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 March 31, 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. As of
the date hereof, one share of the registrant's Common Stock, $.01 par value, was
outstanding.
REDUCED DISCLOSURE FORMAT
THE REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION H(1)(a) AND
(b) OF FORM 10-Q AND IS THEREFORE FILING THIS FORM 10-Q WITH THE REDUCED
DISCLOSURE FORMAT.
<PAGE>
Commercial Credit Company and Subsidiaries
TABLE OF CONTENTS
Part I - Financial Information
Item 1. Financial Statements: Page No.
--------
Condensed Consolidated Statement of Income (Unaudited) -
Three Months Ended March 31, 1999 and 1998 3
Condensed Consolidated Statement of Financial Position -
March 31, 1999 (Unaudited) and December 31, 1998 4
Condensed Consolidated Statement of Cash Flows (Unaudited) -
Three Months Ended March 31, 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 9
Part II - Other Information
Item 1. Legal Proceedings 14
Item 6. Exhibits and Reports on Form 8-K 14
Exhibit Index 15
Signatures 16
2
<PAGE>
Commercial Credit Company and Subsidiaries
Condensed Consolidated Statement of Income (Unaudited)
In Millions of Dollars
Three Months Ended
March 31,
-----------------------------
1999 1998
- --------------------------------------------------------------------------------
Revenues
Finance related interest and other charges $484.5 $406.8
Insurance premiums 56.8 47.8
Net investment income 18.0 15.0
Other income 28.0 17.4
- --------------------------------------------------------------------------------
Total revenues 587.3 487.0
- --------------------------------------------------------------------------------
Expenses
Interest 188.8 166.8
Non-insurance compensation and benefits 54.1 47.2
Provision for consumer finance credit losses 96.2 88.0
Policyholder benefits and claims 16.9 16.4
Insurance underwriting, acquisition and operating 7.8 6.4
Restructuring charges 2.1 -
Other operating 96.6 78.6
- --------------------------------------------------------------------------------
Total expenses 462.5 403.4
- --------------------------------------------------------------------------------
Income before income taxes 124.8 83.6
Provision for income taxes 45.5 29.9
- --------------------------------------------------------------------------------
Net income $ 79.3 $ 53.7
================================================================================
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>
March 31, 1999 December 31, 1998
- -------------------------------------------------------------------------------------------------------------
Assets (Unaudited)
<S> <C> <C>
Cash and cash equivalents $ 36.9 $ 62.3
Investments:
Fixed maturities, primarily available for sale, at market value
(amortized cost - $1,098.9 and $1,056.8) 1,114.2 1,089.6
Equity securities, at market value (cost - $75.3 and $75.4) 75.0 77.2
Short-term and other 107.0 99.8
- -------------------------------------------------------------------------------------------------------------
Total investments 1,296.2 1,266.6
- -------------------------------------------------------------------------------------------------------------
Consumer finance receivables 14,264.7 13,394.2
Allowance for losses (411.9) (392.7)
- -------------------------------------------------------------------------------------------------------------
Net consumer finance receivables 13,852.8 13,001.5
Other receivables 158.8 158.1
Deferred policy acquisition costs 2.3 3.5
Cost of acquired businesses in excess of net assets 585.1 470.7
Other assets 854.6 855.1
=============================================================================================================
Total assets $16,786.7 $15,817.8
=============================================================================================================
Liabilities
Certificates of deposit $ 89.6 $ 322.2
Short-term borrowings 6,843.1 5,891.4
Long-term debt 6,250.0 6,250.0
- -------------------------------------------------------------------------------------------------------------
Total debt 13,182.7 12,463.6
Insurance policy and claims reserves 568.6 553.2
Accounts payable and other liabilities 731.4 684.2
- -------------------------------------------------------------------------------------------------------------
Total liabilities 14,482.7 13,701.0
- -------------------------------------------------------------------------------------------------------------
Stockholder's equity
Common stock ($.01 par value; authorized shares: 1,000; share issued - -
and outstanding: 1)
Additional paid-in capital 856.4 736.1
Retained earnings 1,438.1 1,358.8
Accumulated other changes in equity from nonowner sources 9.5 21.9
- -------------------------------------------------------------------------------------------------------------
Total stockholder's equity 2,304.0 2,116.8
=============================================================================================================
Total liabilities and stockholder's equity $16,786.7 $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
Three months ended March 31, 1999 1998
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Net cash provided by operating activities $ 236.2 $ 320.7
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Cash Flows From Investing Activities
Net change in credit card receivables 48.7 4.8
Loans originated or purchased (2,322.7) (1,386.5)
Loans repaid or sold 1,171.0 1,018.3
Purchases of investments (188.3) (103.3)
Proceeds from sales of investments 140.9 28.0
Proceeds from maturities of investments - 0.7
Other, net 21.2 10.4
- -------------------------------------------------------------------------------
Net cash used in investing activities (1,129.2) (427.6)
- -------------------------------------------------------------------------------
Cash Flows From Financing Activities
Capital contributions 120.3 -
Issuance of long-term debt - 300.0
Payments of long-term debt - (200.0)
Net change in short-term borrowings 951.7 (95.3)
Net change in securities sold subject to repurchase 28.2 -
Net change in certificates of deposit (232.6) 102.1
- -------------------------------------------------------------------------------
Net cash provided by financing activities 867.6 106.8
- -------------------------------------------------------------------------------
Change in cash and cash equivalents (25.4) (0.1)
Cash and cash equivalents at beginning of period 62.3 18.4
===============================================================================
Cash and cash equivalents at end of period $ 36.9 $ 18.3
===============================================================================
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 184.2 $154.8
Cash (received) paid during the period for income taxes $ 15.7 $ (17.0)
===============================================================================
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 March
31, 1999 and for the three-month period ended March 31, 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 $777.1
million and $769.5 million at March 31, 1999 and December 31, 1998,
respectively, consisted of the following:
(In Millions of Dollars) March 31, 1999 December 31, 1998
-------------- -----------------
Real estate-secured loans $ 7,138.0 $ 6,625.5
Personal loans 4,641.4 4,270.6
Credit cards 1,343.0 1,398.5
Sales finance and other 1,033.7 990.8
-------------- ----------------
Consumer finance receivables 14,156.1 13,285.4
Accrued interest receivable 108.6 108.8
Allowance for credit losses (411.9) (392.7)
-------------- ----------------
Net consumer finance receivables $13,852.8 $13,001.5
=============== ================
3. Acquisition
On March 31, 1999 the Company purchased approximately $523.0 million of
consumer finance receivables, net of unearned finance charges and accrued
interest from Associates Financial Services Company, Inc. The portfolio
consisted of approximately 52% personal loans, 35% real estate-secured
loans, and 13% of sales finance and other. The transaction has been
accounted for as a purchase and
6
<PAGE>
Notes to Condensed Consolidated Financial Statements (continued)
resulted in approximately $119.3 million of goodwill. There was no impact
on the Consolidated Statement of Income for the three months ended March
31, 1999 due to the closing of the transaction on the last day of the
quarter.
4. Debt
The Company issues commercial paper directly to investors and maintains
unused credit availability under its bank lines of credit at least equal to
the amount of its outstanding commercial paper. At March 31, 1999 and
December 31, 1998, short-term borrowings consisted of commercial paper
totaling $3,414.6 million and $2,907.6 million, respectively, and other
borrowings of $3,428.5 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 the bank for
the facilities through commitment fees.
Citigroup, the Company and The Travelers Insurance Company (TIC) have a
five year revolving credit facility that expires in June 2001 with a
syndicate of banks to provide $1.0 billion of revolving credit, to be
allocated to any of Citigroup, the Company or TIC. At March 31, 1999, all
of this facility was allocated to Citigroup. Citigroup and the Company also
have $200 million in 364-day facilities, which expire in August 1999 and
may be allocated to either Citigroup or the Company. At March 31, 1999,
$200 million was allocated to Citigroup.
The Company also has committed and available revolving credit facilities on
a stand-alone basis of $4.75 billion, of which $3.4 billion expires in 2002
and $1.35 billion expires in July 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 March 31, 1999, the Company would have been
able to remit $1.02 billion to its parent under its most restrictive
covenants.
5. 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., a wholly owned subsidiary of Citigroup.
Borrowings under these agreements are renewable in one year increments and
the aggregate amount outstanding cannot exceed $8.0 billion. At March 31,
1999, approximately $3.0 billion was outstanding under these agreements.
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 March 31, 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 $2.6 million and $3.3
million of dividend income from this investment for the three months ended
March 31, 1999 and 1998, respectively.
6. 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.
7
<PAGE>
Notes to Condensed Consolidated Financial Statements (continued)
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.
The following tables presents certain information regarding these segments:
Total Revenues, Net Provision for
In Millions of Dollars of Interest Expense Income Taxes (Benefit)
---------------------------------------------------------------------------
First Quarter First Quarter
1999 1998 1999 1998
----------------------------------------------------
Consumer Finance $ 376.8 $309.3 $ 46.3 $34.0
Credit Cards 35.1 23.3 3.2 (0.5)
Corporate & Other (13.4) (12.4) (4.0) (3.6)
----------------------------------------------------
Total $ 398.5 $320.2 $ 45.5 $29.9
----------------------------------------------------
Net Income Identifiable
In Millions of Dollars (Loss) (1) Assets
---------------------------------------------------------------------------
First Quarter
1999 1998 3/31/99 12/31/98
----------------------------------------------------
Consumer Finance $ 80.0 $59.4 $14,491.2 $13,409.0
Credit Cards 5.0 (0.8) 1,805.2 1,896.7
Corporate & Other (5.7) (4.9) 490.3 512.1
----------------------------------------------------
Total $ 79.3 $53.7 $16,786.7 $15,817.8
----------------------------------------------------
(1) Includes after-tax restructuring charge of $1.4 million for the 1999
period.
8
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION and ANALYSIS of FINANCIAL CONDITION
and RESULTS of OPERATIONS
Consolidated Results of Operations
Three Months Ended
March 31,
-------------------------------------------------------------------------
In Millions of Dollars 1999 1998
-------------------------------------------------------------------------
Total revenue, net of interest expense $398.5 $320.2
Adjusted operating expense (1) 158.5 132.2
Provision for benefits, claims and credit losses 113.1 104.4
-------------------
Business income before taxes 126.9 83.6
Income taxes 46.2 29.9
-------------------
Business income 80.7 53.7
Restructuring charge, aftertax 1.4 -
-------------------
Net income $ 79.3 $ 53.7
===================
(1) Excludes restructuring related items
Results of Operations
The consolidated net income of the Company for the three months ended March 31,
1999 was $79.3 million compared to $53.7 million in the corresponding 1998
period. Total revenues for the quarter ended March 31, 1999 were $587.3 million
compared to $487.0 million in the corresponding 1998 period.
Restructuring charges associated with the name change of the Company's
subsidiaries as a result of the merger with Citicorp of $2.1 million ($1.4
million aftertax) were recorded in the first quarter of 1999.
The following discussion presents in more detail each segment's performance.
Segment Results for the Three Months Ended March 31, 1999 and 1998
Consumer Finance
Three Months Ended
March 31,
---------------------------------------------------------------------------
In Millions of Dollars 1999 1998
---------------------------------------------------------------------------
Total revenue, net of interest expense $376.8 $309.3
Adjusted operating expense (1) 143.8 121.6
Provision for benefits, claims and credit losses 104.6 94.3
----------------------
Business income before taxes 128.4 93.4
Income taxes 47.0 34.0
----------------------
Business income 81.4 59.4
Restructuring charge, aftertax 1.4 -
----------------------
Net income $ 80.0 $ 59.4
======================
(1) Excludes restructuring-related items
9
<PAGE>
Business income was $81.4 million in the first quarter of 1999 compared to $59.4
million in the first quarter of 1998. Receivables grew 28% from the 1998 first
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 branches from Associates Financial
Services Company, Inc. ("Associates"). The total number of Commercial Credit
branches rose to 1,143 at the end of the first quarter of 1999, up from 980 at
year-end 1998. Net receivables at March 31, 1999 reached a record $12.9 billion
compared to $11.9 billion at year-end 1998 and $10.1 billion at March 31, 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 $3.16 billion at March 31, 1999, a 31% increase over
March 31, 1998. Solid sales in the branch network also contributed to the year
over year growth.
During the first quarter of 1999, the average yield on receivables was 14.38%,
down from 14.91% in the first quarter of 1998, reflecting the shift in the
portfolio mix toward lower-risk real estate loans. At March 31, 1999, the
portfolio consisted of 56% real estate-secured loans, 36% personal loans and 8%
sales finance and other, compared to 53%, 38% and 9%, respectively, at March 31,
1998.
Delinquencies in excess of 60 days on receivables were 1.78% at March 31, 1999,
down from 1.90% at year-end 1998 and 1.82% at March 31, 1998. The acquisition of
receivables from Associates at March 31, 1999 contributed to the improvement
from year end 1998. The charge-off rate on receivables of 2.35% in the first
quarter of 1999 compared to 2.89% in the first quarter of 1998.
As of, or for, the
Three months Ended
March 31
----------------------------------------------------------------------------
1999 1998
----------------------
Allowance for losses as a % of net 3.02% 2.93%
receivables
Charge-off rate for the period 2.35% 2.89%
60+ days past due on a contractual basis as a %
of gross receivables at quarter end 1.78% 1.82%
10
<PAGE>
Credit Cards
Three Months Ended
March 31,
-----------------------------------------------------------------------
In Millions of Dollars 1999 1998
-----------------------------------------------------------------------
Total revenue, net of interest expense $35.1 $23.3
Operating expense 18.4 14.5
Provision for credit losses 8.5 10.1
------------------
Business income (loss) before taxes 8.2 (1.3)
Income taxes (benefit) 3.2 (0.5)
==================
Net income (loss) $ 5.0 $(0.8)
==================
Net income was $5.0 million in the first quarter of 1999 compared to a net loss
of $(0.8) million in the first quarter of 1998. The improvement in net income in
1999 reflects receivable growth and a reduction in the provision for credit
losses. Total revenues, net of interest expense increased 51% as of the result
of lower cost of funds and the investment made to build the receivable portfolio
in previous years. Receivables at the end of the first quarter of 1999 were
$1,343.0 million, an increase of 10.2% over the comparable prior year amount of
$1,219.2 million. The provision for credit losses benefited from continued
improvement in charge-off and delinquency rates.
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 quarter of 1999 compared to 5.90% in the first quarter of 1998. The
net interest spread improved to 4.10% in the first quarter of 1999 from 3.45% in
the same period of 1998 primarily due to the lower cost of borrowed funds. The
total yield on the portfolio declined to 9.05% in the first quarter of 1999,
from 9.35% in the same period of 1998, primarily due to the use of introductory
rates.
As of , or for, the
Three months Ended
March 31
--------------------------------------------------------------------------
1999 1998
--------------------
Allowance for losses as a % of net 1.38% 2.99%
receivables
Charge-off rate for the period 1.93% 2.22%
60+ days past due on a contractual basis as a %
of gross receivables at quarter end 0.74% 0.76%
11
<PAGE>
Corporate and Other
Three Months Ended
March 31,
-------------------------------------------------------------------------
In Millions of Dollars 1999 1998
-------------------------------------------------------------------------
Total revenue, net of interest expense $(13.4) $(12.4)
Operating expense (3.7) (3.9)
--------------------
Business loss before taxes (9.7) (8.5)
Income tax benefit (4.0) (3.6)
--------------------
Net loss $ (5.7) $ (4.9)
====================
The unfavorable variance in Corporate and Other net loss for the first quarter
of 1999 compared to the first quarter of 1998 is primarily attributable to
higher interest costs incurred at the corporate level.
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 (LIBOR, CD, base
rate or money market) and compensates the banks for the facilities through
commitment fees.
Two wholly owned subsidiaries of the Company have one year renewable funding
agreements totalling $8.0 billion with Citibank, N.A., a wholly owned subsidiary
of Citigroup. Approximately $5.0 billion is available under these agreements.
Citigroup, 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 Citigroup, the Company or TIC. The revolving credit
facility consists of a five-year facility which expires in June 2001. Currently,
all of the facility is allocated to Citigroup. Citigroup and the Company also
have $200 million in 364-day facilities, which expire in August 1999 and may be
allocated to either Citigroup or the Company. Currently, all of this facility is
allocated to Citigroup. In addition, the Company has committed and available
revolving credit facilities on a stand-alone basis of $4.75 billion, consisting
of $3.4 billion that expires in 2002 and $1.35 billion that expires in July
1999.
The Company has unused credit availability of $4.75 billion under the revolving
credit facilities referred to above.
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 March 31, 1999, the Company would have been able to
remit $1.02 billion to its parent under its most restrictive covenants.
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.
12
<PAGE>
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, with the remainder scheduled for completion so as to leave the rest of
the year 1999 primarily for external testing, full integration testing and
production assurance. The Company is addressing other technology-related matters
including business applications to be sunset (that is, removed from use in favor
of replacement applications), end-user computing applications, networks, data
center systems, and the desktop environment, and these are similarly progressing
towards timely resolution.
The Company is also addressing year 2000 issues that may exist outside its own
technology activities, including its facilities and business processes, external
service providers, and other third parties with which it interfaces.
Substantially all of the Company's facilities and related systems have been
investigated, and modification is under way. Other business processes are
likewise being addressed across the Company.
Significant third parties with which the Company interfaces with regard to the
year 2000 problem include 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 years.
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.
13
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
For information concerning two putative class actions Princess Nobels,
et al. V. Associates Corporation of North America and Keckler v. Commercial
Credit Corporation, see the description that appears in the third 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 April
1999, the parties to the actions agreed to a settlement which the court has
preliminarily approved.
For information concerning a putative class action entitled McCurdy v.
American General Finance, see the description that appears in the fifth
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
March 1999, the action was dismissed.
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 first quarter of 1999.
14
<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 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+ Certain Legal Proceedings.
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.
15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
Commercial Credit Company
Date: May 14, 1999 By /s/ Raymond L. Fischer, Jr.
----------------------------------
Raymond L. Fischer, Jr.
Executive Vice President
(Principal Financial Officer)
Date: May 14, 1999 By /s/ Irwin Ettinger
----------------------------------
Irwin Ettinger
Executive Vice President
(Chief Accounting Officer)
16
<PAGE>
Exhibit 27.01
Commercial Credit Company
Financial Data Schedule
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE MARCH 31, 1999 CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS OF COMMERCIAL CREDIT COMPANY AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
ITEM NO. Amount
- -------- ------
Multiplier $1,000
Period-type Three months
Fiscal-year-end December 31, 1999
Period-end March 31, 1999
5-02(1) cash and cash items $ 36,900
5-02(2) marketable securities 1,296,200 A
5-02(3)(a)(1) notes and accounts receivable 14,264,700 B
5-02(4) allowances for doubtful accounts (411,900)
5-02(6) inventory 0 C
5-02(9) total current assets 0 C
5-02(13) property, plant and equipment 0 C
5-02(14) accumulated depreciation 0 C
5-02(18) total assets 16,786,700
5-02(21) total current liabilities 0 C
5-02(22) bonds, mortgages and similar debt 13,182,700 D
5-02(28) preferred stock - mandatory redemption 0 C
5-02(29) preferred stock - no mandatory redemption 0
5-02(3) common stock 0
5-02(31) other stockholders' equity 2,304,000 E
5-02(32) total liabilities and stockholders' equity 16,786,700
5-03(b)1(a) net sales of tangible products 0 C
5-03(b)1 total revenue 587,300
5-03(b)(2)(a) cost of tangible goods sold 0 C
5-03(b)2 total costs and expenses applicable to sales
and revenues 462,500
5-03(b)3 other costs and expenses 0 C
5-03(b)5 provision for consumer finance doubtful
accounts and notes 96,200 F
5-03(b)8 interest and amortization of debt discount 188,800 F
5-03(b)10 income before taxes and other items 124,800
5-03(b)11 income tax expense 45,500
5-03(b)14 income/loss continuing operations 79,300
5-03(b)15 discontinued operations 0 C
5-03(b)17 extraordinary items 0 C
5-03(b)18 cumulative effect - changes in accounting
principles 0 C
5-03(b)19 net income or loss 79,300
5-03(b)20 earnings per share - basic 0 C
5-03(b)20 earnings per share - diluted 0 C
(A) Includes the following items from the financial statements:
total investments $1,296,200.
(B) Includes the following items from the financial statements:
consumer finance receivables $13,852,800 and other
receivables $158,816.
(C) Items which are inapplicable relative to the underlying
financial statements are indicated with a zero as required.
(D) Includes the following items from the financial statements:
certificates of deposit $89,600; short-term borrowings
$6,843,100 and long-term debt $6,250,000.
(E) Includes the following items from the financial statements:
additional paid-in capital $856,400; retained earnings
$1,438,100; accumulated other changes in equity from nonowner
sources $9,500.
(F) Included in total costs and expenses applicable to sales and
revenues.
<PAGE>
Exhibit 12.01
Commercial Credit Company and Subsidiaries
Computation of Ratio of Earnings to Fixed Charges
(In millions of dollars, except for ratio)
Three months ended
March 31,
---------------------
1999 1998
------ ------
Income before income taxes $124.8 $ 83.6
Elimination of undistributed equity earnings - (0.1)
Interest 188.8 166.8
Portion of rentals deemed to be interest 3.0 2.8
======= =======
Earnings available for fixed charges $316.6 $253.1
======= =======
Fixed charges
Interest $188.8 $166.8
Portion of rentals deemed to be interest 3.0 2.8
======= =======
Fixed charges $191.8 $169.6
======= =======
Ratio of earnings to fixed charges 1.65X 1.49x
======= =======
<PAGE>
Exhibit 99.01
In June 1994, a putative class action lawsuit, entitled Princess Nobels, et al.,
v. Associates Corporation of North America, was filed against the Alabama
subsidiary of the Company in the U.S. District Court for the Middle District of
Alabama claiming that charges for non-filing insurance violate the Truth in
Lending Act and the Racketeer Influenced and Corrupt Organization Act. In May
1996, an additional putative class action entitled Keckler v. Commercial Credit
Corporation was filed in the U.S. District Court for the Northern District of
Florida with similar allegations to the Nobels case. In February 1997, Keckler
was transferred to the Middle District of Alabama pursuant to a multi-district
litigation plan and was consolidated for pre-trial purposes with Nobels. Keckler
seeks a nationwide class action with regard to the charges for non-filing
insurance by all of the Company's subsidiaries other than those in Alabama. In
November 1997, the plaintiffs in Nobels were granted leave to amend the
complaint to embrace a nationwide class, which is essentially duplicative of the
class described in Keckler. In September 1998, the court ordered the parties to
submit to mediation with a court-appointed mediator and has stayed all
proceedings in the action pending the outcome of the mediation process.
In October 1995, a putative class action entitled McCurdy v. American General
Finance was filed in the U.S. District Court for the Middle District of Alabama
on behalf of borrowers who purchased credit property insurance from the Alabama
subsidiary of the Company. The allegations in McCurdy are similar to those in
the above-referenced credit life cases [i.e., that premiums charged were
excessive]. In May 1997, a class of Alabama purchasers of credit property
insurance between 1993 and 1996 was certified. As with the Hughes case discussed
[on page 10 of the Company's Annual Report for the year ended December 31,
1998], subsequent decisions of the Alabama Supreme Court case doubt on the
viability of the claims in this action.
