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, 1996
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______ to ______
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Commission file number 1-6594
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COMMERCIAL CREDIT COMPANY
(Exact name of registrant as specified in its charter)
Delaware 52-0883351
(State or other jurisdiction of incorporation (I.R.S. Employer
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
------------------- -----------------------------------------
5 1/2% Notes due May 15, 1998 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 I (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 is not contained herein, and will not be contained, to the
best of 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.
Documents Incorporated by Reference: None
<PAGE>
COMMERCIAL CREDIT COMPANY
ANNUAL REPORT ON FORM 10-K
FOR FISCAL YEAR ENDED DECEMBER 31, 1996
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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 I
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.......................... 17
9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure............................. 17
PART III
--------
10-13. Omitted Pursuant to General Instruction I
PART IV
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14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K..................................................... 17
Exhibit Index........................................................ 19
Signatures........................................................... 21
Index to Consolidated Financial Statements and Schedules............ F-1
<PAGE>
PART I
------
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) Property & Casualty Insurance Services; and (iv)
Life 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., the parent of Gulf Insurance Company ("Gulf"), to an
affiliate, The Travelers Indemnity Company ("Travelers Indemnity"), for $150
million. See Notes 1 and 2 of Notes to Consolidated Financial Statements. The
Company's Consolidated Financial Statements do not include the results of
operations of Gulf for 1996 and 1995, and Travelers Indemnity's interest in Gulf
for 1994 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, 1996, Consumer Finance Services maintained 859 loan
offices in 44 states, including servicing centers for loans sold through the
sales force of the Primerica Financial Services group of companies (the "PFS
sales force"), which are subsidiaries of Travelers Group. 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, 1996, 1995 and 1994 were
approximately $8.1 billion, $7.2 billion and $6.9 billion, respectively. For an
analysis
1
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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 real
estate-secured loans, both fixed and variable rate secured and unsecured
personal 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 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 1,333,000 at December 31, 1996, as
compared to approximately 1,275,000 at December 31, 1995 and approximately
1,177,000 at December 31, 1994. In 1996, the Company created an agency that
performs appraisals, sells title insurance and provides other closing-related
services for the Company's real-estate loans.
Two loan programs of the Company solicit applications for loans exclusively
through the PFS sales force. At December 31, 1996, the total loans outstanding
generated from this program were $1.524 billion, or approximately 19% of the
Company's total loans outstanding, as compared to $1.258 billion, or
approximately 17%, at December 31, 1995 and $1.107 billion, or approximately
16%, at December 31, 1994.
The average amount of cash advanced per real estate-secured loan made was
approximately $35,800 in 1996, $26,300 in 1995 and $28,400 in 1994. The average
amount of cash advanced per personal loan made was approximately $4,250 in 1996
and $4,200 in each of 1995 and 1994. The average real estate-secured loan size
increased in 1996 due to marketing initiatives that attracted customers for
higher balance loans, particularly in first mortgage programs. The average
annual yield for loans in 1996 was 15.24%, as compared to 15.64% in 1995 and
15.41% in 1994. The average annual yield for real estate-secured loans in 1996
was 12.13%, as compared to 12.33% in 1995 and 12.20% in 1994, and for personal
loans it was 19.95% in 1996, as compared to 20.23% in 1995 and 20.20% in 1994.
The average yield for real estate-secured loans has been affected by the normal
run-off of older, higher yielding loans and growth in lower yielding, higher
quality loans, while the average yield for personal loans has been affected by
the industry trends associated with rising personal bankruptcies. Consumer
Finance Services' average net interest margin for loans was 8.64% in 1996, 8.79%
in 1995 and 8.76% in 1994.
The Company's delinquency and charge-off rates reached historically low
levels in 1994 and rose in 1995 and 1996, consistent with recent industry
trends. This increase in delinquencies and charge-offs reflects a continued high
level of personal bankruptcies, a national trend that shows no indication of
reversing itself. See "-- Delinquent Receivables and Loss Experience."
2
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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.
The following table sets forth 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
AS OF DECEMBER 31, LOANS LOANS CARDS FINANCE CONSUMER
- ------------------ ----- ----- ----- ------- --------
1996 3.42% 1.50% 1.44% 2.27% 2.38%
1995 2.89% 1.42% 1.40% 2.17% 2.14%
1994 2.40% 1.48% 1.05% 1.79% 1.88%
- ----------
(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 sets forth 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-
YEAR ENDED PERSONAL SECURED CREDIT SALES TOTAL
DECEMBER 31, LOANS LOANS CARDS FINANCE CONSUMER
------------ ----- ----- ----- ------- --------
1996 5.46% 0.50% 2.75% 3.34% 2.91%
1995 4.01% 0.64% 2.04% 2.46% 2.28%
1994 3.50% 0.82% 1.83% 2.03% 2.08%
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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,
------------------
1996 2.97%
1995 2.66%
1994 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 primarily 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,
-----------------------
1996 1995 1994
-------- -------- --------
Premiums written by AHL and its affiliates(1)
Writings for consumer finance:
Credit life $ 42.7 $ 41.8 $ 43.3
Credit disability and other 63.1 61.4 66.7
Credit property and other 18.0 4.1 3.0
-------- -------- --------
Total $ 123.8 $ 107.3 $ 113.0
======== ======== ========
Premiums written by other insurance companies(2)
Credit property and other $ 42.9 $ 51.6 $ 52.8
======== ======== ========
- ----------
(1) Premiums are written by AHL and other subsidiaries of Travelers Group.
(2) Premiums are written by nonaffiliated insurers for consumer finance
customers.
4
<PAGE>
Net premiums written began to increase in late 1996 compared to 1995
primarily due to growth in loan receivables. Net premiums written were
relatively flat in early 1996 and 1995 compared to 1994 primarily due to slower
growth in loan receivables.
See Note 7 of Notes to Consolidated Financial Statements for information
regarding reinsurance activities.
INVESTMENTS
The investment holdings of the insurance companies at December 31, 1996
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, is
not subject to certain regulatory restrictions relating to cross-marketing
activities to which The Travelers Bank is subject. See "-- Regulation." 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, OR FOR THE YEAR ENDED, DECEMBER 31,
------------------------------------------
1996 1995 1994
---- ---- ----
Approximate total credit cardholders 791,000 753,000 621,000
Approximate gold credit cardholders 642,000 615,000 519,000
Total outstandings $907.1 $761.8 $712.5
Average annual yield 11.82% 12.51% 11.88%
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, 1996,
deposits of
5
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unaffiliated entities were $81.9 million, as compared to $97.9 million at
December 31, 1995 and $73.3 million at December 31, 1994. The decrease in the
average annual yield in 1996 primarily resulted from the offering of promotional
rates in 1996 to encourage the transfer of credit card balances to the Company's
banks.
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, 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, and the Fair Credit Reporting Act,
which is aimed at ensuring the accuracy and fairness of the mechanism by which
consumer credit and other information on consumers is assembled and evaluated.
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 loans secured by residential real estate. Generally, RESPA requires
disclosure of certain
6
<PAGE>
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 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 and in certain states
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.
INVESTMENT IN TRAVELERS GROUP
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 1993 in the
merger of The Travelers Corporation 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.
7
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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, 1996, the Company had approximately 4,700 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,
------------------------
1996 1995 1994
---- ---- ----
Savings accounts, certificates and
deposits 5.9% 6.4% 4.6%
Short-term borrowings(1) 5.4% 6.0% 4.4%
Long-term borrowings(2) 7.3% 7.6% 7.7%
Total borrowings 6.9% 7.2% 6.4%
- ----------
(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.
8
<PAGE>
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 purported class action lawsuits filed against
the Company and certain of its subsidiaries alleging, inter alia, that such
subsidiaries charged excessive premiums on certain lines of insurance, see the
descriptions that appear in the second paragraph on page 2 of the Company's
Current Report on Form 8-K dated July 13, 1994, the first paragraph on page 14
of the Company's Quarterly Report on Form 10-Q for the quarter ended September
30, 1995, the fourth paragraph on page 9 of the Company's Annual Report on Form
10-K for the year ended December 31, 1995, the first paragraph on page 13 of the
Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1996 and
the first paragraph on page 12 of the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1996, 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 December 1996, an additional purported class
action was filed in the Circuit Court of Walker County, Alabama, entitled Smith
v. Commercial Credit Corporation et al., with allegations, and seeking damages,
similar to those in Lawrence and McMahon.
For information concerning a number of actions filed in the Circuit Courts
of Alabama, mostly in Barbour County, by individual borrowers who allege that
they have been misled or induced to refinance existing loans instead of
receiving a new extension of credit, see the description that appears in the
paragraph that begins on page 9 and ends on page 10 of the Company's Annual
Report on Form 10-K for the year ended December 31, 1995, 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-K. The Company has been named
as a defendant in approximately ten additional actions filed in late 1996 and
early 1997. For information
9
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concerning a purported class action filed in August 1996 in the Circuit Court
for Sumter County, Alabama, containing allegations substantially similar to
allegations contained in certain individual actions currently pending and
referred to above, see the description that appears in the second paragraph on
page 13 of the Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1996, 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-K. Anderson v. Commercial Credit Corporation was dismissed in February 1997.
In January 1997, a purported class action was filed in the Circuit Court of
Marengo County, Alabama, entitled Bridges v. Commercial Credit Corporation, with
allegations substantially similar to those in Anderson, and including
allegations that the Company charged excessive premiums on certain lines of
insurance. Plaintiff seeks unspecified monetary damages. The Company believes it
has meritorious defenses to this action and intends to contest the allegations.
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 I of Form 10-K, the information required by
Item 4 is omitted.
PART II
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.
10
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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)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996 1995 1994 1993 1992
- ----------------------- -------------- ------------- --------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Total revenues (1) $1,441.1 $1,392.4 $1,598.0 $1,580.3 $1,523.5
Income before cumulative effect
of accounting changes (2) $195.8 $219.9 $221.9 $291.8 $281.2
Net income (2),(3) $195.8 $219.9 $221.9 $286.0 $263.1
December 31,
- ------------
Total assets $9,359.6 $8,634.5 $8,226.8 $8,893.7 $8,039.0
Total debt $7,333.9 $6,692.5 $6,388.1 $6,232.6 $5,750.9
</TABLE>
- ----------
(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 1996 and 1995 do not include
Gulf's results. The exclusion of Gulf's operations from 1996 and 1995 results of
operations has resulted in a reduction compared to the prior periods in
insurance-related revenues and expenses. (See Note 1 of Notes to Consolidated
Financial Statements).
(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 $22.7 million from the
sale of a common stock investment in Musicland Stores Corporation.
(3) Cumulative effect of accounting changes in 1993 represent a change in
accounting for postretirement benefits other than pensions and a change in
accounting for postemployment benefits. Cumulative effect of accounting changes
in 1992 represent a change in accounting for income taxes.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
CONSOLIDATED RESULTS OF OPERATIONS
Year Ended December 31,
------------------------------------------------------
($ in millions) 1996 1995 1994
- --------------------------------------------------------------------------------
Total revenues $1,441.1 $1,392.4 $1,598.0
================ =============== ===============
Net income $195.8 $219.9 $221.9
================ =============== ===============
RESULTS OF OPERATIONS
The net income of Commercial Credit Company (the Company) for the year ended
December 31, 1996 was $195.8 million compared to $219.9 million in 1995 and
$221.9 million in 1994. Total revenues for the year ended December 31, 1996 were
$1,441.1 million compared to $1,392.4 in 1995 and $1,598.0 million in 1994.
On December 30, 1994 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 $150 million in cash and,
accordingly, results of operations for 1996 and 1995 do not include Gulf's
results. The exclusion of Gulf's operations from 1996 and 1995 results of
operations has resulted in a reduction compared to 1994 in insurance-related
revenues and expenses. The remaining insurance-related revenues and expenses
represent the credit insurance activities of the Company's other insurance
subsidiaries, the operations of which are reflected in the Consumer Finance
segment.
The following discussion presents in more detail each segment's performance.
CONSUMER FINANCE SERVICES
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------------------------------------
1996 1995 1994
------------------------------------------------------------------------------------
Net Net Net
($ in millions) Revenues income Revenues income Revenues income
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Consumer Finance Services (1) $1,408.9 $221.8 $1,351.3 $245.2 $1,236.2 $225.6
================================================================================================================================
</TABLE>
(1) Revenues and net income in 1996 includes a portion of the gain ($1.2
million and $.7 million, respectively) from the disposition of RCM Capital
Management, a California Limited Partnership (RCM).
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<PAGE>
Despite strong growth in receivables during the second half of 1996, net income
in 1996 was lower than 1995, as expected, driven by a higher provision for loan
losses reflecting industry trends associated with personal bankruptcies.
Consumer finance receivables rose to $8.071 billion at December 31, 1996, a 12%
increase from year-end 1995. This growth occurred primarily in real estate loan
and personal loan products generated by Commercial Credit's branch office
network and through Primerica Financial Services (PFS).
Consumer Finance net income in 1995 increased by 9% over 1994, primarily
reflecting a 7% increase in average receivables outstanding highlighted by an
11% increase in personal loan average receivables outstanding, which is the
highest margin product line.
While total interest margin increased from the 1995 period due to the increase
in the portfolio, average net interest margin declined 15 basis points in 1996
to 8.64% from 8.79% in 1995, reflecting a decline to 15.24% from 15.64% in the
average yield, partially offset by a decrease in cost of funds. The decline in
average yield was due to the run-off of older, higher yielding real estate
loans, growth in lower yielding higher quality first mortgage real estate loans
and higher levels of non-accruing personal loans. The average yield on
receivables outstanding was 15.41% in 1994, and average net interest margin was
8.76%.
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 7% in 1996, 1995 and 1994. 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 the Corporate and Other
segment.
Delinquencies in excess of 60 days rose to 2.38% at December 31, 1996 compared
to 2.14% at December 31, 1995, versus the historically low level of 1.88% in
1994. Correspondingly, the charge-off rate, which had been at record low levels
in 1994, moved higher in 1996 and 1995 -- reaching 2.91% in 1996 and 2.28% in
1995 versus 2.08% in 1994. This increase in delinquencies and charge-offs
reflects a continued high level of personal bankruptcies, a national trend that
shows no indication of reversing itself.
The allowance for credit losses as a percentage of net outstandings was 2.97% at
year-end 1996 compared to 2.66% at year-end 1995 and 2.64% at year-end 1994.
The total number of offices at year-end 1996 stood at 859, which includes the
addition of 10 offices from the first quarter 1996 acquisition of Hawaii-based
Servco Financial Corp. During the year the Company completed its conversion of
27 existing retail offices into $.M.A.R.T.-SM- Solution Centers -- devoted
exclusively to servicing the segment's growing business of underwriting real
estate loans for PFS.
13
<PAGE>
As of, or for the
Year Ended, December 31,
------------------------------------
1996 1995 1994
------------------------------------
Allowance for credit losses as a % of
net outstandings 2.97% 2.66% 2.64%
Charge-off rate for the year 2.91% 2.28% 2.08%
60 + days past due on a contractual basis
as a % of gross consumer finance
receivables at year end 2.38% 2.14% 1.88%
Insurance subsidiaries of the Company provide credit life, health and property
insurance to Consumer Finance customers. Premiums earned were $152.4 million in
1996, $135.8 million in 1995 and $111.6 million in 1994. The increase in
premiums year-over-year is the result of growth in receivables and expanded
availability of certain products in additional states.
ASSET QUALITY -- Consumer Finance assets totaled approximately $9.0 billion at
December 31, 1996, of which $7.9 billion, or 88%, 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 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 $755 million were
investments of insurance subsidiaries, including $629 million of fixed income
securities and $69 million of short-term investments with a weighted average
quality rating of A1.
OUTLOOK -- The Consumer Finance results during 1996 continued to be influenced
by a higher level of loan losses, as a result of a higher level of personal
bankruptcies. Also, near-term earnings for Consumer Finance are expected to be
affected by establishing reserves on new business and a higher level of
expenses, as the Company implements additional investments in marketing,
training and systems enhancements in order to capitalize on future growth
opportunities. Consumer Finance is also affected by the interest rate
environment and general economic conditions. Although the lower 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. From time to time low interest rates combined with
aggressive competitor pricing may increase the likelihood of prepayments of
mortgage loans. This impact has been mitigated by a number of programs
instituted by the Company including those designed to attract first mortgage
business.
14
<PAGE>
INSURANCE SERVICES
The Insurances Services segment included the operations of Gulf and as
previously discussed, on December 30, 1994 the Company sold its 50% interest in
the parent of Gulf to an affiliate. The revenues and net income of Gulf for the
year ended December 31, 1994 were $314.7 million and $14.8 million (net of
minority interest of $14.8 million), respectively.
CORPORATE AND OTHER
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------------------------------------------
1996 1995 1994
--------------------------------------------------------------------------------------------
Net Net Net
($ in millions) Revenues (Expense) Revenues (Expense) Revenues (Expense)
==================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Corporate and Other (1) $32.2 $(26.0) $41.1 $(25.3) $47.1 $(18.5)
==================================================================================================================================
</TABLE>
(1) Revenues and net income in 1996 includes a portion of the gain ($1.6
million and $1.2 million, respectively) from the disposition of RCM.
The increase in Corporate and Other net expense (before the gain on disposition
of RCM) for 1996 compared to 1995 is primarily attributable to increases in
interest costs borne at the corporate level.
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.
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. The Company may borrow under its
revolving credit facilities at various interest rate options and compensates the
banks for the facilities through commitment fees.
Travelers Group Inc. (TRV), 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 TRV, 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
June 2001. At December 31, 1996, $250 million was allocated to TRV, $650 million
was allocated to the Company and $100 million to TIC. At December 31, 1996, the
Company also had committed and available revolving credit facilities on a
stand-alone basis of $1.5 billion, which expire in 2001.
As of December 31, 1996, the Company had unused credit availability of $2.150
billion under 5-year revolving credit facilities including the $650 million
referred to above.
15
<PAGE>
During 1996 and through March 4, 1997 CCC completed the following long-term debt
offerings leaving $550 million available for debt offerings and $400 million
available for trust preferred security offerings under its shelf registration
statements:
o 5 7/8% Notes due January 15, 2003...............$200 million
o 5.55% Notes due February 15, 2001...............$200 million
o 6.625% Notes due November 15, 2006..............$200 million
o 6.20% Notes due November 15, 2001...............$200 million
In addition to the long-term debt offerings above, in October 1996 the Company,
through a private placement, issued $200 million of 6.45% Notes due October 18,
2006 which by their terms can be put to the Company at par on October 18, 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 its parent or its
affiliated companies. At December 31, 1996, the Company would have been able to
remit $307.8 million to its parent under its most restrictive covenants or
regulatory requirements.
FUTURE APPLICATION OF ACCOUNTING STANDARDS
In June 1996, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 125, (FAS No. 125) "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities"
FAS No. 125 provides accounting and reporting standards for transfers and
servicing of financial assets and extinguishments of liabilities. These
standards are based on consistent application of a financial-components approach
that focuses on control. Under that approach, after a transfer of financial
assets, an entity recognizes the financial assets when control has been
surrended, and derecognizes liabilities when extinguished. FAS No. 125 provides
consistent standards for distinguishing transfers of financial assets that are
sales from transfers that are secured borrowings. The requirements of FAS No.
125 would be effective for transfers that are secured borrowings. The
requirements of FAS No. 125 would be effective for transfers and servicing of
financial assets and extinguishments of liabilities occurring after December 31,
1996, and is to be applied prospectively. However, in December 1996 the FASB
issued FAS No. 127, "Deferral of the Effective Date of Certain Provisions of
FASB Statement No. 125" which delays until January 1, 1998 the effective date
for certain provisions. Earlier or retroactive application is not permitted. The
adoption of the provisions of this statement effective January 1, 1997 will not
have a material impact on results of operations, financial condition or
liquidity and the Company is currently evaluating the impact of the provisions
whose effective date has been delayed until January 1, 1998.
16
<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 I of Form 10-K, the information required by
Item 10 is omitted.
ITEM 11. EXECUTIVE COMPENSATION.
Pursuant to General Instruction I 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 I of Form 10-K, the information required by
Item 12 is omitted.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Pursuant to General Instruction I 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:
17
<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 15, 1996, the Company filed a Current Report on Form 8-K
dated October 14, 1996, reporting under Item 5 thereof the results of
its operations for the three months and nine months ended September
30, 1996.
On November 14, 1996, the Company filed a Current Report on Form 8-K
dated November 12, 1996, filing certain exhibits under Item 7 thereof
relating to the offer and sale of the Company's 6 5/8% Notes due
November 15, 2006.
On November 25, 1996, the Company filed a Current Report on Form 8-K
dated November 21, 1996, filing certain exhibits under Item 7 thereof
relating to the offer and sale of the Company's 6.20% Notes due
November 15, 2001.
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
21, 1997, the Company filed a Current Report on Form 8-K, dated
January 21, 1997, reporting under Item 5 thereof the results of its
operations for the three months and year ended December 31, 1996.
18
<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 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).
10.01.2 Amended and Restated Credit Agreement dated as of
June 28, 1996 among the Company, the Banks party
thereto and Morgan Guaranty Trust Company of New
York, as Agent, incorporated by reference to Exhibit
10.02 to the Company's Quarterly Report on Form 10-Q
for
19
<PAGE>
EXHIBIT FILING
NUMBER DESCRIPTION OF EXHIBIT METHOD
- ------ ---------------------- ------
the fiscal quarter ended June 30, 1996 (File No.
1-6594) (the "Company's June 30, 1996 10-Q").
12.01 Computation of Ratio of Earnings to Fixed Charges. Electronic
21.01 Pursuant to General Instruction I of Form 10-K, the
list of subsidiaries of the Company is omitted.
23.01 Consent of KPMG Peat Marwick LLP, Independent Electronic
Certified Public Accountants.
27.01 Financial Data Schedule. Electronic
99.01 The second paragraph on page 2 of the Company's Electronic
Current Report on Form 8-K dated July 13, 1994, the
first paragraph on page 14 of the Company's Quarterly
Report on Form 10-Q for the fiscal quarter ended
September 30, 1995, the fourth paragraph on page 9 of
the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1995, the first
paragraph on page 13 of the Company's June 30, 1996
10-Q and the first paragraph on page 12 of the
Company's Quarterly Report on Form 10-Q for the
fiscal quarter ended September 30, 1996.
99.02 The paragraph that begins on page 9 and ends on page Electronic
10 of the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1995.
99.03 The second paragraph on page 13 of the Company's June Electronic
30, 1996 10-Q.
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.
20
<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 26th day of
March, 1997.
COMMERCIAL CREDIT COMPANY
(Registrant)
By: /s/ Robert B. Willumstad
-------------------------------------
Robert B. Willumstad, Chairman of
the Board and Chief Executive Officer
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 26th day of March, 1997.
SIGNATURE TITLE
--------- -----
/s/ Robert B. Willumstad Chairman of the Board, Chief Executive Officer
- ----------------------------- (Principal Executive Officer) and Director
Robert B. Willumstad
/s/ William R. Hofmann Vice President and Chief Financial Officer
- ----------------------------- (Principal Financial Officer)
William R. Hofmann
/s/ Irwin Ettinger
- ----------------------------- Executive Vice President, Chief Accounting
Irwin Ettinger Officer (Principal Accounting Officer) and
Director
/s/ James Dimon Director
- -----------------------------
James Dimon
/s/ Robert I. Lipp Director
- -----------------------------
Robert I. Lipp
21
<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, 1996, 1995 and 1994 F-3
Consolidated Statement of Financial Position at
December 31, 1996 and 1995 F-4
Consolidated Statement of Changes in Stockholder's
Equity for the year ended December 31, 1996, 1995 and 1994 F-5
Consolidated Statement of Cash Flows for the year ended
December 31, 1996, 1995 and 1994 F-6
Notes to Consolidated Financial Statements F-7 - F-26
Schedules:
Schedule I - Condensed Financial Information of
Registrant (Parent Company only) F-27 - F-29
*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, 1996 and 1995, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1996 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.
/s/ KPMG Peat Marwick LLP
Baltimore, Maryland
January 17, 1997
F-2
<PAGE>
COMMERCIAL CREDIT COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(IN MILLIONS OF DOLLARS)
Year Ended December 31, 1996 1995 1994
- --------------------------------------------------------------------------------
REVENUES
Finance related interest and other charges $1,163.2 $1,119.2 $1,029.8
Insurance premiums 152.4 135.8 387.6
Interest and dividends 54.7 49.9 75.4
Other income 70.8 87.5 105.2
- --------------------------------------------------------------------------------
Total revenues 1,441.1 1,392.4 1,598.0
- --------------------------------------------------------------------------------
EXPENSES
Interest 475.5 463.5 402.8
Policyholder benefits and claims 49.5 50.0 238.1
Insurance underwriting, acquisition and operating 27.9 26.7 104.9
Non-insurance compensation and benefits 184.0 196.0 183.9
Provision for consumer finance credit losses 260.0 171.0 151.6
Other operating 147.2 151.2 152.8
- --------------------------------------------------------------------------------
Total expenses 1,144.1 1,058.4 1,234.1
- --------------------------------------------------------------------------------
Income before income taxes and minority interest 297.0 334.0 363.9
Provision for income taxes 101.2 114.1 127.2
- --------------------------------------------------------------------------------
Income before minority interest 195.8 219.9 236.7
Minority interest, net of income taxes - - (14.8)
- --------------------------------------------------------------------------------
Net income $ 195.8 $ 219.9 $ 221.9
================================================================================
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, 1996 1995
- --------------------------------------------------------------------------------
ASSETS
Cash and cash equivalents $ 11.4 $ 30.1
Investments:
Fixed maturities:
Available for sale, at market value 809.1 802.9
Equity securities at market value (cost $45.6
and $26.5) 46.4 28.4
Mortgage loans and real-estate held for sale 139.8 185.3
Short-term and other 76.9 28.6
- --------------------------------------------------------------------------------
Total investments 1,072.2 1,045.2
- --------------------------------------------------------------------------------
Consumer finance receivables 8,123.8 7,285.0
Allowance for losses (239.3) (192.5)
- --------------------------------------------------------------------------------
Net consumer finance receivables 7,884.5 7,092.5
Other receivables 123.0 164.4
Deferred policy acquisition costs 9.3 16.1
Cost of acquired businesses in excess of net assets 106.6 98.2
Other assets 152.6 188.0
- --------------------------------------------------------------------------------
Total assets $9,359.6 $8,634.5
- --------------------------------------------------------------------------------
LIABILITIES
Certificates of deposit $ 102.3 $ 98.3
Short-term borrowings 1,481.6 1,394.2
Long-term debt 5,750.0 5,200.0
- --------------------------------------------------------------------------------
Total debt 7,333.9 6,692.5
Insurance policy and claims reserves 402.9 392.8
Accounts payable and other liabilities 348.3 386.3
- --------------------------------------------------------------------------------
Total liabilities 8,085.1 7,471.6
- --------------------------------------------------------------------------------
STOCKHOLDER'S EQUITY
Common stock ($.01 par value; authorized shares: 1,000;
share issued: 1) -- --
Additional paid-in-capital 164.1 163.5
Retained earnings 1,115.2 984.4
Unrealized gain (loss) on investment securities and
other, net (4.8) 15.0
- --------------------------------------------------------------------------------
Total stockholder's equity 1,274.5 1,162.9
================================================================================
Total liabilities and stockholder's equity $9,359.6 $8,634.5
================================================================================
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)
<TABLE>
<CAPTION>
Year ended December 31, 1996 1995 1994
- ------------------------------------------------------------------------------------------
COMMON STOCK
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, beginning and end of year $ - $ - $ -
- ------------------------------------------------------------------------------------------
ADDITIONAL PAID-IN CAPITAL
Balance, beginning of year 163.5 163.5 94.7
Capital contribution .6 - -
Adjustments relating to exchange of
investment in Parent securities - - 58.6
Adjustment relating to sale of Gulf - - 10.2
- ------------------------------------------------------------------------------------------
Balance, end of year 164.1 163.5 163.5
- ------------------------------------------------------------------------------------------
RETAINED EARNINGS
Balance, beginning of year 984.4 974.5 1,002.6
Net income 195.8 219.9 221.9
Cash dividends (65.0) (210.0) (195.0)
Other dividends - - (55.0)
- ------------------------------------------------------------------------------------------
Balance, end of year 1,115.2 984.4 974.5
- ------------------------------------------------------------------------------------------
UNREALIZED GAIN (LOSS) ON INVESTMENT
SECURITIES AND OTHER, NET
Balance, beginning of year 15.0 (25.6) 13.4
Net change in unrealized gains and (losses)
on investment securities (19.8) 40.6 (39.2)
Translation adjustments, net - - 0.2
- ------------------------------------------------------------------------------------------
Balance, end of year (4.8) 15.0 (25.6)
==========================================================================================
TOTAL STOCKHOLDER'S EQUITY $1,274.5 $1,162.9 $1,112.4
==========================================================================================
</TABLE>
See Notes to Consolidated Financial Statements
F-5
<PAGE>
COMMERCIAL CREDIT COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN MILLIONS OF DOLLARS)
<TABLE>
<CAPTION>
Year ended December 31, 1996 1995 1994
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Income before income taxes and minority interest $ 297.0 $ 334.0 $ 363.9
Adjustments to reconcile income before income
taxes and minority interest to net cash provided by
(used in) operating activities:
Amortization of deferred policy acquisition
costs and value of insurance in force 6.9 7.9 61.0
Additions to deferred policy acquisition costs (0.1) (5.7) (77.6)
Provision for consumer finance credit losses 260.0 171.0 151.6
Undistributed equity earnings (0.8) (1.3) (1.9)
Changes in insurance policy and claims reserves 10.1 6.3 131.3
Changes in other assets and liabilities, net 105.0 123.8 7.3
Other, net 3.7 2.0 4.0
- -----------------------------------------------------------------------------------------
Net cash provided by operations 681.8 638.0 639.6
Income taxes paid (121.3) (125.6) (149.0)
- -----------------------------------------------------------------------------------------
Net cash provided by operating activities 560.5 512.4 490.6
- -----------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Net change in credit card receivables (172.1) (66.0) (29.7)
Loans originated or purchased (3,410.0) (2,748.0) (2,788.9)
Loans repaid or sold 2,534.4 2,245.2 2,093.8
Purchases of investments (533.1) (434.2) (664.2)
Proceeds from sales of investments 441.7 359.2 653.9
Proceeds from maturities of investments 8.7 7.0 45.1
Business divestments 23.0 -- 150.0
Business acquisitions (11.7) -- --
Redemption of TRV's redeemable preferred stock -- -- 100.0
Other, net 36.1 36.5 (13.1)
- -----------------------------------------------------------------------------------------
Net cash (used in) investing activities (1,083.0) (600.3) (453.1)
- -----------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid (65.0) (210.0) (195.0)
Issuance of long-term debt 1,000.0 2,000.0 500.0
Payments and redemptions of long-term debt (450.0) (810.0) (459.8)
Net change in short-term borrowings 87.4 (910.4) 98.5
Net change in certificates of deposit (68.6) 24.8 16.8
- -----------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 503.8 94.4 (39.5)
- -----------------------------------------------------------------------------------------
Change in cash and cash equivalents (18.7) 6.5 (2.0)
Cash and cash equivalents at beginning of period 30.1 23.6 25.6
- -----------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 11.4 $ 30.1 $ 23.6
- -----------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 467.7 $ 441.2 $ 400.7
=========================================================================================
</TABLE>
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. (hereinafter referred to as TRV). 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
represents The Travelers Corporation's (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
only the results of operations for 1994 include Gulf's results. The
exclusion of Gulf's operations from 1996 and 1995 results of operations has
resulted in a reduction compared to the 1994 period in insurance-related
revenues and expenses. The revenues and net income of Gulf for the year
ended December 31, 1994 were $314.7 million and $14.8 million (net of
minority interest of $14.8 million), respectively. 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.
F-7
<PAGE>
Notes to Consolidated Financial Statements (continued)
CHANGES IN ACCOUNTING PRINCIPLES
FAS 121. Effective January 1, 1996 the Company adopted Statement of
Financial Accounting Standards (FAS) No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of." 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 disposed of (e.g. real estate held for sale) be carried at the lower
of cost of fair value less cost to sell, and does not allow such assets to
be depreciated. The adoption of this standard did not have a material
impact on the Company's financial condition, results of operations or
liquidity.
FAS 123. In October 1995, the Financial Accounting Standards Board (FASB)
issued FAS No. 123, "Accounting for Stock-Based Compensation." FAS No. 123
establishes financial accounting and reporting standards for stock-based
employee compensation plans as well as transactions in which an entity
issues its equity instruments to acquire goods or services from
non-employees. This statement defines a fair value-based method of
accounting for employee stock options or similar equity instruments, and
encourages all entities to adopt this method of accounting for all employee
stock compensation plans. However, it also allows an entity to continue to
measure compensation cost for those plans using the intrinsic value-based
method of accounting prescribed by Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (Opinion 25). Entities
electing to remain with the accounting method prescribed in Opinion 25 must
make pro forma disclosures of net income and earnings per share, as if the
fair value-based method of accounting defined by FAS No. 123 had been
applied. FAS No. 123 is applicable to fiscal years beginning after December
15, 1995. The Company along with affiliated companies participates in stock
option and other stock-based incentive plans sponsored by TRV. The Company
has elected to continue to account for its stock-based compensation plans
using the accounting method prescribed by Opinion 25 and has included in
the Notes to Consolidated Financial Statements the pro forma disclosures
required by FAS No. 123. (See Note 10).
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 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. 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
F-8
<PAGE>
Notes to Consolidated Financial Statements (continued)
maturity securities for declines in value that are other than temporary.
Mortgage loans and real-estate held for sale, 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 (goodwill) is being
amortized on a straight-line basis principally over a 40-year period. The
carrying amount is regularly reviewed for indicators of impairment in
value, which in the view of management are other than temporary.
Impairments would be recognized in operating results if a permanent
diminution in value is deemed to have occurred.
INCOME TAXES have been provided for in accordance with the provisions of
FAS No. 109, "Accounting for Income Taxes". The Company and its wholly
owned domestic non-life insurance subsidiaries file a consolidated federal
income tax return with TRV. 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, 1996.
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 60
days or more contractually past due. Income stops accruing on finance
receivables when they are 90 days 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.
F-9
<PAGE>
Notes to Consolidated Financial Statements (continued)
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. All other acquisition expenses are
charged to operations as incurred.
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 estimated reserves are included in the
results of operations in the period in which the estimates are changed.
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
F-10
<PAGE>
Notes to Consolidated Financial Statements (continued)
value. 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. 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
In June 1996, the FASB issued FAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities." FAS No.
125 provides accounting and reporting standards for transfers and servicing
of financial assets and extinguishments of liabilities. These standards are
based on consistent application of a financial-components approach that
focuses on control. Under that approach, after a transfer of financial
assets, an entity recognizes the financial assets when control has been
surrended, and derecognizes liabilities when extinguished. FAS No. 125
provides consistent standards for distinguishing transfers of financial
assets that are sales from transfers that are secured borrowings. The
requirements of FAS No. 125 would be effective for transfers and servicing
of financial assets and extinguishments of liabilities occurring after
December 31, 1996, and is to be applied prospectively. However, in December
1996 the FASB issued FAS No. 127, "Deferral of the Effective Date of
Certain Provisions of FASB Statement No. 125" which delays until January 1,
1998 the effective date for certain provisions. Earlier or retroactive
application is not permitted. The adoption of the provisions of this
statement effective January 1, 1997 will not have a material impact on
results of operations, financial condition or liquidity and the Company is
currently evaluating the impact of the provisions whose effective date has
been delayed until January 1, 1998.
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.
On December 31, 1993, TRV acquired the approximately 73% it did not already
own of The Travelers Corporation (old Travelers), by means of a merger of
old Travelers into TRV. 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 shares of
common stock of TRV. During 1994, all of the Company's shares of the TRV
common stock were exchanged for 2,655 shares of Cumulative Adjustable Rate
Preferred Stock Series Y of TRV, with a liquidation value of $100,000 per
share, which is redeemable at the option of the Company at certain times
and callable by TRV 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
F-11
<PAGE>
Notes to Consolidated Financial Statements (continued)
excess was treated as an adjustment to additional-paid-in capital.
Subsequently 550 shares of preferred stock were distributed to TRV as a
dividend. At December 31, 1996 and 1995, this investment is included in
"fixed maturities - available for sale" and is reflected at a carrying
amount of $210.5 million. During 1996, 1995 and 1994, the Company recorded
$10.2 million, $10.2 million and $8.7 million, respectively, of dividend
income from this investment in common and preferred stock.
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)
1996 1995 1994
---------- ---------- ----------
REVENUES
Consumer Finance Services $ 1,408.9 $ 1,351.3 $ 1,236.2
Insurance Services -- -- 314.7
Corporate and Other 32.2 41.1 47.1
---------- ---------- ----------
$ 1,441.1 $ 1,392.4 $ 1,598.0
========== ========== ==========
INCOME BEFORE INCOME TAXES AND
MINORITY INTEREST
Consumer Finance Services $ 340.5 $ 376.2 $ 354.1
Insurance Services -- -- 40.0
Corporate and Other (43.5) (42.2) (30.2)
---------- ---------- ----------
$ 297.0 $ 334.0 $ 363.9
========== ========== ==========
NET INCOME
Consumer Finance Services $ 221.8 $ 245.2 $ 225.6
Insurance Services (after
minority interest of
$14.8 in 1994) -- -- 14.8
Corporate and Other (26.0) (25.3) (18.5)
---------- ---------- ----------
$ 195.8 $ 219.9 $ 221.9
========== ========== ==========
IDENTIFIABLE ASSETS
Consumer Finance Services $ 8,951.8 $ 8,110.4 $ 7,640.2
Corporate and Other 407.8 524.1 586.6
---------- ---------- ----------
$ 9,359.6 $ 8,634.5 $ 8,226.8
========== ========== ==========
The Consumer Finance Services segment includes consumer lending (including
secured and unsecured personal loans, real estate-secured loans and
consumer goods financing) 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.
F-12
<PAGE>
Notes to Consolidated Financial Statements (continued)
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 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 investment included in real-estate held for sale, the Company's
investment in TRV'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.
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-13
<PAGE>
Notes to Consolidated Financial Statements (continued)
The amortized cost and estimated market values of investments in fixed
maturities classified as available for sale were as follows:
<TABLE>
<CAPTION>
------------------------------------------------------
AMORTIZED GROSS UNREALIZED MARKET
--------------------------
DECEMBER 31, 1996 COST GAINS LOSSES VALUE
----------------- ------------------------------------------------------
(millions)
<S> <C> <C> <C> <C>
Mortgage-backed securities-principally
obligations of U.S. Government agencies $201.2 $0.7 $(3.7) $198.2
U.S. Treasury securities and obligations
of U.S. Government corporations and
agencies 158.2 0.3 (4.5) 154.0
Obligations of states and political
subdivisions 50.4 0.8 (0.3) 50.9
Debt securities issued by foreign
governments 14.7 - (0.3) 14.4
Corporate securities 392.3 1.3 (2.0) 391.6
------------------------------------------------------
Total $816.8 $3.1 $(10.8) $809.1
======================================================
</TABLE>
<TABLE>
<CAPTION>
------------------------------------------------------
Amortized Gross Unrealized Market
--------------------------
December 31, 1995 Cost Gains Losses Value
----------------- ------------------------------------------------------
(millions)
<S> <C> <C> <C> <C>
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 50.2 2.2 - 52.4
subdivisions
Corporate securities 344.8 5.7 (0.1) 350.4
------------------------------------------------------
Total $781.4 $22.5 $(1.0) $802.9
======================================================
</TABLE>
F-14
<PAGE>
Notes to Consolidated Financial Statements (continued)
The amortized cost and estimated market value at December 31, 1996 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.
(millions) Estimated
Amortized Market
Cost Value
------------ ------------
Due in one year or less $ 30.7 $ 30.8
Due after one year through five years 81.5 81.6
Due after five years through ten years 143.2 140.8
Due after ten years 149.7 147.2
------------ ------------
405.1 400.4
Mortgage-backed securities 201.2 198.2
Investment in Series Y Preferred Stock of TRV 210.5 210.5
------------ ------------
$816.8 $809.1
============ ============
Realized gains and losses on fixed maturities for the year ended December
31, were as follows:
(millions) 1996 1995 1994
----------- ------------ -----------
REALIZED GAINS
Pre-tax $9.0 $9.5 $3.1
----------- ------------ -----------
After-tax $5.8 $6.2 $2.0
----------- ------------ -----------
REALIZED LOSSES
Pre-tax -- $1.4 $0.4
----------- ------------ -----------
After-tax -- $0.9 $0.3
----------- ------------ -----------
5. CONSUMER FINANCE RECEIVABLES
----------------------------
Consumer finance receivables, net of unearned finance charges of $635.3
million and $690.2 million at December 31, 1996 and 1995, respectively,
consisted of the following:
F-15
<PAGE>
Notes to Consolidated Financial Statements (continued)
<TABLE>
<CAPTION>
(millions) 1996 1995
------------- -------------
<S> <C> <C>
Real estate-secured loans $3,456.7 $2,957.1
Personal loans 3,199.6 3,051.0
Credit cards 907.1 761.8
Sales finance and other 507.7 468.2
------------- -------------
Consumer finance receivables 8,071.1 7,238.1
Accrued interest receivable 52.7 46.9
Allowance for credit losses (239.3) (192.5)
============= =============
Net consumer finance receivables $7,884.5 $7,092.5
============= =============
</TABLE>
An analysis of the allowance for credit losses on consumer finance
receivables at December 31, was as follows:
<TABLE>
<CAPTION>
(millions) 1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
Balance, January 1 $ 192.5 $ 181.9 $ 167.5
Provision for credit losses 260.0 171.0 151.6
Amounts written off (245.6) (188.3) (162.9)
Recovery of amounts previously written off 26.3 27.1 25.7
Allowance on receivables purchased 6.1 0.8 -
------------- ------------- -------------
Balance, December 31 $ 239.3 $ 192.5 $ 181.9
------------- ------------- -------------
Net outstandings $ 8,071.1 $ 7,238.1 $6,885.4
============= ============= =============
Ratio of allowance for credit losses to net outstandings 2.97% 2.66% 2.64%
============= ============= =============
</TABLE>
Contractual maturities of receivables before deducting unearned finance
charges and excluding accrued interest were as follows:
<TABLE>
<CAPTION>
RECEIVABLES
OUTSTANDING
DUE Due
DECEMBER 31, Due Due Due Due After
(millions) 1996 1997 1998 1999 2000 2000
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Real estate-secured loans $3,504.5 $ 193.5 $ 198.7 $ 210.8 $251.7 $2,649.8
Personal loans 3,710.1 1,136.9 995.8 747.4 431.3 398.7
Credit cards 905.0 67.3 62.6 57.8 53.4 663.9
Sales finance and other 586.8 342.9 117.7 56.9 46.0 23.3
------------------------------------------------------------------------------------------
Total $8,706.4 $1,740.6 $1,374.8 $1,072.9 $782.4 $3,735.7
==========================================================================================
Percentage 100% 20% 16% 12% 9% 43%
==========================================================================================
</TABLE>
F-16
<PAGE>
Notes to Consolidated Financial Statements (continued)
Contractual terms average 16 years on real estate-secured loans (excluding
call provisions) 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:
1996 1995
----------- -----------
Ohio 11% 12%
North Carolina 9% 10%
Pennsylvania 6% 7%
California 6% 5%
South Carolina 6% 6%
Texas 5% 5%
Tennessee 5% 5%
All other states* 52% 50%
----------- -----------
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, 1996 is approximately $671
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, 1996 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 1996. Fair values included in Note 11
are based on the exit value methodology.
F-17
<PAGE>
Notes to Consolidated Financial Statements (continued)
6. DEBT
----
Short-term borrowings
At December 31, short-term borrowings and weighted average interest rates
consisted of:
1996 1995
-------------------------- --------------------------
(millions) OUTSTANDING INTEREST RATE Outstanding Interest Rate
----------- ------------- ----------- -------------
Commercial paper $1,481.6 5.55% $1,394.2 5.86%
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.
TRV, 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 TRV, 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 June 2001. At December 31, 1996, $250 million was
allocated to TRV, $650 million was allocated to the Company and $100
million was allocated to TIC. At December 31, 1996 there were no borrowings
outstanding under this facility.
At December 31, 1996, the Company also had committed and available
revolving credit facilities on a stand-alone basis of $1.5 billion, which
expire in 2001.
The carrying value of short-term borrowings approximates fair value.
Long-term debt
Long-term debt, including its current portion, and final maturity dates
were as follows at December 31:
(millions) 1996 1995
---- ----
6 3/8% Notes due 1996 -- 200.0
7 3/8% Notes due 1996 -- 150.0
8% Notes due 1996 -- 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
F-18
<PAGE>
Notes to Consolidated Financial Statements (continued)
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 200.0 200.0
5.55% Notes due 2001 200.0 --
6.20% Notes due 2001 200.0 --
8 1/4% Notes due 2001 300.0 300.0
6 3/8% Notes due 2002 200.0 200.0
6 7/8% Notes due 2002 200.0 200.0
7 3/8% Notes due 2002 200.0 200.0
5 7/8% Notes due 2003 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 200.0 200.0
6 1/2% Notes due 2005 200.0 200.0
7 3/8% Notes due 2005 200.0 200.0
7 3/4% Notes due 2005 200.0 200.0
6.45% Notes due 2006 (a) 200.0 --
6 5/8% Notes due 2006 200.0 --
10% Notes due 2008 150.0 150.0
10% Debentures due 2009 100.0 100.0
8.7% Debentures due 2009 (b) 150.0 150.0
8.7% Debentures due 2010 (c) 100.0 100.0
6 5/8% Notes due 2015 (d) 200.0 200.0
7 7/8% Notes due 2025 (e) 200.0 200.0
--------- --------
$5,750.0 $5,200.0
========= ========
(a) Redeemable at option of holder on October 18, 1999 at face amount.
(b) Redeemable at option of holder on June 15, 1999 at face amount
(c) Redeemable at option of holder on June 15 of each of 1999, 2002 or 2005 at
face amount.
(d) Redeemable at option of holder on June 1, 2002 at face amount.
(e) Redeemable at option of holder on February 1, 2005 at face amount.
F-19
<PAGE>
Notes to Consolidated Financial Statements (continued)
Aggregate annual maturities for the next five years on long-term debt
obligations (based on final maturity dates) are as follows:
(millions)
1997 $350
1998 $300
1999 $350
2000 $750
2001 $700
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, 1996 the aggregate fair value of the Company's long-term debt
was approximately $5,888 million.
7. REINSURANCE
-----------
The Company's insurance subsidiaries participate in reinsurance 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 Consolidated Statement of Income were as follows:
CEDED TO
GROSS OTHER NET
(millions) AMOUNT COMPANIES AMOUNT
-------- --------- --------
Year ended December 31, 1996
----------------------------
Premiums
Credit life insurance $ 38.5 $ -- $ 38.5
Credit accident and health insurance 57.4 -- 57.4
Credit property and other 84.0 (27.5) 56.5
-------- -------- --------
$ 179.9 $ (27.5) $ 152.4
======== ======== ========
Claims incurred $ 52.3 $ (2.8) $ 49.5
======== ======== ========
F-20
<PAGE>
Notes to Consolidated Financial Statements (continued)
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
Credit property and other 135.5 (95.3) 40.2
-------- -------- --------
$ 243.7 $ (107.9) $ 135.8
======== ======== ========
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
======== ======== ========
Claims incurred $ 374.1 $ (136.0) $ 238.1
======== ======== ========
8. INCOME TAXES
------------
The provision for income taxes (before minority interest) for the year
ended December 31, was as follows:
(millions) 1996 1995 1994
----------- ----------- ------------
CURRENT:
Federal $103.4 $116.6 $121.4
Foreign - 3.3 4.6
State 7.9 8.8 8.9
----------- ----------- ------------
111.3 128.7 134.9
----------- ----------- ------------
DEFERRED:
Federal (9.2) (10.9) (2.4)
Foreign - (3.3) (4.4)
State (0.9) (0.4) (0.9)
----------- ----------- ------------
(10.1) (14.6) (7.7)
----------- ----------- ------------
Total $101.2 $114.1 $127.2
=========== =========== ============
F-21
<PAGE>
Notes to Consolidated Financial Statements (continued)
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:
1996 1995 1994
----------- ------------- -----------
Federal statutory rate 35.0% 35.0% 35.0%
Other, net (0.9) (0.8) (0.1)
----------- ----------- ------------
Effective income tax rate 34.1% 34.2% 34.9%
=========== ============= ===========
Deferred income taxes at December 31, related to the following:
(millions)
1996 1995
------------- ------------
DEFERRED TAX ASSETS:
Bad debt reserves $84.3 $69.4
Differences in computing
policy reserves 13.9 15.2
Employee benefits 7.2 9.0
Other deferred tax assets 30.6 23.0
------------- ------------
136.0 116.6
------------- ------------
DEFERRED TAX LIABILITIES:
Fixed asset depreciation (15.1) (13.7)
Deferred policy acquisition costs (1.1) (3.6)
Other deferred tax liabilities (23.2) (27.7)
------------- ------------
(39.4) (45.0)
============= ============
Total $96.6 $ 71.6
============= ============
The Company and its wholly owned domestic non-life insurance subsidiaries
join with TRV in filing a consolidated federal income tax return. Under a
tax sharing agreement with TRV, the Company is entitled to a current tax
benefit if it incurs losses which are utilized in the Parent's consolidated
return. TRV'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.
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, 1996 the Company would be able to remit $307.8 million in dividends to
its parent under the most restrictive debt covenants.
F-22
<PAGE>
Notes to Consolidated Financial Statements (continued)
The combined insurance subsidiaries' statutory stockholder's equity at
December 31, 1996 and 1995 was $180.9 million and $159.8 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 (after minority interest in 1994) for
the years ended December 31, 1996, 1995 and 1994 was $66.6 million, $49.6
million and $58.0 million, respectively.
10. EMPLOYEE BENEFIT PLANS
----------------------
PENSION PLANS
The Company, along with affiliated companies, participates in a
noncontributory defined benefit pension plan sponsored by TRV (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 costs allocated to the Company from the Plan were
$1.3 million, $2.6 million and $2.7 million in 1996, 1995 and 1994,
respectively.
The Company also has an unfunded noncontributory supplemental retirement
plan that covers certain executives and key employees. Pension costs
related to this plan were $0.6 million, $1.4 million and $1.0 million in
1996, 1995 and 1994, respectively.
STOCK OPTION PLAN
The Company participates in a stock option plan sponsored by TRV that
provides for the granting of stock options in TRV common stock to officers
and key employees. The Company applies Opinion 25 and related
interpretations in accounting for stock options. Since stock options are
issued at fair market value on the date of award, no compensation cost has
been recognized for these awards. In October 1995, the FASB issued FAS No.
123, "Accounting for Stock-based Compensation". This statement provides an
alternative to Opinion 25 whereby fair values may be ascribed to options
using a valuation model and amortized to compensation cost over the vesting
period of the options. Had the Company applied FAS No. 123 in accounting
for stock options, net income would have been reduced by $2.1 million and
$0.7 million in 1996 and 1995, 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, 1996 and 1995. 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
F-23
<PAGE>
Notes to Consolidated Financial Statements (continued)
particular financial instrument. Potential taxes and other expenses that
would be incurred in an actual sale or settlement are not reflected in
amounts disclosed.
<TABLE>
<CAPTION>
1996 1995
--------------------------------- --------------------------------
CARRYING Carrying
(millions) AMOUNT FAIR VALUE Amount Fair Value
------ ---------- ------ ----------
<S> <C> <C> <C> <C>
Assets:
Investments $1,072.2 $1,072.2 $1,045.2 $1,045.2
Net consumer finance receivables $7,884.5 $8,556.0 $7,092.5 $7,745.0
Liabilities:
Long-term debt $5,750.0 $5,888.0 $5,200.0 $5,332.0
</TABLE>
12. LEASE COMMITMENTS AND OTHER FINANCIAL INSTRUMENTS
-------------------------------------------------
RENTALS
Rental expense (principally for offices and computer equipment) was $28.1
million, $28.8 million and $32.8 million for the years ended December 31,
1996, 1995 and 1994, respectively.
At December 31, 1996, future minimum annual rentals under noncancellable
operating leases were as follows:
(millions)
1997 $18.6
1998 13.8
1999 9.6
2000 6.1
2001 3.7
Thereafter 0.5
=========
$52.3
=========
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, 1996 and 1995 total credit
lines available to credit cardholders were $6,622 million and $5,870
million, respectively.
F-24
<PAGE>
Notes to Consolidated Financial Statements (continued)
13. RELATED PARTY TRANSACTIONS
--------------------------
To facilitate cash management the Company has entered into an agreement
with TRV under which the Company or TRV 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-25
<PAGE>
Notes to Consolidated Financial Statements (continued)
15. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
---------------------------------------------
<TABLE>
<CAPTION>
1996
--------------------------------------------------------------
(millions) FIRST SECOND THIRD FOURTH TOTAL
--------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total revenues $355.6 $357.9 $357.5 $370.1 $1,441.1
Total expenses 281.4 275.6 286.7 300.4 1,144.1
Income before income taxes 74.2 82.3 70.8 69.7 297.0
Provision for income taxes 25.8 28.0 24.2 23.2 101.2
==============================================================
Net income $ 48.4 $ 54.3 $ 46.6 $ 46.5 $ 195.8
==============================================================
</TABLE>
<TABLE>
<CAPTION>
1995
------------------------------------------------------------------
(millions) First Second Third Fourth Total
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total revenues $333.2 $347.3 $355.7 $356.2 $1,392.4
Total expenses 259.9 263.1 265.1 270.3 1,058.4
Income before income taxes 73.3 84.2 90.6 85.9 334.0
Provision for income taxes 26.2 30.0 29.7 28.2 114.1
==================================================================
Net income $ 47.1 $ 54.2 $ 60.9 $ 57.7 $ 219.9
==================================================================
</TABLE>
F-26
<PAGE>
SCHEDULE 1
COMMERCIAL CREDIT COMPANY
(Parent Company Only)
Condensed Financial Information of Registrant
(In millions of dollars)
CONDENSED STATEMENT OF INCOME
Year Ended December 31, 1996 1995 1994
- --------------------------------------------------------------------------------
REVENUES $439.0 $429.7 $396.8
- --------------------------------------------------------------------------------
EXPENSES
Interest 471.5 460.5 407.3
Other 9.9 16.2 22.1
- --------------------------------------------------------------------------------
Total 481.4 476.7 429.4
- --------------------------------------------------------------------------------
Pre-tax loss (42.4) (47.0) (32.6)
Income tax benefit 17.6 18.5 12.2
- --------------------------------------------------------------------------------
Loss before equity in net income of subsidiaries (24.8) (28.5) (20.4)
Equity in net income of subsidiaries 220.6 248.4 242.3
- --------------------------------------------------------------------------------
NET INCOME $195.8 $219.9 $221.9
================================================================================
The condensed financial statements should be read in conjunction with the
consolidated financial statements and notes thereto.
F-27
<PAGE>
SCHEDULE 1
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, 1996 1995
- --------------------------------------------------------------------------------
ASSETS
Investment in securities of TRV $ 179.2 $ 179.2
Mortgage loans and real-estate held for sale 129.3 174.8
Notes and accounts receivable from subsidiaries-
eliminated in consolidation 7,422.6 6,715.6
Investment in subsidiaries at cost plus equity in net
earnings-eliminated in consolidation 853.3 802.2
Other 70.1 88.4
- --------------------------------------------------------------------------------
Total assets $8,654.5 $7,960.2
================================================================================
LIABILITIES
Short-term borrowings $1,481.6 $1,394.2
Long-term debt 5,750.0 5,200.0
Accrued expenses and other liabilities 148.4 203.1
- --------------------------------------------------------------------------------
Total liabilities 7,380.0 6,797.3
- --------------------------------------------------------------------------------
STOCKHOLDER'S EQUITY
Common stock ($.01 par value;
authorized shares: 1,000; share issued: 1) -- --
Additional paid-in capital 164.1 163.5
Retained earnings 1,115.2 984.4
Unrealized gain (loss) on investment securities
and other, net (4.8) 15.0
- --------------------------------------------------------------------------------
Total stockholder's equity 1,274.5 1,162.9
- --------------------------------------------------------------------------------
Total liabilities and stockholder's equity $8,654.5 $7,960.2
================================================================================
The condensed financial statements should be read in conjunction with the
consolidated financial statements and notes thereto.
F-28
<PAGE>
SCHEDULE 1
COMMERCIAL CREDIT COMPANY
(Parent Company Only)
Condensed Financial Information of Registrant
(In millions of dollars)
CONDENSED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended December 31, 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Loss from operations before income tax benefit
and equity in net income of subsidiaries $ (42.4) $ (47.0) $ (32.6)
Adjustment to reconcile loss from operations before income
tax benefit and equity in net income of subsidiaries to net
cash provided by (used in) operating activities:
Undistributed equity earnings (.8) (1.3) (1.9)
Dividends received from subsidiaries 72.2 111.8 162.2
Net advances to subsidiaries (576.9) (76.1) (294.6)
Other, net 7.4 (11.3) (10.9)
- ---------------------------------------------------------------------------------------------------------------------------------
Net cash used in operations (540.5) (23.9) (177.8)
Income taxes paid (43.5) (28.4) (36.9)
- ---------------------------------------------------------------------------------------------------------------------------------
Net cash used in operating activities (584.0) (52.3) (214.7)
- ---------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Redemption of TRV's redeemable preferred stock -- -- 100.0
Business divestment 16.6 -- 150.0
Business acquisition (18.1) -- --
Sale of investments -- 3.8 46.2
Other, net 12.9 (20.3) (24.5)
- ---------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities 11.4 (16.5) 271.7
- ---------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in short-term borrowings 87.3 (910.4) 98.5
Issuance of long-term debt 1,000.0 2,000.0 500.0
Payments and redemptions of long-term debt (450.0) (810.0) (459.8)
Dividends paid (65.0) (210.0) (195.0)
- ---------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 572.3 69.6 (56.3)
- ---------------------------------------------------------------------------------------------------------------------------------
Change in cash and cash equivalents (0.3) 0.8 0.7
Cash and cash equivalents at beginning of period 3.8 3.0 2.3
- ---------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 3.5 $ 3.8 $ 3.0
=================================================================================================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 460.9 $ 436.5 $ 397.5
=================================================================================================================================
</TABLE>
The condensed financial statements should be read in conjunction with the
consolidated financial statements and notes thereto.
F-29
<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 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).
10.01.2 Amended and Restated Credit Agreement dated as of
June 28, 1996 among the Company, the Banks party
thereto and Morgan Guaranty Trust Company of New
York, as Agent, incorporated by reference to Exhibit
10.02 to the Company's Quarterly Report on Form 10-Q
for
<PAGE>
EXHIBIT FILING
NUMBER DESCRIPTION OF EXHIBIT METHOD
- ------ ---------------------- ------
the fiscal quarter ended June 30, 1996 (File No.
1-6594) (the "Company's June 30, 1996 10-Q").
12.01 Computation of Ratio of Earnings to Fixed Charges. Electronic
21.01 Pursuant to General Instruction I of Form 10-K, the
list of subsidiaries of the Company is omitted.
23.01 Consent of KPMG Peat Marwick LLP, Independent Electronic
Certified Public Accountants.
27.01 Financial Data Schedule. Electronic
99.01 The second paragraph on page 2 of the Company's Electronic
Current Report on Form 8-K dated July 13, 1994, the
first paragraph on page 14 of the Company's Quarterly
Report on Form 10-Q for the fiscal quarter ended
September 30, 1995, the fourth paragraph on page 9 of
the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1995, the first
paragraph on page 13 of the Company's June 30, 1996
10-Q and the first paragraph on page 12 of the
Company's Quarterly Report on Form 10-Q for the
fiscal quarter ended September 30, 1996.
99.02 The paragraph that begins on page 9 and ends on page Electronic
10 of the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1995.
99.03 The second paragraph on page 13 of the Company's June Electronic
30, 1996 10-Q.
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,
- -----------------------------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Income from continuing operations
before income taxes and minority
interests $ 297.0 $ 334.0 $ 363.9 $ 467.9 $ 428.8
Elimination of undistributed
equity earnings (.8) (1.3) (1.9) (26.8) (3.0)
Pre-tax minority interest -- (20.0) (32.3) --
Add:
Interest 475.5 463.5 402.8 363.7 369.7
Interest portion of rentals 9.4 9.6 10.9 11.2 11.7
- -----------------------------------------------------------------------------------------------------------------------------------
Income available for fixed charges $ 781.1 $ 805.8 $ 755.7 $ 783.7 $ 807.2
===================================================================================================================================
Fixed charges:
Interest $ 475.5 $ 463.5 $ 402.8 $ 363.7 $ 369.7
Interest portion of rentals 9.4 9.6 10.9 11.2 11.7
- -----------------------------------------------------------------------------------------------------------------------------------
Fixed charges $ 484.9 $ 473.1 $ 413.7 $ 374.9 $ 381.4
===================================================================================================================================
Ratio of earnings to fixed charges 1.61x 1.70x 1.83x 2.09x 2.12x
===================================================================================================================================
</TABLE>
Exhibit 23.01
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
Commerical 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, 333-00055 and 333-13311) on
Form S-3 of Commercial Credit Company of our report dated January 17, 1997,
relating to the consolidated statement of financial position of Commercial
Credit Company and subsidiaries as of December 31, 1996 and 1995, 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,
1996 and the related financial statement schedule, which report appears herein.
/s/ KPMG Peat Marwick LLP
Baltimore, Maryland
March 26, 1997
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.
<PAGE>
Company's Form 10-Q
September 30, 1995
Page 14
Item 1. Legal Proceedings.
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 injuctive relief, assert claims for
breach of contract, fraud, outrage and unconscionability. The Company believes
it has meritorious defenses and intends to contest the allegations.
<PAGE>
Company's Form 10-K
December 31, 1995
Page 9
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.
<PAGE>
Company's Form 10-Q
June 30, 1996
Page 13
ITEM 1. Legal Proceedings.
For information concerning purported class action lawsuits filed against
the Company and certain of its subsidiaries alleging, inter alia, that such
subsidiaries charged excessive premiums on nonfiling insurance, 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-Q. In the Nobels case, a class of plaintiffs residing in Alabama was
certified in April 1996 for certain of the claims and class certification was
denied for certain other claims. In May 1996, an additional purported class
action, entitled Keckler v. Commercial Credit Corporation, was filed in the U.S.
District Court for the Northern District of Florida with allegations similar to
those in the Nobels case. The plaintiffs seek, among other things, compensatory
and punitive damages in an unspecified amount. The Company believes it has
meritorious defenses to this action and intends to contest the allegations.
<PAGE>
Company's Form 10-Q
September 30, 1996
Page 12
Item 1. Legal Proceedings.
For information concerning purported class action lawsuits filed
against the Company and certain of its subsidiaries alleging, inter alia, that
such subsidiaries charged excessive premiums on nonfiling insurance, see the
descriptions that appear in the second paragraph on page 2 of the Company's
Current Report on Form 8-K, dated July 13, 1994, the first paragraph on page 14
of the Company's Quarterly Report on Form 10-Q for the quarter ended September
30, 1995, the fourth paragraph on page 9 of the Company's Annual Report on Form
10-K for the year ended December 31, 1995 and the first paragraph on page 13 of
the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1996,
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-Q. In
Keckler v. Commercial Credit Corporation, defendant's motion to dismiss was
granted in part and denied in part. In October 1996, an additional purported
class action was filed in the Circuit Court of Perry County, Alabama, entitled
Washington v. Commercial Credit Corporation, et al., with allegations, and
seeking damages, similar to those in the earlier cases referred to above. The
Company believes it has meritorious defenses to this action and intends to
contest the allegations.
Exhibit 99.02
Company's Form 10-K
December 31, 1995
Pages 9 and 10
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
recieving 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.
Exhibit 99.03
Company's Form 10-Q
June 30, 1996
Page 13
In August 1996, a purported class action, entitled Rosa Anderson v.
Commercial Credit Corporation, was filed in the Circuit Court for Sumber County,
Alabama containing allegations substantially similar to allegations contained in
certain individual actions currently pending, including, among other things,
that plaintiffs were mislead or induced to refinance existing loans which
carried excessive and/or unnecessary fees and charges that were not fully
disclosed to them. The plaintiffs seek, among other things, compensatory damages
in an unspecified amount. The Company believes it has meritorious defenses to
this action and intends to contest the allegations.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE DECEMBER
31, 1996 FINANCIAL STATEMENTS OF COMMERCIAL CREDIT COMPANY AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 11,400
<SECURITIES> 1,072,200 <F1>
<RECEIVABLES> 8,246,800 <F2>
<ALLOWANCES> (239,300)
<INVENTORY> 0 <F3>
<CURRENT-ASSETS> 0 <F3>
<PP&E> 0 <F3>
<DEPRECIATION> 0 <F3>
<TOTAL-ASSETS> 9,359,600
<CURRENT-LIABILITIES> 0 <F3>
<BONDS> 7,333,900 <F4>
0 <F3>
0 <F3>
<COMMON> 0
<OTHER-SE> 1,274,500 <F5>
<TOTAL-LIABILITY-AND-EQUITY> 9,359,600
<SALES> 0 <F3>
<TOTAL-REVENUES> 1,441,100
<CGS> 0 <F3>
<TOTAL-COSTS> 1,144,100
<OTHER-EXPENSES> 0 <F3>
<LOSS-PROVISION> 260,000 <F6>
<INTEREST-EXPENSE> 475,500 <F6>
<INCOME-PRETAX> 297,000
<INCOME-TAX> 101,200
<INCOME-CONTINUING> 195,800
<DISCONTINUED> 0 <F3>
<EXTRAORDINARY> 0 <F3>
<CHANGES> 0 <F3>
<NET-INCOME> 195,800
<EPS-PRIMARY> 0 <F3>
<EPS-DILUTED> 0 <F3>
<FN>
<F1> Includes the following items from the financial statements: total
investments $1,072,200.
<F2> Includes the following items from the financial statements: consumer
finance receivables $8,123,800 and other receivables $123,000.
<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 $102,300; short-term borrowings $1,481,600 and long-term debt
$5,750,000.
<F5> Includes the following items from the financial statements: additional
paid-in capital $164,100 retained earnings $1,115,200; unrealized loss on
investments $(4,500); and cumulative translation adjustment $(300).
<F6> Included in total costs and expenses applicable to sales and revenues.
</FN>
</TABLE>
