UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the period ended May 31, 1997
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: 1-8422
COUNTRYWIDE CREDIT INDUSTRIES, INC.
----------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 13-2641992
- ------------------------------------------ ------------------------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
4500 Park Granada Blvd., Calabasas, California 91302
- ------------------------------------------------- -----------------------------
(Address of principal executive offices) (Zip Code)
(818) 225-3000
-----------------------------------------------------------------------
(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
-------- --------
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding at July 14, 1997
Common Stock $.05 par value 107,147,362
<PAGE>
PART I
FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
COUNTRYWIDE CREDIT INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
May 31, February 28,
1997 1997
----------------- ----------------
(Dollar amounts in
thousands, except per share
data)
ASSETS
<S> <C> <C>
Cash $ 22,299 $ 18,269
Mortgage loans and mortgage-backed securities held for sale 4,580,769 2,579,972
Other receivables 1,456,904 1,451,979
Property, equipment and leasehold improvements, at cost - net of
accumulated depreciation and amortization 196,079 190,104
Mortgage servicing rights 3,218,382 3,023,826
Other assets 829,524 825,142
================= ================
Total assets $10,303,957 $8,089,292
================= ================
Borrower and investor custodial accounts (segregated in special
accounts - excluded from corporate assets) $ 2,100,434 $1,695,523
================= ================
LIABILITIES AND SHAREHOLDERS' EQUITY
Notes payable $ 6,703,367 $4,713,324
Drafts payable issued in connection with mortgage loan closings 322,565 221,757
Accounts payable and accrued liabilities 620,585 607,037
Deferred income taxes 674,471 635,643
----------------- ----------------
Total liabilities 8,320,988 6,177,761
Commitments and contingencies - -
Company-obligated mandatorily redeemable capital trust pass-through securities
of subsidiary trust holding solely a Company
guaranteed related subordinated debt 300,000 300,000
Shareholders' equity
Preferred stock - authorized, 1,500,000 shares of $0.05 par value;
issued and outstanding, none - -
Common stock - authorized, 240,000,000 shares of $0.05 par
value; issued and outstanding, 106,513,249 shares at May 31, 1997
and 106,095,558 shares at February 28, 1997 5,326 5,305
Additional paid-in capital 937,061 917,942
Unrealized loss on available-for-sale securities (39,718) (30,545)
Retained earnings 780,300 718,829
----------------- ----------------
Total shareholders' equity 1,682,969 1,611,531
================= ================
Total liabilities and shareholders' equity $10,303,957 $8,089,292
================= ================
Borrower and investor custodial accounts $ 2,100,434 $1,695,523
================= ================
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
COUNTRYWIDE CREDIT INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
Three Months
Ended May 31,
1997 1996
---------------- -----------------
(Dollar amounts in thousands,
except per share data)
Revenues
<S> <C> <C>
Loan origination fees $ 53,499 $ 55,949
Gain (loss) on sale of loans, net of commitment fees 90,235 47,080
---------------- -----------------
Loan production revenue 143,734 103,029
Interest earned 82,180 88,848
Interest charges (81,834) (77,066)
---------------- -----------------
Net interest income 346 11,782
Loan servicing income 214,315 179,274
Amortization and recovery of mortgage servicing rights (25,956) 48,285
Servicing hedge expense (44,743) (100,426)
---------------- -----------------
Net loan administration income 143,616 127,133
Commissions, fees and other income 30,949 21,338
---------------- -----------------
Total revenues 318,645 263,282
Expenses
Salaries and related expenses 88,041 68,998
Occupancy and other office expenses 38,066 29,898
Guarantee fees 42,576 37,501
Marketing expenses 10,320 8,824
Other operating expenses 24,939 18,677
---------------- -----------------
Total expenses 203,942 163,898
---------------- -----------------
Earnings before income taxes 114,703 99,384
Provision for income taxes 44,734 38,760
---------------- -----------------
NET EARNINGS $ 69,969 $ 60,624
================ =================
Earnings per share
Primary $0.64 $0.58
Fully diluted $0.64 $0.58
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
COUNTRYWIDE CREDIT INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months
Ended May 31,
1997 1996
---------------- -----------------
(Dollar amounts in thousands)
Cash flows from operating activities:
<S> <C> <C>
Net earnings $ 69,969 $ 60,624
Adjustments to reconcile net earnings to net cash
used by operating activities:
Amortization and net recovery 65,421 35,157
Depreciation and other amortization 11,224 9,036
Deferred income taxes 44,734 38,760
Origination and purchase of loans held for sale (9,360,306) (11,002,082)
Principal repayments and sale of loans 7,359,509 10,925,283
---------------- -----------------
Increase in mortgage loans and mortgage-backed
securities held for sale (2,000,797) (76,799)
Increase in other receivables and other assets (67,553) (275,941)
Increase in accounts payable and accrued liabilities 13,548 75,735
---------------- -----------------
Net cash used by operating activities (1,863,454) (133,428)
---------------- -----------------
Cash flows from investing activities:
Additions to mortgage servicing rights (220,512) (263,101)
Purchase of property, equipment and leasehold
improvements - net (13,497) (13,138)
---------------- -----------------
Net cash used by investing activities (234,009) (276,239)
---------------- -----------------
Cash flows from financing activities:
Net increase in warehouse debt and other
short-term borrowings 1,920,516 478,239
Issuance of long-term debt 215,000 -
Repayment of long-term debt (44,665) (73,189)
Issuance of common stock 19,140 4,232
Cash dividends paid (8,498) (8,183)
---------------- -----------------
Net cash provided by financing activities 2,101,493 401,099
---------------- -----------------
Net increase (decrease) in cash 4,030 (8,568)
Cash at beginning of period 18,269 16,444
================ =================
Cash at end of period $ 22,299 $ 7,876
================ =================
Supplemental cash flow information:
Cash used to pay interest $ 66,160 $ 64,050
Cash used to pay income taxes $ 2 $ 6
</TABLE>
The accompanying notes are an integral part of these statements
<PAGE>
NOTE A - BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Rule 10-01 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of normal
recurring adjustments) considered necessary for a fair presentation have been
included. Operating results for the three month period ended May 31, 1997 are
not necessarily indicative of the results that may be expected for the fiscal
year ending February 28, 1998. For further information, refer to the
consolidated financial statements and footnotes thereto included in the annual
report on Form 10-K for the fiscal year ended February 28, 1997 of Countrywide
Credit Industries, Inc. (the "Company").
Certain amounts reflected in the consolidated financial statements for the three
month period ended May 31, 1996 have been reclassified to conform to the
presentation for the three month period ended May 31, 1997.
NOTE B - NOTES PAYABLE
Notes payable consisted of the following.
<TABLE>
<CAPTION>
------------------------------------------------------------------ ---- --------------- --- -------------- --
(Dollar amounts in thousands) May 31, February 28,
1997 1997
------------------------------------------------------------------ ---- --------------- --- -------------- --
<S> <C> <C>
Commercial paper $3,319,979 $1,943,368
Medium-term notes, Series A, B, C, D and E 2,517,500 2,346,800
Repurchase agreements 413,734 220,637
Subordinated notes 200,000 200,000
Unsecured notes payable 250,000 -
Other notes payable 2,154 2,519
=============== ==============
$6,703,367 $4,713,324
=============== ==============
------------------------------------------------------------------ ---- --------------- --- -------------- --
</TABLE>
Revolving Credit Facility and Commercial Paper
As of May 31, 1997, Countrywide Home Loans, Inc. ("CHL"), the Company's
mortgage banking subsidiary, had an unsecured credit agreement (revolving credit
facility) with fifty commercial banks permitting CHL to borrow an aggregate
maximum amount of $3.5 billion, less commercial paper backed by the agreement.
The amount available under the facility is subject to a borrowing base, which
consists of mortgage loans and mortgage-backed securities held for sale and
mortgage servicing rights ("MSRs"). The facility contains various financial
covenants and restrictions, certain of which limit the amount of dividends that
can be paid by the Company or CHL. The interest rate on direct borrowings is
based on a variety of sources, including the prime rate and the London Interbank
Offered Rates ("LIBOR") for U.S. dollar deposits. This interest rate varies,
depending on CHL's credit ratings. No amount was outstanding on the revolving
credit facility at May 31, 1997. The weighted average borrowing rate on
commercial paper borrowings for the three months ended May 31, 1997 was 5.53%.
The weighted average borrowing rate on commercial paper outstanding as of May
31, 1997 was 5.63%. Under certain circumstances, including the failure to
maintain specified minimum credit ratings, borrowings under the revolving credit
facility and commercial paper may become secured by mortgage loans and
mortgage-backed securities held for sale and MSRs. The facility expires on May
14, 2000.
<PAGE>
Medium-Term Notes
As of May 31, 1997, outstanding medium-term notes issued by CHL under
various shelf registrations filed with the Securities and Exchange Commission
were as follows.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
(Dollar amounts in thousands)
Outstanding Balance Interest Rate Maturity Date
------------------------------------------- ----------- ---------- ------------- -------------
Floating-Rate Fixed-Rate Total From To From To
------------------------------------------- ----------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Series A $ - $ 260,500 $ 260,500 6.53% 8.79% Jul 1997 Mar 2002
Series B 11,000 396,000 407,000 5.82% 6.98% Aug 1997 Aug 2005
Series C 303,000 195,500 498,500 5.78% 8.43% Dec 1997 Mar 2004
Series D 115,000 386,500 501,500 5.88% 6.88% Aug 1998 Sep 2005
Series E 310,000 540,000 850,000 5.93% 7.45% Feb 2000 Oct 2008
-------------------------------------------
Total $739,000 $1,778,500 $2,517,500
===========================================
---------------------------------------------------------------------------------------------------------------
</TABLE>
As of May 31, 1997, all of the outstanding fixed-rate notes had been
effectively converted by interest rate swap agreements to floating-rate notes.
The weighted average borrowing rate on medium-term note borrowings for the three
months ended May 31, 1997, including the effect of the interest rate swap
agreements, was 6.15%. Repurchase Agreements
As of May 31, 1997, the Company had entered into short-term financing
arrangements to sell mortgage-backed securities ("MBS") under agreements to
repurchase. The weighted average borrowing rate for the three months ended May
31, 1997 was 5.52%. The weighted average borrowing rate on repurchase agreements
outstanding as of May 31, 1997 was 5.61%. The repurchase agreements were
collateralized by MBS. All MBS underlying repurchase agreements are held in
safekeeping by broker-dealers, and all agreements are to repurchase the same or
substantially identical MBS.
Subordinated Notes
The 8.25% subordinated notes are due July 15, 2002. Interest is payable
semi-annually on each January 15 and July 15. The subordinated notes are not
redeemable prior to maturity and are not subject to any sinking fund
requirements.
Pre-Sale Funding Facilities
As of May 31, 1997, CHL had uncommitted revolving credit facilities with two
government-sponsored entities and an affiliate of an investment banking firm.
The credit facilities are secured by conforming mortgage loans which are in the
process of being pooled into MBS. Interest rates are based on LIBOR, federal
funds and/or the prevailing rates for MBS repurchase agreements. As of May 31,
1997, the Company had no outstanding borrowings under any of these facilities.
<PAGE>
NOTE C - COMPANY-OBLIGATED CAPITAL TRUST PASS-THROUGH SECURITIES OF
SUBSIDIARY TRUST
On December 11, 1996, Countrywide Capital I (the "Subsidiary Trust"), a
subsidiary of the Company, issued $300 million of 8% Capital Trust Pass-through
Securities (the "Capital Securities"). In connection with the Subsidiary Trust's
issuance of the Capital Securities, CHL issued to the Subsidiary Trust $309
million of its 8% Junior Subordinated Deferrable Interest Debentures (the
"Subordinated Debt Securities"). The Subordinated Debt Securities are due on
December 15, 2026 with interest payable semi-annually in arrears on June 15 and
December 15 of each year. The sole assets of the Subsidiary Trust are and will
be the Subordinated Debt Securities. CHL's obligations under the Subordinated
Debt Securities and related agreements, taken together, constitute a full and
unconditional guarantee by the Company of the Subsidiary Trust's obligations
under the Capital Securities.
NOTE D - SERVICING HEDGE
The following summarizes the notional amounts of servicing hedge derivative
contracts.
<TABLE>
<CAPTION>
- -------------------------------- ------------ -------------- -------- ------------- ---------- ------------
(Dollar amounts in millions) Long Call
Options on
Interest Interest Principal Interest
Rate Floors Rate Futures Swap - Only Rate
Caps Swaps Caps Swaptions
- -------------------------------- ------------ -------------- -------- ------------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balances, February 28, 1997 $26,250 $4,200 $1,000 $268 $1,000 $1,750
Additions 1,500 55,000 - - - 500
Dispositions/expirations (500) (8,200) - - (500) -
============ ============== ======== ============= ========== ------------
Balances, May 31, 1997 $27,250 $51,000 $1,000 $268 $ 500 $2,250
============ ============== ======== ============= ========== ------------
- -------------------------------- ------------ -------------- -------- ------------- ---------- ------------
</TABLE>
NOTE E - RESERVE FOR IMPAIRMENT OF MORTGAGE SERVICING RIGHTS
The following summarizes the aggregate activity in the reserve for
impairment of mortgage servicing rights.
- -------------------------------------------------------- -----------------------
(Dollar amounts in thousands) Aggregate Balances
-----------------------
Balances, February 28, 1997 ($2,668)
Reductions (additions) 364
-----------------------
Balances, May 31, 1997 ($2,304)
-----------------------
- -------------------------------------------------------- -----------------------
NOTE F - LEGAL PROCEEDINGS
On June 22, 1995, a lawsuit was filed by Jeff and Kathy Briggs, as a
purported class action, against CHL and a mortgage broker in the Northern
Division of the United States District Court for the Middle District of Alabama.
The suit claims, among other things, that in connection with residential
mortgage loan closings, CHL made certain payments to mortgage brokers in
violation of the Real Estate Settlement Procedures Act and
<PAGE>
induced mortgage brokers to breach their alleged fiduciary duties to their
customers. The plaintiffs seek unspecified compensatory and punitive damages
plus, as to certain claims, treble damages. CHL's management believes that its
compensation programs to mortgage brokers comply with applicable laws and with
long-standing industry practice, and that it has meritorious defenses to the
action. CHL intends to defend vigorously against the action and believes that
the ultimate resolution of such claims will not have a material adverse effect
on the Company's results of operations or financial position.
The Company and certain subsidiaries are defendants in various lawsuits
involving matters generally incidental to their business. Although it is
difficult to predict the ultimate outcome of these cases, management believes,
based on discussions with counsel, that any ultimate liability will not
materially affect the consolidated financial position or results of operations
of the Company and its subsidiaries.
NOTE G - SUBSEQUENT EVENTS
On June 13, 1997, the Company declared a cash dividend of $0.08 per common
share payable July 31, 1997 to shareholders of record on July 15, 1997.
On June 4, 1997, Countrywide Capital III (the "Subsidiary Trust"), a
subsidiary of the Company, issued $200 million of 8.05% Subordinated Capital
Income Securities, Series A (the "Capital Securities"). In connection with the
Subsidiary Trust's issuance of Capital Securities, CHL issued to the Subsidiary
Trust $206 million of its 8.05% Junior Subordinated Deferrable Interest
Debentures (the "Subordinated Debt Securities"). The sole assets of the
Subsidiary Trust are the Subordinated Debt Securities and a related guarantee by
the Company. CHL's and the Company's obligations under the Subordinated Debt
Securities, the related guarantee and certain agreements, taken together,
constitute a full and unconditional guarantee by the Company of the Subsidiary
Trust's obligations under the Capital Securities.
On July 1, 1997, the Company and INMC Mortgage Holdings, Inc. (formerly CWM
Mortgage Holdings, Inc.) ("INMC") concluded the restructuring of their business
relationship. In substance, INMC acquired the assets, operations and employees
of its former manager, Countrywide Asset Management Corporation ("CAMC"), a
wholly-owned subsidiary of the Company. INMC will no longer pay management fees
to CAMC. In return, the Company received 3,440,800 newly issued common shares of
INMC. The transaction was structured as a merger of CAMC with and into INMC.
NOTE H - SUMMARIZED FINANCIAL INFORMATION OF SUBSIDIARY
The following tables present summarized financial information for
Countrywide Home Loans, Inc.
<TABLE>
<CAPTION>
-- ----------------------------------------- ---- --------------------------------------------------- -------
(Dollar amounts in thousands) May 31, February 28,
1997 1997
-- ---------------------------------------------- -------- -------------- ---------- -------------- ---------
Balance Sheets:
Mortgage loans and mortgage-backed
<S> <C> <C>
securities held for sale $4,580,769 $2,579,972
Other assets 5,035,540 4,835,078
============== ==============
Total assets $9,616,309 $7,415,050
============== ==============
Short- and long-term debt $7,292,539 $5,220,277
Other liabilities 820,527 742,435
Equity 1,503,243 1,452,338
============== ==============
Total liabilities and equity $9,616,309 $7,415,050
============== ==============
-- ---------------------------------------------- -------- -------------- ---------- -------------- ---------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
--- ----------------------------------------- --- -------------------------------------------------- --------
(Dollar amounts in thousands) Three Months Ended May 31,
--------------- ---------- ---------------
1997 1996
--- --------------------------------------------- ------- --------------- ---------- --------------- --------
Statements of Earnings:
<S> <C> <C>
Revenues $282,487 $238,486
Expenses 184,518 152,255
Provision for income taxes 37,892 33,630
=============== ===============
Net earnings $ 60,077 $ 52,601
=============== ===============
--- --------------------------------------------- ------- --------------- ---------- --------------- --------
</TABLE>
NOTE I - IMPLEMENTATION OF NEW ACCOUNTING STANDARD
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 128, Earnings per Share, which
supersedes APB Opinion No. 15, of the same name. SFAS No. 128 simplifies the
standards for computing earnings per share ("EPS") and makes them comparable to
international standards. SFAS No. 128 is effective for financial statements
issued for periods ending after December 15, 1997, with earlier application not
permitted. Upon adoption, all prior EPS data will be restated.
The following table presents basic and diluted EPS for the three months
ended May 31, 1997 and 1996, computed under the provisions of SFAS No. 128.
<TABLE>
<CAPTION>
- ------------------------ -- -- ----- ------------------------------------ -- ----- ----
Three Months Ended
May 31,
-- -- ----- ------------------------------------ -- ----- ----
1997 1996
--------- --------- --------- ---------- --------- ---------
(Dollar amounts in Per-Share Per-Share
thousands, except per Net Amount Net Amount
share data) Earnings Shares Earnings Shares
- ------------------------ --------- --------- --------- ---------
========= ==========
Net earnings $69,969 $60,624
========= ==========
Basic EPS
Net earnings available
<S> <C> <C> <C> <C> <C> <C>
to common shareholders $69,969 106,257 $0.66 $60,624 102,316 $0.59
Effect of dilutive
stock options - 3,000 - 1,894
--------- --------- ---------- ---------
Diluted EPS
Net earnings available
to common shareholders $69,969 109,257 $0.64 $60,624 104,210 $0.58
========= ========= ========= ========== ========= ---------
- ------------------------ --------- --------- --------- - ---------- --------- ---------
</TABLE>
<PAGE>
FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides a new
"safe harbor" for certain forward-looking statements. This Quarterly Report on
Form 10-Q may contain forward-looking statements which reflect the Company's
current views with respect to future events and financial performance. These
forward-looking statements are subject to certain risks and uncertainties,
including those identified below, which could cause actual results to differ
materially from historical results or those anticipated. The words "believe,"
"expect," "anticipate," "intend," "estimate" and other expressions which
indicate future events and trends identify forward-looking statements. Readers
are cautioned not to place undue reliance on these forward-looking statements,
which speak only as of their dates. The Company undertakes no obligation to
publicly update or revise any forward-looking statements, whether as a result of
new information, future events or otherwise. The following factors could cause
actual results to differ materially from historical results or those
anticipated: (1) the level of demand for mortgage credit, which is affected by
such external factors as the level of interest rates, the strength of the
various segments of the economy and demographics of the Company's lending
markets; (2) the direction of interest rates; (3) the relationship between
mortgage interest rates and the cost of funds; (4) federal and state regulation
of the Company's mortgage banking operations and (5) competition within the
mortgage banking industry.
RESULTS OF OPERATIONS
Quarter Ended May 31, 1997 Compared to Quarter Ended May 31, 1996
Revenues for the quarter ended May 31, 1997 increased 21% to $318.6
million from $263.3 million for the quarter ended May 31, 1996. Net earnings
increased 15% to $70.0 million for the quarter ended May 31, 1997 from $60.6
million for the quarter ended May 31, 1996. The increase in revenues and net
earnings for the quarter ended May 31, 1997 compared to the quarter ended May
31, 1996 was primarily attributable to an increase in the size of the Company's
servicing portfolio, improved pricing margins on prime credit quality first
mortgages, greater sales in principal balance of higher-margin home equity and
sub-prime loans and an increase in the income of the non-mortgage banking
subsidiaries. These positive factors during the quarter ended May 31, 1997 were
partially offset by lower loan production volume, a decline in net interest
income, an increase in amortization of the servicing asset and an increase in
expenses.
The total volume of loans produced decreased 15% to $9.4 billion for
the quarter ended May 31, 1997 from $11.0 billion for the quarter ended May 31,
1996. The decrease in loan production was primarily due to generally higher
interest rates that prevailed during the quarter ended May 31, 1997 compared to
quarter ended May 31, 1996. Refinancings totaled $2.8 billion, or 30% of total
fundings, for the quarter ended May 31, 1997, as compared to $4.6 billion, or
42% of total fundings, for the quarter ended May 31, 1996. Fixed-rate mortgage
loan production totaled $6.4 billion, or 68% of total fundings, for the quarter
ended May 31, 1997, as compared to $9.0 billion, or 82% of total fundings, for
the quarter ended May 31, 1996.
Total loan volume in the Company's production divisions is summarized below.
<TABLE>
<CAPTION>
- -------------------------------------------- ------------------------------------ --------
(Dollar amounts in millions) Three Months Ended May 31,
- -------------------------------------------- ------------------------------------ --------
1997 1996
------------- -------------
<S> <C> <C>
Consumer Markets Division $ 2,347 $ 2,342
Wholesale Lending Division 2,662 2,084
Correspondent Lending Division 4,351 6,576
============= =============
Total Loan Volume $9,360 $11,002
============= =============
- -------------------------------------------- ------------- -------- ------------- --------
</TABLE>
The factors which affect the relative volume of production among the
Company's three divisions include the price competitiveness of each division's
product offerings, the level of mortgage lending activity in each division's
market and the success of each division's sales and marketing efforts.
Included in the Company's total volume of loans produced are $295 million of
home equity loans funded in the quarter ended May 31, 1997 and $106 million
funded in the quarter ended May 31, 1996. Sub-prime credit quality loan
production, which is also included in the Company's total production volume, was
$282 million for the quarter ended May 31, 1997 and $188 million for the quarter
ended May 31, 1996.
At both May 31, 1997 and 1996, the Company's pipeline of loans in
process was $5.2 billion. Historically, approximately 43% to 77% of the pipeline
of loans in process has funded. In addition, at May 31, 1997, the Company had
committed to make loans in the amount of $2.1 billion, subject to property
identification and approval of the loans (the "LOCK `N SHOP(R) Pipeline"). At
May 31, 1996, the LOCK `N SHOP(R) Pipeline was $1.9 billion. For the quarters
ended May 31, 1997 and 1996, the Company received 139,845 and 143,779 new loan
applications, respectively, at an average daily rate of $222 million and $231
million, respectively. The factors that affect the percentage of applications
received and funded during a given time period include the movement and
direction of interest rates, the average length of loan commitments issued, the
creditworthiness of applicants, the production divisions' loan processing
efficiency and loan pricing decisions.
Loan origination fees decreased during the quarter ended May 31, 1997
as compared to the quarter ended May 31, 1996 due to lower loan production that
resulted primarily from higher mortgage interest rates during the quarter ended
May 31, 1997 than during the quarter ended May 31, 1996. The percentage decrease
in loan origination fees was less than the percentage decrease in total
production. This is primarily because production by the Consumer Markets and
Wholesale Lending Divisions (which, due to their cost structures, charge higher
origination fees per dollar loaned than the Correspondent Division) comprised
54% of the total fundings during the quarter ended May 31, 1997 compared to 40%
during the quarter ended May 31, 1996. Gain on sale of loans improved during the
quarter ended May 31, 1997 as compared to the quarter ended May 31, 1996
primarily due to improved pricing margins on prime credit quality first
mortgages and greater sales in principal balance of higher-margin home equity
and sub-prime loans. The sales of home equity loans contributed $11.0 million to
the gain on sale of loans during the quarter ended May 31, 1997. No such gain
was recognized during the quarter ended May 31, 1996. Sub-prime loans
contributed $17.0 million and $8.1 million to the gain on sale of loans for the
quarters ended May 31, 1997 and 1996, respectively. In general, loan origination
fees and gain (loss) on sale of loans are affected by numerous factors including
the volume and mix of loans produced and sold, loan pricing decisions, interest
rate volatility and the general direction of interest rates.
Net interest income (interest earned net of interest charges) decreased
to $0.3 million for the quarter ended May 31, 1997 from $11.8 million for the
quarter ended May 31, 1996. Net interest income is principally a function of:
(i) net interest income earned from the Company's mortgage loan warehouse ($13.8
million and $16.0 million for the quarters ended May 31, 1997 and 1996,
respectively); (ii) interest expense related to the Company's investment in
servicing rights ($44.7 million and $36.3 million for the quarters ended May 31,
1997 and 1996, respectively) and (iii) interest income earned from the custodial
balances associated with the Company's servicing portfolio ($29.5 million and
$31.5 million for the quarters ended May 31, 1997 and 1996, respectively). The
Company earns interest on, and incurs interest expense to carry, mortgage loans
held in its warehouse. The decrease in net interest income from the mortgage
loan warehouse was primarily attributed to a decrease in the average amount of
mortgage loan warehouse due to lower production, partially offset by a higher
net earnings rate in the quarter ended May 31, 1997 than in the quarter ended
May 31, 1996. The increase in interest expense on the investment in servicing
rights resulted primarily from a larger servicing portfolio. The decrease in net
interest income earned from the custodial balances was related to a decline in
the average custodial balances, offset somewhat by an increase in the earnings
rate from the quarter ended May 31, 1996 to the quarter ended May 31, 1997.
During the quarter ended May 31, 1997, loan administration income was
positively affected by the continued growth of the loan servicing portfolio. At
May 31, 1997, the Company serviced $163.5 billion of loans (including $4.5
billion of loans subserviced for others), compared to $143.4 billion (including
$2.4 billion of loans subserviced for others) at May 31, 1996, a 14% increase.
The growth in the Company's servicing portfolio during the quarter ended May 31,
1997 was the result of loan production volume and the acquisition of bulk
servicing rights, partially offset by prepayments, partial prepayments and
scheduled repayments of mortgage loans. The weighted average interest rate of
the mortgage loans in the Company's servicing portfolio was 7.8 % at both May
31, 1997 and 1996. It is the Company's strategy to build and retain its
servicing portfolio because of the returns the Company can earn from such
investment and because the Company believes that servicing income is
countercyclical to loan production income.
During the quarter ended May 31, 1997, the prepayment rate of the
Company's servicing portfolio was 11%, as compared to 14% for the quarter ended
May 31, 1996. In general, the prepayment rate is affected by the level of
refinance activity, which in turn is driven by the relative level of mortgage
interest rates, and activity in the home purchase market. The decrease in the
prepayment rate from the quarter ended May 31, 1996 to the quarter ended May 31,
1997 was primarily attributable to a decrease in refinance activity caused by
higher interest rates during the quarter ended May 31, 1997 than during the
quarter ended May 31, 1996.
The primary means used by the Company to reduce the sensitivity of its
earnings to changes in interest rates is through a strong production capability
and a growing servicing portfolio. In addition, to mitigate the effect on
earnings of higher amortization and impairment that may result from increased
current and projected future prepayment activity, the Company acquires financial
instruments, including derivative contracts, that increase in aggregate value
when interest rates decline (the "Servicing Hedge"). These financial instruments
include call options on interest rate futures and MBS, interest rate floors,
interest rate swaps (with the Company's maximum payment capped) ("Swap Caps"),
options on interest rate swaps ("Swaptions"), interest rate caps, principal-only
("P/O") swaps and certain tranches of collateralized mortgage obligations
("CMOs").
With the Swap Caps, the Company receives and pays interest on a
specified notional amount. The rate received is fixed; the rate paid is
adjustable, is indexed to the London Interbank Offered Rates for U.S. dollar
deposits ("LIBOR") and has a specified maximum or "cap."
With Swaptions, the Company has the option to enter into a
receive-fixed, pay-floating interest rate swap at a future date or to settle the
transaction for cash.
The P/O swaps are derivative contracts, the value of which is
determined by changes in the value of the referenced P/O security. The payments
received by the Company under the P/O swaps relate to the cash flows of the
referenced P/O security. The payments made by the Company are based upon a
notional amount tied to the remaining balance of the referenced P/O security
multiplied by a floating rate indexed to LIBOR.
The CMOs, which consist primarily of P/O securities, have been
purchased at deep discounts to their par values. As interest rates decrease,
prepayments on the collateral underlying the CMOs should increase. This should
result in a decline in the average lives of the P/O securities and a
corresponding increase in the present values of their cash flows. Conversely, as
interest rates increase, prepayments on the collateral underlying the CMOs
should decrease. These changes should result in an increase in the average lives
of the P/O securities and a decrease in the present values of their cash flows.
The Servicing Hedge instruments utilized by the Company are designed to
protect the value of the investment in mortgage servicing rights ("MSRs") from
the effects of increased prepayment activity that generally results from
declining interest rates. To the extent that interest rates increase, the value
of the MSRs increases while the value of the hedge instruments declines. With
respect to the options, Swaptions, floors, caps and CMOs, the Company is not
exposed to loss beyond its initial outlay to acquire the hedge instruments. With
respect to the Swap Caps contracts entered into by the Company as of May 31,
1997, the Company estimates that its maximum exposure to loss over the
contractual term is $20.0 million. The Company's exposure to loss in the P/O
swaps is related to changes in the market value of the referenced P/O security
over the life of the contract. In the quarter ended May 31, 1997, the Company
recognized a net expense of $44.7 million from its Servicing Hedge. The net
expense included unrealized losses of $39.2 million and realized losses of $5.5
million from the premium amortization and sale of various financial instruments
that comprise the Servicing Hedge. In the quarter ended May 31, 1996, the
Company recognized a net expense of $100.4 million from its Servicing Hedge. The
net expense included unrealized losses of $87.5 million and net realized losses
of $12.9 million from the premium amortization and sale of various financial
instruments that comprise the Servicing Hedge. There can be no assurance that
Company's Servicing Hedge will generate gains in the future, or if gains are
generated, that they will fully offset impairment of the MSRs.
The Company recorded amortization and net recovery of its MSRs in the
quarter ended May 31, 1997 totaling $26.0 million (consisting of normal
amortization amounting to $65.8 million and a recovery of $39.8 million),
compared to $48.3 million of amortization and recovery (consisting of normal
amortization amounting to $52.5 million and a recovery of $100.8 million) in the
quarter ended May 31, 1996. The factors affecting the amount of amortization and
impairment or recovery of the MSRs recorded in an accounting period include the
level of prepayments during the period, the change in estimated future
prepayments and the amount of Servicing Hedge gains or losses.
During the quarter ended May 31, 1997, the Company acquired bulk
servicing rights for loans with principal balances aggregating $165.4 million at
a price of 1.15% of the aggregate outstanding principal balances of the
servicing portfolios acquired. During the quarter ended May 31, 1996, the
Company acquired bulk servicing rights for loans with principal balances
aggregating $1.1 billion at a price of 1.93% of the aggregate outstanding
principal balances of the servicing portfolios acquired.
Salaries and related expenses are summarized below for the quarters
ended May 31, 1997 and 1996.
<TABLE>
<CAPTION>
-- --------------------------- -- -- --------- ------------------------------------------------- -- --- --- -----
(Dollar amounts in Quarter Ended May 31, 1997
thousands)
-- --------- ------------------------------------------------- -- --- --- -----
-- --------------------------- --
Production Loan Corporate Other
Activities Administration Administration Activities Total
-- --------------------------- -- ------------ -- ------------- - ------------- -- ------------- -- -------------
<S> <C> <C> <C> <C> <C>
Base Salaries $28,562 $10,754 $16,057 $5,258 $60,631
Incentive Bonus 11,692 267 4,248 2,062 18,269
Payroll Taxes and Benefits 4,945 2,115 1,558 523 9,141
------------ ------------- ------------- ------------- -------------
Total Salaries and Related
Expenses $45,199 $13,136 $21,863 $7,843 $88,041
============ ============= ============= ============= -------------
Average Number of 2,851 1,622 1,291 393 6,157
Employees
-- --------------------------- -- ------------ -- ------------- - ------------- -- ------------- -- -------------
-- --------------------------- -- --- -------- ------------------------------------------------- ---- --- -- ----
</TABLE>
<TABLE>
<CAPTION>
(Dollar amounts in Quarter Ended May 31, 1996
thousands)
-- --------------------------- -- --- -------- ------------------------------------------------- ---- --- -- ----
Production Loan Corporate Other
Activities Administration Administration Activities Total
-- --------------------------- -- ------------ - -------------- - ------------- -- ------------- -- -------------
<S> <C> <C> <C> <C> <C>
Base Salaries $20,832 $9,634 $12,127 $3,039 $45,632
Incentive Bonus 10,709 151 3,408 1,189 15,457
Payroll Taxes and Benefits 3,879 1,869 1,727 434 7,909
------------ -------------- ------------- ------------- -------------
Total Salaries and Related
Expenses $35,420 $11,654 $17,262 $4,662 $68,998
============ ============== ============= ============= -------------
Average Number of 2,104 1,461 1,004 252 4,821
Employees
-- --------------------------- -- ------------ - -------------- - ------------- -- ------------- -- -------------
</TABLE>
The amount of salaries increased during the quarter ended May 31, 1997
from the quarter ended May 31, 1996, reflecting the Company's strategy of
expanding and enhancing its retail and broker branch networks, including the new
retail sub-prime branches. In addition, a larger servicing portfolio and growth
in the Company's non-mortgage banking subsidiaries also contributed to the
increase. Incentive bonuses earned during the quarter ended May 31, 1997
increased primarily due to change in production mix.
Occupancy and other office expenses for the quarter ended May 31, 1997
increased to $38.1 million from $29.9 million for the quarter ended May 31,
1996, reflecting the Company's goal of expanding its retail and broker branch
networks, including the new retail sub-prime branches. In addition, a larger
servicing portfolio and growth in the Company's non-mortgage banking
subsidiaries also contributed to the increase.
Guarantee fees represent fees paid to guarantee timely and full payment
of principal and interest on MBS and whole loans sold to permanent investors and
to transfer the credit risk of the loans in the servicing portfolio. For the
quarter ended May 31, 1997, guarantee fees increased 14% to $42.6 million from
$37.5 million for the quarter ended May 31, 1996. The increase resulted from an
increase in the servicing portfolio.
Marketing expenses for the quarter ended May 31, 1997 increased 17% to
$10.3 million from $8.8 million for the quarter ended May 31, 1996, reflecting
the Company's continued implementation of a marketing plan to increase brand
awareness of the Company in the residential mortgage market.
Other operating expenses for the quarter ended May 31, 1997 increased
from the quarter ended May 31, 1996 by $6.3 million, or 34%. This increase was
due primarily to a larger servicing portfolio, increased reserves for bad debts,
increased systems development and operation costs and growth in the Company's
non-mortgage banking subsidiaries.
Profitability of Loan Production and Servicing Activities
In the quarter ended May 31, 1997, the Company's pre-tax income from
its loan production activities (which include loan origination and purchases,
warehousing and sales) was $45.7 million. In the quarter ended May 31, 1996, the
Company's comparable pre-tax income was $30.9 million. The increase of $14.8
million was primarily attributable to improved pricing margins on prime credit
quality first mortgages and greater sale of higher-margin home equity and
sub-prime loans. These positive results were partially offset by higher
production and overhead costs. In the quarter ended May 31, 1997, the Company's
pre-tax income from its loan servicing activities (which include administering
the loans in the servicing portfolio, selling homeowners and other insurance and
acting as tax payment agent) was $59.7 million as compared to $62.7 million in
the quarter ended May 31, 1996. The decrease of $3.0 million from May 31, 1996
to May 31, 1997 was due primarily to increased amortization resulting from a
higher cost basis in the MSRs. This was partially offset by an increase in the
size of the servicing portfolio.
Profitability of Other Activities
In addition to loan production and loan servicing, the Company offers
ancillary products and services related to its mortgage banking activities.
These include title insurance and escrow services, home appraisals, credit
cards, securities brokerage and servicing rights brokerage. For the quarter
ended May 31, 1997, these activities contributed $9.4 million to the Company's
pre-tax income compared to $5.3 million for the quarter ended May 31, 1996. This
increase in pre-tax income primarily resulted from increased levels of business
in most of these areas.
INFLATION
Inflation affects the Company in both loan production and loan
servicing. Interest rates normally increase during periods of high inflation and
decrease during periods of low inflation. Historically, as interest rates
increase, loan production, particularly from loan refinancings, decreases,
although in an environment of gradual interest rate increases, purchase activity
may actually be stimulated by an improving economy or the anticipation of
increasing real estate values. In such periods of reduced loan production,
production margins may decline due to increased competition resulting from
overcapacity in the market. In a higher interest rate environment,
servicing-related earnings are enhanced because prepayment rates tend to slow
down thereby extending the average life of the Company's servicing portfolio and
reducing both amortization and impairment of the MSRs and Interest Costs
Incurred on Payoffs, and because the rate of interest earned from the custodial
balances tends to increase. Conversely, as interest rates decline, loan
production, particularly from loan refinancings, increases. However, during such
periods, prepayment rates tend to accelerate (principally on the portion of the
portfolio having a note rate higher than the then-current interest rates),
thereby decreasing the average life of the Company's servicing portfolio and
adversely impacting its servicing-related earnings primarily due to increased
amortization and impairment of the MSRs, a decreased rate of interest earned
from the custodial balances and increased Interest Costs Incurred on Payoffs.
The impacts of changing interest rates on servicing-related earnings are reduced
by performance of the Servicing Hedge, which is designed to mitigate the impact
on earnings of higher amortization and impairment that may result from declining
interest rates.
SEASONALITY
The mortgage banking industry is generally subject to seasonal trends.
These trends reflect the general national pattern of sales and resales of homes,
although refinancings tend to be less seasonal and more closely related to
changes in interest rates. Sales and resales of homes typically peak during the
spring and summer seasons and decline to lower levels from mid-November through
February. In addition, delinquency rates typically rise in the winter months,
which results in higher servicing costs. However, late charge income has
historically been sufficient to offset such incremental expenses.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal financing needs are the financing of loan
funding activities and the investment in servicing rights. To meet these needs,
the Company currently utilizes commercial paper supported by the revolving
credit facility, medium-term notes, MBS repurchase agreements, unsecured notes
payable, subordinated notes, an optional cash purchase feature in the dividend
reinvestment plan, redeemable capital trust pass-through securities and cash
flow from operations. In addition, in the past the Company has utilized whole
loan repurchase agreements, pre-sale funding facilities, servicing-secured bank
facilities, private placements of unsecured notes and other financings, direct
borrowings from the revolving credit facility and public offerings of preferred
stock.
Certain of the debt obligations of the Company and Countrywide Home
Loans, Inc. ("CHL") contain various provisions that may affect the ability of
the Company and CHL to pay dividends and remain in compliance with such
obligations. These provisions include requirements concerning net worth, current
ratio and other financial covenants. These provisions have not had, and are not
expected to have, an adverse impact on the ability of the Company and CHL to pay
dividends.
The Company continues to investigate and pursue alternative and
supplementary methods to finance its growing operations through the public and
private capital markets. These may include such methods as mortgage loan sale
transactions designed to expand the Company's financial capacity and reduce its
cost of capital and the securitization of servicing income cash flows. In June
1997, Countrywide Capital III, a statutory business trust and a subsidiary of
the Company, issued $200 million of 8.05% Company-obligated subordinated capital
income securities, the proceeds of which were used to purchase subordinated debt
securities from the Company. The Company plans to use the net proceeds from the
sale of the subordinated debt securities for general corporate purposes,
principally for investment in mortgage servicing rights.
In connection with its derivative contracts, the Company may be required to
deposit cash or certain government securities or obtain letters of credit to
meet margin requirements. The Company considers such potential margin
requirements in its overall liquidity management.
In the course of the Company's mortgage banking operations, the Company
sells to investors the mortgage loans it originates and purchases but generally
retains the right to service the loans, thereby increasing the Company's
investment in loan servicing rights. The Company views the sale of loans on a
servicing-retained basis in part as an investment vehicle. Significant
unanticipated prepayments in the Company's servicing portfolio could have a
material adverse effect on the Company's future operating results and liquidity.
Cash Flows
Operating Activities In the quarter ended May 31, 1997, the Company's
operating activities used cash of approximately $1.9 billion primarily to
increase in its mortgage loans and MBS held for sale. These are generally
financed with short-term borrowings as discussed under "Financing Activities."
Investing Activities The primary investing activity for which cash was
used in the quarter ended May 31, 1997 was the investment in servicing. Net cash
used by investing activities was $234 million and $276 million for the quarters
ended May 31, 1997 and May 31, 1996, respectively.
Financing Activities Net cash provided by financing activities amounted
to $2.1 billion for the quarter ended May 31, 1997 and $401 million for the
quarter ended May 31, 1996. The increase in cash flow from financing activities
was primarily the result of an increase in net short-term borrowings used to
finance the increase in mortgage loans and MBS held for sale as discussed under
"Operating Activities."
PROSPECTIVE TRENDS
Applications and Pipeline of Loans in Process
For the month ended June 30, 1997, the Company received new loan
applications at an average daily rate of $232 million compared to a daily
application rate for the month ended June 30, 1996 of $190 million. The
Company's pipeline of loans in process was $5.3 billion and $4.7 billion at June
30, 1997 and 1996, respectively. The size of the pipeline is generally an
indication of the level of future fundings, as historically 43% to 77% of the
pipeline of loans in process has funded. In addition, the Company's LOCK `N
SHOP(R) Pipeline at June 30, 1997 was $1.5 billion and at June 30, 1996 was $1.9
billion. Future application levels and loan fundings are dependent on numerous
factors, including the level of demand for mortgage credit, the extent of price
competition in the market, the direction of interest rates, seasonal factors and
general economic conditions.
Market Factors
Mortgage interest rates were generally higher during the quarter ended
May 31, 1997 compared to the quarter ended May 31, 1996. Loan production
decreased 15% from the quarter ended May 31, 1996 to the quarter ended May 31,
1997. However, the Company did benefit from a relatively strong home purchase
market during the quarter ended May 31, 1997. In addition, sub-prime and home
equity loan fundings, which are generally less sensitive to interest rate
fluctuations than prime credit quality first mortgages, also increased from
quarter ended May 31, 1996 to the quarter ended May 31, 1997.
Due primarily to generally higher interest rates, the prepayment rate
in the servicing portfolio declined from the quarter ended May 31, 1996 to the
quarter ended May 31, 1997. The higher interest rate environment also resulted
in an increase in the value of MSRs due to lower expected future prepayment
rates. This increase in the value of MSRs was offset by a decline in value of
the servicing hedge during the quarter.
The Company's primary competitors are commercial banks, savings and
loans and mortgage banking subsidiaries of diversified companies, as well as
other mortgage bankers. Over the past three years, certain commercial banks have
expanded their mortgage banking operations through acquisition of formerly
independent mortgage banking companies or through internal growth. The Company
believes that these transactions and activities have not had a material impact
on the Company or on the degree of competitive pricing in the market.
The Company's California mortgage loan production (measured by
principal balance) constituted 24% of its total production during the quarter
ended May 31, 1997, down from 27% for the quarter ended May 31, 1996. The
Company is continuing its efforts to expand its production capacity outside of
California. Some regions in which the Company operates have experienced slower
economic growth which in turn has negatively impacted home lending activity in
those regions. To the extent that any geographic region's mortgage loan
production constitutes a significant portion of the Company's production, there
can be no assurance that the Company's operations will not be adversely affected
if that region experiences slow or negative economic growth resulting in
decreased residential real estate lending activity, or market factors further
impact the Company's competitive position in that region.
The delinquency rate in the Company-owned servicing portfolio increased
to 3.53% at May 31, 1997 from 2.70% at May 31, 1996. The Company believes that
this increase was primarily the result of portfolio mix changes and aging. The
proportion of government and high loan-to-value conventional loans, which tend
to experience higher delinquency rates than low loan-to-value conventional
loans, has increased from 45% of the portfolio at May 31, 1996 to 49% at May 31,
1997. In addition, the weighted average age of the portfolio is 29 months at May
31, 1997, up from 26 months at May 31, 1996. Delinquency rates tend to increase
as loans age, reaching a peak at three to five years of age. However, because
the loans in the portfolio are generally serviced on a non-recourse basis, the
Company's exposure to credit loss resulting from increased delinquency rates is
substantially limited. Further, related late charge income has historically been
sufficient to offset incremental servicing expenses resulting from an increased
delinquency rate.
The percentage of loans in the Company-owned servicing portfolio that
are in foreclosure increased to 0.70% at May 31, 1997 from 0.50% at May 31,
1996. Because the Company services substantially all conventional loans on a
non-recourse basis, foreclosure losses are generally the responsibility of the
investor or insurer and not the Company. However, the Company's expenses may be
increased somewhat as a result of the additional staff efforts required to
foreclose on a loan. Similarly, government loans serviced by the Company (28% of
the Company's servicing portfolio at May 31, 1997) are insured or partially
guaranteed against loss by the Federal Housing Administration or the Veterans
Administration. In the Company's view, the limited unreimbursed costs that may
be incurred by the Company on government foreclosed loans are not material to
the Company's consolidated financial statements.
Servicing Hedge
As previously discussed, the Company's Servicing Hedge is designed to
protect the value of its investment in servicing rights from the effects of
increased prepayment activity that generally results from declining interest
rates. In periods of increasing interest rates, the value of the Servicing Hedge
generally declines and the value of MSRs generally increases. There can be no
assurance that, in periods of increasing interest rates, the increase in value
of the MSRs will offset the amount of Servicing Hedge expense; or in periods of
declining interest rates, that the Company's Servicing Hedge will generate gains
or if gains are generated, that they will fully offset impairment of the MSRs.
Implementation of New Accounting Standard
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 128, Earnings per Share, which
supersedes Accounting Principles Board ("APB") Opinion No. 15, of the same name.
SFAS No. 128 simplifies the standards for computing earnings per share ("EPS")
and makes them comparable to international standards. SFAS No. 128 is effective
for financial statements issued for periods ending after December 15, 1997, with
earlier application not permitted. Upon adoption, all prior EPS data will be
restated.
The following table presents basic and diluted EPS for the three months
ended May 31, 1997 and 1996, computed under the provisions of SFAS No. 128.
<TABLE>
<CAPTION>
- ------------------------ -- -- ----- ------------------------------------ -- ----- ----
Three Months Ended
May 31,
-- -- ----- ------------------------------------ -- ----- ----
1997 1996
--------- --------- --------- ---------- --------- ---------
(Dollar amounts in Per-Share Per-Share
thousands, except per Net Amount Net Amount
share data) Earnings Shares Earnings Shares
- ------------------------ --------- --------- --------- ---------
========= ==========
Net earnings $69,969 $60,624
========= ==========
Basic EPS
Net earnings available
<S> <C> <C> <C> <C> <C> <C>
to common shareholders $69,969 106,257 $0.66 $60,624 102,316 $0.59
Effect of dilutive
stock options - 3,000 - 1,894
--------- --------- ---------- ---------
Diluted EPS
Net earnings available
to common shareholders $69,969 109,257 $0.64 $60,624 104,210 $0.58
========= ========= ========= ========== ========= ---------
- ------------------------ --------- --------- --------- - ---------- --------- ---------
</TABLE>
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
\pnf4
10.7 Countrywide Credit Industries, Inc. Amended and Restated Deferred
Compensation Plan effective January 1, 1997.
10.7.1 Amendment No. 1997-1 to the Countrywide Credit Industries, Inc.
Amended and Restated Deferred Compensation Plan.
11.1 Statement Regarding Computation of Per Share Earnings.
12.1 Computation of the Ratio of Earnings to Fixed Charges.
27 Financial Data Schedules (included only with the electronic filing with
the SEC).
(b) Reports on Form 8-K. None
<PAGE>
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.
COUNTRYWIDE CREDIT INDUSTRIES, INC.
(Registrant)
DATE: July 14, 1997 /s/ Stanford L. Kurland
-------------------------------------
Senior Managing Director and
Chief Operating Officer
DATE: July 14, 1997 /s/ Carlos M. Garcia
-------------------------------------
Managing Director; Chief Financial
Officer and Chief Accounting Officer
(Principal Financial Officer and
Principal Accounting Officer)
<PAGE>
EXHIBIT INDEX
Exhibit Number Document Description
10.7 Countrywide Credit Industries, Inc. Amended and Restated Deferred
Compensation Plan effective January 1, 1997.
10.7.1 Amendment No. 1997-1 to the Countrywide Credit Industries, Inc.
Amended and Restated Deferred Compensation Plan.
11.1 Statement Regarding Computation of Per Share Earnings.
12.1 Computation of the Ratio of Earnings to Fixed Charges.
27 Financial Data Schedules (included only with the electronic filing with
the SEC).
<PAGE>
Originally Effective August 1, 1993
Amended and Restated Effective January 1, 1997
Copyright (C) 1997
By Compensation Resource Group, Inc.
All Rights Reserved
<PAGE>
- --------------------------------------------------------------------------------
Countrywide Credit Industries, Inc.
- --------------------------------------------------------------------------------
Amended and Restated Deferred Compensation Plan
Master Plan Document
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
\\calfs01\02000005\data\10q\fy98\1q\defcomp_restated.9701.doc 03/17/97
-iii-
TABLE OF CONTENTS
Page
Purpose 1
ARTICLE 1 Definitions............................................. 1
ARTICLE 2 Selection, Enrollment, Eligibility...................... 9
2.1 Selection by Committee.................................. 9
2.2 Enrollment Requirements................................. 9
2.3 Eligibility; Commencement of Participation.............. 10
2.4 Termination of Participation and/or Deferrals.......... 10
ARTICLE 3 Deferral Commitments/Crediting/Taxes.................... 10
3.1 Minimum Deferral.........................................10
3.2 Maximum Deferral.........................................11
3.3 Election to Defer; Effect of Election Form............. 11
3.4 Withholding of Annual Deferral Amounts...................12
3.5 Annual Company Contribution Amount...................... 12
3.6 Stock Option Amount......................................12
3.7 Investment of Trust Assets.............................. 13
3.8 Source of Stock......................................... 13
3.9 Vesting................................................. 13
3.10 Crediting/Debiting of Account Balances.................. 13
3.11 FICA, Withholding and Other Taxes........................15
3.12 Distributions............................................16
ARTICLE 4 Short-Term Payout; Unforeseeable Financial Emergencies;
Withdrawal Election..................................... 16
4.1 Short-Term Payout....................................... 16
4.2 Other Benefits Take Precedence Over Short-Term Payout....16
4.3 Withdrawal Payout/Suspensions for Unforeseeable Financial
Emergencies............................................. 17
4.4 Withdrawal Election..................................... 17
ARTICLE 5 Retirement Benefit.......................................17
5.1 Retirement Benefit...................................... 17
5.2 Payment of Retirement Benefit........................... 17
5.3 Death Prior to Completion of Retirement Benefit......... 18
<PAGE>
ARTICLE 6 Pre-Retirement Survivor Benefit......................... 18
6.1 Pre-Retirement Survivor Benefit..........................18
6.2 Payment of Pre-Retirement Survivor Benefit...............18
ARTICLE 7 Termination Benefit......................................19
7.1 Termination Benefit......................................19
7.2 Payment of Termination Benefit...........................19
ARTICLE 8 Disability Waiver and Benefit............................19
8.1 Disability Waiver........................................19
8.2 Continued Eligibility; Disability Benefit................20
ARTICLE 9 Beneficiary Designation..................................20
9.1 Beneficiary..............................................20
9.2 Beneficiary Designation; Change; Spousal Consent.........20
9.3 Acknowledgment...........................................21
9.4 No Beneficiary Designation...............................21
9.5 Doubt as to Beneficiary..................................21
9.6 Discharge of Obligations.................................21
ARTICLE 10 Leave of Absence.........................................21
10.1 Paid Leave of Absence....................................21
10.2 Unpaid Leave of Absence..................................21
ARTICLE 11 Termination, Amendment or Modification...................22
11.1 Termination..............................................22
11.2 Amendment................................................22
11.3 Plan Agreement...........................................23
11.4 Interest Rate in the Event of a Change in Control........23
11.5 Effect of Payment........................................23
ARTICLE 12 Administration...........................................23
12.1 Committee Duties.........................................23
12.2 Agents...................................................23
12.3 Binding Effect of Decisions..............................24
12.4 Indemnity of Committee...................................24
12.5 Employer Information.....................................24
<PAGE>
ARTICLE 13 Other Benefits and Agreements............................24
13.1 Coordination with Other Benefits.........................24
13.2 Coordination with Other Benefit Plans....................24
ARTICLE 14 Claims Procedures........................................25
14.1 Presentation of Claim....................................25
14.2 Notification of Decision.................................25
14.3 Review of a Denied Claim.................................25
14.4 Decision on Review.......................................26
14.5 Legal Action.............................................26
ARTICLE 15 Trust....................................................26
15.1 Establishment of the Trust...............................26
15.2 Interrelationship of the Plan and the Trust..............26
15.3 Distributions From the Trust.............................26
15.4 Stock Transferred to the Trust...........................26
ARTICLE 16 Miscellaneous............................................27
16.1 Status of Plan...........................................27
16.2 Unsecured General Creditor...............................27
16.3 Employer's Liability.....................................27
16.4 Nonassignability.........................................27
16.5 Not a Contract of Employment.............................27
16.6 Furnishing Information...................................28
16.7 Terms....................................................28
16.8 Captions.................................................28
16.9 Governing Law............................................28
16.10 Notice...................................................28
16.11 Successors...............................................28
16.12 Spouse's Interest........................................29
16.13 Validity.................................................29
16.14 Incompetent..............................................29
16.15 Court Order..............................................29
16.16 Distribution in the Event of Taxation....................29
16.17 Insurance................................................30
16.18 Legal Fees To Enforce Rights After Change in Control.....30
<PAGE>
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Countrywide Credit Industries, Inc.
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Amended and Restated Deferred Compensation Plan
Master Plan Document
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\\calfs01\02000005\data\10q\fy98\1q\defcomp_restated.9701.doc 03/17/97
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COUNTRYWIDE CREDIT INDUSTRIES, INC.
DEFERRED COMPENSATION PLAN
Originally Effective August 1, 1993
Amended and Restated Effective January 1, 1997
Purpose
The purpose of this Plan is to provide specified benefits to a select
group of management and highly compensated Employees who contribute materially
to the continued growth, development and future business success of Countrywide
Credit Industries, a Delaware corporation, and its subsidiaries, if any, that
sponsor this Plan. This Plan shall be unfunded for tax purposes and for purposes
of Title I of ERISA.
ARTICLE 1
Definitions
For purposes of this Plan, unless otherwise clearly apparent from the
context, the following phrases or terms shall have the following indicated
meanings:
1.1 "Account Balance" shall mean, with respect to a Participant, a credit
on the records of the Employer equal to the sum of (i) the Deferral
Account balance, (ii) the vested Company Contribution Account balance
and (iii) the Stock Option Account balance. The Account Balance, and
each other specified account balance, shall be a bookkeeping entry only
and shall be utilized solely as a device for the measurement and
determination of the amounts to be paid to a Participant, or his or her
designated Beneficiary, pursuant to this Plan.
1.2 "Annual Bonus" shall mean any compensation, in addition to Base Annual
Salary relating to services performed during any calendar year, whether
or not paid in such calendar year or included on the Federal Income Tax
Form W-2 for such calendar year, payable to a Participant as an
Employee under any Employer's annual bonus and cash incentive plans,
excluding stock options.
1.3 "Annual Company Contribution Amount" shall mean, for any one Plan Year,
the amount determined in accordance with Section 3.5.
1.4 "Annual Deferral Amount" shall mean that portion of a Participant's
Base Annual Salary and Annual Bonus that a Participant elects to have,
and is deferred, in accordance with Article 3, for any one Plan Year.
In the event of a Participant's Retirement, Disability (if deferrals
cease in accordance with Section 8.1), death or a Termination of
Employment prior to the end of a Plan Year, such year's Annual Deferral
Amount shall be the actual amount withheld prior to such event.
1.5 "Annual Stock Option Amount" shall mean, with respect to a Participant
for any one Plan Year, the amount of Qualifying Gains deferred on
Eligible Stock Option exercise in accordance with Section 3.6 of this
Plan, calculated using the closing price of Stock as of the end of the
business day closest to the date of such Eligible Stock Option exercise
1.6 "Base Annual Salary" shall mean the annual cash compensation relating
to services performed during any calendar year, whether or not paid in
such calendar year or included on the Federal Income Tax Form W-2 for
such calendar year, excluding bonuses, commissions, overtime, fringe
benefits, stock options, relocation expenses, incentive payments,
non-monetary awards, directors fees and other fees, automobile and
other allowances paid to a Participant for employment services rendered
(whether or not such allowances are included in the Employee's gross
income). Base Annual Salary shall be calculated before reduction for
compensation voluntarily deferred or contributed by the Participant
pursuant to all qualified or non-qualified plans of any Employer and
shall be calculated to include amounts not otherwise included in the
Participant's gross income under Code Sections 125, 402(e)(3), 402(h),
or 403(b) pursuant to plans established by any Employer; provided,
however, that all such amounts will be included in compensation only to
the extent that, had there been no such plan, the amount would have
been payable in cash to the Employee.
1.7 "Beneficiary" shall mean one or more persons, trusts, estates or other
entities, designated in accordance with Article 9, that are entitled to
receive benefits under this Plan upon the death of a Participant.
1.8 "Beneficiary Designation Form" shall mean the form established from
time to time by the Committee that a Participant completes, signs and
returns to the Committee to designate one or more Beneficiaries.
1.9 "Board" shall mean the board of directors of the Company.
1.10 "Bonus Rate" shall mean, with respect to amounts deemed invested in the
Moody's Bond Index Measurement Fund for a Plan Year, an interest rate,
if any, determined by the Committee, in its sole discretion, which rate
shall be determined and announced before the commencement of the Plan
Year for which the rate applies. This rate may be zero for any Plan
Year.
1.11 "Change in Control" shall mean the first to occur of any of the
following events:
(a) An acquisition (other than directly from Employer) of any common stock
or other "Voting Securities" (as hereinafter defined) of Employer by any
"Person" (as the term person is used for purposes of Section 13(d) or 14(d) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act")),
immediately after which such Person has "Beneficial Ownership" (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of twenty five percent
(25%) or more of the then outstanding shares of Employer's common stock or the
combined voting power of Employer's then outstanding Voting Securities;
provided, however, in determining whether a Change in Control -------- -------
has occurred, Voting Securities which are acquired in a "Non-Control Acquisiton"
(as hereinafter defined) shall not constitute an acquisition which would cause a
Change in Control. For purposes of this Agreement, (1) "Voting Securities" shall
mean Employer's outstanding voting securities entitled to vote generally in the
election of directors and (2) a "Non-Control Acquistion" shall mean an
acquisition by (i) an employee benefit plan (or a trust forming a part thereof)
maintained by (A) Employer or (B) any corporation or other Person of which a
majority of its voting power or its voting equity securities or equity interest
is owned, directly or indirectly, by Employer (for purposes of this definition,
a "Subsidiary"), (ii) Employer or any of its Subsidiaries, or (iii) any Person
in connection with a "Non-Control Transaction" (as hereinafter defined);
(b) The individuals who, as of September 13, 1996, are members of the Board
(the "Incumbent Board"), cease for any reason to constitute at least two-thirds
of the members of the Board; provided, -------- however, that if the election,
or nomination for election by Employer's common stockholders, of ------- any new
director was approved by a vote of at least two-thirds of the Incumbent Board,
such new director shall, for purposes of this Agreement, be considered as a
member of the Incumbent Board; provided further, however, that no individual
shall be considered a member of the Incumbent Board ---------------- ------- if
such individual initially assumed office as a result of either an actual or
threatened "Election Contest" (as described in Rule 14a-11 promulgated under the
Exchange Act) or other actual or threatened solicitation of proxies or consents
by or on behalf of a Person other than the Board (a "Proxy Contest') including
by reason of any agreement intended to avoid or settle any Election Contest or
Proxy Contest; or
(c) The consummation of:
(i) A merger, consolidation or reorganization involving Employer, unless
such merger, consolidation or reorganization is a "Non-Control Transaction." A
"Non-Control Transaction" shall mean a merger, consolidation or reorganization
of Employer where:
(A) the stockholders of Employer, immediately before such merger,
consolidation or reorganization, own directly or indirectly immediately
following such merger, consolidation or reorganization, at least seventy percent
(70%) of the combined voting power of the outstanding Voting Securities of the
corporation resulting from such merger, consolidation or reorganization (the
"Surviving Corporation") in substantially the same proportion as their ownership
of the Voting Securities immediately before such merger, consolidation or
reorganization;
(B) the individuals who were members of the Incumbent Board immediately
prior to the execution of the agreement providing for such merger, consolidation
or reorganization constitute at least two-thirds of the members of the Board of
Directors of the Surviving Corporation, in the event that, immediately following
the consummation of such transaction, a corporation beneficially owns, directly
or indirectly, a majority of the Voting Securities of the Surviving Corporation,
the Board of Directors of such corporation; and
(C) no Person other than (i) Employer, (ii) any Subsidiary, (iii) any
employee benefit plan (or any trust forming a part thereof) maintained by
Employer, the Surviving Corporation, or any Subsidiary, or (iv) any Person who,
immediately prior to such merger, consolidation or reorganization had Beneficial
Ownership of twenty five percent (25%) or more of the then outstanding Voting
Securities or common stock of Employer, has Beneficial Ownership of twenty five
(25%) or more of the combined voting power of the Surviving Corporation's then
outstanding Voting Securities or its common stock;
(ii) A complete liquidation or dissolution of Employer; or
(iii) The sale or other disposition of all or substantially all of the
assets of Employer to any Person (other than a transfer to a Subsidiary).
Notwithstanding the foregoing, a Change in Control shall not be deemed to
occur solely because any Person (the "Subject Person") acquired Beneficial
Ownership of more than the permitted amount of the then outstanding common stock
or Voting Securities as a result of the acquisition of common stock or Voting
Securities by Employer which, by reducing the number of shares of common stock
or Voting Securities then outstanding, increases the proportional number of
shares Beneficially Owned by the Subject Persons; provided, however, that if a
Change in Control would occur (but for the operation of this sentence) as a
result of the acquisition of common stock or Voting Securities by Employer, and
after such share acquisition by Employer, the Subject Person becomes the
Beneficial Owner of any additional common stock or Voting Securities which
increases the percentage of the ten outstanding common stock or Voting
Securities Beneficially Owned by the Subject Person, then a Change in Control
shall occur."
1.12 "Claimant" shall have the meaning set forth in Section 14.1.
1.13 "Code" shall mean the Internal Revenue Code of 1986, as it may be
amended from time to time.
1.14 "Committee" shall mean the committee described in Article 12.
1.15 "Company" shall mean Countrywide Credit Industries, Inc., a Delaware
corporation, and any successor to all or substantially all of the Company's
assets or business.
1.16 "Company Contribution Account" shall mean (i) the sum of the
Participant's Annual Company Contribution Amounts, plus (ii) amounts credited in
accordance with all the applicable crediting provisions of this Plan that relate
to the Participant's Company Contribution Account, less (iii) all distributions
made to the Participant or his or her Beneficiary pursuant to this Plan that
relate to the Participant's Company Contribution Account.
1.17 "Company Stock Index Measurement Fund" shall have the meaning set
forth in Section 3.10(a)(ii).
1.18 "Crediting Rate" shall mean, with respect to amounts deemed invested
in the Moody's Bond Index Measurement Fund for a Plan Year, an interest rate,
stated as an annual rate, determined and announced by the Committee before the
Plan Year for which it is to be used, that is equal to the applicable "Moody's
Rate." The Moody's Rate for a Plan Year shall be an interest rate, stated as an
annual rate, that (i) is published in Moody's Bond Record under the heading of
"Moody's Corporate Bond Yield Averages--Av. Corp." and (ii) is equal to the
average corporate bond yield calculated for the month of December that
immediately precedes the Plan Year for which the rate is to be used.
1.19 "Deduction Limitation" shall mean the following described limitation
on a benefit that may otherwise be distributable pursuant to the provisions of
this Plan. Except as otherwise provided, this limitation shall be applied to all
distributions that are "subject to the Deduction Limitation" under this Plan. If
an Employer determines in good faith prior to a Change in Control that there is
a reasonable likelihood that any compensation paid to a Participant for a
taxable year of the Employer would not be deductible by the Employer solely by
reason of the limitation under Code Section 162(m), then to the extent deemed
necessary by the Employer to ensure that the entire amount of any distribution
to the Participant pursuant to this Plan prior to the Change in Control is
deductible, the Employer may defer all or any portion of a distribution under
this Plan. Any amounts deferred pursuant to this limitation shall continue to be
credited/debited with additional amounts in accordance with Section 3.11 below,
even if such amount is being paid out in installments. The amounts so deferred
and amounts credited thereon shall be distributed to the Participant or his or
her Beneficiary (in the event of the Participant's death) at the earliest
possible date, as determined by the Employer in good faith, on which the
deductibility of compensation paid or payable to the Participant for the taxable
year of the Employer during which the distribution is made will not be limited
by Section 162(m), or if earlier, the effective date of a Change in Control.
Notwithstanding anything to the contrary in this Plan, the Deduction Limitation
shall not apply to any distributions made after a Change in Control.
1.20 "Deferral Account" shall mean (i) the sum of all of a Participant's
Annual Deferral Amounts, plus (ii) amounts credited in accordance with all the
applicable crediting provisions of this Plan that relate to the Participant's
Deferral Account, less (iii) all distributions made to the Participant or his or
her Beneficiary pursuant to this Plan that relate to his or her Deferral
Account.
1.21 "Disability" shall mean a period of disability during which a
Participant qualifies for permanent disability benefits under the Participant's
Employer's long-term disability plan, or, if a Participant does not participate
in such a plan, a period of disability during which the Participant would have
qualified for permanent disability benefits under such a plan had the
Participant been a participant in such a plan, as determined in the sole
discretion of the Committee. If the Participant's Employer does not sponsor such
a plan, or discontinues to sponsor such a plan, Disability shall be determined
by the Committee in its sole discretion.
1.22 "Disability Benefit" shall mean the benefit set forth in Article 8.
1.23 "Election Form" shall mean the form established from time to time by
the Committee that a Participant completes, signs and returns to the Committee
to make an election under the Plan.
1.24 "Eligible Stock Option" shall mean one or more non-qualified stock
option(s) selected by the Committee in its sole discretion.
1.25 "Employee" shall mean a person who is an employee of any Employer.
1.26 "Employer(s)" shall mean the Company and/or any of its subsidiaries
(now in existence or hereafter formed or acquired) that have been selected by
the Board to participate in the Plan and have adopted the Plan as a sponsor.
1.27 "ERISA" shall mean the Employee Retirement Income Security Act of
1974, as it may be amended from time to time.
1.28 "First Plan Year" shall mean the period beginning August 1, 1993 and
ending February 28, 1994.
1.29 "Measurement Fund" shall have the meaning set forth in Section
3.10(a).
1.30 "Monthly Installment Method" shall be a monthly installment payment(s)
over the number of months selected by the Participant in accordance with this
Plan, calculated as follows:
(a) The portion of the Account Balance deemed invested in the Moody's Bond
Index Measurement Fund (the "Moody's Fund Account Balance") shall have interest
credited and compounded commencing on the first day of the month after a
Participant terminates employment using a fixed interest rate that is determined
by averaging the Preferred Rates for the current Plan year and the four (4)
preceding Plan Years. If a participant has completed fewer than five (5) Plan
Years, this average shall be determined using the Crediting Rate for the Plan
Years during which the Participant participated in the Plan.
(b) The portion of the Account Balance deemed invested in the Company Stock
Index Measurement Fund ("Stock Fund Account Balance") shall be calculated as of
the close of business three business days prior to the last business day of the
month. The monthly installment shall be calculated by multiplying this balance
by a fraction, the numerator of which is one, and the denominator of which is
the remaining number of monthly payments due the Participant. By way of example,
if the Participant elects a 120 month Monthly Installment Method, the first
payment shall be 1/120 of the Stock Fund Account Balance, calculated as
described in this definition. The following month, the payment shall be 1/119 of
the Stock Fund Account Balance, calculated as described in this definition. Each
monthly installment shall be paid on or as soon as practicable after the last
business day of the applicable month; and
1.31 "Moody's Bond Index Measurement Fund" shall have the meaning set forth
in Section 3.10(a)(i).
1.32 "Participant" shall mean any Employee (i) who is selected to
participate in the Plan, (ii) who elects to participate in the Plan, (iii) who
signs a Plan Agreement, an Election Form and a Beneficiary Designation Form,
(iv) whose signed Plan Agreement, Election Form and Beneficiary Designation Form
are accepted by the Committee, (v) who commences participation in the Plan, and
(vi) whose Plan Agreement has not terminated. A spouse or former spouse of a
Participant shall not be treated as a Participant in the Plan or have an account
balance under the Plan, even if he or she has an interest in the Participant's
benefits under the Plan as a result of applicable law or property settlements
resulting from legal separation or divorce.
1.33 "Plan" shall mean the Company's Amended and Restated Deferred
Compensation Plan, which shall be evidenced by this instrument and by each Plan
Agreement, as they may be amended from time to time.
1.34 "Plan Agreement" shall mean a written agreement, as may be amended
from time to time, which is entered into by and between an Employer and a
Participant. Each Plan Agreement executed by a Participant and the Participant's
Employer shall provide for the entire benefit to which such Participant is
entitled under the Plan; should there be more than one Plan Agreement, the Plan
Agreement bearing the latest date of acceptance by the Employer shall supersede
all previous Plan Agreements in their entirety and shall govern such
entitlement. The terms of any Plan Agreement may be different for any
Participant, and any Plan Agreement may provide additional benefits not set
forth in the Plan or limit the benefits otherwise provided under the Plan;
provided, however, that any such additional benefits or benefit limitations must
be agreed to by both the Employer and the Participant.
1.35 "Plan Year" shall, except for the First Plan Year, mean a period
beginning March 1 of each calendar year and continuing through February 28 of
such calendar year.
1.36 "Preferred Rate" shall mean, for amounts deemed invested in the
Moody's Bond Index Measurement Fund for a Plan Year, an interest rate that is
the sum of the Crediting Rate and the Bonus Rate for that Plan Year.
1.37 "Pre-Retirement Survivor Benefit" shall mean the benefit set forth in
Article 6.
1.38 "Qualifying Gain" shall mean the value accrued upon exercise of an
Eligible Stock Option (i) using a Stock-for-Stock payment method and (ii) having
an aggregate fair market value in excess of the total Stock purchase price
necessary to exercise the option. In other words, the Qualifying Gain upon
exercise of an Eligible Stock Option equals the total market value of the shares
(or share equivalent units) acquired minus the total stock purchase price. For
example, assume a Participant elects to defer the Qualifying Gain accrued upon
exercise of an Eligible Stock Option to purchase 1000 shares of Stock at an
exercise price of $20 per share, when Stock has a current fair market value of
$25 per share. Using the Stock-for-Stock payment method, the Participant would
deliver 800 shares of Stock (worth $20,000) to exercise the Eligible Stock
Option and receive, in return, 800 shares of Stock plus a Qualifying Gain (in
this case, in the form of an unfunded and unsecured promise to pay money or
property in the future) equal to $5,000 (i.e., the current value of the
remaining 200 shares of Stock).
1.39 "Retirement", "Retire(s)" or "Retired" shall mean, with respect to an
Employee, severance from employment from all Employers for any reason other than
a leave of absence, death or Disability on or after the earlier of the
attainment of (a) age sixty-five (65) or (b) age fifty-five (55) with ten (10)
Years of Service.
1.40 "Retirement Benefit" shall mean the benefit set forth in Article 5.
1.41 "Short-Term Payout" shall mean the payout set forth in Section 4.1.
1.42 "Stock" shall mean Countrywide Credit Industries, Inc. common stock,
$0.05 par value, or any other equity securities of the Company designated by the
Committee.
1.43 "Stock Option Account" shall mean the sum of (i) the Participant's
Annual Stock Option Amounts, plus (ii) amounts credited/debited in accordance
with all the applicable crediting/debiting provisions of this Plan that relate
to the Participant's Stock Option Account, less (iii) all distributions made to
the Participant or his or her Beneficiary pursuant to this Plan that relate to
the Participant's Stock Option Account.
1.44 "Stock Option Amount" shall mean, for any Eligible Stock Option, the
amount of Qualifying Gains deferred in accordance with Section 3.7 of this Plan,
calculated using the average of the high and low price of Stock as of the
business day closest to the date of exercise of such Eligible Stock Option.
1.45 "Termination Benefit" shall mean the benefit set forth in Article 7.
1.46 "Termination of Employment" shall mean the severing of employment with
all Employers, voluntarily or involuntarily, for any reason other than
Retirement, Disability, death or an authorized leave of absence.
1.47 "Trust" shall mean one or more trusts established pursuant to that
certain Master Trust Agreement, dated as of August 1, 1993 between the Company
and the trustee named therein, as amended from time to time.
1.48 "Unforeseeable Financial Emergency" shall mean an unanticipated
emergency that is caused by an event beyond the control of the Participant that
would result in severe financial hardship to the Participant resulting from (i)
a sudden and unexpected illness or accident of the Participant or a dependent of
the Participant, (ii) a loss of the Participant's property due to casualty, or
(iii) such other extraordinary and unforeseeable circumstances arising as a
result of events beyond the control of the Participant, all as determined in the
sole discretion of the Committee.
1.49 "Years of Plan Participation" shall mean the total number of full Plan
Years a Participant has been a Participant in the Plan prior to his or her
Termination of Employment (determined without regard to whether deferral
elections have been made by the Participant for any Plan Year). Any partial year
shall not be counted. Notwithstanding the previous sentence, a Participant's
first Plan Year of participation shall be treated as a full Plan Year for
purposes of this definition, even if it is only a partial Plan Year of
participation.
1.50 "Years of Service" shall mean the total number of full years in which
a Participant has been employed by one or more Employers. For purposes of this
definition, a year of employment shall be a 365 day period (or 366 day period in
the case of a leap year) that, for the first year of employment, commences on
the Employee's date of hiring and that, for any subsequent year, commences on an
anniversary of that hiring date. Any partial year of employment shall not be
counted.
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Page 20
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ARTICLE 2
Selection, Enrollment, Eligibility
2.1 Selection by Committee. Participation in the Plan shall be limited to a
select group of management and highly compensated Employees of the
Employers, as determined by the Committee in its sole discretion. From
that group, the Committee shall select, in its sole discretion,
Employees to participate in the Plan.
2.2 Enrollment Requirements. As a condition to participation, each selected
Employee shall complete, execute and return to the Committee a Plan
Agreement, an Election Form and a Beneficiary Designation Form, all
within 30 days after he or she is selected to participate in the Plan.
In addition, the Committee shall establish from time to time such other
enrollment requirements as it determines in its sole discretion are
necessary.
2.3 Eligibility; Commencement of Participation. Provided an Employee
selected to participate in the Plan has met all enrollment requirements
set forth in this Plan and required by the Committee, including
returning all required documents to the Committee within the specified
time period, that Employee shall commence participation in the Plan on
the first day of the month following the month in which the Employee
completes all enrollment requirements. If an Employee fails to meet all
such requirements within the period required, in accordance with
Section 2.2, that Employee shall not be eligible to participate in the
Plan until the first day of the Plan Year following the delivery to and
acceptance by the Committee of the required documents.
2.4 Termination of Participation and/or Deferrals. If the Committee
determines in good faith that a Participant no longer qualifies as a
member of a select group of management or highly compensated employees,
as membership in such group is determined in accordance with Sections
201(2), 301(a)(3) and 401(a)(1) of ERISA, the Committee shall have the
right, in its sole discretion, to (i) terminate any deferral election
the Participant has made for the remainder of the Plan Year in which
the Participant's membership status changes, (ii) prevent the
Participant from making future deferral elections and/or (iii)
immediately distribute the Participant's then Account Balance as a
Termination Benefit and terminate the Participant's participation in
the Plan.
ARTICLE 3
Deferral Commitments/Crediting/Taxes
3.1 Minimum Deferrals.
(a) Base Annual Salary and Annual Bonus. Subject to Section 3.3
below, for each Plan Year, a Participant may elect to defer
Base Annual Salary and Annual Bonus, provided that the amounts
so elected for that Plan Year total, in the aggregate, at
least $2,000. If no election is made, the amount deferred
shall be zero.
(b) Short Plan Year. If a Participant first becomes a Participant
after the first day of a Plan Year, or in the case of the
first Plan Year of the Plan itself, the minimum Base Annual
Salary deferral shall be an amount equal to $2,000, multiplied
by a fraction, the numerator of which is the number of
complete months remaining in the Plan Year and the denominator
of which is 12.
(c) Stock Option Amount. For each Eligible Stock Option, a
Participant may elect to defer, as his or her Stock Option
Amount, the following minimum percentage of Qualifying Gain
with respect to exercise of the Eligible Stock Option:
Deferral Minimum
Qualifying Gain 10%
provided, however, that such Stock Option Amount shall be no
less than the lesser of $20,000 or 100% of such Qualifying
Gain.
3.2 Maximum Deferral
(a) Base Annual Salary and Annual Bonus. For each Plan Year, a
Participant may elect to defer, as his or her Annual Deferral
Amount, Base Annual Salary and Annual Bonus up to the
following maximum percentages for each deferral elected:
Maximum
Deferral Amount
Base Annual Salary 50%
Annual Bonus 100%
(b) Notwithstanding the foregoing, if a Participant first becomes
a Participant after the first day of a Plan Year, or in the
case of the first Plan Year of the Plan itself, the maximum
Annual Deferral Amount, with respect to Base Annual Salary and
Annual Bonus shall be limited to the amount of compensation
not yet earned by the Participant as of the date the
Participant submits a Plan Agreement and Election Form to the
Committee for acceptance.
(c) For each Eligible Stock Option, a Participant may elect to
defer, as his or her Stock Option Amount, Qualifying Gain up
to the following maximum percentage with respect to exercise
of the Eligible Stock Option:
Maximum
Deferral Percentage
Qualifying Gain 100%
(d) Stock Option Amounts may also be limited by other terms or
conditions set forth in the stock option plan or agreement
under which such options are granted.
3.3 Election to Defer; Effect of Election Form.
(a) First Plan Year. In connection with a Participant's commencement of
participation in the Plan, the Participant shall make an irrevocable deferral
election for the Plan Year in which the Participant commences participation in
the Plan, along with such other elections as the Committee deems necessary or
desirable under the Plan. For these elections to be valid, the Election Form
must be completed and signed by the Participant, timely delivered to the
Committee (in accordance with Section 2.2 above) and accepted by the Committee.
(b) Subsequent Plan Years. For each succeeding Plan Year, an irrevocable
deferral election for that Plan Year, and such other elections as the Committee
deems necessary or desirable under the Plan, shall be made by timely delivering
to the Committee, in accordance with its rules and procedures, before the end of
the Plan Year preceding the Plan Year for which the election is made, a new
Election Form. If no such Election Form is timely delivered for a Plan Year, the
Annual Deferral Amount shall be zero for that Plan Year.
(c) Stock Option Deferral. For an election to defer gain upon an Eligible
Stock ----------------------- Option exercise to be valid: (i) a separate
Election Form must be completed and signed by the Participant with respect to
the Eligible Stock Option; (ii) the Election Form must be timely delivered to
the Committee and accepted by the Committee at least six (6) months prior to the
date the Participant elects to exercise the Eligible Stock Option; provided,
however, that, effective January 1, 1998, the Election Form must be timely
delivered to the Committee and accepted by the Committee at least twelve (12)
months prior to the date the Participant elects to exercise the Eligible Stock
Option, or prior to the date the Participant becomes vested with respect to the
Eligible Stock Option, whichever is later; (iii) the Eligible Stock Option must
be exercised using an actual or phantom Stock-for-Stock payment method; and (iv)
the Stock actually or constructively delivered by the Participant to exercise
the Eligible Stock Option must have been owned by the Participant during the
entire six (6) month period prior to its delivery.
3.4 Withholding of Annual Deferral Amounts. For each Plan Year, the Base
Annual Salary portion of the Annual Deferral Amount shall be withheld from each
regularly scheduled Base Annual Salary payroll in equal amounts, as adjusted
from time to time for increases and decreases in Base Annual Salary. The Annual
Bonus portion of the Annual Deferral Amount shall be withheld at the time the
Annual Bonus is or otherwise would be paid to the Participant, whether or not
this occurs during the Plan Year itself.
0.8AnnualCompanyContributionAmount". For each Plan Year, an Employer, in
its sole discretion, may, but is not required to, credit any amount it desires
to any Participant's Company Contribution Account under this Plan, which amount
shall be for that Participant the Annual Company Contribution Amount for that
Plan Year. The amount so credited to a Participant may be smaller or larger than
the amount credited to any other Participant, and the amount credited to any
Participant for a Plan Year may be zero, even though one or more other
Participants receive an Annual Company Contribution Amount for that Plan Year.
The Annual Company Contribution Amount, if any, shall be credited as of the last
day of the Plan Year. If a Participant is not employed by an Employer as of the
last day of a Plan Year other than by reason of his or her Retirement or death
while employed, the Annual Company Contribution Amount for that Plan Year shall
be prorated as to the date of his or her Termination of Employment.
3.6 Stock Option Amount. Subject to any terms and conditions imposed by the
Committee, Participants may elect to defer, under the Plan, Qualifying Gains
attributable to an Eligible Stock Option exercise. Stock Option Amounts shall be
credited/debited to the Participant on the books of the Employer at the time
Stock would otherwise have been delivered to the Participant pursuant to the
Eligible Stock Option exercise, but for the election to defer.
3.7 Investment of Trust Assets. The Trustee of the Trust shall be
authorized, upon written instructions received from the Committee or investment
manager appointed by the Committee, to invest and reinvest the assets of the
Trust in accordance with the applicable Trust Agreement, including the
disposition of Stock and reinvestment of the proceeds in one or more investment
vehicles designated by the Committee.
3.8 Sources of Stock. If Stock is credited under the Plan in the Trust
pursuant to Section 3.6 in connection with an Eligible Stock Option exercise,
the shares so credited shall be deemed to have originated, and shall be counted
against the number of shares reserved, under such other plan, program or
arrangement.
0.9Vesting". Except as provided in Section 7.1, a Participant shall at all
times be 100% vested in his or her Deferral Account and Stock Option Account.
3.10 Crediting/Debiting of Account Balances. In accordance with, and
subject to, the rules and procedures that are established from time to time by
the Committee, in its sole discretion, amounts shall be credited or debited to a
Participant's Account Balance in accordance with the following rules:
(a) Measurement Funds. As provided below, the Participant's Account Balance
shall be deemed invested in one or more of the following measurement funds (the
"Measurement Funds") for the purpose of crediting or debiting additional amounts
to his or her Account Balance:
(i) Moody's Bond Index Measurement Fund. Amounts
deemed invested in the Moody's Bond Index
Measurement Fund shall be credited with
interest at the Preferred Rate, except as
otherwise provided in this Plan, which rate
shall be treated as the nominal rate for
crediting interest on such amounts.
(ii) Company Stock Index Measurement Fund.
Amounts deemed invested in the Company Stock
Index Measurement Fund shall be credited or
debited, based on the performance of the
Company's Stock, as if 100% of such amounts
had been invested in whole or fractional
shares of Stock, with any dividends declared
deemed reinvested in additional whole or
fractional shares of Stock.
As necessary, the Committee may, in its sole discretion, discontinue,
substitute or add a Measurement Fund. Each such action will take effect as of
the first day of the calendar quarter that follows by thirty (30) days the day
on which the Committee gives Participants advance written notice of such change.
(b) Measurement Funds for Base Annual Salary Account, Annual Bonus Account
and Company Contribution Account. A Participant's Base Annual Salary Account,
Annual Bonus Account and Company Contribution Account must be deemed invested in
the Moody's Bond Index Measurement Fund at all times prior to any distribution
of benefits under Articles 4, 5, 6, 7 or 8.
(c) Measurement Funds for Stock Option Deferral Account. A Participant's
Stock ----------------------------------------------------- Option Deferral
Account may be deemed invested in either the Moody's Bond Index Measurement Fund
or the Company Stock Index Measurement Fund during the time prior to any
distribution of benefits under Articles 4, 5, 6, 7 or 8, in accordance with the
following rules. Each Stock Option Deferral Amount of a Participant must be
deemed invested in the Company Stock Index Measurement Fund during the period
beginning on the date such Amount is first credited to the Participant's Stock
Option Deferral Account and ending six (6) full calendar months thereafter.
Notwithstanding the foregoing, commencing with the first calendar quarter that
follows the end of such six month period, and continuing thereafter for each
subsequent calendar quarter in which the Participant participates in the Plan,
but no later than the next to last business day of the calendar quarter, the
Participant may (but is not required to) irrevocably elect, by submitting an
Election Form to the Committee that is accepted by the Committee, to have all or
a portion of such Stock Option Deferral Amount reallocated to and deemed
invested in the Moody's Bond Index Measurement Fund. If an election is made in
accordance with the previous sentence, it shall apply to such portion of such
Stock Option Deferral Amount for the next calendar quarter and continue
thereafter for each subsequent calendar quarter in which the Participant
participates in the Plan. Stock Option Deferral Amounts transferred to the
Moody's Bond Index Measurement Fund may never be reallocated back to the Company
Stock Index Measurement Fund.
(d) Crediting or Debiting Method. The performance of each elected
Measurement Fund (either positive or negative) will be determined by the
Committee, in its sole discretion, based on the performance of the Measurement
Funds themselves and, for amounts deemed invested in the Moody's Bond Index
Measurement Fund, whether the Crediting Rate or Preferred Rate is in effect for
a Participant.
(e) Moody's Bond Index Measurement Fund Crediting/Debiting Method. Except
as --------------------------------------------------------------------
otherwise provided below, a Participant's Moody's Fund Account Balance shall be
credited and compounded annually at the Preferred Rate. For purposes of this
crediting and compounding (i) all amounts deferred during the Plan Year and
originally deemed invested in the Moody's Bond Index Measurement Fund shall be
treated as having been deferred at the beginning of the Plan Year; and (ii)
amounts reallocated from the Company Stock Index Measurement Fund to the Moody's
Bond Index Measurement Fund in accordance with Section 3.10(c) above shall be
deemed invested in the Moody's Bond Index Measurement Fund as of the date of
such reallocation. In the event of Retirement, Disability, death, or a
Termination of Employment prior to the end of a Plan Year, the basis for that
year's interest crediting will be a fraction of the full year's interest based
on the number of full months that the Participant was employed with the Employer
during the Plan Year prior to the occurrence of such event. If one or more
Short-Term Payouts are made, for purposes of crediting interest, the Moody's
Fund Account Balance shall be reduced as of the date of the Preretirement
Distribution is made. In the event of a Termination of Employment, interest
shall be credited at a rate provided for in Section 7.1.
(f) Company Stock Index Measurement Fund Crediting/Debiting Method. A
- ---------------------------------------------------------------------------
Participant's Stock Fund Account Balance shall be credited or debited on a daily
basis based on the performance of the Company Stock Index Measurement Fund
selected by the Participant, when applicable, and the crediting rate in effect
as determined by the Committee in its sole discretion, as though (i) a
- ------------------------------------------------------ Participant's Stock Fund
Account Balance were invested in the Company Stock Index Measurement Fund in the
percentages applicable to such calendar quarter, as of the close of business on
the first business day of such calendar quarter, at the closing price on such
date; (ii) the Participant's Annual Stock Option Amount(s) were credited to his
or her Stock Option Account no later than the close of business on the third
business day after the day on which the Eligible Stock Option was exercised or
otherwise disposed of; and (iii) any distribution made to a Participant that
decreases such Participant's Stock Fund Account Balance ceased being invested in
the Company Stock Index Measurement Fund, in the percentages applicable to such
calendar quarter, no earlier than three business days prior to the distribution,
at the closing price on such date.
(g) No Actual Investment. Notwithstanding any other provision of this Plan
that --------------------- may be interpreted to the contrary, the Measurement
Funds are to be used for measurement purposes only, and a Participant's election
of any such Measurement Fund, the allocation to his or her Account Balance
thereto, the calculation of additional amounts and the crediting or debiting of
such amounts to a Participant's Account Balance shall not be considered or -----
- --- construed in any manner as an actual investment of his or her Account
Balance in any such Measurement Fund. In the event that the Company or the
Trustee (as that term is defined in the Trust), in its own discretion, decides
to invest funds in any or all of the Measurement Funds, no Participant shall
have any rights in or to such investments themselves. Without limiting the
foregoing, a Participant's Account Balance shall at all times be a bookkeeping
entry only and shall not represent any investment made on his or her behalf by
the Company or the Trust; the Participant shall at all times remain an unsecured
creditor of the Company.
0.7FICAandOtherTaxes". xes
(a) Annual Deferral Amounts. For each Plan Year in which an Annual Deferral
Amount is being withheld from a Participant, the Participant's Employer(s) shall
withhold from that portion of the Participant's Base Annual Salary and Annual
Bonus that is not being deferred, in a manner determined by the Employer(s), the
Participant's share of FICA and other employment taxes on such Annual Deferral
Amount. If necessary, the Committee may reduce the Annual Deferral Amount in
order to comply with this Section 3.11.
(b) Annual Stock Option Amounts. For each Plan Year in which an Annual
Stock ------------------------------ Option Amount is being first withheld from
a Participant, the Participant's Employer(s) shall withhold from that portion of
the Participant's Base Annual Salary, Annual Bonus and Qualifying Gains that are
not being deferred, in a manner determined by the Employer(s), the Participant's
share of FICA and other employment taxes on such Annual Stock Option Amount. If
necessary, the Committee may reduce the Annual Stock Option Amount in order to
comply with this Section 3.11.
3.12 Distributions. The Participant's Employer(s), or the trustee of the
Trust, shall withhold from any payments made to a Participant under this Plan
all federal, state and local income, employment and other taxes required to be
withheld by the Employer(s), or the trustee of the Trust, in connection with
such payments, in amounts and in a manner to be determined in the sole
discretion of the Employer(s) and the trustee of the Trust.
ARTICLE 4
Short-Term Payout; Unforeseeable Financial Emergencies; Withdrawal Election
4.1 Short-Term Payout. In connection with each election to defer an Annual
Deferral Amount, a Participant may irrevocably elect to receive a future
"Short-Term Payout" from the Plan with respect to such Annual Deferral Amount.
Subject to the Deduction Limitation, the Short-Term Payout shall be a lump sum
payment in an amount that is equal to the Annual Deferral Amount plus amounts
credited or debited in the manner provided in Section 3.10 above on that amount,
determined at the time that the Short-Term Payout becomes payable. Subject to
the Deduction Limitation and the other terms and conditions of this Plan, each
Short-Term Payout elected shall be paid out during a period beginning 1 day and
ending 60 days after the last day of any Plan Year designated by the Participant
that is at least five Plan Years after the Plan Year in which the Annual
Deferral Amount is actually deferred. By way of example, if a five year
Short-Term Payout is elected for Annual Deferral Amounts that are deferred in
the Plan Year commencing March 1, 1997, the five year Short-Term Payout would
become payable during a 60 day period commencing March 1, 2002.
4.2 Other Benefits Take Precedence Over Short-Term. Should an event occur
that triggers a benefit under Article 5, 6, 7 or 8, any Annual Deferral Amount,
plus amounts credited or debited thereon, that is subject to a Short-Term Payout
election under Section 4.1 shall not be paid in accordance with Section 4.1 but
shall be paid in accordance with the other applicable Article.
4.3 Withdrawal Payout/Suspensions for Unforeseeable Financial Emergencies.
If the Participant experiences an Unforeseeable Financial Emergency, the
Participant may petition the Committee to (i) suspend any deferrals required to
be made by a Participant and/or (ii) receive a partial or full payout from the
Plan. The payout shall not exceed the lesser of the Participant's Account
Balance, calculated as if such Participant were receiving a Termination Benefit,
or the amount reasonably needed to satisfy the Unforeseeable Financial
Emergency. If, subject to the sole discretion of the Committee, the petition for
a suspension and/or payout is approved, suspension shall take effect upon the
date of approval and any payout shall be made within 60 days of the date of
approval. The payment of any amount under this Section 4.3 shall not be subject
to the Deduction Limitation.
4.4 Withdrawal Election. A Participant (or, after a Participant's death,
his or her Beneficiary) may elect, at any time, to withdraw all of his or her
Account Balance, calculated as if there had occurred a Termination of Employment
as of the day of the election, less a withdrawal penalty equal to 10% of such
amount (the net amount shall be referred to as the "Withdrawal Amount"). This
election can be made at any time, before or after Retirement, Disability, death
or Termination of Employment, and whether or not the Participant (or
Beneficiary) is in the process of being paid pursuant to an installment payment
schedule. If made before Retirement, Disability or death, a Participant's
Withdrawal Amount shall be his or her Account Balance calculated as if there had
occurred a Termination of Employment as of the day of the election. No partial
withdrawals of the Withdrawal Amount shall be allowed. The Participant (or his
or her Beneficiary) shall make this election by giving the Committee advance
written notice of the election in a form determined from time to time by the
Committee. The Participant (or his or her Beneficiary) shall be paid the
Withdrawal Amount within 60 days of his or her election. Once the Withdrawal
Amount is paid, the Participant's participation in the Plan shall terminate and
the Participant shall not be eligible to participate in the Plan in the future.
The payment of this Withdrawal Amount shall not be subject to the Deduction
Limitation.
ARTICLE 5
Retirement Benefit
5.1 Retirement Benefit. Subject to the Deduction Limitation, a Participant
who Retires shall receive, as a Retirement Benefit, his or her Account Balance.
5.2 Payment of Retirement Benefit. A Participant, in connection with his or
her commencement of participation in the Plan, shall elect on an Election Form
to receive the Retirement Benefit in a lump sum or pursuant to a Monthly
Installment Method of 60, 120 or 180 months. The Participant may annually change
his or her election to an allowable alternative payout period by submitting a
new Election Form to the Committee, provided that any such Election Form is
submitted at least one year prior to the Participant's Retirement and is
accepted by the Committee in its sole discretion. The Election Form most
recently accepted by the Committee shall govern the payout of the Retirement
Benefit. If a Participant does not make any election with respect to the payment
of the Retirement Benefit, then such benefit shall be payable in a lump sum. The
lump sum payment shall be made, or installment payments shall commence, no later
than 60 days after the date the Participant Retires. Any payment made shall be
subject to the Deduction Limitation.
5.3 Death Prior to Completion of Retirement Benefit. If a Participant dies
after Retirement but before the Retirement Benefit is paid in full, the
Participant's unpaid Retirement Benefit payments shall continue and shall be
paid to the Participant's Beneficiary (a) over the remaining number of months
and in the same amounts as that benefit would have been paid to the Participant
had the Participant survived, or (b) in a lump sum, if requested by the
Beneficiary and allowed in the sole discretion of the Committee, that is equal
to the Participant's unpaid remaining Account Balance.
ARTICLE 6
Pre-Retirement Survivor Benefit
6.1 Pre-Retirement Survivor Benefit. Subject to the Deduction Limitation,
the Participant's Beneficiary shall receive a Pre-Retirement Survivor Benefit
equal to the Participant's Account Balance if the Participant dies before he or
she Retires, experiences a Termination of Employment or suffers a Disability.
6.2 Payment of Pre-Retirement Survivor Benefit. A Participant, in
connection with his or her commencement of participation in the Plan, shall
elect on an Election Form whether the Pre-Retirement Survivor Benefit shall be
received by his or her Beneficiary in a lump sum or pursuant to a Monthly
Installment Method of 60, 120 or 180 months. The Participant may annually change
this election to an allowable alternative payout period by submitting a new
Election Form to the Committee, which form must be accepted by the Committee in
its sole discretion. The Election Form most recently accepted by the Committee
prior to the Participant's death shall govern the payout of the Participant's
Pre-Retirement Survivor Benefit. If a Participant does not make any election
with respect to the payment of the Pre-Retirement Survivor Benefit, then such
benefit shall be paid in a lump sum. Despite the foregoing, if the Participant's
Account Balance at the time of his or her death is less than $25,000, payment of
the Pre-Retirement Survivor Benefit may be made, in the sole discretion of the
Committee, in a lump sum or pursuant to a Monthly Installment Method of not more
than 60 months. The lump sum payment shall be made, or installment payments
shall commence, no later than 60 days after the date the Committee is provided
with proof that is satisfactory to the Committee of the Participant's death. Any
payment made shall be subject to the Deduction Limitation.
ARTICLE 7
Termination Benefit
7.1 Termination Benefit. Subject to the Deduction Limitation and the
following sentence, the Participant shall receive a Termination Benefit, which
shall be equal to the Participant's Account Balance. Interest on amounts deemed
invested in the Moody's Bond Index Measurement Fund shall be credited in the
manner provided in Section 3.9, but using the applicable interest rate set forth
in the following schedule, if a Participant experiences a Termination of
Employment prior to his or her Retirement, death or Disability:
Completion of Years of Plan Participation Applicable Rate
Less than five years Crediting Rate
Five or more years Preferred Rate
7.2 Payment of Termination Benefit. If the Participant's Account Balance at
the time of his or her Termination of Employment is less than $25,000, payment
of his or her Termination Benefit shall be paid in a lump sum. If his or her
Account Balance at such time is equal to or greater than that amount, the
Committee, in its sole discretion, may cause the Termination Benefit to be paid
in a lump sum or in substantially equal monthly installment payments over a
period of time that does not exceed fifteen (15) years in duration. Any
installments shall be calculated using the monthly installment method under
Section 1.30. The lump sum payment shall be made, or installment payments shall
commence, no later than 60 days after the date the date of the Participant's
Termination of Employment. Any payment made shall be subject to the Deduction
Limitation.
ARTICLE 8
Disability Waiver and Benefit
8.1 Disability Waiver.
(a) Waiver of Deferral. A Participant who is determined by the Committee to
be ------------------ suffering from a Disability shall be (i) excused from
fulfilling that portion of the Annual Deferral Amount commitment that would
otherwise have been withheld from a Participant's Base Annual Salary and Annual
Bonus for the Plan Year during which the Participant first suffers a Disability
and (ii) excused from fulfilling any unexercised Stock Option Amount
commitments. During the period of Disability, the Participant shall not be
allowed to make any additional deferral elections, but will continue to be
considered a Participant for all other purposes of this Plan.
(b)
<PAGE>
(c) Return to Work. If a Participant returns to employment with an Employer
after a Disability ceases, the Participant may elect to defer an Annual Deferral
Amount and Stock Option Amount for the Plan Year following his or her return to
employment or service and for every Plan Year thereafter while a Participant in
the Plan; provided such deferral elections are otherwise allowed and an Election
Form is delivered to and accepted by the Committee for each such election in
accordance with Section 3.3 above.
8.2 Continued Eligibility; Disability Benefit. A Participant suffering a
Disability shall, for benefit purposes under this Plan, continue to be
considered to be employed and shall be eligible for the benefits provided for in
Articles 4, 5, 6 or 7 in accordance with the provisions of those Articles.
Notwithstanding the above, the Committee shall have the right to, in its sole
and absolute discretion and for purposes of this Plan only, and must in the case
of a Participant who is otherwise eligible to Retire, deem the Participant to
have experienced a Termination of Employment, or in the case of a Participant
who is eligible to Retire, to have Retired, at any time (or in the case of a
Participant who is eligible to Retire, as soon as practicable) after such
Participant is determined to be suffering a Disability, in which case the
Participant shall receive a Disability Benefit equal to his or her Account
Balance at the time of the Committee's determination; provided, however, that
should the Participant otherwise have been eligible to Retire, he or she shall
be paid in accordance with Article 5. The Disability Benefit shall be paid in a
lump sum or, upon a Participant's request and in the Committee's sole
discretion, installment payments over not more than 180 months. The lump sum
payment shall be made, or installment payments shall commence, within 60 days of
the Committee's exercise of its right to deem a Participant to have experienced
a Termination of Employment. Any payment made shall be subject to the Deduction
Limitation.
ARTICLE 9
Beneficiary Designation
9.1 Beneficiary. Each Participant shall have the right, at any time, to
designate his or her Beneficiary(ies) (both primary as well as contingent) to
receive any benefits payable under the Plan to a beneficiary upon the death of a
Participant. The Beneficiary designated under this Plan may be the same as or
different from the Beneficiary designation under any other plan of an Employer
in which the Participant participates.
9.2 Beneficiary Designation; Change; Spousal Consent. A Participant shall
designate his or her Beneficiary by completing and signing the Beneficiary
Designation Form, and returning it to the Committee or its designated agent. A
Participant shall have the right to change a Beneficiary by completing, signing
and otherwise complying with the terms of the Beneficiary Designation Form and
the Committee's rules and procedures, as in effect from time to time. If the
Participant names someone other than his or her spouse as a Beneficiary, a
spousal consent, in the form designated by the Committee, must be signed by that
Participant's spouse and returned to the Committee. Upon the acceptance by the
Committee of a new Beneficiary Designation Form, all Beneficiary designations
previously filed shall be canceled. The Committee shall be entitled to rely on
the last Beneficiary Designation Form filed by the Participant and accepted by
the Committee prior to his or her death.
9.3 Acknowledgment. No designation or change in designation of a
Beneficiary shall be effective until received and acknowledged in writing by the
Committee or its designated agent.
9.4 No Beneficiary Designation. If a Participant fails to designate a
Beneficiary as provided in Sections 9.1, 9.2 and 9.3 above or, if all designated
Beneficiaries predecease the Participant or die prior to complete distribution
of the Participant's benefits, then the Participant's designated Beneficiary
shall be deemed to be his or her surviving spouse. If the Participant has no
surviving spouse, the benefits remaining under the Plan to be paid to a
Beneficiary shall be payable to the executor or personal representative on
behalf of the Participant's estate.
9.5 Doubt as to Beneficiary. If the Committee has any doubt as to the
proper Beneficiary to receive payments pursuant to this Plan, the Committee
shall have the right, exercisable in its discretion, to cause the Participant's
Employer to withhold such payments until this matter is resolved to the
Committee's satisfaction.
9.6 Discharge of Obligations. The payment of benefits under the Plan to a
Beneficiary shall fully and completely discharge all Employers and the Committee
from all further obligations under this Plan with respect to the Participant,
and that Participant's Plan Agreement shall terminate upon such full payment of
benefits.
ARTICLE 10
Leave of Absence
10.1 Paid Leave of Absence. If a Participant is authorized by the
Participant's Employer for any reason to take a paid leave of absence from the
employment of the Employer, the Participant shall continue to be considered
employed by the Employer and the Annual Deferral Amount shall continue to be
withheld during such paid leave of absence in accordance with Section 3.3.
10.2 Unpaid Leave of Absence. If a Participant is authorized by the
Participant's Employer for any reason to take an unpaid leave of absence from
the employment of the Employer, the Participant shall continue to be considered
employed by the Employer and the Participant shall be excused from making
deferrals until the earlier of the date the leave of absence expires or the
Participant returns to a paid employment status. Upon such expiration or return,
deferrals shall resume for the remaining portion of the Plan Year in which the
expiration or return occurs, based on the deferral election, if any, made for
that Plan Year. If no election was made for that Plan Year, no deferral shall be
withheld.
ARTICLE 11
Termination, Amendment or Modification
11.1 Termination. Although each Employer anticipates that it will continue
the Plan for an indefinite period of time, there is no guarantee that any
Employer will continue the Plan or will not terminate the Plan at any time in
the future. Accordingly, each Employer reserves the right to discontinue its
sponsorship of the Plan and/or to terminate the Plan at any time with respect to
any or all of its participating Employees by action of its board of directors.
Upon the termination of the Plan with respect to any Employer, the Plan
Agreements of the affected Participants who are employed by that Employer shall
terminate and their Account Balances, determined as if they had experienced a
Termination of Employment on the date of Plan termination or, if Plan
termination occurs after the date upon which a Participant was eligible to
Retire, then with respect to that Participant as if he or she had Retired on the
date of Plan termination, shall be paid to the Participants as follows: Prior to
a Change in Control, if the Plan is terminated with respect to all of its
Participants, an Employer shall have the right, in its sole discretion, and
notwithstanding any elections made by the Participant, to pay such benefits in a
lump sum or pursuant to a Monthly Installment Method of up to 15 years, with
amounts credited and debited during the installment period as provided herein.
If the Plan is terminated with respect to less than all of its Participants, an
Employer shall be required to pay such benefits in a lump sum. After a Change in
Control, the Employer shall be required to pay such benefits in a lump sum. The
termination of the Plan shall not adversely affect any Participant or
Beneficiary who has become entitled to the payment of any benefits under the
Plan as of the date of termination; provided however, that the Employer shall
have the right to accelerate installment payments without a premium or
prepayment penalty by paying the Account Balance in a lump sum or pursuant to a
Monthly Installment Method using fewer months (provided that the present value
of all payments that will have been received by a Participant at any given point
of time under the different payment schedule shall equal or exceed the present
value of all payments that would have been received at that point in time under
the original payment schedule). The applicable interest rate to be used as the
discount rate for determining such present value shall be the Crediting Rate for
the Plan Year of termination.
11.2 Amendment. Any Employer may, at any time, amend or modify the Plan in
whole or in part with respect to that Employer by the action of its board of
directors; provided, however, that no amendment or modification shall be
effective to decrease or restrict the value of a Participant's Account Balance
in existence at the time the amendment or modification is made, calculated as if
the Participant had experienced a Termination of Employment as of the effective
date of the amendment or modification or, if the amendment or modification
occurs after the date upon which the Participant was eligible to Retire, the
Participant had Retired as of the effective date of the amendment or
modification. The amendment or modification of the Plan shall not affect any
Participant or Beneficiary who has become entitled to the payment of benefits
under the Plan as of the date of the amendment or modification; provided,
however, that the Employer shall have the right to accelerate installment
payments by paying the Account Balance in a lump sum or pursuant to a Monthly
Installment Method using fewer months (provided that the present value of all
payments that will have been received by a Participant at any given point of
time under the different payment schedule shall equal or exceed the present
value of all payments that would have been received at that point in time under
the original payment schedule, using the Crediting Rate as of the date of
amendment or modification as the discount rate for calculating present value).
11.3 Plan Agreement. Despite the provisions of Sections 11.1 and 11.2
above, if a Participant's Plan Agreement contains benefits or limitations that
are not in this Plan document, the Employer may only amend or terminate such
provisions with the consent of the Participant.
0.4InterestRateintheEventofaChangeinControl". If a Change in Control
occurs, the applicable interest rate to be used in determining a Participant's
Termination Benefit under Section 7.1 in connection with a Termination of
Employment after the Change in Control, or a Plan termination, amendment or
modification under Sections 11.1 and 11.2, shall be the Preferred Rate. However,
the Crediting Rate for the applicable Plan Year, and not the Preferred Rate,
shall continue to be used as the discount rate for determining present value.
11.5 Effect of Payment. The full payment of the applicable benefit under
Articles 4, 5, 6, 7 or 8 of the Plan shall completely discharge all obligations
to a Participant and his or her designated Beneficiaries under this Plan and the
Participant's Plan Agreement shall terminate.
ARTICLE 12
Administration
12.1 Committee Duties. This Plan shall be administered by a Committee which
shall consist of the Board, or such committee as the Board shall appoint.
Members of the Committee may be Participants under this Plan. The Committee
shall also have the discretion and authority to (i) make, amend, interpret, and
enforce all appropriate rules and regulations for the administration of this
Plan and (ii) decide or resolve any and all questions including interpretations
of this Plan, as may arise in connection with the Plan. Any individual serving
on the Committee who is a Participant shall not vote or act on any matter
relating solely to himself or herself. When making a determination or
calculation, the Committee shall be entitled to rely on information furnished by
a Participant or the Company.
12.2 Agents. In the administration of this Plan, the Committee may, from
time to time, employ agents and delegate to them such administrative duties as
it sees fit (including acting through a duly appointed representative) and may
from time to time consult with counsel who may be counsel to any Employer.
12.3 Binding Effect of Decisions. The decision or action of the Committee
with respect to any question arising out of or in connection with the
administration, interpretation and application of the Plan and the rules and
regulations promulgated hereunder shall be final and conclusive and binding upon
all persons having any interest in the Plan.
12.4 Indemnity of Committee. All Employers shall indemnify and hold
harmless the members of the Committee, and any Employee to whom the duties of
the Committee may be delegated, against any and all claims, losses, damages,
expenses or liabilities arising from any action or failure to act with respect
to this Plan, except in the case of willful misconduct by the Committee or any
of its members or any such Employee.
12.5 Employer Information. To enable the Committee to perform its
functions, each Employer shall supply full and timely information to the
Committee on all matters relating to the compensation of its Participants, the
date and circumstances of the Retirement, Disability, death or Termination of
Employment of its Participants, and such other pertinent information as the
Committee may reasonably require.
ARTICLE 13
Other Benefits and Agreements
13.1 Coordination with Other Benefits. The benefits provided for a
Participant and Participant's Beneficiary under the Plan are in addition to any
other benefits available to such Participant under any other plan or program for
employees of the Participant's Employer. The Plan shall supplement and shall not
supersede, modify or amend any other such plan or program except as may
otherwise be expressly provided.
13.2 Coordination with Other Benefit Plans. Any Participant who was a
participant in the Countrywide Credit Industries, Inc. Deferred Compensation
Plan For Key Management Employees prior to becoming a Participant in this Plan
shall have the right to elect, upon the later of the date upon which he or she
first becomes designated for participation in the Plan to transfer his or her
Account balance in that plan to this Plan. This election shall be made in
accordance with the rules and on the forms established from time to time by the
Committee. If the election is made, the Participant's Account Balance under this
Plan and any such transferred account balance shall become subject to the terms
and conditions of this Plan. Upon completion of the transfer of his or her
account balance under the other plan to this Plan, the Participant's
participation in the other plan shall be terminated and he or she shall have no
further interest in the Countrywide Credit Industries, Inc. Deferred
Compensation Plan for Key Management Employees.
ARTICLE 14
Claims Procedures
14.1 Presentation of Claim. Any Participant or Beneficiary of a deceased
Participant (such Participant or Beneficiary being referred to below as a
"Claimant") may deliver to the Committee a written claim for a determination
with respect to the amounts distributable to such Claimant from the Plan. If
such a claim relates to the contents of a notice received by the Claimant, the
claim must be made within 60 days after such notice was received by the
Claimant. All other claims must be made within 180 days of the date on which the
event that caused the claim to arise occurred. The claim must state with
particularity the determination desired by the Claimant.
14.2 Notification of Decision. The Committee shall consider a Claimant's
claim within a reasonable time, and shall notify the Claimant in writing:
(a) that the Claimant's requested determination has been made, and that the
claim has been allowed in full; or
(b) that the Committee has reached a conclusion contrary, in whole or in
part, to the Claimant's requested determination, and such notice must set forth
in a manner calculated to be understood by the Claimant:
(i) the specific reason(s) for the denial of the claim, or any part of it;
(ii) specific reference(s) to pertinent provisions of the Plan upon which
such denial was based;
(iii) a description of any additional material or information necessary for
the Claimant to perfect the claim, and an explanation of why such material or
information is necessary; and
(iv) an explanation of the claim review procedure set forth in Section 14.3
below.
14.3 Review of a Denied Claim. Within 60 days after receiving a notice from
the Committee that a claim has been denied, in whole or in part, a Claimant (or
the Claimant's duly authorized representative) may file with the Committee a
written request for a review of the denial of the claim. Thereafter, but not
later than 30 days after the review procedure began, the Claimant (or the
Claimant's duly authorized representative):
(a) may review pertinent documents;
(b) may submit written comments or other documents; and/or
(c) may request a hearing, which the Committee, in its sole discretion, may
grant.
14.4 Decision on Review. The Committee shall render its decision on review
promptly, and not later than 60 days after the filing of a written request for
review of the denial, unless a hearing is held or other special circumstances
require additional time, in which case the Committee's decision must be rendered
within 120 days after such date. Such decision must be written in a manner
calculated to be understood by the Claimant, and it must contain:
(a) specific reasons for the decision;
(b) specific reference(s) to the pertinent Plan provisions upon which the
decision was based; and
(c) such other matters as the Committee deems relevant.
14.5 Legal Action. A Claimant's compliance with the foregoing provisions of
this Article 14 is a mandatory prerequisite to a Claimant's right to commence
any legal action with respect to any claim for benefits under this Plan.
ARTICLE 15
Trust
15.1 Establishment of the Trust. The Company shall establish the Trust, and
each Employer shall at least annually transfer over to the Trust such assets as
the Employer determines, in its sole discretion, are necessary to provide, on a
present value basis, for its respective future liabilities created with respect
to the Annual Deferral Amounts, Annual Company Contribution Amounts, Annual
Stock Option Amounts for such Employer's Participants for all periods prior to
the transfer, as well as any debits and credits to the Participants' Account
Balances for all periods prior to the transfer, taking into consideration the
value of the assets in the trust at the time of the transfer.
15.2 Interrelationship of the Plan and the Trust. The provisions of the
Plan and the Plan Agreement shall govern the rights of a Participant to receive
distributions pursuant to the Plan. The provisions of the Trust shall govern the
rights of the Employers, Participants and the creditors of the Employers to the
assets transferred to the Trust. Each Employer shall at all times remain liable
to carry out its obligations under the Plan.
15.3 Distributions From the Trust. Each Employer's obligations under the
Plan may be satisfied with Trust assets distributed pursuant to the terms of the
Trust, and any such distribution shall reduce the Employer's obligations under
this Plan.
15.4 Stock Transferred to the Trust. Notwithstanding any other provision of
this Plan or the Trust: (i) if Trust assets are distributed to a Participant in
a distribution which reduces the Participant's Stock Option Account balance
under this Plan, such distribution must be made in the form of Stock during
every 6 month period beginning on the date an Eligible Stock Option of the
Participant is exercised, to the extent of the Qualifying Gain deferred in
accordance with Section 3.7 with respect to that Eligible Stock Option; and (ii)
any Stock transferred to the Trust may not be otherwise distributed or disposed
of by the Trustee until at least 6 months after the date such Stock is
transferred to the Trust.
ARTICLE 16
Miscellaneous
0.1StatusofPlan". The Plan is intended to be a plan that is not qualified
within the meaning of Code Section 401(a) and that "is unfunded and is
maintained by an employer primarily for the purpose of providing deferred
compensation for a select group of management or highly compensated employee"
within the meaning of ERISA Sections 201(2), 301(a)(3) and 401(a)(1). The Plan
shall be administered and interpreted to the extent possible in a manner
consistent with that intent.
16.2 Unsecured General Creditor. Participants and their Beneficiaries,
heirs, successors and assigns shall have no legal or equitable rights, interests
or claims in any property or assets of an Employer. For purposes of the payment
of benefits under this Plan, any and all of an Employer's assets shall be, and
remain, the general, unpledged unrestricted assets of the Employer. An
Employer's obligation under the Plan shall be merely that of an unfunded and
unsecured promise to pay money in the future.
16.3 Employer's Liability. An Employer's liability for the payment of
benefits shall be defined only by the Plan and the Plan Agreement, as entered
into between the Employer and a Participant. An Employer shall have no
obligation to a Participant under the Plan except as expressly provided in the
Plan and his or her Plan Agreement.
16.4 Nonassignability. Neither a Participant nor any other person shall
have any right to commute, sell, assign, transfer, pledge, anticipate, mortgage
or otherwise encumber, transfer, hypothecate, alienate or convey in advance of
actual receipt, the amounts, if any, payable hereunder, or any part thereof,
which are, and all rights to which are expressly declared to be, unassignable
and non-transferable. No part of the amounts payable shall, prior to actual
payment, be subject to seizure, attachment, garnishment or sequestration for the
payment of any debts, judgments, alimony or separate maintenance owed by a
Participant or any other person, be transferable by operation of law in the
event of a Participant's or any other person's bankruptcy or insolvency or be
transferable to a spouse as a result of a property settlement or otherwise.
16.5 Not a Contract of Employment. The terms and conditions of this Plan
shall not be deemed to constitute a contract of employment between any Employer
and the Participant. Such employment is hereby acknowledged to be an "at will"
employment relationship that can be terminated at any time for any reason, or no
reason, with or without cause, and with or without notice, unless expressly
provided in a written employment agreement. Nothing in this Plan shall be deemed
to give a Participant the right to be retained in the service of any Employer as
an Employee or to interfere with the right of any Employer to discipline or
discharge the Participant at any time.
16.6 Furnishing Information. A Participant or his or her Beneficiary will
cooperate with the Committee by furnishing any and all information requested by
the Committee and take such other actions as may be requested in order to
facilitate the administration of the Plan and the payments of benefits
hereunder, including but not limited to taking such physical examinations as the
Committee may deem necessary.
16.7 Terms. Whenever any words are used herein in the masculine, they shall
be construed as though they were in the feminine in all cases where they would
so apply; and whenever any words are used herein in the singular or in the
plural, they shall be construed as though they were used in the plural or the
singular, as the case may be, in all cases where they would so apply.
16.8 Captions. The captions of the articles, sections and paragraphs of
this Plan are for convenience only and shall not control or affect the meaning
or construction of any of its provisions.
16.9 Governing Law. Subject to ERISA, the provisions of this Plan shall be
construed and interpreted according to the internal laws of the State of
California without regard to its conflicts of laws principles.
16.10 Notice. Any notice or filing required or permitted to be given to the
Committee under this Plan shall be sufficient if in writing and hand-delivered,
or sent by registered or certified mail, to the address below:
Administrative Committee DCP
Countrywide Credit Industries, Inc.
155 North Lake Avenue
Post Office Box 7137
Pasadena, California 91109-7137
Such notice shall be deemed given as of the date of delivery or, if
delivery is made by mail, as of the date shown on the postmark on the receipt
for registration or certification.
Any notice or filing required or permitted to be given to a Participant
under this Plan shall be sufficient if in writing and hand-delivered, or sent by
mail, to the last known address of the Participant.
16.11 Successors. The provisions of this Plan shall bind and inure to the
benefit of the Participant's Employer and its successors and assigns and the
Participant and the Participant's designated Beneficiaries.
16.12 Spouse's Interest. The interest in the benefits hereunder of a spouse
of a Participant who has predeceased the Participant shall automatically pass to
the Participant and shall not be transferable by such spouse in any manner,
including but not limited to such spouse's will, nor shall such interest pass
under the laws of intestate succession.
16.13 Validity. In case any provision of this Plan shall be illegal or
invalid for any reason, said illegality or invalidity shall not affect the
remaining parts hereof, but this Plan shall be construed and enforced as if such
illegal or invalid provision had never been inserted herein.
16.14 Incompetent. If the Committee determines in its discretion that a
benefit under this Plan is to be paid to a minor, a person declared incompetent
or to a person incapable of handling the disposition of that person's property,
the Committee may direct payment of such benefit to the guardian, legal
representative or person having the care and custody of such minor, incompetent
or incapable person. The Committee may require proof of minority, incompetence,
incapacity or guardianship, as it may deem appropriate prior to distribution of
the benefit. Any payment of a benefit shall be a payment for the account of the
Participant and the Participant's Beneficiary, as the case may be, and shall be
a complete discharge of any liability under the Plan for such payment amount.
16.15 Court Order. The Committee is authorized to make any payments
directed by court order in any action in which the Plan or the Committee has
been named as a party. In addition, if a court determines that a spouse or
former spouse of a Participant has an interest in the Participant's benefits
under the Plan in connection with a property settlement or otherwise, the
Committee, in its sole discretion, shall have the right, notwithstanding any
election made by a Participant, to immediately distribute the spouse's or former
spouse's interest in the Participant's benefits under the Plan to that spouse or
former spouse.
16.16 Distribution in the Event of Taxation.
(a) In General. If, for any reason, all or any portion of a Participant's
- ----------- benefits under this Plan becomes taxable to the Participant prior to
receipt, a Participant may petition the Committee before a Change in Control, or
the trustee of the Trust after a Change in Control, for a distribution of that
portion of his or her benefit that has become taxable. Upon the grant of such a
petition, which grant shall not be unreasonably withheld (and, after a Change in
Control, shall be granted), a Participant's Employer shall distribute to the
Participant immediately available funds in an amount equal to the taxable
portion of his or her benefit (which amount shall not exceed a Participant's
unpaid Account Balance under the Plan). If the petition is granted, the tax
liability distribution shall be made within 90 days of the date when the
Participant's petition is granted. Such a distribution shall affect and reduce
the benefits to be paid under this Plan.
(b) Trust. If the Trust terminates in accordance with Section 3.6(e) of the
Trust and benefits are distributed from the Trust to a Participant in accordance
with that Section, the Participant's benefits under this Plan shall be reduced
to the extent of such distributions.
0.17Insurance". The Employers, on their own behalf or on behalf of the
trustee of the Trust, and, in their sole discretion, may apply for and procure
insurance on the life of the Participant, in such amounts and in such forms as
the Trust may choose. The Employers or the trustee of the Trust, as the case may
be, shall be the sole owner and beneficiary of any such insurance. The
Participant shall have no interest whatsoever in any such policy or policies,
and at the request of the Employers shall submit to medical examinations and
supply such information and execute such documents as may be required by the
insurance company or companies to whom the Employers have applied for insurance.
16.18 Legal Fees To Enforce Rights After Change in Control. The Company and
each Employer is aware that upon the occurrence of a Change in Control, the
Board or the board of directors of a Participant's Employer (which might then be
composed of new members) or a shareholder of the Company or the Participant's
Employer, or of any successor corporation might then cause or attempt to cause
the Company, the Participant's Employer or such successor to refuse to comply
with its obligations under the Plan and might cause or attempt to cause the
Company or the Participant's Employer to institute, or may institute, litigation
seeking to deny Participants the benefits intended under the Plan. In these
circumstances, the purpose of the Plan could be frustrated. Accordingly, if,
following a Change in Control, it should appear to any Participant that the
Company, the Participant's Employer or any successor corporation has failed to
comply with any of its obligations under the Plan or any agreement thereunder
or, if the Company, such Employer or any other person takes any action to
declare the Plan void or unenforceable or institutes any litigation or other
legal action designed to deny, diminish or to recover from any Participant the
benefits intended to be provided, then the Company and the Participant's
Employer irrevocably authorize such Participant to retain counsel of his or her
choice at the expense of the Company and the Participant's Employer (who shall
be jointly and severally liable) to represent such Participant in connection
with the initiation or defense of any litigation or other legal action, whether
by or against the Company, the Participant's Employer or any director, officer,
shareholder or other person affiliated with the Company, the Participant's
Employer or any successor thereto in any jurisdiction.
IN WITNESS WHEREOF, the Company has signed this Plan document as of
__________, 199_.
"Company"
Countrywide Credit Industries, Inc., a
Delaware corporation
By: __________________________________
Title: _______________________________
<PAGE>
AMENDMENT NO. 1997-I
TO
THE COUNTRYWIDE CREDIT INDUSTRIES, INC.
AMENDED AND RESTATED DEFERRED COMPENSATION PLAN
Countrywide Credit Industries, Inc., a Delaware corporation (the
"Company"), pursuant to the power granted to it by Section 11.2 of the
Countrywide Credit Industries, Inc. Amended and Restated Deferred Compensation
Plan (the "Plan"), hereby amends the Plan, as follows, effective as of June 1,
1997:
1. A new Section 3.13 is added as follows:
"3.13 Rollovers. If a Participant has an Account Balance in
the Plan and transfers his or her employment from the Company
or Employer to INMC Mortgage Holdings, Inc., a Delaware
Corporation ("INMC"), or Independent National Mortgage
Corporation, a Delaware Corporation ("IndyMac"), that Account
Balance, as determined as of the date of the transfer, shall
be transferred on such date to and added to the Participant's
account balance under the INMC Mortgage Holdings, Inc.
Deferred Compensation Plan (the "INMC Plan") or the
Independent National Mortgage Corporation Deferred
Compensation Plan (the "IndyMac Plan"), as the case may be,
and shall thereafter be governed by the terms and conditions
of that Plan, and shall be referred to as the "Rollover
Amount." In addition, any elections made by the Participant
with respect to his or her account balance under this Plan
shall apply to the Rollover Amount under the INMC or IndyMac
Plan, as the case may be, and any elections made by the
Participant with respect to his or her current Plan Year
Annual Deferral Amount under this Plan shall apply to the
Participant's current plan year annual deferral amount under
the INMC or IndyMac Plan. Transfer of a Participant's Account
Balance to the INMC or IndyMac Plan pursuant to this Section
3.13 shall completely discharge all obligations to a
Participant under this Plan and the Participant's Plan
Agreement under this Plan shall terminate as of the date
thereof."
The Company has caused this Amendment to be signed by its duly
authorized officer as of the date written below.
COUNTRYWIDE CREDIT INDUSTRIES, INC., a
Delaware Corporation
By:________________________________
Its:_______________________________
Date:______________________________
<PAGE>
<TABLE>
<CAPTION>
Exhibit 11.1
COUNTRYWIDE CREDIT INDUSTRIES, INC.
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
Three Months
Ended May 31,
1997 1996
---------------- -----------------
(Dollar amounts in thousands,
except per share data)
Primary
<S> <C> <C>
Net earnings applicable to common stock $69,969 $60,624
================ =================
Average shares outstanding 106,257 102,316
Net effect of dilutive stock options --
based on the treasury stock method
using average market price 3,000 1,894
---------------- -----------------
Total average shares 109,257 104,210
================ =================
Per share amount $0.64 $0.58
================ =================
Fully diluted
Net earnings applicable to common stock $69,969 $60,624
================ =================
Average shares outstanding 106,257 102,316
Net effect of dilutive stock options --
based on the treasury stock method using
the closing market price, if higher than
average market price. 3,000 2,110
---------------- -----------------
Total average shares 109,257 104,426
================ =================
Per share amount $0.64 $0.58
================ =================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
COUNTRYWIDE CREDIT INDUSTRIES, INC. AND SUBSIDIARIES
EXHIBIT 12.1 - COMPUTATION OF THE RATIO OF EARNINGS TO FIXED CHARGES
(Dollar amounts in thousands)
The following table sets forth the ratio of earnings to fixed charges of the
Company for the three months ended May 31, 1997 and 1996 and for the five fiscal
years ended February 28(29), 1997 computed by dividing net fixed charges
(interest expense on all debt plus the interest element (one-third) of operating
leases) into earnings (income before income taxes and fixed charges).
Three Months Ended
May 31, For Fiscal Years Ended February 28(29),
------------------------- ------------------------------------------------------------------
1997 1996 1997 1996 1995 1994 1993
------------ ------------ ------------- ------------------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net earnings $69,969 $60,624 $257,358 $195,720 $88,407 $179,460 $140,073
Income tax expense 44,734 38,760 164,540 130,480 58,938 119,640 93,382
Interest charges 81,834 77,066 316,705 281,573 205,464 219,898 128,612
Interest portion of rental
expense 2,161 1,816 7,420 6,803 7,379 6,372 4,350
------------ ------------ ------------- ------------------------- ------------ ------------
Earnings available to cover
fixed charges $198,698 $178,266 $746,023 $614,576 $360,188 $525,370 $366,417
============ ============ ============= ========================= ============ ============
Fixed charges
Interest charges $81,834 $77,066 $316,705 $281,573 $205,464 $219,898 $128,612
Interest portion of rental
expense 2,161 1,816 7,420 6,803 7,379 6,372 4,350
------------ ------------ ------------- ------------------------- ------------ ------------
Total fixed charges $83,995 $78,882 $324,125 $288,376 $212,843 $226,270 $132,962
============ ============ ============= ========================= ============ ============
Ratio of earnings to fixed
charges 2.37 2.26 2.30 2.13 1.69 2.32 2.76
============ ============ ============= ========================= ============ ============
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-END> MAY-31-1997
<CASH> 22,299
<SECURITIES> 0
<RECEIVABLES> 1,456,904
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 305,859
<DEPRECIATION> 109,780
<TOTAL-ASSETS> 10,303,957
<CURRENT-LIABILITIES> 0
<BONDS> 2,717,500
0
0
<COMMON> 5,326
<OTHER-SE> 1,677,643
<TOTAL-LIABILITY-AND-EQUITY> 10,303,957
<SALES> 0
<TOTAL-REVENUES> 318,645
<CGS> 0
<TOTAL-COSTS> 203,942
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 114,703
<INCOME-TAX> 44,743
<INCOME-CONTINUING> 69,969
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 69,969
<EPS-PRIMARY> .64
<EPS-DILUTED> .64
<FN>
Total revenues includes $81,834 of interest expense
related to mortgage loan activities.
</FN>
</TABLE>
