regulatory, supervisory and administrative
authority to a department of insurance. The purpose of such regulation and
supervision is primarily to provide safeguards for policyholders, rather than to
protect the interests of the insurers' stockholders. State laws also regulate
transactions and dividends between an insurance company and its parent or
affiliates, and require prior approval or notification of any change in control
of an insurance subsidiary. In addition, under insurance holding company
legislation, most states regulate affiliated groups with respect to intercompany
transfers of assets, service arrangements and dividend payments from insurance
subsidiaries. State insurance departments also conduct periodic examinations of
the affairs of insurance companies and require the filing of annual and other
reports relating to the financial condition of companies and other matters.
Proposed legislation has been introduced in Congress that would modify
certain laws and regulations affecting the financial services industry,
including the provisions regarding affiliations among insurance companies,
investment banks and commercial banks. The potential impact of such legislation
on the Company's businesses cannot be predicted at this time.
In addition to state insurance laws, the Company's insurance
subsidiaries are also subject to general business and corporation laws, state
securities laws, consumer protection laws, fair credit reporting acts and other
laws. The insurance industry generally is exempt from federal antitrust laws
because of the application of the McCarran-Ferguson Act.
CORPORATE AND OTHER OPERATIONS
The Corporate and Other segment consists of corporate staff and
treasury operations, corporate investments and certain corporate income and
expenses that have not been allocated to the operating subsidiaries. During
1993, this segment also included the Company's share of equity income of The
Travelers Corporation ("old Travelers"). See Notes 2 and 3 of Notes to
Consolidated Financial Statements.
Investment in Travelers
The Company holds 2,105 shares of Cumulative Adjustable Rate Preferred
Stock, Series Y, of Travelers Group, with a liquidation value of $100,000 per
share, which is redeemable at the option of the holder at certain times and
callable by Travelers Group at certain times. In 1994, the Company exchanged
the shares of Travelers Group common stock that it had acquired in the merger of
old Travelers into Travelers Group for shares of the preferred stock, which had
a value equal to the market value of the common shares at the time the exchange
was agreed upon.
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GENERAL BUSINESS FACTORS
In the judgment of the Company, no material part of the business of
the Company and its subsidiaries is dependent upon a single customer or group of
customers, the loss of any one of which would have a materially adverse effect
on the Company, and no one customer or group of affiliated customers accounts
for as much as 10% of the Company's consolidated revenues.
At December 31, 1995, the Company had approximately 5,000 full-time
employees. The Company also employs part-time employees.
OTHER INFORMATION
Source of Funds
For a discussion of the Company's sources of funds and maturities of
the long-term debt of the Company's subsidiaries, see Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources," and Note 6 of Notes to Consolidated Financial
Statements.
The following table sets forth information concerning annual weighted
average interest rates on the Company's borrowed funds:
Annual Weighted Average Interest Rates
Years ended December 31,
------------------------
1995 1994 1993
---- ---- ----
Savings accounts, certificates and
deposits . . . . . . . . . . . . . . . . . 6.4% 4.6% 4.4%
Short-term borrowings (1) . . . . . . . . . . 6.0% 4.4% 3.2%
Long-term borrowings (2) . . . . . . . . . . 7.6% 7.7% 8.0%
Total borrowings . . . . . . . . . . . . . . 7.2% 6.4% 6.3%
____________________
(1) Includes all commercial paper and short-term bank loans; does not include
cost of maintaining bank credit lines.
(2) Includes current maturities of long-term debt and amortization of long-term
debt expenses.
Taxation
For a discussion of tax matters affecting the Company and its
operations, see Notes 1 and 8 of Notes to Consolidated Financial Statements.
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Financial Information about Industry Segments
For financial information regarding industry segments of the Company,
see Note 3 of Notes to Consolidated Financial Statements.
Item 2. PROPERTIES.
The Company is engaged in the business of providing services that are
generally not dependent upon their physical plant. Offices and other properties
used by the Company and its subsidiaries are located throughout the United
States. Most office locations and other properties are leased on terms and
for durations that are reflective of commercial standards in the communities
where such offices and other properties are located. A few offices are owned,
none of which is material to the Company's financial condition or operations.
The Company believes its properties are adequate and suitable for its
business as presently conducted and are adequately maintained. For further
information concerning leases, see Note 12 of Notes to Consolidated Financial
Statements.
Item 3. LEGAL PROCEEDINGS.
For information concerning certain purported class action lawsuits
filed against the Company and certain of its subsidiaries in May and June 1994
and in September 1995, see the descriptions that appear in the second paragraph
of page 2 of the Company's filing on Form 8-K dated July 13, 1994, and the
first paragraph of page 14 of the Company's filing on Form 10-Q for the third
quarter ended September 30, 1995, which descriptions are incorporated by
reference herein. A copy of the pertinent paragraphs of such filings is included
as an exhibit to this Form 10-K. In October 1995 and February 1996, two
additional purported class actions, entitled McCurdy v. American General Finance
and McMahon v. Commercial Credit Corporation, were filed in the U.S. District
Court for the Middle District of Alabama and the Circuit Court for Shelby
County, Alabama, respectively, on behalf of borrowers who purchased credit life
and/or credit property insurance from subsidiaries of the Company, among others,
with allegations similar to those in the earlier cases referred to above.
Plaintiffs seek unspecified compensatory and punitive damages, among other
things. The Company believes it has meritorious defenses to these actions and
intends to contest the allegations.
As previously disclosed, a number of actions have been filed in the
Circuit Court of Alabama, mostly in Barbour County, against certain subsidiaries
of the Company. The plaintiffs in these cases are individual borrowers who
allege that they have been misled or induced to refinance existing loans instead
of receiving a new extension of credit. The suits generally allege that the
refinanced loans carried excessive and/or unnecessary fees and charges that were
not fully disclosed to the borrower, and in some cases that borrowers were
improperly required to purchase credit insurance products. The first of these
lawsuits was commenced in October 1994. From March through April 1995, 27
additional borrowers have sued on similar theories and since January 1996, six
additional borrowers have sued. The plaintiffs seek unspecified compensatory and
punitive damages. The Company believes it has meritorious defenses to these
actions and intends to defend vigorously the allegations.
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Because the nature of the businesses of the Company and its
subsidiaries involves the collection of numerous accounts, the validity of
liens, accident and other damage or loss claims under many types of insurance,
and the construction and interpretation of contracts, the Company and its
subsidiaries are plaintiffs and defendants in numerous legal proceedings. In
the opinion of the Company's management, none of these actions is expected to
have a material adverse effect on the consolidated financial condition of the
Company and its subsidiaries.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Pursuant to General Instruction J of Form 10-K, the information
required by Item 4 is omitted.
PART II
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Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
All of the outstanding common stock of the Company is owned by CCC
Holdings, Inc., which is a wholly owned subsidiary of Travelers Group.
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ITEM 6. SELECTED FINANCIAL DATA
COMMERCIAL CREDIT COMPANY and SUBSIDIARIES
FIVE-YEAR SUMMARY OF SELECTED FINANCIAL DATA
(In millions of dollars)
Year Ended December 31, 1995 1994 1993 1992 1991
- ----------------------- -------- -------- -------- -------- --------
Total revenues (1) $1,392.4 $1,598.0 $1,580.3 $1,523.5 $1,459.1
Income before
cumulative effect
of accounting
changes (2) $219.9 $221.9 $291.8 $281.2 $203.2
Net income (2),(3) $219.9 $221.9 $286.0 $263.1 $203.2
December 31,
- -------------
Total assets $8,634.5 $8,226.8 $8,893.7 $8,039.0 $7,726.7
Total debt $6,692.5 $6,388.1 $6,232.6 $5,750.9 $5,835.5
- ----------------------
(1) On December 30, 1994 the Company sold its remaining 50% interest in
Commercial Insurance Resources, Inc., the parent of Gulf Insurance Company
(Gulf), and accordingly results of operations for 1995 do not include Gulf's
results. The exclusion of Gulf's operations from 1995 results of operations has
resulted in a reduction compared to the prior periods in insurance-related
revenues and expenses.
(2) Included in 1993 results are $34.9 million of equity in the income of The
Travelers Corporation (old Travelers) and after-tax investment portfolio gains
of $30.3 million. Included in 1992 results are after-tax gains of $7.1 million
from the sale of stock of subsidiaries and affiliates and $22.7 million from the
sale of a common stock investment in Musicland Stores Corporation.
(3) See Note 1 of Notes to Consolidated Financial Statements for information
regarding accounting changes in 1993. Included in net income for 1993 is an
after-tax charge of $2.4 million resulting from the adoption of Statement of
Financial Accounting Standards No. 106, and an after-tax charge of $3.4 million
resulting from the adoption of Statement of Financial Accounting Standards No.
112. Included in net income for 1992 is an after-tax charge of $18.1 million
resulting from the adoption of Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes."
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ITEM 7. MANAGEMENT'S DISCUSSION and ANALYSIS of FINANCIAL CONDITION
and RESULTS of OPERATIONS
Consolidated Results of Operations
Year Ended December 31,
($ in millions) 1995 1994 1993
- ------------------------------------------------------------------------------
Revenues $1,392.4 $1,598.0 $1,580.3
======== ======= =======
Income before cumulative effect of accounting
changes $219.9 $221.9 $291.8
====== ===== =====
Net income $219.9 $221.9 $286.0
====== ===== =====
Results of Operations
On December 30, 1994 Commercial Credit Company ("the Company") sold its
remaining 50% interest in Commercial Insurance Resources, Inc., the parent of
Gulf Insurance Company (Gulf), to an affiliate, The Travelers Indemnity Company,
for $150 million in cash and, accordingly, results of operations for 1995 do not
include Gulf's results. The exclusion of Gulf's operations from 1995 results of
operations has resulted in a reduction compared to the 1994 and 1993 periods in
insurance-related revenues and expenses. The remaining insurance-related
revenues and expenses represent the credit insurance activities of the Company's
other insurance subsidiaries, the operations of which are reflected in the
Consumer Finance segment.
The net income of the Company for the year ended December 31, 1995 was $219.9
million compared to $221.9 million in the corresponding 1994 period. Revenues
for the year ended December 31, 1995 were $1,392.4 million compared to $1,598.0
million in the corresponding 1994 period, reflecting the impact of the sale
referred to above.
The Company's earnings for 1994 include $7.3 million of dividend income from the
securities of Travelers Group Inc. (Parent) that were exchanged for the
Company's investment (excluding shares held by American Health and Life
Insurance Company) in The Travelers Corporation (old Travelers). Earnings for
1993 include $34.9 million of equity in the income of old Travelers and reported
after-tax net investment portfolio gains of $22.7 million in the Consumer
Finance Segment and $7.6 million (after minority interest) at Gulf. 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, earnings
for 1994 decreased by $12.0 million from the 1993 period, reflecting primarily
higher net interest costs in the Corporate segment, offset in part by higher
earnings in the Consumer Finance and Insurance segments.
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The following discussion presents in more detail each segment's performance.
Consumer Finance Services
Year Ended December 31,
---------------------------------------------------
1995 1994 1993
---------------------------------------------------
Net Net Net
($ in millions) Revenues income Revenues income Revenues income
- -----------------------------------------------------------------------------
Consumer Finance
Services (1) $1,351.3 $245.2 $1,236.2 $225.6 $1,190.6 $230.8
- -----------------------------------------------------------------------------
(1) Net income includes $22.7 million of reported investment portfolio gains in
1993.
Consumer Finance net income in 1995 increased by 9% over the prior year. The
increase primarily reflects a 7% increase in average receivables outstanding.
The rise in average receivables outstanding was highlighted by an 11% increase
in personal loan average receivables outstanding, which is the highest margin
product line. Receivables growth has been at a somewhat slower pace than in
1994, and was adversely affected by increasing first mortgage refinancings in
the latter part of 1995. Proceeds of such refinancings are sometimes used by
the borrowers to pay off second mortgages in the consumer finance portfolio.
Earnings before reported investment portfolio gains increased 8% in 1994 over
1993, reflecting both an 11% increase in average receivables outstanding and an
improvement in net interest margins.
Consumer Finance borrows from the Company's corporate treasury operation, which
raises funds externally. For fixed rate loan products, Consumer Finance is
charged agreed-upon rates that generally have been set within a narrow range and
approximated 8% in 1993 and 7% in 1994 and 1995. For variable rate loan
products, Consumer Finance is charged rates based on prevailing short term
rates. The Company's actual cost of funds may be higher or lower than rates
charged to Consumer Finance, with the difference reflected in Corporate and
Other.
The average yield on receivables outstanding rose to 15.64% in 1995, compared
with 15.41% in 1994, and net interest margins rose to 8.79% in 1995 from 8.76%
in 1994, as a result of improved yields offset by higher funding costs. The
average yield on receivables outstanding decreased to 15.41% in 1994 from 15.83%
in 1993, due to lower yields on fixed rate second mortgages and the adjustable
rate real estate-secured loan product introduced at the end of 1992. Lower cost
of funds resulted in an improvement in net interest margins to 8.76% in 1994
from 8.44% in 1993.
Delinquencies in excess of 60 days rose to 2.14% at December 31, 1995, versus
historically low levels of 1.88% in 1994 and 2.21% in 1993. Correspondingly,
the charge-off rate, which had been at record low levels in 1994, moved higher
in 1995 -- reaching 2.28% versus 2.08% in 1994 and 2.36% in 1993. This increase
in delinquencies and charge-offs, which to some extent reflects industry trends
associated with personal bankruptcies, is expected to continue during 1996.
13
<PAGE>
The allowance for credit losses as a percentage of net outstandings was 2.66% at
year-end 1995, compared to 2.64% at year-end 1994 and 1993.
The total number of offices at year-end 1995 stood at 850, up from 828 at
year-end 1994. During 1995, Commercial Credit added 50 branches. This increase
was offset by consolidating 28 branches during the fourth quarter in
anticipation of a new structure designed to better serve the Company's growing
business of underwriting second-mortgage ($.M.A.R.T.) loans for Primerica
Financial Services.
As of, and for the
Year Ended, December 31,
----------------------------
1995 1994 1993
----------------------------
Allowance for credit losses as a % of
net outstandings 2.66% 2.64% 2.64%
Charge-off rate for the year 2.28% 2.08% 2.36%
60 + days past due on a contractual
basis as a % of gross consumer finance
receivables at year end 2.14% 1.88% 2.21%
Insurance subsidiaries of the Company provide credit life, health and property
insurance to Consumer Finance customers. Premiums earned were $135.8 million in
1995, $111.6 million in 1994, and $84.8 million in 1993. The increase in
premiums year-over-year is the result of growth in receivables and expanded
availability of certain products in additional states, as well as the assumption
through reinsurance by the Company in 1994 of business previously insured by
non-affiliated companies.
Outlook - Consumer Finance is affected by the interest rate environment and
general economic conditions. Although the declining interest rate environment,
should it continue, is not expected to have a material effect on Consumer
Finance yields, it has resulted in modest downward pressure on interest rates
charged on new receivables secured by real estate. For the Company overall,
however, these trends would be offset by the lower costs of funds in such an
environment. The low mortgage rate environment has had, and may continue to
have, some adverse impact on Consumer Finance second mortgage loan volume and
liquidations, as potential customers refinance their first mortgages instead of
turning to the second mortgage market, or use proceeds from the refinancings of
first mortgages to pay down existing second mortgages. Continued lower interest
rates could result in a reduction of the interest rates that CCC charges
Consumer Finance on borrowed funds.
Asset Quality - Consumer Finance assets totaled approximately $8.1 billion at
December 31, 1995, of which $7.1 billion, or 87%, represented the net consumer
finance receivables (after accrued interest and the allowance for credit
losses). These receivables were predominantly residential real estate-secured
loans and personal loans. Receivable quality depends on the likelihood of
repayment. The Company seeks to reduce its risks by focusing on individual
lending, making a greater number of smaller loans than would be practical in
commercial markets, and maintaining disciplined control over the underwriting
process. The Company has a geographically diverse portfolio as described in
Note 5 of Notes to Consolidated Financial Statements. The Company believes that
its loss reserves on the consumer finance receivables
14
<PAGE>
are appropriate given current circumstances. If the charge-off and delinquency
rates continue to increase, the Company would anticipate increasing its loss
reserves.
Of the remaining Consumer Finance assets, approximately $690 million were
investments of insurance subsidiaries, including $591 million of fixed income
securities and $59 million of short-term investments with a weighted average
quality rating of A1.
Insurance Services
Year Ended December 31,
---------------------------------------------------
1995 1994 1993
---------------------------------------------------
Net Net Net
($ in millions) Revenues Income Revenues Income Revenues Income
- ------------------------------------------------------------------------------
Gulf property and
casualty(1) $ - $ - $314.7 $29.6 $314.5 $ 44.9
Minority interest - Gulf - - - (14.8) - (22.5)
- ------------------------------------------------------------------------------
Total Insurance
Services $ - $ - $314.7 $14.8 $314.5 $ 22.4
==============================================================================
(1) Net income includes $15.2 million ($7.6 million after minority interest) of
reported investment portfolio gains in 1993.
The Insurances Services segment included the operations of Gulf. As discussed
in Note 2 of Notes to Consolidated Financial Statements, on December 30, 1994
the Company sold its 50% interest in the parent of Gulf to an affiliate.
Operating earnings (before reported portfolio gains) for the 1994 period for
Gulf remained about even with the prior year period, and continued to reflect
emphasis on the higher margin specialty businesses, which include directors' and
officers', errors and omissions, fidelity bonds and contingent liability
coverages, as well as coverages relating to the entertainment industry and other
specialty markets. Gulf's combined ratio was 99.1% for 1994 versus 95.9% in
1993.
15
<PAGE>
<TABLE><CAPTION>
CORPORATE AND OTHER
Year Ended December 31,
-------------------------------------------------------------
1995 1994 1993
-------------------------------------------------------------
Net Net Net
($ in millions) Income Income Income
Revenues (Expense) Revenues (Expense) Revenues (Expense)
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Corporate and other $(25.3) $(18.5) $3.7
Equity in income
of old Travelers - - 34.9
- ---------------------------------------------------------------------------------
Total Corporate
and Other $41.1 $(25.3) $47.1 $(18.5) $75.2 $38.6
=================================================================================
</TABLE>
The increase in Corporate and Other in 1995 compared to 1994 is primarily
attributable to increased interest costs borne at the corporate level resulting
from higher average short-term borrowing rates in 1995 when compared to 1994 as
well as a shift in debt mix to higher levels of senior long-term debt over the
course of 1995.
The decline in Corporate and Other in 1994 compared to 1993 is primarily
attributable to increases in interest costs borne at the corporate level.
Corporate and Other in 1993 reflects lower income from miscellaneous
investments, somewhat higher corporate expenses and lower interest income from
Consumer Finance due to a shelf in the proportion of variable rate loans. The
1993 equity in income of old Travelers of $34.9 million includes $3.0 million
from the Company's share of old Travelers' realized portfolio gains.
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 December 31, 1995, the
Company had unused credit availability of $1.975 billion under 5-year revolving
credit facilities. 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 Parent, the Company and The Travelers Insurance Company (TIC) have an
agreement with a syndicate of banks to provide $1.0 billion of revolving credit,
to be allocated to any of the Parent, the Company or TIC. The participation of
TIC in this agreement is limited to $250 million. The revolving credit facility
consists of a 5-year revolving credit facility which expires in 1999. At
December 31, 1995, $400 million was allocated to the Parent, $475 million was
allocated to the Company and $125 million to
16
<PAGE>
TIC. At December 31, 1995, the Company also had committed and available
revolving credit facilities on a stand-alone basis of $1.5 billion, which
expires in 1999.
During 1995 and through March 5, 1996 CCC completed the following long-term debt
offerings leaving $950 million available for debt offerings under its shelf
registration statements:
- 7 7/8% Notes due February 1, 2025 . . . . $200 million
- 7 3/4% Notes due March 1, 2005 . . . . . $200 million
- 7 3/8% Notes due March 15, 2002 . . . . . $200 million
- 7 3/8% Notes due April 15, 2005 . . . . . $200 million
- 6 7/8% Notes due May 1, 2002 . . . . . . $200 million
- 6 3/4% Notes due May 15, 2000 . . . . . . $200 million
- 6 5/8% Notes due June 1, 2015 . . . . . . $200 million
- 6 1/2% Notes due June 1, 2005 . . . . . . $200 million
- 6 3/8% Notes due September 15, 2002 . . . $200 million
- 6 1/8% Notes due December 1, 2005 . . . . $200 million
- 5 7/8% Notes due January 15, 2003 . . . . . $200 million
- 5.55% Notes due February 15, 2001 . . . . . $200 million
The Company is limited by covenants in its revolving credit agreements as to the
amount of dividends and advances that may be made to the Parent or its
affiliated companies. At December 31, 1995, the Company would have been able to
remit $225.4 million to the Parent under its most restrictive covenants or
regulatory requirements.
Future Application of Accounting Standards
FAS 121. In March 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of"
(FAS 121). This statement establishes accounting standards for the impairment
of long-lived assets and certain identifiable intangibles to be disposed of.
This statement requires a write down to fair value when long-lived assets to be
held and used are impaired. The statement also requires long-lived assets to be
disposed of (e.g., real estate held for sale) to be carried at the lower of cost
or fair value less cost to sell and does not allow such assets to be
depreciated. The adoption of this statement effective January 1, 1996 will not
have a material effect on results of operations, financial condition or
liquidity.
FAS 123. In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (FAS 123). This statement addresses alternative accounting
treatments for stock-based compensation, such as stock options and restricted
stock. FAS 123 permits either expensing the value of stock-based compensation
over the period earned or disclosing in the financial statement footnotes the
pro forma impact to net income as if the value of stock-based compensation
awards had been expensed. The value of awards would be measured at the grant
date based upon estimated fair value, using established option pricing models.
The requirements of this statement will be effective for 1996 financial
statements, although earlier adoption is permissible if an entity elects to
expense the cost of stock-based compensation. The Company, along with
affiliated companies, participates in stock option and other stock based
incentive plans sponsored by the Parent. The Company is currently evaluating
the disclosure requirements and expense recognition alternatives addressed by
this statement.
17
<PAGE>
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See Index to Consolidated Financial Statements and Schedules on page F-1
hereof. There is also incorporated by reference herein in response to this Item
the Company's Consolidated Financial Statements and the notes thereto and the
material under the caption "Quarterly Financial Data (Unaudited)" set forth in
the Consolidated Financial Statements.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
PART III
--------
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Pursuant to General Instruction J of Form 10-K, the information required by
Item 10 is omitted.
Item 11. EXECUTIVE COMPENSATION.
Pursuant to General Instruction J of Form 10-K, the information required by
Item 11 is omitted.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Pursuant to General Instruction J of Form 10-K, the information required by
Item 12 is omitted.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Pursuant to General Instruction J of Form 10-K, the information required by
Item 13 is omitted.
PART IV
-------
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K.
(a) Documents filed as a part of the report:
18
<PAGE>
(1) Financial Statements. See Index to Consolidated Financial
Statements and Schedules on page F-1 hereof.
(2) Financial Statement Schedules. See Index to Consolidated
Financial Statements and Schedules on page F-1 hereof.
(3) Exhibits:
See Exhibit Index.
(b) Reports on Form 8-K:
On October 16, 1995, the Company filed a Current Report on Form
8-K dated October 16, 1995, reporting under Item 5 thereof the
results of its operations for the three months and nine months
ended September 30, 1995, and certain other selected financial
data.
On December 6, 1995, the Company filed a Current Report on Form
8-K dated December 4, 1995, filing certain exhibits under Item
7 thereof relating to the offer and sale of the Company's 6 1/8%
Notes due December 1, 2005.
No other reports on Form 8-K have been filed by the Company
during the last quarter of the period covered by this report;
however, on January 16, 1996, the Company filed a Current
Report on Form 8-K, dated January 16, 1996, reporting under
Item 5 thereof the results of its operations for the three
months and year ended December 31, 1995, and certain other
selected financial data; and on January 22, 1996, the Company
filed a Current Report on Form 8-K, dated January 18, 1996,
filing certain exhibits under Item 7 thereof relating to the
offer and sale of the Company's 5 7/8% Notes due January
15, 2003; and on February 14, 1996, the Company filed a
Current Report on Form 8-K, dated February 12, 1996, filing
certain exhibits under Item 7 thereof relating to the offer
and sale of the Company's 5.55% Notes due February 15, 2001.
19
<PAGE>
EXHIBIT INDEX
-------------
Exhibit Filing
Number Description of Exhibit Method
------ ---------------------- ------
3.01 Restated Certificate of Incorporation of
Commercial Credit Company (the "Company"),
included in Certificate of Merger of CCC
Merger Company into the Company;
Certificate of Ownership and Merger merging
CCCH Acquisition Corporation into the
Company; and Certificate of Ownership and
Merger merging RDI Service Corporation into
the Company, incorporated by reference to
Exhibit 3.01 to the Company's Annual Report
on Form 10-K for the fiscal year ended
December 31, 1992 (File No. 1-6594).
3.02 By-laws of the Company, as amended May 14,
1990, incorporated by reference to Exhibit
3.02.2 to the Company's Annual Report on
Form 10-K for the fiscal year ended
December 31, 1990 (File No. 1-6594).
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 $1,760,000,000 Five Year Credit Agreement
dated as of December 16, 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, 1994
(File No. 1-6594).
12.01 Computation of Ratio of Earnings to Fixed Electronic
Charges.
21.01 Pursuant to General Instruction J of Form
10-K, the list of subsidiaries of the
Company is omitted.
20
<PAGE>
Exhibit Filing
Number Description of Exhibit Method
------ ---------------------- ------
23.01 Consent of KPMG Peat Marwick LLP, Electronic
Independent Certified Public Accountants.
27.01 Financial Data Schedule. Electronic
99.01 The second paragraph of page 2 of the Electronic
Company's Current Report on Form 8-K dated
July 13, 1994 (File No. 1-6594).
99.02 The first paragraph of page 14 of the Electronic
Company's Current Report on Form 10-Q dated
September 30, 1995 (File No. 1-6594).
Copies of any of the exhibits referred to above will be
furnished at a cost of $.25 per page to security holders who
make written request therefor to Patricia A. Rouzer,
Corporate Communications and Investor Relations, Commercial
Credit Company, 300 St. Paul Place, Baltimore, Maryland
21202.
21
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, on the 27th day of March, 1996.
COMMERCIAL CREDIT COMPANY
(Registrant)
By: /s/ Robert B. Willumstad
. . . . . . . . . . . . . .
Robert B. Willumstad, Chairman
of Board
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed by the following persons on
behalf of the registrant and in the capacities indicated on the 27th
day of March, 1996.
Signature Title
--------- -----
/s/ Robert B. Willumstad
. . . . . . . . . . . . . . Chairman of the Board, Chief
Robert B. Willumstad Executive Officer
(Principal Executive Officer)
and Director
/s/ William R. Hofmann
. . . . . . . . . . . . . . Vice President and Chief
William R. Hofmann Financial Officer
(Principal Financial Officer)
/s/ Irwin R. Ettinger
. . . . . . . . . . . . . . Senior Vice President, Chief
Irwin R. Ettinger Accounting Officer
(Principal Accounting
Officer) and Director
/s/ James Dimon
. . . . . . . . . . . . . . Director
James Dimon
/s/ Jerome T. Fadden
. . . . . . . . . . . . . . Director
Jerome T. Fadden
/s/ Robert I. Lipp
. . . . . . . . . . . . . . Director
Robert I. Lipp
22
<PAGE>
COMMERCIAL CREDIT COMPANY and SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES*
- --------------------------------------------------------------------------------
Page
Herein
------
Independent Auditors' Report F-2
Consolidated Statement of Income for the year ended
December 31, 1995, 1994 and 1993 F-3
Consolidated Statement of Financial Position at
December 31, 1995 and 1994 F-4
Consolidated Statement of Changes in Stockholder's
Equity for the year ended December 31, 1995, 1994 and 1993 F-5
Consolidated Statement of Cash Flows for the year ended
December 31, 1995, 1994 and 1993 F-6
Notes to Consolidated Financial Statements F-7 - F-23
Schedules:
Schedule I - Condensed Financial Information of
Registrant (Parent Company only) F-24 - F-26
*Schedules not listed are omitted as not applicable or not
required by Regulation S-X.
F-1
<PAGE>
Independent Auditors' Report
----------------------------
The Board of Directors and Stockholder
Commercial Credit Company:
We have audited the consolidated financial statements of Commercial Credit
Company and subsidiaries as listed in the accompanying index. In connection
with our audits of the consolidated financial statements, we also audited
the financial statement schedule as listed in the accompanying index. These
consolidated financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Commercial Credit
Company and subsidiaries as of December 31, 1995 and 1994, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1995 in conformity with generally accepted accounting
principles. Also in our opinion, the related financial statement schedule,
when considered in relation to the basic consolidated financial statements taken
as a whole, presents fairly, in all material respects, the information set forth
therein.
As discussed in Note 1 to the consolidated financial statements, the Company
changed its method of accounting for certain investments in debt and equity
securities in 1994, and its methods of accounting for postretirement benefits
other than pensions and accounting for postemployment benefits in 1993.
/s/ KPMG Peat Marwick LLP
Baltimore, Maryland
January 16, 1996
F-2
<PAGE>
COMMERCIAL CREDIT COMPANY and SUBSIDIARIES
Consolidated Statement of Income
(In millions of dollars)
Year Ended December 31, 1995 1994 1993
- -------------------------------------------------------------------------
Revenues
Finance related interest and other
charges $1,119.2 $1,029.8 $ 953.5
Insurance premiums 135.8 387.6 342.1
Interest and dividends 49.9 75.4 69.2
Equity in income of old Travelers - - 38.0
Other income 87.5 105.2 177.5
- --------------------------------------------------------------------------
Total revenues 1,392.4 1,598.0 1,580.3
- --------------------------------------------------------------------------
Expenses
Interest 463.5 402.8 363.7
Policyholder benefits and claims 50.0 238.1 216.2
Insurance underwriting, acquisition
and operating 26.7 104.9 87.0
Non-insurance compensation and benefits 196.0 183.9 164.1
Provision for credit losses 171.0 151.6 133.9
Other operating 151.2 152.8 147.5
- --------------------------------------------------------------------------
Total expenses 1,058.4 1,234.1 1,112.4
- --------------------------------------------------------------------------
Income before income taxes, minority
interest and cumulative effect of
accounting changes
334.0 363.9 467.9
Provision for income taxes 114.1 127.2 153.6
- -------------------------------------------------------------------------
Income before minority interest and cumulative
effect of accounting changes 219.9 236.7 314.3
Minority interest, net of income taxes - (14.8) (22.5)
Cumulative effect of accounting changes,
net of income taxes - - (5.8)
- --------------------------------------------------------------------------
Net income $ 219.9 $ 221.9 $ 286.0
==========================================================================
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
COMMERCIAL CREDIT COMPANY and SUBSIDIARIES
Consolidated Statement of Financial Position
(In millions of dollars)
December 31, 1995 1994
- -------------------------------------------------------------------------
Assets
Cash and cash equivalents $ 30.1 $ 23.6
Investments:
Fixed maturities:
Available for sale, at market value 802.9 673.4
Equity securities at market value
(cost $26.5 and $20.7) 28.4 19.6
Mortgage loans 185.3 173.0
Short-term and other 28.6 36.6
- --------------------------------------------------------------------------
Total investments 1,045.2 902.6
- --------------------------------------------------------------------------
Consumer finance receivables 7,285.0 6,927.7
Allowance for losses (192.5) (181.9)
- ---------------------------------------------------------------------------
Net consumer finance receivables 7,092.5 6,745.8
Other receivables 164.4 216.4
Deferred policy acquisition costs 16.1 18.3
Cost of acquired businesses in excess of net assets 98.2 102.1
Other assets 188.0 218.0
- --------------------------------------------------------------------------
Total assets $8,634.5 $8,226.8
==========================================================================
Liabilities
Certificates of deposit $ 98.3 $ 73.5
Short-term borrowings 1,394.2 2,304.6
Long-term debt 5,200.0 4,010.0
- --------------------------------------------------------------------------
Total debt 6,692.5 6,388.1
Insurance policy and claims reserves 392.8 386.5
Accounts payable and other liabilities 386.3 339.8
- --------------------------------------------------------------------------
Total liabilities 7,471.6 7,114.4
- --------------------------------------------------------------------------
Stockholder's equity
Common stock ($.01 par value; authorized shares:
1,000; share issued: 1) - -
Additional paid-in-capital 163.5 163.5
Retained earnings 984.4 974.5
Unrealized gain (loss) on investment
securities and other, net 15.0 (25.6)
- ---------------------------------------------------------------------------
Total stockholder's equity 1,162.9 1,112.4
- --------------------------------------------------------------------------
Total liabilities and stockholder's equity $8,634.5 $8,226.8
==========================================================================
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
COMMERCIAL CREDIT COMPANY and SUBSIDIARIES
Consolidated Statement of Changes in Stockholder's Equity
(In millions of dollars)
Year ended December 31, 1995 1994 1993
- ------------------------------------------------------------------------------
Common stock
Balance, beginning and end of year $ - $ - $ -
- ------------------------------------------------------------------------------
Additional paid-in capital
Balance, beginning of year 163.5 94.7 105.9
Capital contribution - 1.2
Adjustments relating to exchange of
investment in Parent securities - 58.6 -
Adjustment relating to sale of Gulf - 10.2 -
Adjustments relating to exchange of
investment in old Travelers, net - - (12.4)
- ------------------------------------------------------------------------------
Balance, end of year 163.5 163.5 94.7
- ------------------------------------------------------------------------------
Retained earnings
Balance, beginning of year 974.5 1,002.6 926.6
Net income 219.9 221.9 286.0
Cash dividends (210.0) (195.0) (210.0)
Other dividends - (55.0) -
- ------------------------------------------------------------------------------
Balance, end of year 984.4 974.5 1,002.6
- ------------------------------------------------------------------------------
Unrealized gain (loss) on investment
securities and other
Balance, beginning of year (25.6) 13.4 2.8
Net change in unrealized gains and
(losses) on investment securities 40.6 (39.2) 10.8
Translation adjustments, net - 0.2 (0.2)
- ------------------------------------------------------------------------------
Balance, end of year 15.0 (25.6) 13.4
- ------------------------------------------------------------------------------
Total stockholder's equity $1,162.9 $1,112.4 $1,110.7
==============================================================================
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
COMMERCIAL CREDIT COMPANY and SUBSIDIARIES
Consolidated Statement of Cash Flows
(In millions of dollars)
Year ended December 31, 1995 1994 1993
- -----------------------------------------------------------------------------
Cash flows from operating activities
Income before income taxes, minority
interest and cumulative effect of
accounting changes $334.0 $ 363.9 $467.9
Adjustments to reconcile income before
income taxes, minority interest and
cumulative effect of accounting changes
to net cash provided by (used in)
operating activities:
Amortization of deferred policy acquisition
costs and value of insurance in force 7.9 61.0 54.7
Additions to deferred policy acquisition costs (5.7) (77.6) (54.3)
Provision for credit losses 171.0 151.6 133.9
Undistributed equity earnings (1.3) (1.9) (26.8)
Changes in insurance policy and claims reserves 6.3 131.3 51.2
Changes in other assets and liabilities, net 123.8 7.3 60.8
Other, net 2.0 4.0 (73.4)
- -------------------------------------------------------------------------------
Net cash provided by operations 638.0 639.6 614.0
Income taxes paid (125.6) (149.0) (136.7)
- -------------------------------------------------------------------------------
Net cash provided by operating activities 512.4 490.6 477.3
- -------------------------------------------------------------------------------
Cash flows from investing activities
Net change in credit card receivables (66.0) (29.7) (174.9)
Loans originated or purchased (2,748.0) (2,788.9) (2,672.8)
Loans repaid or sold 2,245.2 2,093.8 2,108.0
Purchases of investments (434.2) (664.2) (1,066.8)
Proceeds from sales of investments 359.2 653.9 992.1
Proceeds from maturities of investments 7.0 45.1 34.0
Business divestments (acquisitions) - 150.0 (11.3)
Redemption of the Parent's redeemable
preferred stock - 100.0 100.0
Other, net 36.5 (13.1) (53.7)
- -------------------------------------------------------------------------------
Net cash (used in) investing activities (600.3) (453.1) (745.4)
- -------------------------------------------------------------------------------
Cash flows from financing activities
Dividends paid (210.0) (195.0) (210.0)
Issuance of long-term debt 2,000.0 500.0 950.0
Payments and redemptions of long-term debt (810.0) (459.8) (222.1)
Net change in short-term borrowings (910.4) 98.5 (280.5)
Net change in certificates of deposit 24.8 16.8 34.3
- -------------------------------------------------------------------------------
Net cash provided by (used in) financing
activities 94.4 (39.5) 271.7
- -------------------------------------------------------------------------------
Change in cash and cash equivalents 6.5 (2.0) 3.6
Cash and cash equivalents at beginning of period 23.6 25.6 22.0
- -------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 30.1 $ 23.6 $ 25.6
- -------------------------------------------------------------------------------
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 441.2 $ 400.7 $ 346.9
==============================================================================
See Notes to Consolidated Financial Statements.
F-6
<PAGE>
COMMERCIAL CREDIT COMPANY and SUBSIDIARIES
Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Policies
------------------------------------------
Basis of Presentation
Principles of Consolidation - Commercial Credit Company (the Company)
is a wholly owned subsidiary of CCC Holdings, Inc. which is a wholly
owned subsidiary of Travelers Group Inc. (formerly The Travelers
Inc., hereinafter referred to as the Parent). The consolidated
financial statements include the accounts of the Company and its
subsidiaries.
Unconsolidated entities in which the Company has at least a 20%
interest are accounted for on the equity method. The minority
interest in 1994 and 1993 represents the old Travelers' interest in
Gulf Insurance Company (Gulf). Significant intercompany transactions
and balances have been eliminated.
On December 30, 1994 the Company sold its remaining 50% interest in
Commercial Insurance Resources, Inc., the parent of Gulf to an
affiliate, The Travelers Indemnity Company, for $150 million in cash
and accordingly results of operations for 1995 do not include Gulf's
results. The exclusion of Gulf's operations from 1995 results of
operations has resulted in a reduction compared to the 1994 and 1993
periods in insurance-related revenues and expenses. The remaining
insurance-related revenues and expenses represent the credit
insurance activities of the Company's other insurance subsidiaries,
the operations of which are reflected in the Consumer Finance
segment.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Certain reclassifications have been made to prior years' financial
statements to conform to the current year's presentation.
Changes in Accounting Principles
FAS 114 and FAS 118. Effective January 1, 1995 the Company adopted
Statement of Financial Accounting Standards No. 114, "Accounting by
Creditors for Impairment of a Loan," and Statement of Financial
Accounting Standards No. 118, "Accounting by Creditors for Impairment
of a Loan - Income Recognition and Disclosures," which describe how
impaired loans should be
F-7
<PAGE>
Notes to Consolidated Financial Statements (continued)
measured when determining the amount of a loan loss accrual. These
Statements amended existing guidance on the measurement of restructured
loans in a troubled debt restructuring involving a modification of
terms. These Statements do not apply to large groups of
smaller-balance homogeneous loans that are collectively evaluated for
impairment, such as the Company's portfolio of consumer finance
receivables, and their adoption did not have a material impact on the
Company's financial condition, results of operations or liquidity.
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. Investment 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. Previously, securities classified as
available for sale were carried at the lower of aggregate cost or
market value. Initial adoption of this standard resulted in a net
increase of $80.8 million (net of taxes) to net unrealized gains on
investment securities which was included in stockholder's equity.
FAS 106. In 1993, the Company adopted FAS No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions" (FAS
106). As required, the Company changed its method of accounting for
retiree benefit plans effective January 1, 1993, to accrue the
Company's share of the costs of postretirement benefits over the
service period rendered by employees. Previously these benefits were
charged to expense when paid. The Company elected to recognize
immediately the liability for postretirement benefits as the
cumulative effect of a change in accounting principle. This resulted
in a noncash after-tax charge to net income of $2.4 million ($3.7
million pre-tax). Ongoing net periodic postretirement benefit costs
are not material.
FAS 112. In 1993, the Company adopted FAS No. 112, "Employers'
Accounting for Postemployment Benefits" (FAS 112), with retroactive
application to January 1, 1993. FAS 112 establishes accounting
standards for employers who provide benefits to former or inactive
employees after employment, but before retirement. For the Company
these benefits are principally disability-related benefits and
severance. The statement requires employers to recognize the cost of
the obligation to provide these benefits on an accrual basis, and
employers must implement FAS 112 by recognizing a cumulative effect
of a change in accounting principle. This resulted in a noncash
after-tax charge to net income of $3.4 million ($5.3 million pre-
tax).
F-8
<PAGE>
Notes to Consolidated Financial Statements (continued)
Accounting Policies
Cash and cash equivalents include cash on hand and short-term highly liquid
investments with original maturities of three months or less, other than those
held for sale in the ordinary course of business. These short-term investments
are carried at cost plus accrued interest, which approximates market value.
Investments are owned principally by the insurance subsidiaries. Fixed
maturities include bonds, notes and redeemable preferred stocks. Equity
securities include common and non-redeemable preferred stocks. Fixed maturity
securities classified as "available for sale" and equity securities are carried
at market values that are based primarily on quoted market prices. The
difference between amortized cost and market values of such securities net of
applicable income taxes is reflected as a component of stockholder's equity.
Provisions are made to write down the value of fixed maturity securities for
declines in value that are other than temporary. Mortgage loans and short-term
investments are carried at cost, which approximates fair value. Realized gains
and losses on sales of investments and unrealized losses considered to be other
than temporary, determined on a specific identification basis, are included in
other income.
The cost of acquired businesses in excess of net assets is being amortized on a
straight-line basis principally over a 40-year period.
Income taxes have been provided for in accordance with the provisions of FAS No.
109, "Accounting for Income Taxes" (FAS 109). The Company and its wholly owned
domestic non-life insurance subsidiaries file a consolidated federal income tax
return with the Parent. A life insurance subsidiary files a separate federal
income tax return. Deferred income taxes result from temporary differences
between the tax basis of assets and liabilities and their recorded amounts for
financial reporting purposes.
Income taxes are not provided for on the Company's life insurance subsidiary's
retained earnings designated as "policyholders' surplus," because such taxes
will become payable only to the extent such retained earnings are distributed as
a dividend or exceed limits prescribed by federal law. Distributions are not
contemplated from this portion of the life insurance companies' retained
earnings, which aggregated $39.5 million (subject to a tax effect of $13.8
million) at December 31, 1995.
Financial Instruments - Disclosures About Fair Value - Included in the Notes to
Consolidated Financial Statements are various disclosures relating to the
methods and assumptions used to estimate fair value of each material type of
financial instrument. The carrying value of short-term financial instruments
approximates fair value because of the relatively short period of time between
the origination of the instruments and their expected realization. The carrying
value of receivables and payables arising in the ordinary course of business
approximates fair market value. The fair value assumptions were based upon
subjective estimates of market conditions and
F-9
<PAGE>
Notes to Consolidated Financial Statements (continued)
perceived risks of the financial instruments at a certain point in time.
Disclosed fair values for financial instruments do not reflect any premium or
discount that could result from offering for sale at one time the Company's
entire holdings of a particular financial instrument. Potential taxes and other
expenses that would be incurred in an actual sale or settlement are not
reflected in amounts disclosed.
Future Application of Accounting Standards
FAS 121. In March 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of"
(FAS 121). This statement establishes accounting standards for the impairment
of long-lived assets and certain identifiable intangibles to be disposed of.
This statement requires a write down to fair value when long-lived assets to be
held and used are impaired. The statement also requires long-lived assets to be
disposed of (e.g., real estate held for sale) to be carried at the lower of cost
or fair value less cost to sell and does not allow such assets to be
depreciated. The adoption of this statement effective January 1, 1996 will not
have a material effect on results of operations, financial condition or
liquidity.
FAS 123. In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (FAS 123). This statement addresses alternative accounting
treatments for stock-based compensation, such as stock options and restricted
stock. FAS 123 permits either expensing the value of stock-based compensation
over the period earned or disclosing in the financial statement footnotes the
pro forma impact to net income as if the value of stock-based compensation
awards had been expensed. The value of awards would be measured at the grant
date based upon estimated fair value, using established option pricing models.
The requirements of this statement will be effective for 1996 financial
statements, although earlier adoption is permissible if an entity elects to
expense the cost of stock-based compensation. The Company, along with
affiliated companies, participates in stock option and other stock based
incentive plans sponsored by the Parent. The Company is currently evaluating
the disclosure requirements and expense recognition alternatives addressed by
this statement.
CONSUMER FINANCE SERVICES
Finance related interest and other charges are recognized as income using the
constant yield method. Allowances for losses are established by direct charges
to income in amounts sufficient to maintain the allowance at a level management
determines to be adequate to cover losses in the portfolio. The allowance
fluctuates based upon continual review of the loan portfolio and current
economic conditions. For financial reporting purposes, finance receivables are
considered delinquent when they are more than 60 days contractually past due.
Income stops accruing on finance receivables when they are 90 days
F-10
<PAGE>
Notes to Consolidated Financial Statements (continued)
contractually past due. If payments are made on a finance receivable that is
not accruing income, and the receivable is no longer 90 days contractually past
due, the accrual of income resumes. Finance receivables are charged against
the allowance for losses when considered uncollectible. Personal loans are
considered uncollectible when payments are six months contractually past due and
six months past due on a recency of payment basis. Loans that are twelve months
contractually past due regardless of recency of payment are charged off.
Recoveries on losses previously charged to the allowance are credited to the
allowance at the time of recovery. Consideration of whether to proceed with
foreclosure on loans secured by real estate begins when a loan is 60 days past
due on a contractual basis. Real estate credit losses are recognized when the
title to the property is obtained.
Fees received and direct costs incurred for the origination of loans are
deferred and amortized over the contractual lives of the loans as part of
interest income. The remaining unamortized balances are reflected in
interest income at the time that the loans are paid in full, renewed or
charged off.
Premiums from short-duration insurance contracts are earned over the related
contract period. Short-duration contracts include primarily property and
casualty, credit life and accident and health credit policies. Benefits and
expenses are associated with premiums by means of the provision for future
policy benefits, unearned premiums and the deferral and amortization of
policy acquisition costs.
Deferred policy acquisition costs represent the costs of acquiring new
business, principally commissions, certain underwriting and agency expenses
and the cost of issuing policies. Acquisition costs of the life insurance
subsidiary are amortized over the premium-paying periods of the related
policies, in proportion to the ratio of the annual premium revenue to the
total anticipated premium revenue. For certain property and casualty lines,
acquisition costs (commissions and premium taxes) have been deferred to the
extent recoverable from future earned premiums and anticipated investment
income and are amortized ratably over the terms of the related policies.
Deferred policy acquisition costs are reviewed to determine if they are
recoverable from future income, including investment income, and if not
recoverable are charged to expense.
Insurance policy and claims reserves represent liabilities for future
insurance policy benefits. Reserves for losses of the life insurance
company are based on claims experience, actual claims reported and estimates
of claims incurred but not reported. Assumptions are based on historical
company experience, adjusted to provide for possible adverse deviation.
These estimates are periodically reviewed and compared with actual experience
and industry standards, and may be revised if it is determined that future
experience will differ substantially from that previously assumed. Policy
and contract claims include provisions for reported and unreported losses.
Reserves for property and casualty insurance losses represent the estimated
ultimate unpaid cost of all incurred property and casualty claims. Since the
reserves are based on estimates, the ultimate liability may be more or less
than such reserves. The effects of changes in such
F-11
<PAGE>
Notes to Consolidated Financial Statements (continued)
estimated reserves are included in the results of operations in the
period in which the estimates are changed.
2. Sales of Stock of Subsidiaries and Affiliates
---------------------------------------------
As discussed in Note 1, on December 30, 1994 the Company sold its 50%
interest in Commercial Insurance Resources, Inc. (CIRI), the parent of Gulf
to an affiliate for $150 million. This amount exceeded the Company's
investment by $10.2 million and such excess was treated as an adjustment to
additional-paid-in capital.
In December 1992, the Parent acquired approximately 27% of the common stock
of The Travelers Corporation (old Travelers). As a part of the transaction,
the Company acquired 8,947,367 shares of old Travelers common stock in
exchange for 50% of the common stock of CIRI and $20 million in cash. On
December 31, 1993, the Parent acquired the approximately 73% it did not
already own of 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. During 1994, all
of the Company's shares of the Parent's common stock were exchanged for
2,655 shares of Cumulative Adjustable Rate Preferred Stock Series Y 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. The market
value exceeded the Company's carrying value by $58.6 million and such
excess was treated as an adjustment to additional- paid-in capital.
Subsequently 550 shares of preferred stock were distributed to the Parent
as a dividend. At December 31, 1995 and 1994, this investment is included
in "fixed maturities - available for sale" and is reflected at a carrying
amount of $210.5 million. During 1995 and 1994 the Company recorded $10.2
million and $8.7 million, respectively, of dividend income from these
investments in common and preferred stock.
F-12
<PAGE>
Notes to Consolidated Financial Statements (continued)
3. Business Segment Information
----------------------------
The Company, through its subsidiaries, is primarily engaged in the
following businesses: Consumer Finance Services and prior to 1995,
Insurance Services.
(millions)
1995 1994 1993
---- ---- ----
Revenues
Consumer Finance Services $1,351.3 $1,236.2 $1,190.6
Insurance Services - 314.7 314.5
Corporate and Other 41.1 47.1 75.2
-------- ------- -------
$1,392.4 $1,598.0 $1,580.3
======== ======= =======
Income before income taxes, minority
interest and cumulative effect of
accounting changes
Consumer Finance Services $ 376.2 $ 354.1 $ 358.3
Insurance Services - 40.0 64.7
Corporate and Other (42.2) (30.2) 44.9
------- ------- -------
$ 334.0 $ 363.9 $ 467.9
======= ======= =======
Income before cumulative effect of
accounting changes
Consumer Finance Services $ 245.2 $ 225.6 $ 230.8
Insurance Services (after minority
interest of $14.8 and $22.5 in
1994 and 1993) - 14.8 22.4
Corporate and Other (25.3) (18.5) 38.6
------- ------- -------
$ 219.9 $ 221.9 $ 291.8
======= ======= =======
Identifiable assets
Consumer Finance Services $8,110.4 $7,640.2 $7,171.7
Insurance Services - - 870.9
Corporate and Other 524.1 586.6 851.1
-------- ------- -------
$8,634.5 $8,226.8 $8,893.7
======== ======= =======
The Consumer Finance Services segment includes consumer lending (including
secured and unsecured personal loans, real estate-secured loans and sales
finance programs and credit cards. Also included in this segment are
credit-related insurance services provided through American Health and Life
Insurance Company (AHL) and its affiliates.
Insurance Services includes the operations of Gulf through its sale on
December 30, 1994 (see Note 2). Gulf provides property-casualty insurance
(automobile liability and physical damage, workers' compensation, other
liability, fire and related homeowners' insurance and commercial
F-13
<PAGE>
Notes to Consolidated Financial Statements (continued)
multiple peril insurance) as well as directors' and officers' and errors
and omissions policies.
Corporate and Other consists of corporate staff and treasury operations, a
hotel mortgage investment included in mortgage loans, the Company's
investment in the Parent's securities and certain corporate income and
expenses that have not been allocated to the operating subsidiaries. Also
included in the segment is the non-affiliated insurance business of AHL.
During 1993 this segment also included the Company's share of equity income
of old Travelers.
Cumulative effect of accounting changes, and capital expenditures for
property, plant and equipment and related depreciation expense are not
material to any of the business segments. Intersegment sales and
international operations are not significant.
For gains and special charges included in each segment, see "Results of
Operations" discussion in Management's Discussion and Analysis of Financial
Condition and Results of Operations.
4. Investments
-----------
Fair values of investments in fixed maturities are based on quoted market
prices or dealer quotes or, if quoted market prices are not available,
discounted expected cash flows using market rates commensurate with the
credit quality and maturity of the investment.
F-14
<PAGE>
Notes to Consolidated Financial Statements (continued)
The amortized cost and estimated market values of investments in fixed
maturities - available for sale were as follows:
--------------------------------------
Amortized Gross Unrealized Market
----------------
December 31, 1995 Cost Gains Losses Value
----------------- --------------------------------------
(millions)
Mortgage-backed
securities-principally
obligations of U.S.
Government agencies $245.1 $ 6.4 $(0.9) $250.6
U.S. Treasury securities
and obligations
of U.S. Government
corporations and
agencies 141.3 8.2 - 149.5
Obligations of states and
political subdivisions 50.2 2.2 - 52.4
Corporate securities $344.8 5.7 (0.1) 350.4
--------------------------------------
Total $781.4 $22.5 $(1.0) $802.9
======================================
----------------------------------------
Amortized Gross Unrealized Market
----------------
December 31, 1994 Cost Gain Losses Values
----------------- ----------------------------------------
(millions)
Mortgage-backed
securities-principally
obligations of U.S.
Government agencies $177.6 $ - $(14.0) $163.6
U.S. Treasury securities
and obligations
of U.S. Government
corporations and
agencies 210.1 0.5 (22.6) 188.0
Obligations of states and
political subdivisions 35.9 - (2.1) 33.8
Corporate securities 290.0 1.9 (3.9) 288.0
----------------------------------------
Total $713.6 $2.4 $(42.6) $673.4
========================================
F-15
<PAGE>
Notes to Consolidated Financial Statements (continued)
The amortized cost and estimated market value at December 31, 1995 by
contractual maturity are shown below. Actual maturities will differ from
contractual maturities because borrowers may have the right to call or
prepay obligations with or without call or pre-payment penalties.
Estimated
(millions) Amortized Market
Cost Value
-------- ---------
Due in one year or less $ 4.7 $ 4.7
Due after one year through five years 46.5 48.4
Due after five years through ten years 90.5 93.9
Due after ten years 184.1 194.8
----- ------
325.8 341.8
Mortgage-backed securities 245.1 250.6
Investment in Series Y Preferred
Stock of the Parent 210.5 210.5
----- -----
$781.4 $802.9
===== =====
Realized gains and losses on fixed maturities for the year ended December
31, were as follows:
(millions)
1995 1994 1993
---- ---- ----
Realized gains
Pre-tax $ 9.5 $ 3.1 $67.3
---- ---- ----
After-tax $ 6.2 $ 2.0 $43.7
---- ---- ----
Realized losses
Pre-tax $ 1.4 $ 0.4 $ 0.2
---- ---- ---
After-tax $ 0.9 $ 0.3 $ 0.1
---- ---- ---
F-16
<PAGE>
Notes to Consolidated Financial Statements (continued)
5. Consumer Finance Receivables
----------------------------
Consumer finance receivables, net of unearned finance charges of $690.2
million and $673.7 million at December 31, 1995 and 1994, respectively,
consisted of the following:
(millions) 1995 1994
---- ----
Personal loans $3,051.0 $2,874.7
Real estate-secured loans 2,957.1 2,844.7
Credit cards 761.8 712.5
Sales finance and other 468.2 453.5
-------- --------
Consumer finance receivables 7,238.1 6,885.4
Accrued interest receivable 46.9 42.3
Allowance for credit losses (192.5) (181.9)
-------- --------
Net consumer finance receivables $7,092.5 $6,745.8
======== ========
An analysis of the allowance for credit losses on consumer
finance receivables at December 31, was as follows:
(millions) 1995 1994 1993
---- ---- ----
Balance, January 1 $ 181.9 $ 167.5 $ 168.6
Provision for credit losses 171.0 151.6 133.9
Amounts written off (188.3) (162.9) (163.1)
Recovery of amounts previously
written off 27.1 25.7 22.7
Allowance on receivables purchased 0.8 - 5.4
-------- -------- --------
Balance, December 31 $ 192.5 $ 181.9 $ 167.5
======== ======== ========
Net outstandings $7,238.1 $6,885.4 $6,341.8
======== ======== ========
Ratio of allowance for credit losses
to net outstandings 2.66% 2.64% 2.64%
======== ======== ========
F-17
<PAGE>
Notes to Consolidated Financial Statements (continued)
Contractual maturities of receivables before deducting unearned finance
charges and excluding accrued interest were as follows:
<TABLE><CAPTION>
Receivables
Outstanding Due
(millions) December 31, Due Due Due Due After
1995 1996 1997 1998 1999 1999
------------- ---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C>
Personal loans $3,598.3 $1,108.1 $ 990.0 $ 762.3 $441.4 $ 296.5
Real-estate-secured
loans 3,020.4 191.9 198.9 209.9 218.5 2,201.2
Credit cards 761.5 56.6 52.7 48.6 44.9 558.7
Sales finance and other 548.1 263.9 138.4 66.1 32.5 47.2
-------- ------- ------ ----- ----- -------
Total $7,928.3 $1,620.5 $1,380.0 $1,086.9 $737.3 $3,103.6
======== ======== ======= ======= ====== ========
Percentage 100% 21% 17% 14% 9% 39%
======== ======== ======== ======= ====== ========
</TABLE>
Contractual terms average 12 years on real estate-secured loans and 4 years
on personal loans. Experience has shown that a substantial amount of the
receivables will be renewed or repaid prior to contractual maturity dates.
Accordingly, the foregoing tabulation should not be regarded as a forecast
of future cash collections.
The Company has a geographically diverse consumer finance loan portfolio.
At December 31, the distribution by state was as follows:
1995 1994
-------- ------
Ohio 12% 13%
North Carolina 10% 10%
Pennsylvania 7% 6%
South Carolina 6% 7%
California 5% 5%
Texas 5% 5%
Maryland 5% 5%
Tennessee 5% 4%
All other states* 45% 45%
---- ----
Total 100% 100%
==== ====
* None of the remaining states individually accounts for more than 5% of
total consumer finance receivables.
The estimated fair value of the consumer finance receivables portfolio
depends on the methodology selected to value such portfolio (i.e., exit
value versus entry value). Exit value represents a valuation of the
portfolio based upon sales of comparable portfolios which takes into
account the value of customer relationships and the current level of
funding costs. Under the exit value methodology, the estimated fair value
of the receivables portfolio at December 31, 1995
F-18
<PAGE>
Notes to Consolidated Financial Statements (continued)
is approximately $653 million above the recorded carrying value. Entry
value is determined by comparing the portfolio yields to the yield at which
new loans are being originated. Under the entry value methodology, the
estimated fair value of the receivables portfolio at December 31, 1995 is
approximately equal to the aggregate carrying value due to the increase in
variable rate receivables whose rates are periodically reset and the fact
that the average yield on fixed rate receivables is approximately equal to
that on new fixed rate loans made at year end 1995. Fair values included in
Note 11 are based on the exit value methodology.
6. Debt
----
At December 31, short-term borrowings consisted of commercial paper
outstanding with weighted average interest rates as follows:
1995 1994
-------------------------- ---------------------------
(millions) Outstanding Interest Rate Outstanding Interest Rate
----------- ------------- ----------- -------------
Commercial Credit
Company $1,394.2 5.86% $2,304.6 5.89%
======== ===== ======== =====
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. 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 Parent, the Company and The Travelers Insurance Company (TIC) have an
agreement with a syndicate of banks to provide $1.0 billion of revolving
credit, to be allocated to any of the Parent, the Company or TIC. The
participation of TIC in this agreement is limited to $250 million. The
revolving credit facility consists of a 5-year revolving credit facility
which expires in 1999. At December 31, 1995, $400 million was allocated to
the Parent, $475 million was allocated to the Company and $125 million was
allocated to TIC. At December 31, 1995 there were no borrowings outstanding
under this facility.
At December 31, 1995, the Company also had committed and available
revolving credit facilities on a stand-alone basis of $1.5 billion, which
expires in 1999.
The Company is limited by covenants in its revolving credit agreements as
to the amount of dividends and advances that may be made to the Parent or
its affiliated companies. At December 31, 1995, the Company would have been
able to remit $225.4 million to the Parent under its most restrictive
covenants or regulatory requirements.
The carrying value of short-term borrowings approximates fair value.
F-19
<PAGE>
Notes to Consolidated Financial Statements (continued)
Long-term debt, including its current portion, and final maturity dates
were as follows at December 31:
(millions) 1995 1994
---- ----
8.29% to 12.85% Medium-Term
Notes due 1995 $ - $ 10.0
9 7/8% Notes due 1995 - 150.0
9.2% Notes due 1995 - 100.0
6 1/4% Notes due 1995 - 100.0
7.7% Notes due 1995 - 150.0
8.1% Notes due 1995 - 150.0
8 3/8% Notes due 1995 - 150.0
6 3/8% Notes due 1996 200.0 200.0
7 3/8% Notes due 1996 150.0 150.0
8% Notes due 1996 100.0 100.0
6 3/4% Notes due 1997 200.0 200.0
8 1/8% Notes due 1997 150.0 150.0
5.70% Notes due 1998 100.0 100.0
5 1/2% Notes due 1998 100.0 100.0
8 1/2% Notes due 1998 100.0 100.0
6.70% Notes due 1999 150.0 150.0
10% Notes due 1999 100.0 100.0
9.6% Notes due 1999 100.0 100.0
6% Notes due 2000 100.0 100.0
5 3/4% Notes due 2000 200.0 200.0
6 1/8% Notes due 2000 100.0 100.0
6% Notes due 2000 150.0 150.0
6 3/4% Notes due 2000 200.0 -
8 1/4% Notes due 2001 300.0 300.0
6 3/8% Notes due 2002 200.0 -
6 7/8% Notes due 2002 200.0 -
7 3/8% Notes due 2002 200.0 -
5.9% Notes due 2003 200.0 200.0
7 7/8% Notes due 2004 200.0 200.0
6 1/8% Notes due 2005 200.0 -
6 1/2% Notes due 2005 200.0 -
7 3/8% Notes due 2005 200.0 -
7 3/4% Notes due 2005 200.0 -
10% Notes due 2008 150.0 150.0
10% Debentures due 2009 100.0 100.0
8.7% Debentures due 2009 150.0 150.0
8.7% Debentures due 2010 100.0 100.0
F-20
<PAGE>
Notes to Consolidated Financial Statements (continued)
6 5/8% Notes due 2015 200.0 -
7 7/8% Notes due 2025 200.0 -
-------- --------
$5,200.0 $4,010.0
======== ========
Aggregate annual maturities for the next five years on long-term debt
obligations are as follows:
(millions)
1996 $450
1997 $350
1998 $300
1999 $350
2000 $750
The fair value of the Company's long-term debt is estimated based on the
quoted market price for the same or similar issues or on current rates
offered to the Company for debt of the same remaining maturities. At
December 31, 1995 these fair values were approximately $5,332 million.
F-21
<PAGE>
Notes to Consolidated Financial Statements (continued)
7. Reinsurance
-----------
The Company's insurance subsidiaries cede portions of certain insurance
business in order to limit losses, to reduce exposure on large risks and to
provide additional capacity for future growth. This is accomplished through
various plans of reinsurance, primarily coinsurance, modified coinsurance
and yearly renewable term. Reinsurance ceded arrangements do not discharge
the insurance subsidiaries or the Company as the primary insurer.
Reinsurance amounts included in the Condensed Consolidated Statement of
Income were as follows:
Ceded to
Gross Other Net
(millions) Amount Companies Amount
------ --------- ------
Year ended December 31, 1995
----------------------------
Premiums
Credit life insurance $ 45.5 $ (5.8) $ 39.7
Credit accident and health insurance 62.7 (6.8) 55.9
Property and casualty insurance 135.5 (95.3) 40.2
------- ------ ------
$ 243.7 $(107.9) $135.8
======= ======== =======
Ceded claims incurred $ 64.3 $ (14.3) $ 50.0
======= ======== =======
Year ended December 31, 1994
----------------------------
Premiums
Credit life insurance $ 45.7 $ (7.6) $ 38.1
Credit accident and health insurance 97.8 (48.9) 48.9
Property and casualty insurance 596.4 (295.8) 300.6
------- ------ ------
$ 739.9 $(352.3) $387.6
======= ======== =======
Ceded claims incurred $ 374.1 $(136.0) $238.1
======= ======== =======
Year ended December 31, 1993
----------------------------
Premiums
Credit life insurance $ 53.0 $ (12.9) $ 40.1
Credit accident and health insurance 86.9 (42.2) 44.7
Property and casualty insurance 433.8 (176.5) 257.3
------- ------ ------
$ 573.7 $(231.6) $342.1
======= ======== =======
Ceded claims incurred $ 318.0 $(101.8) $216.2
======= ======== =======
F-22
<PAGE>
Notes to Consolidated Financial Statements (continued)
8. Income Taxes
------------
The provision for income taxes (before minority interest) for the year
ended December 31, was as follows:
(millions)
1995 1994 1993
---- ---- ----
Current:
Federal $116.6 $121.4 $128.7
Foreign 3.3 4.6 2.5
State 8.8 8.9 7.1
----- ----- -----
128.7 134.9 138.3
----- ----- -----
(millions)
Deferred:
Federal (10.9) (2.4) 18.0
Foreign (3.3) (4.4) (2.2)
State (0.4) (0.9) (0.5)
----- ----- -----
(14.6) (7.7) 15.3
----- ----- -----
Total $114.1 $127.2 $153.6
===== ===== =====
Deferred income taxes at December 31, related to the following:
(millions)
1995 1994
---- ----
Deferred tax assets:
Bad debt reserves $69.4 $65.3
Differences in computing
policy reserves 15.2 14.7
Employee benefits 9.0 5.0
Investments - 13.2
Other deferred tax assets 23.0 20.2
----- -----
116.6 118.4
----- -----
Deferred tax liabilities:
Israeli leasing transactions - (3.9)
Fixed asset depreciation (13.7) (13.8)
Investments (2.0) -
Deferred policy acquisition costs (3.6) (4.5)
Other deferred tax liabilities (25.7) (29.3)
----- -----
(45.0) (51.5)
----- -----
Total $ 71.6 $ 66.9
===== =====
The Company and its wholly owned domestic non-life insurance subsidiaries
join with the Parent in filing a consolidated federal income tax return.
Under a tax sharing agreement with the Parent, the Company is entitled to a
current tax benefit if it incurs losses which are utilized in
F-23
<PAGE>
Notes to Consolidated Financial Statements (continued)
the Parent's consolidated return. The Parent's consolidated tax return
group has reported large amounts of taxable income in recent years and can,
more likely than not, expect to have significant taxable income in the
future thereby enabling utilization of the Company's deferred tax asset.
The reconciliation of the federal statutory income tax rate to the
Company's effective income tax rate for the year ended December 31, was as
follows:
1995 1994 1993
---- ---- ----
Federal statutory rate 35.0% 35.0% 35.0%
Equity in income of old Travelers - - (1.6)
Other, net (0.8) (0.1) (0.6)
---- ---- ----
Effective income tax rate 34.2% 34.9% 32.8%
==== ==== ====
9. Stockholder's Equity
--------------------
Certain long-term loan credit agreements restrict the payment of dividends
with such restrictions based on cumulative net earnings, as defined.
Additionally, a minimum net worth restriction, as defined, contained in
such agreements, imposes an additional constraint on dividends. At December
31, 1995 the Company would be able to remit $225.4 million in dividends to
its parent under the most restrictive debt covenants.
The Company's share of the combined insurance subsidiaries' statutory
stockholder's equity at December 31, 1995 and 1994 was $159.8 million and
$154.1 million, respectively, and is subject to certain restrictions
imposed by state insurance departments as to the transfer of funds and
payment of dividends. The combined insurance subsidiaries' net income
determined in accordance with statutory accounting practices and after
minority interest in 1994 and 1993, for the years ended December 31, 1995,
1994 and 1993 was $49.6 million, $58.0 million and $64.4 million,
respectively.
10. Pension Plans
-------------
The Company, along with affiliated companies, participates in a
noncontributory defined benefit pension plan sponsored by the Parent (the
Plan) covering the majority of U.S. employees. Benefits are based on an
account balance formula. Under this formula, each employee's accrued
benefit can be expressed as an account that is credited with amounts based
upon the employee's pay, length of service and a specified interest rate,
all subject to a minimum benefit level. The Plan is funded in accordance
with the Employee Retirement Income Security Act of 1974 and the Internal
Revenue Code. Pension cost allocated to the Company from the Plan was $2.6
million, $2.7 million and $2.1 million in 1995, 1994 and 1993,
respectively.
F-24
<PAGE>
Notes to Consolidated Financial Statements (continued)
The Company also has an unfunded noncontributory supplemental retirement
plan that covers certain executives and key employees. Pension cost related
to this plan was $1.4 million, $1.0 million and $1.2 million in 1995, 1994
and 1993, respectively.
11. Fair Value of Financial Instruments
-----------------------------------
The following table summarizes the fair value and carrying amount of the
Company's financial instruments at December 31, 1995 and 1994. The fair
value assumptions were based upon subjective estimates of market conditions
and perceived risks of the financial instruments at a certain point in time
as disclosed further in various Notes to the Consolidated Financial
Statements. Disclosed fair values for financial instruments do not reflect
any premium or discount that could result from offering for sale at one
time the Company's entire holdings of a particular financial instrument.
Potential taxes and other expenses that would be incurred in an actual sale
or settlement are not reflected in amounts disclosed.
1995 1994
-------------------- ------------------------
Carrying Carrying
Amount Fair Value Amount Fair Value
(millions) ------ ---------- -------- ------------
Assets:
Investments $ 1,045.2 $ 1,045.2 $ 902.6 $ 902.6
Net consumer $ 7,092.5 $ 7,745.0 $ 6,745.8 $ 7,364.0
finance receivables
Liabilities:
Long-term debt $ 5,200.0 $ 5,332.0 $ 4,010.0 $ 3,926.0
12. Lease Commitments and Other Financial Instruments
-------------------------------------------------
Rentals
Rental expense (principally for offices and computer equipment) was $28.8
million, $32.8 million and $33.7 million for the years ended December 31,
1995, 1994 and 1993, respectively.
F-25
<PAGE>
Notes to Consolidated Financial Statements (continued)
At December 31, 1995, future minimum annual rentals under noncancellable
operating leases were as follows:
(millions)
1996 $18.6
1997 13.7
1998 9.4
1999 6.0
2000 3.3
Thereafter 2.5
-----
$53.5
=====
Credit Cards
The Company provides bank and private label credit card services through
its subsidiaries. These services are provided to individuals and to
affinity groups nationwide. At December 31, 1995 and 1994 total credit
lines available to credit cardholders were $5,870 million and $5,423
million, of which $870 million and $820 million were utilized,
respectively.
13. Related Party Transactions
--------------------------
During the fourth quarter of 1994, an affiliate acquired for cash a $50.0
million interest in a real estate mortgage loan held by the Company; the
transfer was made at the Company's recorded carrying value of the mortgage
loan.
In addition to the securities of the Parent discussed in Note 2, through
June 1994, the Company had an investment in the Series Z Redeemable
Preferred Stock of the Parent. The Company recorded $1.5 million and $4.0
million for the years ended December 31, 1994 and 1993, respectively, of
dividend income from the Parent on this investment.
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 million or 1%
of the Company's consolidated assets up to a maximum of $100.0 million. 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.
14. Contingencies
-------------
In the ordinary course of business the Company and/or its subsidiaries are
defendants or co-defendants in various litigation matters. Although there
can be no assurances, the Company believes, based on information currently
available, that the ultimate resolution of these legal proceedings would
not be likely to have a material adverse effect on its results of
operations, financial condition or liquidity.
F-26
<PAGE>
Notes to Consolidated Financial Statements (continued)
15. Selected Quarterly Financial Data (unaudited)
---------------------------------------------
<TABLE>
<CAPTION>
1995 1994
--------------------------------------------- -----------------------------------------------
(millions) First Second Third Fourth Total First Second Third Fourth Total
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total revenues $333.2 $347.3 $355.7 $356.2 $1,392.4 $384.3 $392.5 $405.1 $416.1 $1,598.0
Total expenses 259.9 263.1 265.1 270.3 1,058.4 297.1 300.7 310.3 326.0 1,234.1
Income before income taxes,
and minority interest and
cumulative effect of
accounting changes 73.3 84.2 90.6 85.9 334.0 87.2 91.8 94.8 90.1 363.9
Provision for income taxes 26.2 30.0 29.7 28.2 114.1 30.9 31.8 33.1 31.4 127.2
Minority interest, net of
income taxes - - - - - (3.7) (3.8) (3.9) (3.4) (14.8)
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Net income $47.1 $54.2 $60.9 $57.7 $219.9 $52.6 $56.2 $57.8 $55.3 $ 221.9
======== ======== ======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
F-27
<PAGE>
SCHEDULE I
COMMERCIAL CREDIT COMPANY
(Parent Company Only)
Condensed Financial Information of Registrant
(In millions of dollars)
Condensed Statement of Income
Year Ended December 31, 1995 1994 1993
-----------------------------------------------------------------
Income
Equity in income of old Travelers $ - $ - $ 38.0
Other income 429.7 396.8 383.2
-----------------------------------------------------------------
Total 429.7 396.8 421.2
-----------------------------------------------------------------
Expenses
Interest 460.5 407.3 364.2
Other 16.2 22.1 22.2
-----------------------------------------------------------------
Total 476.7 429.4 386.4
-----------------------------------------------------------------
Pre-tax (loss) income (47.0) (32.6) 34.8
Income tax benefit (expense) 18.5 12.2 (3.3)
-----------------------------------------------------------------
Income (loss) before equity
in net income of subsidiaries (28.5) (20.4) 31.5
Equity in net income of subsidiaries 248.4 242.3 260.3
Cumulative effect of accounting changes
(including $5.8 in 1993 applicable to
subsidiaries) - - (5.8)
-----------------------------------------------------------------
Net income $219.9 $221.9 $286.0
=================================================================
The condensed financial statements should be read in conjunction with the
consolidated financial statements and notes thereto.
F-28
<PAGE>
SCHEDULE I
COMMERCIAL CREDIT COMPANY
(Parent Company Only)
Condensed Financial Information of Registrant
(In millions of dollars except per share amounts)
Condensed Statement of Financial Position
December 31, 1995 1994
------------------------------------------------------------------------
Assets
Investment in securities of the Parent $ 179.2 $ 179.2
Investment in mortgage loans 174.8 161.1
Notes and accounts receivable from subsidiaries-
eliminated in consolidation 6,715.6 6,515.9
Investment in subsidiaries at cost plus equity
in net earnings-eliminated in consolidation 802.2 710.6
Other 88.4 37.8
------------------------------------------------------------------------
Total assets $7,960.2 $7,604.6
========================================================================
Liabilities
Short-term borrowings $1,394.2 $2,304.6
Long-term debt 5,200.0 4,010.0
Accrued expenses and other liabilities 203.1 177.6
------------------------------------------------------------------------
Total liabilities 6,797.3 6,492.2
------------------------------------------------------------------------
Stockholder's Equity
Common stock ($.01 par value; authorized
shares: 1,000; share issued: 1) - -
Additional paid-in capital 163.5 163.5
Retained earnings 984.4 974.5
Unrealized gain (loss) on investment
securities and other, net 15.0 (25.6)
-------------------------------------------------------------------------
Total stockholder's equity 1,162.9 1,112.4
------------------------------------------------------------------------
Total liabilities and stockholder's equity $7,960.2 $7,604.6
========================================================================
The condensed financial statements should be read in conjunction with the
consolidated financial statements and notes thereto.
F-29
<PAGE>
SCHEDULE I
COMMERCIAL CREDIT COMPANY
(Parent Company Only)
Condensed Financial Information of Registrant
(In millions of dollars)
Condensed Statement of Cash Flows
Year ended December 31, 1995 1994 1993
- -------------------------------------------------------------------------------
Cash Flows From Operating Activities
Income (loss) from operations before income
tax benefit (expense)and equity in net
income of subsidiaries $ (47.0) $ (32.6) $ 34.8
Adjustment to reconcile income (loss)
from operations before income
tax benefit (expense) and equity
in net income of subsidiaries to net
cash provided by (used in) operating activities:
Undistributed equity earnings (1.3) (1.9) (26.8)
Dividends received from subsidiaries 111.8 162.2 167.5
Net advances to subsidiaries (76.1) (294.6) (411.5)
Other, net (11.3) (10.9) 5.0
- -------------------------------------------------------------------------------
Net cash (used in) operations (23.9) (177.8) (231.0)
Income taxes paid (28.4) (36.9) (80.6)
- -------------------------------------------------------------------------------
Net cash (used in) operating activities (52.3) (214.7) (311.6)
- -------------------------------------------------------------------------------
Cash Flows From Investing Activities
Redemption of the Parent's redeemable
preferred stock - 100.0 100.0
Sale of stock of subsidiary or affiliate - 150.0 -
Sale of investments 3.8 46.2 3.2
Other, net (20.3) (24.5) (28.6)
- -------------------------------------------------------------------------------
Net cash provided by (used in) investing
activities (16.5) 271.7 74.6
- -------------------------------------------------------------------------------
Cash Flows From Financing Activities
Net change in short-term borrowings (910.4) 98.5 (280.5)
Issuance of long-term debt 2,000.0 500.0 950.0
Payments and redemptions of long-term debt (810.0) (459.8) (222.1)
Dividends paid (210.0) (195.0) (210.0)
- -------------------------------------------------------------------------------
Net cash provided by (used in) financing
activities 69.6 (56.3) 237.4
- -------------------------------------------------------------------------------
Change in cash and cash equivalents 0.8 0.7 0.4
Cash and cash equivalents at beginning
of period 3.0 2.3 1.9
- -------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 3.8 $ 3.0 $ 2.3
===============================================================================
Supplemental disclosure of cash flow
information:
Cash paid during the period for interest $ 436.5 $ 397.5 $ 345.3
===============================================================================
The condensed financial statements should be read in conjunction with the
consolidated financial statements and notes thereto.
F-30
<PAGE>
EXHIBIT INDEX
-------------
Exhibit Filing
Number Description of Exhibit Method
------ ---------------------- ------
3.01 Restated Certificate of Incorporation of
Commercial Credit Company (the "Company"),
included in Certificate of Merger of CCC
Merger Company into the Company;
Certificate of Ownership and Merger merging
CCCH Acquisition Corporation into the
Company; and Certificate of Ownership and
Merger merging RDI Service Corporation into
the Company, incorporated by reference to
Exhibit 3.01 to the Company's Annual Report
on Form 10-K for the fiscal year ended
December 31, 1992 (File No. 1-6594).
3.02 By-laws of the Company, as amended May 14,
1990, incorporated by reference to Exhibit
3.02.2 to the Company's Annual Report on
Form 10-K for the fiscal year ended
December 31, 1990 (File No. 1-6594).
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 $1,760,000,000 Five Year Credit Agreement
dated as of December 16, 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, 1994 (File No. 1-6594).
12.01 Computation of Ratio of Earnings to Fixed Electronic
Charges.
21.01 Pursuant to General Instruction J of Form
10-K, the list of subsidiaries of the
Company is omitted.
<PAGE>
EXHIBIT INDEX (CONTINUED)
-------------------------
Exhibit Filing
Number Description of Exhibit Method
------ ---------------------- ------
23.01 Consent of KPMG Peat Marwick LLP, Electronic
Independent Certified Public Accountants.
27.01 Financial Data Schedule. Electronic
99.01 The second paragraph of page 2 of the Electronic
Company's Current Report on Form 8-K dated
July 13, 1994 (File No. 1-6594).
99.02 The first paragraph of page 14 of the Electronic
Company's Current Report on Form 10-Q dated
September 30, 1995 (File No. 1-6594).
Copies of any of the exhibits referred to above will be
furnished at a cost of $.25 per page to security holders who
make written request therefor to Patricia A. Rouzer,
Corporate Communications and Investor Relations, Commercial
Credit Company, 300 St. Paul Place, Baltimore, Maryland
21202.
Exhibit 12.01
Commercial Credit Company and SUBSIDIARIES
Computation of Ratio of Earnings to Fixed Charges
ALL COMPANIES CONSOLIDATED
(In millions of dollars)
<TABLE><CAPTION>
Year ended December 31,
-----------------------------------------
1995 1994 1993 1992 1991
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Income from continuing operations
before income taxes and minority
interests......................... $334.0 $363.9 $467.9 $428.8 $ 302.9
Elimination of undistributed
equity earnings................... (1.3) (1.9) (26.8) (3.0) (4.6)
Pre-tax minority interest........... - (20.0) (32.3) - -
Add:
Interest.......................... 463.5 402.8 363.7 369.7 434.9
Interest portion of rentals....... 9.6 10.9 11.2 11.7 11.5
------ ------ ------ ------ ------
Income available for fixed charges.. $805.8 $755.7 $783.7 $807.2 $744.7
====== ====== ====== ====== ======
Fixed charges:
Interest.......................... $463.5 $402.8 $363.7 $369.7 $434.9
Interest portion of rentals....... 9.6 10.9 11.2 11.7 11.5
------ ------ ------ ------ ------
Fixed charges....................... $473.1 $413.7 $374.9 $381.4 $446.4
====== ====== ====== ====== ======
Ratio of earnings to fixed charges.. 1.70x 1.83x 2.09x 2.12x 1.67x
===== ===== ===== ===== =====
</TABLE>
EXHIBIT 23.01
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
Commercial Credit Company:
We consent to the incorporation by reference in the Registration Statements
(Nos. 33-18208, 33-27241 (and the related offerings of securities registered
under Registration Statement No. 33-10444), 33-28723, 33-35618, 33-39857,
33-43351, 33-51814, 33-50513, 33-56553, 33-59415 and 333-00055) on Form S-3 of
Commercial Credit Company of our report dated January 16, 1996, relating to the
consolidated statement of financial position of Commercial Credit Company and
subsidiaries as of December 31, 1995 and 1994, and the related consolidated
statements of income, changes in stockholder's equity, and cash flows for each
of the years in the three-year period ended December 31, 1995 and the related
financial statement schedule, which report appears herein. Our report refers to
changes in the Company's method of accounting for certain investments in debt
and equity securities in 1994, and methods of accounting for postretirement
benefits other than pensions and accounting for postemployment benefits in 1993.
/s/ KPMG Peat Marwick LLP
Baltimore, Maryland
March 26, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Exhibit 27.01
Commercial Credit Company
Financial Data Schedule
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE DECEMBER 31, 1995 FINANCIAL STATEMENTS
OF COMMERCIAL CREDIT COMPANY AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
ITEM NO. Amount
- -------- ------
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 30,100
<SECURITIES> 1,045,200<F1>
<RECEIVABLES> 7,449,400<F2>
<ALLOWANCES> (192,500)
<INVENTORY> 0<F3>
<CURRENT-ASSETS> 0<F3>
<PP&E> 0<F3>
<DEPRECIATION> 0<F3>
<TOTAL-ASSETS> 8,634,500
<CURRENT-LIABILITIES> 0<F3>
<BONDS> 6,692,500<F4>
0<F3>
0<F3>
<COMMON> 0
<OTHER-SE> 1,162,900<F5>
<TOTAL-LIABILITY-AND-EQUITY> 8,634,500
<SALES> 0<F3>
<TOTAL-REVENUES> 1,392,400
<CGS> 0<F3>
<TOTAL-COSTS> 1,058,400
<OTHER-EXPENSES> 0<F3>
<LOSS-PROVISION> 171,000<F6>
<INTEREST-EXPENSE> 463,500<F6>
<INCOME-PRETAX> 334,000
<INCOME-TAX> 114,100
<INCOME-CONTINUING> 219,900
<DISCONTINUED> 0<F3>
<EXTRAORDINARY> 0<F3>
<CHANGES> 0<F3>
<NET-INCOME> 219,900
<EPS-PRIMARY> 0<F3>
<EPS-DILUTED> 0<F3>
<FN>
<F1> Includes the following items from the financial statements: total
investments $1,045,000.
<F2> Includes the following items from the financial statements: consumer
finance receivables $7,285,000 and other receivables $164,400.
<F3> Items which are inapplicable relative to the underlying financial
statements are indicated with a zero as required.
<F4> Includes the following items from the financial statements:
certificates of deposit $98,300; short-term borrowings $1,394,200 and
long-term debt $5,200,000.
<F5> Includes the following items from the financial statements: additional
paid-in capital $163,500 retained earnings $984,400; unrealized gain on
investments $15,300; and cumulative translation adjustment $(300).
<F6> Included in total costs and expenses applicable to sales and revenues.
</FN>
</TABLE>
Exhibit 99.01
Company's Form 8-K
July 13, 1994
Page 2
Item 5. Other Events
------------
In May and June 1994, three purported class action lawsuits were filed against
the Company and its subsidiaries Commercial Credit Corporation, Voyager
Guaranty Insurance Company and American Health and Life Insurance Company. Two
of such actions, Erkins v. First Franklin Financial Corp., et al and Lawrence
v. Commercial Credit Corp., et al., were filed in the Circuit Court, Jefferson
County, Alabama. The third action, Princess Nobels v. Associates Corporation
of North America, was filed in the U.S. District Court for the Middle District
of Alabama. The suits allege, among other things, that the Company's
subsidiaries charged excessive premiums on credit life insurance, credit
property insurance and nonfiling insurance, and that as a result, the Company
and its subsidiaries violated various federal and state laws and regulations.
The plaintiffs seek, among other things, compensatory and punitive damages in
an unspecified amount. The Company believes it has meritorious defenses to
these actions and intends to contest the allegations.
Exhibit 99.02
Company's Form 10-Q
September 30, 1995
Page 14
Item 1. Legal Processings.
For information concerning certain purported class action lawsuits
filed against the Company and certain of its subsidiaries in May and June 1994,
see the description that appears in the second paragraph of page 2 of the
Company's filing on Form 8-K dated July 13, 1994, which description is
incorporated by reference herein. A copy of the pertinent paragraph of such
filing is included as an exhibit to this Form 10-Q. The Lawrence case was
stayed pending a decision by the Supreme Court of Alabama in a case raising
similar issues regarding credit life insurance. In October, 1995 the Supreme
Court of Alabama reversed the dismissal of that case and, as such, the Company
anticipates that the stay will be lifted. The Erkins case was dismissed
without prejudice in March 1995, and claims relating only to nonfiling
insurance have been restated in an amended complaint filed in March 1995 in the
Nobels action. On September 22, 1995, an additional purported class action
lawsuit was filed against subsidiaries of the Company in Alabama. The case,
entitled Royster v. Commercial Credit Corporation and American Health and Life
Insurance Company, was filed in the Circuit Court for Walker County on behalf
of borrowers who purchased credit life insurance in connection with installment
purchase contracts and other personal loans. Plaintiffs, who seek
unspecified compensatory and punitive damages, declaratory relief, voiding
excess premium charges, and injunctive relief, assert claims for breach of
contract, fraud, outrage and unconscionability. The Company believes it has
meritorious defenses and intends to contest the allegations.
