UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------
FORM 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ______
----------------
Commission file number 1-6594
--------------
COMMERCIAL CREDIT COMPANY
(Exact name of registrant as specified in its charter)
Delaware 52-0883351
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
300 St. Paul Place, Baltimore, Maryland 21202
(Address of principal executive offices) (Zip Code)
(410) 332-3000
(Registrant's telephone number, including area code)
----------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes |X| No |_|
The registrant is an indirect wholly owned subsidiary of Citigroup Inc.
(formerly Travelers Group Inc.) As of the date hereof, one share of the
registrant's Common Stock, $.01 par value, was outstanding.
REDUCED DISCLOSURE FORMAT
THE REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION H(1)(a) AND
(b) OF FORM 10-Q AND IS THEREFORE FILING THIS FORM 10-Q WITH THE REDUCED
DISCLOSURE FORMAT.
<PAGE>
Commercial Credit Company and Subsidiaries
TABLE OF CONTENTS
Part I - Financial Information
Item 1. Financial Statements: Page No.
-------
Condensed Consolidated Statement of Income (Unaudited) -
Three and Six Months Ended June 30, 1999 and 1998 3
Condensed Consolidated Statement of Financial Position -
June 30, 1999 (Unaudited) and December 31, 1998 4
Condensed Consolidated Statement of Cash Flows (Unaudited) -
Six Months Ended June 30, 1999 and 1998 5
Notes to Condensed Consolidated Financial Statements
(Unaudited) 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
Part II - Other Information
Item 1. Legal Proceedings 18
Item 6. Exhibits and Reports on Form 8-K 18
Exhibit Index 19
Signatures 21
2
<PAGE>
Commercial Credit Company and Subsidiaries
Condensed Consolidated Statement of Income (Unaudited)
(In millions of dollars)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
- -------------------------------------------------------------------------------------------------------
1999 1998 1999 1998
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues
Finance related interest and other charges $ 523.7 $ 421.6 $1,008.2 $ 828.4
Insurance premiums 59.2 50.3 116.0 98.1
Net investment income 18.8 16.0 36.8 31.0
Other income 33.3 28.4 61.3 45.8
- -------------------------------------------------------------------------------------------------------
Total revenues 635.0 516.3 1,222.3 1,003.3
- -------------------------------------------------------------------------------------------------------
Expenses
Interest 199.9 173.9 388.7 340.7
Non-insurance compensation and benefits 58.2 44.9 112.3 92.1
Provision for consumer finance credit losses 108.9 92.2 205.1 180.2
Policyholder benefits and claims 20.0 16.3 36.9 32.7
Insurance underwriting, acquisition and operating 8.4 7.1 16.2 13.5
Restructuring charges 0.6 -- 2.7 --
Other operating 101.1 79.8 197.7 158.4
- -------------------------------------------------------------------------------------------------------
Total expenses 497.3 414.2 959.8 817.6
- -------------------------------------------------------------------------------------------------------
Income before income taxes 137.7 102.1 262.5 185.7
Provision for income taxes 50.5 36.8 96.0 66.7
- -------------------------------------------------------------------------------------------------------
Net income $ 87.2 $ 65.3 $ 166.5 $ 119.0
=======================================================================================================
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
3
<PAGE>
Commercial Credit Company and Subsidiaries
Condensed Consolidated Statement of Financial Position
(In millions of dollars, except per share amounts)
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1998
- -------------------------------------------------------------------------------------------------------
Assets (Unaudited)
<S> <C> <C>
Cash and cash equivalents $ 20.3 $ 62.3
Investments:
Fixed maturities, primarily available for sale, at
market value (amortized cost - $1,118.9 and $1,056.8) 1,108.6 1,089.6
Equity securities, at market value (cost - $75.3 and $75.4) 75.0 77.2
Short-term and other 143.1 99.8
- --------------------------------------------------------------------------------------------------
Total investments 1,326.7 1,266.6
- --------------------------------------------------------------------------------------------------
Consumer finance receivables 15,266.3 13,394.2
Allowance for losses (456.0) (392.7)
- --------------------------------------------------------------------------------------------------
Net consumer finance receivables 14,810.3 13,001.5
Other receivables 158.2 158.1
Deferred policy acquisition costs 1.0 3.5
Cost of acquired businesses in excess of net assets 589.7 470.7
Other assets 889.8 855.1
- --------------------------------------------------------------------------------------------------
Total assets $17,796.0 $15,817.8
==================================================================================================
Liabilities
Certificates of deposit $ 93.1 $ 322.2
Short-term borrowings 7,888.1 5,891.4
Long-term debt 6,050.0 6,250.0
- --------------------------------------------------------------------------------------------------
Total debt 14,031.2 12,463.6
Insurance policy and claims reserves 610.3 553.2
Accounts payable and other liabilities 779.8 684.2
- --------------------------------------------------------------------------------------------------
Total liabilities 15,421.3 13,701.0
- --------------------------------------------------------------------------------------------------
Stockholder's equity
Common stock ($.01 par value; authorized: 1,000 shares;
issued: 1 share) -- --
Additional paid-in capital 856.6 736.1
Retained earnings 1,525.3 1,358.8
Accumulated other changes in equity from nonowner sources (7.2) 21.9
- --------------------------------------------------------------------------------------------------
Total stockholder's equity 2,374.7 2,116.8
- --------------------------------------------------------------------------------------------------
Total liabilities and stockholder's equity $17,796.0 $15,817.8
==================================================================================================
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
4
<PAGE>
Commercial Credit Company and Subsidiaries
Condensed Consolidated Statement of Cash Flows (Unaudited)
(In millions of dollars)
Six Months Ended June 30, 1999 1998
- --------------------------------------------------------------------------------
Net cash provided by operating activities $ 482.0 $ 604.2
- --------------------------------------------------------------------------------
Cash Flows From Investing Activities
Net change in credit card receivables (336.5) (187.7)
Loans originated or purchased (4,290.4) (3,054.9)
Loans repaid or sold 2,437.9 2,077.8
Purchases of investments (316.6) (246.8)
Proceeds from sales of investments 211.7 111.6
Proceeds from maturities of investments 0.7 2.5
Other, net 25.7 37.9
- --------------------------------------------------------------------------------
Net cash used by investing activities (2,267.5) (1,259.6)
- --------------------------------------------------------------------------------
Cash Flows From Financing Activities
Dividends paid -- (16.0)
Capital contributions 120.5 --
Issuance of long-term debt -- 300.0
Payments of long-term debt (200.0) (300.0)
Net change in securities sold subject to repurchase 55.4 --
Net change in short-term borrowings 1,996.7 520.7
Net change in certificates of deposit (229.1) 189.7
- --------------------------------------------------------------------------------
Net cash provided by financing activities 1,743.5 694.4
- --------------------------------------------------------------------------------
Change in cash and cash equivalents (42.0) 39.0
Cash and cash equivalents at beginning of period 62.3 18.4
- --------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 20.3 $ 57.4
================================================================================
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 388.4 $ 330.2
Cash paid during the period for income taxes $ 122.2 $ 18.7
================================================================================
See Notes to Condensed Consolidated Financial Statements.
5
<PAGE>
Commercial Credit Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
1. Basis of Presentation
Commercial Credit Company (the Company) is a wholly owned subsidiary of
CCC Holdings, Inc., which is a wholly owned subsidiary of Citigroup Inc.
(formerly Travelers Group Inc. and hereinafter referred to as Citigroup).
The condensed consolidated financial statements include the accounts of
the Company and its subsidiaries.
The accompanying condensed consolidated financial statements as of June
30, 1999 and for the three and six month periods ended June 30, 1999 and
1998 are unaudited. In the opinion of management all adjustments,
consisting of normal recurring adjustments, necessary for a fair
presentation have been reflected. The accompanying condensed consolidated
financial statements should be read in conjunction with the consolidated
financial statements and related notes included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1998.
Certain financial information that is normally included in annual
financial statements prepared in accordance with generally accepted
accounting principles, but is not required for interim reporting purposes,
has been condensed or omitted.
Certain reclassifications have been made to the prior year's financial
statements to conform to the current year's presentation. The financial
statements include certain retroactive adjustments to conform accounting
methodologies as a result of the merger of Citicorp with and into a newly
formed, wholly owned subsidiary of Travelers Group Inc.
2. Consumer Finance Receivables
Consumer finance receivables, net of unearned finance charges of $798.5
million and $769.5 million at June 30, 1999 and December 31, 1998,
respectively, consisted of the following:
(millions) June 30, 1999 December 31, 1998
------------- -----------------
Real estate-secured loans $ 7,598.9 $ 6,625.5
Personal loans 4,808.6 4,270.6
Credit cards 1,718.8 1,398.5
Sales finance and other 1,023.7 990.8
----------- -----------
Consumer finance receivables 15,150.0 13,285.4
Accrued interest receivable 116.3 108.8
Allowance for credit losses (456.0) (392.7)
----------- -----------
Net consumer finance receivables $14,810.3 $13,001.5
=========== ===========
6
<PAGE>
Commercial Credit Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
3. Debt
The Company maintains unused credit availability under its bank lines of
credit at least equal to the amount of its outstanding commercial paper.
In connection with the Reorganization (see Note 6) the Company ceased
issuing commercial paper. At June 30, 1999 and December 31, 1998,
short-term borrowings consisted of commercial paper totaling $3,750.8
million and $2,907.6 million, respectively, and other borrowings of
$4,137.3 million and $2,983.8 million, respectively. Other borrowings are
comprised of funding agreements with Citibank, N.A., a wholly owned
subsidiary of Citigroup. Borrowings under these agreements may be at a
fixed or variable rate and the rate is determined at the time of each
borrowing. The agreements are renewable in one year increments and the
aggregate amount outstanding cannot exceed $8.0 billion. The Company may
borrow under its revolving credit facilities at various interest rate
options (LIBOR, CD, base rate or money market) and compensates Citibank
for the facilities through commitment fees.
The Company also has committed and available revolving credit facilities
on a stand-alone basis of $3.4 billion which expire in 2002.
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 June 30, 1999, the Company would have been
able to remit $1.1 billion to its parent under its most restrictive
covenants.
4. Related Party Transactions
To facilitate cash management, the Company has entered into an agreement
with Citigroup under which the Company or Citigroup may borrow from the
other party at any time the greater of (i) $50.0 million or (ii) 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 the
Company's commercial paper rate.
Two wholly owned subsidiaries of the Company have entered into funding
agreements with Citibank, N.A. Borrowings under these agreements are
renewable in one year increments and the aggregate amount outstanding
cannot exceed $8.0 billion. At June 30, 1999, approximately $3.9 billion
was outstanding under these agreements.
7
<PAGE>
Commercial Credit Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
The Company owns (directly and through a subsidiary) 2,105 shares of
Citigroup Cumulative Adjustable Rate Preferred Stock, Series Y, with a
liquidation value of $100,000 per share, which is redeemable at the option
of the Company at certain times and callable by Citigroup at certain
times. At June 30, 1999 and December 31, 1998, this investment is included
in "fixed maturities - available for sale" and is reflected at a carrying
amount of $210.5 million. The Company recorded $5.1 million and $6.6
million of dividend income from this investment for the six months ended
June 30, 1999 and 1998, respectively.
5. Business Segment Information
The Company, through its subsidiaries, is primarily engaged in the
following businesses: Consumer Finance, Credit Cards, and Corporate and
Other.
The Consumer Finance segment includes consumer lending (including secured
and unsecured personal loans, real estate-secured loans and consumer goods
financing). Also included in this segment are credit-related insurance
services provided through American Health and Life Insurance Company (AHL)
and its affiliates.
Credit Cards includes the credit card operations of the Company's state-
chartered bank and federally chartered savings bank. Corporate and Other
consists of corporate staff and treasury operations, the Company's
investment in Citigroup'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.
8
<PAGE>
Commercial Credit Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
The following tables present certain information regarding these segments:
Total Revenues, Net of Interest Three Months Ended Six Months Ended
Expense June 30, June 30,
--------------------------------------------
In Millions of Dollars 1999 1998 1999 1998
- --------------------------------------------------------------------------------
Consumer Finance $410.7 $323.5 $787.5 $632.8
Credit Cards 34.3 28.9 69.4 52.2
Corporate & Other (9.9) (10.0) (23.3) (22.4)
--------------------------------------------
Total $435.1 $342.4 $833.6 $662.6
============================================
Provision for Income Taxes Three Months Ended Six Months Ended
(Benefit) June 30, June 30,
--------------------------------------------
In Millions of Dollars 1999 1998 1999 1998
- --------------------------------------------------------------------------------
Consumer Finance $51.4 $33.5 $97.7 $67.5
Credit Cards 2.0 6.1 5.2 5.6
Corporate & Other (2.9) (2.8) (6.9) (6.4)
--------------------------------------------
Total $50.5 $36.8 $96.0 $66.7
============================================
Net Income (Loss) (1) Three Months Ended Six Months Ended
June 30, June 30,
--------------------------------------------
In Millions of Dollars 1999 1998 1999 1998
- --------------------------------------------------------------------------------
Consumer Finance $87.2 $59.0 $167.2 $118.4
Credit Cards 3.3 9.7 8.3 8.9
Corporate & Other (3.3) (3.4) (9.0) (8.3)
--------------------------------------------
Total $87.2 $65.3 $166.5 $119.0
============================================
(1) Includes after-tax restructuring charge of $0.4 million and $1.8 million for
the three and six month 1999 periods, respectively.
Identifiable Assets
Balance as of
In Millions of Dollars June 30, 1999 December 31, 1998
------------------------------------------------------------
Consumer Finance $15,027.7 $13,409.0
Credit Cards 2,166.6 1,896.7
Corporate & Other 601.7 512.1
---------------- ---------
Total $17,796.0 $15,817.8
=============================
9
<PAGE>
Commercial Credit Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
6. Subsequent Events
On August 4, 1999, the previously reported proposed corporate reorganization
(the "Reorganization") of the Company was completed. The Company, which was
previously a direct wholly owned subsidiary of CitiFinancial Holdings, Inc.
(formerly CCC Holdings, Inc.) a direct wholly owned subsidiary of Citigroup, is
now a direct wholly owned subsidiary of Citicorp Banking Corporation, which is a
direct wholly owned subsidiary of Citicorp, another Citigroup subsidiary. In
connection with the Reorganization, Citicorp issued a full and unconditional
guarantee (the "Guarantee") of all outstanding long-term debt securities and
commercial paper of the Company and the Company's debt securities and commercial
paper will no longer be separately rated. Citicorp guaranteed the obligations of
the Company under its committed and available five year revolving credit
facilities under which no borrowings are currently outstanding. Under these
facilities, which expire in 2002, the Company can borrow up to $3.4 billion. In
addition, subject to obtaining certain regulatory approvals by the Securities
and Exchange Commission, following the filing of this Quarterly Report on Form
10-Q, the Company intends to cease filing periodic reports pursuant to the
Securities Exchange Act of 1934, as amended.
On July 13, 1999 a subsidiary of the Company entered into an agreement to
purchase certain assets associated with loan servicing from IMC Mortgage Company
for $100 million. The transaction is expected to be finalized in October 1999.
10
<PAGE>
Commercial Credit Company and Subsidiaries
Item 2. MANAGEMENT'S DISCUSSION and ANALYSIS of FINANCIAL CONDITION
and RESULTS of OPERATIONS
Consolidated Results of Operations
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
----------------------------------------------------------------------------------------------------
(In millions) 1999 1998 1999 1998
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total revenue, net of interest expense $ 435.1 $ 342.4 $ 833.6 $ 662.6
Adjusted operating expense (1) 167.9 131.8 326.4 264.0
Provision for benefits, claims and credit losses 128.9 108.5 242.0 212.9
---------------------------------------------
Business income before taxes 138.3 102.1 265.2 185.7
Income taxes 50.7 36.8 96.9 66.7
---------------------------------------------
Business income 87.6 65.3 168.3 119.0
Restructuring related items, after-tax 0.4 -- 1.8 --
---------------------------------------------
Net income $ 87.2 $ 65.3 $ 166.5 $ 119.0
=============================================
</TABLE>
(1) Excludes restructuring related items
Results of Operations
The consolidated net income of the Company was $87.2 million and $166.5 million
in the second quarter and six months of 1999, respectively, up from $65.3
million and $119.0 million in the corresponding 1998 periods. Total revenues,
net of interest expense for the quarter ended June 30 1999 were $435.1 million
compared to $342.4 million in the corresponding 1998 period. For the six months
period ended June 30, 1999 and 1998 total revenues, net of interest expense were
$833.6 million and $662.6 million respectively.
Restructuring related items associated with the name change of the Company's
subsidiaries as a result of the merger with Citicorp of $0.6 million ($0.4
million after-tax) and $2.7 million ($1.8 million after-tax) were recorded for
the three and six month periods of 1999, respectively.
11
<PAGE>
Commercial Credit Company and Subsidiaries
The following discussion presents in more detail each segment's performance.
Segment Results for the Three and Six Months Ended June 30, 1999 and 1998
Consumer Finance
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
----------------------------------------------------------------------------------------------------
(In millions) 1999 1998 1999 1998
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total revenue, net of interest expense $ 410.7 $ 323.5 $ 787.5 $ 632.8
Adjusted operating expense (1) 154.3 122.7 298.1 244.3
Provision for benefits, claims and credit losses 117.2 108.3 221.8 202.6
---------------------------------------------
Business income before taxes 139.2 92.5 267.6 185.9
Income taxes 51.6 33.5 98.6 67.5
---------------------------------------------
Business income 87.6 59.0 169.0 118.4
Restructuring related items, after-tax 0.4 -- 1.8 --
---------------------------------------------
Net income $ 87.2 $ 59.0 $ 167.2 $ 118.4
=============================================
</TABLE>
(1) Excludes restructuring related items
Net income was $87.2 million and $167.2 million in the second quarter and six
months of 1999, respectively, up from $59.0 million and $118.4 million in the
comparable periods of 1998. Receivables grew 29% from the 1998 second quarter
due to healthy business flow at Commercial Credit branches, cross-selling of
Commercial Credit products through Primerica distribution channels and the
acquisition of certain Associates First Capital branches. The total number of
Commercial Credit branches rose to 1,177 at the end of the second quarter of
1999, up from 980 at year-end 1998. Net receivables at June 30, 1999 reached a
record $13.4 billion compared to $11.9 billion at year-end 1998 and $10.6
billion at June 30, 1998. Much of the growth in 1999 in real estate-secured
loans resulted from the continued strong performance of the $.M.A.R.T. Loan(R)
and $.A.F.E.(R) Loan programs, which grew to $3.45 billion at June 30, 1999, a
32% increase over June 30, 1998, as well as solid sales in the branch network.
The average yield on owned receivables was 14.48%, during the second quarter of
1999 and 14.43% for the first six months of 1999 down from 14.94% in the second
quarter of 1998 and 14.93% for the first six months of 1998, reflecting the
shift in the portfolio mix toward lower-risk real estate loans which have lower
margins. At June 30, 1999, the portfolio consisted of 57% real estate-secured
loans, 36% personal loans and 7% sales finance and other.
12
<PAGE>
Commercial Credit Company and Subsidiaries
Delinquencies in excess of 60 days on receivables were 1.67% at June 30, 1999,
down from 1.90% at year-end 1998 and 1.74% at June 30, 1998. The charge-off rate
on receivables of 2.14% in the second quarter of 1999 and 2.24% for the first
six months 1999 compared to 2.78% in the second quarter of 1998 and 2.83% for
the first six months of 1998.
As of, or for the
Three Months Ended June 30,
-----------------------------
1999 1998
-----------------------------
Allowance for credit losses as % of
net outstandings 3.20% 3.00%
Charge-off rate for the period 2.14% 2.78%
60 + days past due on a contractual
basis as a % of gross receivables at
quarter end 1.67% 1.74%
13
<PAGE>
Commercial Credit Company and Subsidiaries
Credit Cards
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------------------------------------------------------------------
(In millions) 1999 1998 1999 1998
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total revenue, net of interest expense $ 34.3 $ 28.9 $ 69.4 $ 52.2
Operating expense 17.3 12.9 35.7 27.4
Provision for credit losses 11.7 0.2 20.2 10.3
------------------------------------------
Business income before taxes 5.3 15.8 13.5 14.5
Income taxes 2.0 6.1 5.2 5.6
------------------------------------------
Net income $ 3.3 $ 9.7 $ 8.3 $ 8.9
==========================================
</TABLE>
Net income was $3.3 million and $8.3 million in the second quarter and six
months of 1999, respectively compared to a net income of $9.7 million and $8.9
million in the comparable periods of 1998. The second quarter of 1998 results
benefited from a reduction in the allowance for loss reserves based on the
improving delinquency and charge off rates of $9.5 million on a pre-tax basis or
$5.8 million on an after-tax basis. Operating expenses increased 34% in the
second quarter of 1999 versus the same period of 1998 primarily due to increased
expenditures for marketing efforts. Year to date net income is relatively
unchanged for the two periods. The 33% increase in year to date total revenue,
net of interest expense was offset by higher operating expenses and increase in
the provision for credit losses that were previously discussed.
As a result of the merger with Citigroup, Credit Cards was able to utilize
Citibank deposit funding as its primary source of borrowing starting in the
fourth quarter of 1998. The use of this facility and the decline in market
interest rates lowered the average costs of funds for Credit Cards to 4.95% for
the first half of 1999 compared to 5.90% in the same period of 1998. The net
interest spread improved to 3.83% in the first half of 1999 from 3.31% in the
same period of 1998 primarily due to the lower cost of borrowed funds. The total
yield on the portfolio declined to 8.78% for the six months ended June 30, 1999,
from 9.21% in the same period of 1998, primarily due to the use of introductory
rates to facilitate portfolio growth.
As of, or for, the Three
months Ended June 30
-------------------------------------------------------------------------
1999 1998
---------------------------
Allowance for credit losses as a % of net 1.14% 2.13%
Receivables
Charge-off rate for the period 2.42% 2.28%
60+ days past due on a contractual basis
as a % of gross receivables at quarter end 0.64% 0.70%
14
<PAGE>
Commercial Credit Company and Subsidiaries
Corporate and Other
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------------------------------------------------------------------------
(In millions) 1999 1998 1999 1998
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total revenue, net of interest expense $ (9.9) $ (10.0) $ (23.3) $ (22.4)
Operating expense (3.7) (3.8) (7.4) (7.7)
----------------------------------------------
Business income before taxes (6.2) (6.2) (15.9) (14.7)
Income taxes (2.9) (2.8) (6.9) (6.4)
----------------------------------------------
Net income $ (3.3) $ (3.4) $ (9.0) $ (8.3)
==============================================
</TABLE>
The unfavorable variance in Corporate and Other net loss for the six months
ended of 1999 compared to the same period of 1998 is primarily attributable to
higher interest costs incurred at the corporate level.
Liquidity and Capital Resources
The Company 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 (LIBOR, CD, base rate or money market) and compensates the banks
for the facilities through commitment fees. Additional details on Liquidity and
Capital Resources can be found in the Debt and Related Party Transactions
section of Item 1 - the Notes to Condensed Consolidated Financial Statements.
The Company believes that it has adequate Liquidity and Capital Resources to
meets its current and future obligations.
15
<PAGE>
Commercial Credit Company and Subsidiaries
Year 2000
The arrival of the year 2000 poses a unique worldwide challenge to the ability
of time sensitive computer systems to recognize the date change from December
31, 1999 to January 1, 2000. The Company has assessed and is modifying its
computer systems and business processes to provide for their continued
functionality and is also assessing the readiness of third parties with which it
interfaces.
The Company is highly dependent on computer systems and system applications for
conducting its ongoing business functions. The inability of systems to recognize
properly the year 2000 could result in major systems failure or miscalculations
that would disrupt the Company's ability to meet its customer and other
obligations on a timely basis, and the Company has engaged in a process of
identifying, assessing, and modifying its computer programs to address this
issue. As part of and following achievement of year 2000 compliance, systems are
subjected to a process that validates the modified programs before they can be
used in production.
The pre-tax cost associated with the required modifications and conversions is
expected to total approximately $10 million through 1999, funded from a
combination of a reprioritization of technology development initiatives and
incremental costs. This is being expensed as incurred. Of the total, it is
anticipated that approximately $4.0 million will be incurred in 1999. This
paragraph contains forward-looking statements within the meaning of the Private
Securities Litigation Reform Act. See "Forward-Looking Statements" below.
Substantially all of the required modification and internal testing work is
complete, including modification of all critical systems. The Company continues
to make satisfactory progress towards full completion of its year 2000 program.
The remainder of 1999 will be spent primarily to address external testing,
integration testing, and production assurance.
The Company's year 2000 program encompasses a range of other matters, including
business applications to be sunset (that is, removed from use in favor of
replacement applications), end-user computing applications, networks, data
centers, desktops, facilities, business processes and external providers.
Substantially all of the investigation and necessary remediation of these
matters has been completed, and substantially all are considered compliant.
16
<PAGE>
Commercial Credit Company and Subsidiaries
The Company is also addressing year 2000 issues that may exist with other
significant third parties with which the Company interfaces, including customers
and counterparties, external service providers, technology vendors, the global
financial market infrastructure including payment and clearing systems, and the
utility infrastructure on which all corporations rely. Unreadiness by these
third parties would expose the Company to the potential for loss, impairment of
business processes and activities, and disruption of financial markets. The
Company is addressing these risks through bilateral and multiparty efforts and
participation in industry, country, and global initiatives. While it is likely
that efforts by third parties to address and resolve their year 2000 issues on a
timely basis will be successful, it is possible that a series of failures by
third parties could have a material adverse effect on the Company's results of
operations in future periods. This paragraph contains forward-looking statements
within the meaning of the Private Securities Litigation Reform Act. See
"Forward-Looking Statements" below.
The Company is creating contingency plans intended to address perceived risks
associated with its year 2000 effort. These activities include planning to
mitigate any risks associated with a failure to complete remediation of critical
systems, business resumption planning to address the possibility of systems
failure, and market resumption planning to address the possibility of failure of
systems or processes outside the Company's control. Contingency planning and
preparations for the management of the date change will continue through 1999.
Notwithstanding these activities, the failure of efforts to address in a timely
manner, the year 2000 problem, could have a material adverse effect on the
Company's result of operations in future periods.
Forward-Looking Statements
Certain of the statements contained herein that are not historical facts are
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act. The Company's actual results may differ materially from
those included in the forward-looking statements. Forward-looking statements are
typically identified by the words "believe," "expect," "anticipate," "intend,"
"estimate," and similar expressions. These forward-looking statements involve
risks and uncertainties including, but not limited to, the following: changes in
general economic conditions, including changes in the interest rate environment,
the level of personal bankruptcies, the actual cost of year 2000 remediation and
the ability of the Company and third parties to modify computer systems for the
year 200 date conversion in a timely manner.
17
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
For information concerning a demand for arbitration served by Norwest Financial,
Inc., see the description that appears in the seventh paragraph under the
caption "Legal Proceedings" beginning on page 10 of the Annual Report on Form
10-K of the Company for the year ended December 31, 1998 (File No. 1-6594) which
description is incorporated by reference herein. A copy of the foregoing
description is included in Exhibit 99.01 to this Form 10-Q. In August 1999, the
parties agreed to a settlement of the arbitration.
For information concerning a number of putative class actions filed against the
Alabama subsidiary of the Company alleging that premiums charged on credit life
insurance were excessive, see the description that appears in the fourth
paragraph under the caption "Legal Proceedings" beginning on page 10 of the
Annual Report on Form 10-K of the Company for the year ended December 31, 1998
(File No. 1-6594) which description is incorporated by reference herein. A copy
of the foregoing description is included in Exhibit 99.02 to this Form 10-Q. In
June 1999, the parties to the action entitled Hughes v. Commercial Credit
Corporation agreed to settle the action.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
See Exhibit Index.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the second quarter of 1999.
However, on July 26, 1999, the Company filed a Current Report on
Form 8-K, dated July 26, 1999, reporting under Item 5 thereof the
proposed corporate reorganization of the Company.
18
<PAGE>
EXHIBIT INDEX
Number Description of Exhibit
- ------- ----------------------
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+ Certificate of Amendment of the Company dated June 9, 1999.
3.03+ Certificate of Amendment of the Company dated June 28, 1999.
3.04 By-laws of the Company, as amended May 14, 1990, incorporated
by reference to Exhibit 3.02 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, 1998 (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).
4.01.3 Agreement of Resignation, Appointment and Acceptance, dated as
of December 16, 1998, by and among the Company, Citibank, N.A.
and the First National Bank of Chicago, incorporated by
reference to Exhibit 4.01.3 to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1998 (File
No. 1-6594).
12.01+ Computation of Ratio of Earnings to Fixed Charges.
27.01+ Financial Data Schedule.
99.01+ Seventh paragraph under the caption "Legal Proceedings"
beginning on page 10 of the Annual Report on Form 10-K of the
Company for the year ended December 31, 1998 (File No.
1-6594).
99.02+ Fourth paragraph under the caption "Legal Proceedings"
beginning on page 10 of the Annual Report on Form 10-K of the
Company for the year ended December 31, 1998 (File No.
1-6594).
19
<PAGE>
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.
- ----------
+ Filed herewith.
20
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Commercial Credit Company
Date: August 13, 1999 By Raymond L. Fischer, Jr.
-------------------------
Raymond L. Fischer, Jr.
Executive Vice President
(Principal Financial Officer)
21
CERTIFICATE OF AMENDMENT
OF
ARTICLES OF INCORPORATION
OF
COMMERCIAL CREDIT COMPANY
(a Delaware corporation)
(Pursuant to Section 242)
Commercial Credit Company, a corporation organized and existing under and
by virtue of the corporation laws of the State of Delaware
DOES HEREBY CERTIFY:
FIRST: That the Board of Directors of said corporation by unanimous
written consent dated June 7, 1999, without a meeting, adopted a resolution
proposing and recommending the following amendment to the Articles of
Incorporation of said corporation:
RESOLVED, that the Articles of Incorporation of Commercial Credit Company
be amended by changing Articles I thereof so that, as amended, said Article
shall be and read as follows:
"The name of the incorporation is
CitiFinancial Credit Company."
SECOND: That in lieu of a meeting and vote of stockholder, the stockholder
has given unanimous written consent to said amendment in accordance with the
provisions of the laws of the State of Delaware.
THIRD: That the aforesaid amendment was duly adopted in accordance with
the applicable provisions of Delaware law on June 8, 1999.
IN WITNESS WHEREOF, said Commercial Credit Company has caused this
certificate to be signed by its Senior Vice President this 8th day of June,
1999.
COMMERCIAL CREDIT COMPANY
By: /s/ Martin J. Wong
Senior Vice President
Martin J. Wong
[Corporate Seal]
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
* * * * *
CitiFinancial Credit Company, a corporation organized and existing under
and by virtue of the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST: That the Board of Directors of said corporation, June 28, 1999,
adopted a resolution proposing and declaring advisable the following amendment
to the Certificate of Incorporation of said corporation:
RESOLVED, that the Certificate of Incorporation of CitiFinancial Credit
Company be amended by changing the First Article thereof so that, as
amended, said Article shall be and read as follows:
The name of the corporation is: Commercial Credit Company.
SECOND: That in lieu of a meeting and vote of stockholders, the
stockholders have given unanimous written consent to said amendment in
accordance with the provisions of Section 228 of the General Corporation Law of
the State of Delaware.
THIRD: That the aforesaid amendment was duly adopted in accordance with
the applicable provisions of Sections 242 and 228 of the General Corporation Law
of the State of Delaware.
IN WITNESS WHEREOF, said CitiFinancial Credit Company has caused this
certificate to be signed by Martin J. Wong, its Vice President, this 28th day of
June, 1999.
/s/ Martin J. Wong
By: Martin J. Wong, Vice President
Commercial Credit Company and Subsidiaries
Computation of Ratio of Earnings to Fixed Charges
(In millions of dollars, except for ratio)
Six months ended June 30,
-------------------------
1999 1998
------ ------
Earnings Available for Fixed Charges
Income before income taxes $262.5 $185.7
Elimination of undistributed equity earnings (0.1) (0.2)
Interest 388.7 340.7
Portion of rentals deemed to be interest 5.8 5.5
------ ------
Earnings available for fixed charges $656.9 $531.7
====== ======
Fixed Charges
Interest $388.7 $340.7
Portion of rentals deemed to be interest 5.8 5.5
------ ------
Fixed charges $394.5 $346.2
====== ======
Ratio of earnings to fixed charges 1.67x 1.54x
====== ======
Seventh paragraph under the caption "Legal Proceedings" beginning on page 10 of
the Annual Report on Form 10-K of the Company for the year ended December 31,
1998 (File No. 1-6594).
On June 30, 1998, CC Finance System Inc. (formerly Security Pacific Finance
System Incorporated, "Security Pacific"), a subsidiary of the Company, was
served by Norwest Financial, Inc. ("Norwest") with a demand for arbitration
pursuant to a contract for data processing services between Security Pacific and
Norwest. The demand asserts a claim for approximately $42 million of damages as
a result of Security Pacific's alleged breach of the contract following the
acquisition of Security Pacific by the Company in July 1997. The arbitration
will be conducted in accordance with the rules and procedures of the American
Arbitration Association. The Company has vigorously defended against the claim
asserted by Norwest and intends to continue doing so.
Fourth paragraph under the caption "Legal Proceedings" beginning on page 10 of
the Annual Report on Form 10-K of the Company for the year ended December 31,
1998 (File No. 1-6594).
Beginning in June 1994, a number of putative class actions have been filed
against the Alabama subsidiary of the Company alleging that premiums charged on
credit life insurance were excessive. These cases, which essentially duplicate
each other, are: Lawrence v. Commercial Credit Corporation, et al., filed in the
Circuit Court of Jefferson County, Alabama in June 1994; Royster v. Commercial
Credit Corporation, et al., filed in the Circuit Court of Walker County, Alabama
in September 1995; Hughes v. Commercial Credit Corporation, filed in the Circuit
Court of Calhoun County, Alabama in July 1996; and Smith v. Commercial Credit
Corporation, filed in the Circuit Court of Walker County, Alabama in December
1996. In December 1996, a settlement class was conditionally certified in the
Hughes case. But several decisions of the Alabama Supreme Court cast doubt on
whether that Court has jurisdiction to entertain the settlement in Hughes. In
the event that it is determined that the Court in Hughes does not have
jurisdiction, the Lawrence case will proceed.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE JUNE 30,
1999 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF COMMERCIAL CREDIT COMPANY
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. ITEM
NO. Amount
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 20,300
<SECURITIES> 1,326,700 <F1>
<RECEIVABLES> 14,894,800 <F2>
<ALLOWANCES> (456,000)
<INVENTORY> 0 <F3>
<CURRENT-ASSETS> 0 <F3>
<PP&E> 0 <F3>
<DEPRECIATION> 0 <F3>
<TOTAL-ASSETS> 17,796,000
<CURRENT-LIABILITIES> 0 <F3>
<BONDS> 14,031,200 <F4>
0 <F3>
0
<COMMON> 0
<OTHER-SE> 2,374,600 <F5>
<TOTAL-LIABILITY-AND-EQUITY> 17,796,000
<SALES> 0 <F3>
<TOTAL-REVENUES> 1,222,300
<CGS> 0 <F3>
<TOTAL-COSTS> 959,800
<OTHER-EXPENSES> 0 <F3>
<LOSS-PROVISION> 205,100 <F6>
<INTEREST-EXPENSE> 388,700 <F6>
<INCOME-PRETAX> 262,500
<INCOME-TAX> 96,000
<INCOME-CONTINUING> 166,500
<DISCONTINUED> 0 <F3>
<EXTRAORDINARY> 0 <F3>
<CHANGES> 0 <F3>
<NET-INCOME> 166,500
<EPS-BASIC> 0 <F3>
<EPS-DILUTED> 0 <F3>
<FN>
<F1> Includes the following items from the financial statements: total
investments $1,326,700.
<F2> Includes the following items from the financial statements: consumer
finance receivables $14,736,600 and other receivables $158,200.
<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 $93,100; short-term borrowings $7,888,100 and long-term debt
$6,050,000.
<F5> Includes the following items from the financial statements: additional
paid-in capital $856,600; retained earnings $1,525,200; accumulated other
changes in equity from nonowner sources $(7,200).
<F6> Included in total costs and expenses applicable to sales and revenues.
</FN>
</TABLE>
