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 quarterly period ended November 30, 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, 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 January 13, 1998
----- -------------------------------
Common Stock $.05 par value 108,543,439
<TABLE>
<CAPTION>
PART I
FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
COUNTRYWIDE CREDIT INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
November 30, February 28,
1997 1997
---------------- -----------------
(Dollar amounts in thousands)
ASSETS
<S> <C> <C>
Cash $ 17,438 $ 18,269
Mortgage loans and mortgage-backed securities held for sale 4,493,420 2,579,972
Other receivables 1,745,250 1,051,777
Property, equipment and leasehold improvements, at cost - net of
accumulated depreciation and amortization 216,779 190,104
Mortgage servicing rights 3,433,816 3,023,826
Other assets 1,407,712 825,142
---------------- ------------------
Total assets $11,314,415 $ 7,689,090
================ ==================
Borrower and investor custodial accounts (segregated in special
accounts - excluded from corporate assets) $2,788,964 $1,695,523
================ ==================
LIABILITIES AND SHAREHOLDERS' EQUITY
Notes payable $7,594,448 $4,713,324
Drafts payable issued in connection with mortgage loan closings 26,974 221,757
Accounts payable and accrued liabilities 447,949 206,835
Deferred income taxes 817,152 635,643
---------------- ------------------
Total liabilities 8,886,523 5,777,559
Commitments and contingencies
- -
Company-obligated mandatorily redeemable securities of subsidiary
trusts holding company guaranteed related subordinated debt 500,000 300,000
Common stock - authorized, 240,000,000 shares of $.05 par value; issued and
outstanding, 107,993,561 shares at November 30, 1997
and 106,095,558 shares at February 28, 1997 5,397 5,305
Additional paid-in capital 975,953 917,942
Unrealized loss on available-for-sale securities (6,462) (30,545)
Retained earnings 953,004 718,829
---------------- ------------------
Total shareholders' equity 1,927,892 1,611,531
---------------- ------------------
Total liabilities and shareholders' equity $11,314,415 $7,689,090
================ ==================
Borrower and investor custodial accounts $2,788,964 $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 Nine Months
Ended November 30, Ended November 30,
1997 1996 1997 1996
------------------------------------ ------------------------------------
(Dollar amounts in thousands, except per share data)
Revenues
<S> <C> <C> <C> <C>
Loan origination fees $ 78,907 $ 43,922 $ 197,561 $ 145,468
Gain on sale of loans 103,323 65,562 288,954 171,053
------------------------------------ ------------------------------------
Loan production revenue 182,230 109,484 486,515 316,521
Interest earned 119,743 85,371 305,605 260,257
Interest charges (110,113) (77,238) (291,935) (230,547)
------------------------------------ ------------------------------------
Net interest income 9,630 8,133 13,670 29,710
Loan servicing income 234,499 199,169 670,582 567,583
Amortization and impairment of
mortgage servicing rights (243,726) (198,735) (375,067) (185,073)
Servicing hedge benefit 161,506 140,152 150,225 22,001
------------------------------------ ------------------------------------
Net loan administration income 152,279 140,586 445,740 404,511
Commissions, fees and other income 31,002 23,327 95,636 64,885
Gain on sale of subsidiary - - 57,381 -
------------------------------------ ------------------------------------
Total revenues 375,141 281,530 1,098,942 815,627
------------------------------------ ------------------------------------
Expenses
Salaries and related expenses 110,458 71,548 299,043 208,537
Occupancy and other office expenses 49,179 33,036 128,667 94,349
Guarantee fees 43,467 40,607 128,855 117,471
Marketing expenses 9,711 7,743 30,353 25,665
Other operating expenses 30,878 20,506 85,989 59,677
------------------------------------ ------------------------------------
Total expenses 243,693 173,440 672,907 505,699
------------------------------------ ------------------------------------
Earnings before income taxes 131,448 108,090 426,035 309,928
Provision for income taxes 51,265 42,155 166,154 120,872
------------------------------------ ------------------------------------
NET EARNINGS $ 80,183 $ 65,935 $ 259,881 $ 189,056
==================================== ====================================
Earnings per share
Primary $0.71 $0.62 $2.34 $1.80
Fully diluted $0.71 $0.62 $2.31 $1.78
Weighted Average Shares Outstanding
Primary 112,490,000 106,342,000 111,173,000 104,953,000
Fully Dilluted 113,201,000 106,844,000 112,719,000 106,066,000
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)
Nine Months
Ended November 30,
1997 1996
---------------- -----------------
(Dollar amounts in thousands)
Cash flows from operating activities:
<S> <C> <C>
Net earnings $ 259,881 $ 189,056
Adjustments to reconcile net earnings to net cash
(used) provided by operating activities:
Gain on sale of subsidiary (57,381) -
Amortization and impairment/recovery of mortgage servicing rights 375,065 185,073
Depreciation and other amortization 32,559 29,561
Deferred income taxes 181,509 120,872
Origination and purchase of loans held for sale (32,654,304) (28,491,353)
Principal repayments and sale of loans 30,740,856 29,291,032
---------------- ----------------
(1,913,448) 799,679
Increase in other receivables and other assets (1,191,679) (899,086)
Increase in accounts payable and accrued liabilities 231,705 278,705
---------------- ----------------
Net cash (used) provided by operating activities (2,081,789) 703,860
---------------- ----------------
Cash flows from investing activities:
Additions to mortgage servicing rights (785,057) (646,700)
Purchase of property, equipment and leasehold
improvements - net (52,922) (69,765)
---------------- ----------------
Net cash used by investing activities (837,979) (716,465)
---------------- ----------------
Cash flows from financing activities:
Net increase (decrease) in warehouse debt and other
short-term borrowings 1,962,505 (427,525)
Issuance of long-term debt 1,192,513 537,624
Repayment of long-term debt (468,677) (113,507)
Issuance of Company-obligated mandatorily redeemable securities
of subsidiary trusts holding company guaranteed related
subordinated debt 200,000
Issuance of common stock 58,302 39,032
Cash dividends paid (25,706) (24,628)
---------------- ----------------
Net cash provided by financing activities 2,918,937 10,996
---------------- ----------------
Net decrease in cash (831) (1,609)
Cash at beginning of period 18,269 16,444
================ ================
Cash at end of period $ 17,438 $ 14,835
================ ================
Supplemental cash flow information:
Cash used to pay interest $ 286,310 $ 212,653
Cash used to pay income taxes $ 50 $ 15
Non-cash transactions:
Unrealized gain (loss) on available-for-sale-securities, net of taxes $ 24,083 $ -
Notes receivable issued for options exercised $ 199 $ -
</TABLE>
The accompanying notes are an integral part of
these statements.
<PAGE>
Page 18
COUNTRYWIDE CREDIT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Page 10
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 nine-month period ended November 30, 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
periods ended November 30, 1996 have been reclassified to conform to the
presentation for the periods ended November 30, 1997.
<TABLE>
<CAPTION>
NOTE B - NOTES PAYABLE
Notes payable consisted of the following.
------------------------------------------------------------------ ---- --------------- --- -------------- --
(Dollar amounts in thousands) November 30, February 28,
1997 1997
------------------------------------------------------------------ ---- --------------- --- -------------- --
<S> <C> <C>
Commercial paper $3,139,741 $1,943,368
Medium-term notes, Series A, B, C, D, E and F 3,451,500 2,346,800
Repurchase agreements 254,607 220,637
Subordinated notes 200,000 200,000
Unsecured notes payable 545,000 -
Other notes payable 3,600 2,519
=============== ==============
$7,594,448 $4,713,324
=============== ==============
------------------------------------------------------------------ ---- --------------- --- -------------- --
</TABLE>
Revolving Credit Facility and Commercial Paper
As of November 30, 1997, Countrywide Home Loans, Inc. ("CHL"), the Company's
mortgage banking subsidiary, had an unsecured credit agreement (revolving credit
facility) with forty-five commercial banks permitting CHL to borrow an aggregate
maximum amount of $4.0 billion. 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 November 30, 1997. The five year facility of $3.0 billion
expires on September 24, 2002 and the one year facility of $1.0 billion expires
on September 24, 1998. The weighted average borrowing rate on commercial paper
borrowings for the nine months ended November 30, 1997 was 5.61%. The weighted
average borrowing rate on commercial paper outstanding as of November 30, 1997
was 5.63%.
<TABLE>
<CAPTION>
Medium-Term Notes
As of November 30, 1997, outstanding medium-term notes issued by CHL under
various shelf registrations filed with the Securities and Exchange Commission
were as follows.
- -----------------------------------------------------------------------------------------------------------------
(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 $ - $ 230,500 $ 230,500 6.53% 8.79% Mar. 1998 Mar. 2002
Series B - 396,000 396,000 6.02% 6.98% Mar. 1998 Aug. 2005
Series C 303,000 197,000 500,000 5.65% 8.43% Dec. 1997 Mar. 2004
Series D 115,000 385,000 500,000 6.05% 6.88% Aug. 1998 Sept. 2005
Series E 310,000 690,000 1,000,000 5.96% 7.45% Feb. 2000 Oct. 2008
Series F 100,000 725,000 825,000 5.59% 6.84% Oct. 1999 Sept. 2002
-------------------------------------------
Total $828,000 $2,623,500 $3,451,500
===========================================
---------------------------------------------------------------------------------------------------------------
</TABLE>
As of November 30, 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 nine
months ended November 30, 1997, including the effect of the interest rate swap
agreements, was 6.23%.
On July 29, 1997, the Company filed a $2.0 billion shelf registration with
the Securities and Exchange Commission ("SEC") covering Series F Medium-Term
Notes. The Company intends to use the proceeds from the sale of the medium-term
notes for general corporate purposes, which may include retirement of
indebtedness of the Company and investment in servicing rights through the
current production of loans and the bulk acquisition of contracts to service
loans.
Repurchase Agreements
As of November 30, 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 nine months ended
November 30, 1997 was 5.58%. The weighted average borrowing rate on repurchase
agreements outstanding as of November 30, 1997 was 5.81%. 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 November 30, 1997, CHL had uncommitted revolving credit facilities
with two government-sponsored entities. 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. The weighted average borrowing rate for both
facilities for the nine months ended November 30, 1997 was 5.70%. As of November
30, 1997, the Company had no outstanding borrowings under either of these
facilities. NOTE C - COMPANY-OBLIGATED CAPITAL SECURITIES OF SUBSIDIARY TRUSTS
On December 11, 1996, Countrywide Capital I (the "Subsidiary Trust I"), a
subsidiary of the Company, issued $300 million of 8% Capital Trust Pass-through
Securities (the "8% Capital Securities"). In connection with the Subsidiary
Trust I issuance of the 8% Capital Securities, CHL issued to the Subsidiary
Trust I, $309 million of its 8% Junior Subordinated Deferrable Interest
Debentures (the "Subordinated Debt Securities I"). The Subordinated Debt
Securities I are due on December 15, 2026 with interest payable semi-annually on
June 15 and December 15 of each year. The Company has the right to redeem at
par, plus accrued interest the 8% Capital Securities any time on or after
December 15, 2006. The sole assets of the Subsidiary Trust I are and will be the
Subordinated Debt Securities I. CHL's obligations under the Subordinated Debt
Securities I, a related guarantee and other agreements, taken together,
constitute a full and unconditional guarantee by the Company of the Subsidiary
Trust I obligations under the 8% Capital Securities.
On June 4, 1997, Countrywide Capital III (the "Subsidiary Trust III"), a
subsidiary of the Company, issued $200 million of 8.05% Subordinated Capital
Income Securities, Series A (the "8.05% Capital Securities"). In connection with
the Subsidiary Trust III issuance of 8.05% Capital Securities, CHL issued to the
Subsidiary Trust III, $206 million of its 8.05% Junior Subordinated Deferrable
Interest Debentures (the "Subordinated Debt Securities III"). The Subordinated
Debt Securities III are due on June 15, 2027 with interest payable semi-annually
on June 15 and December 15 of each year. The sole assets of the Subsidiary Trust
III are and will be the Subordinated Debt Securities III. CHL's obligations
under the Subordinated Debt Securities III, a related guarantee and other
agreements, taken together, constitute a full and unconditional guarantee by the
Company of the Subsidiary Trust III obligations under the 8.05 % Capital
Securities. (See Note G)
In relation to Subsidiary Trusts I and III, CHL has the right to defer
payment of interest by extending the interest payment period, from time to time,
for up to 10 consecutive semi-annual periods. If interest payments on the
Debentures are so deferred, the Company and CHL shall not declare or pay
dividends on, or make a distribution with respect to, or redeem, purchase or
acquire, or make a liquidation payment with respect to, any of its capital
stock.
<TABLE>
<CAPTION>
NOTE D - SERVICING HEDGE
The following summarizes the notional amounts of servicing hedge derivative
contracts.
- ------------------------------------- ------------------- -------------------- ------------------- ---------------------
(Dollar amounts in millions)
Balance, Dispositions/ Balance,
February 28, 1997 Additions Expirations November 30, 1997
- ------------------------------------- ------------------- -------------------- ------------------- ---------------------
<S> <C> <C> <C> <C> <C>
Interest Rate Floors $26,250 10,500 ( 4,500) $32,250
Long Call Options on
Interest Rate Futures $ 4,200 34,800 ( 11,900) $27,100
Swap Caps $ 1,000 - - $ 1,000
Swaps - 3,900 - $ 3,900
Principal - Only Swaps $ 268 - - $ 268
Interest Rate Caps $ 1,000 4,000 ( 500) $ 4,500
Swaptions $ 1,750 1,000 ( 900) $ 1,850
Callable Pass-through Certificate - 186 - $ 186
- ------------------------------------- ------------------- -------------------- ------------------- ---------------------
</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
------------------------
Balance, February 28, 1997 $ 2,668
(Reductions) additions 11,641
------------------------
Balance, November 30, 1997 $14,309
------------------------
- ------------------------------------- ------- ------------------------
NOTE F- LEGAL PROCEEDINGS
On September 29, 1997, the United States District Court adopted the
recommendation of a magistrate denying class certification in a lawsuit which
was filed against CHL and a mortgage broker by Jeff and Kathy Briggs as a
purported class action. The effect of the ruling is that the lawsuit will not
proceed as a class action and will be limited to the Briggs' own claims. The
Briggs have not sought appellate review of the Court's ruling. The suit alleges
that in connection with residential mortgage loan closings, CHL made certain
payments to mortgage brokers in violation of the Real Estate Settlement
Procedures Act. 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 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 financial position or results of operations.
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 December 17, 1997, the Company declared a cash dividend of $0.08 per common
share payable February 2, 1998 to shareholders of record on January 15, 1998.
On December 24, 1997, Subsidiary Trust III completed an exchange offer
pursuant to which newly issued capital securities (the "New 8.05% Capital
Securities") were exchanged for all of the outstanding 8.05% Capital Securities.
The New 8.05% Capital Securities are identical in all material respects to the
8.05% Capital Securities, except that the New 8.05% Capital Securities have been
registered under the Securities Act of 1933, as amended.
<TABLE>
<CAPTION>
NOTE H - SUMMARIZED FINANCIAL INFORMATION OF SUBSIDIARY
Financial information for Countrywide Home Loans, Inc. is summarized in the following tables.
-- ----------------------------------------- ---- --------------------------------------------------- -------
(Dollar amounts in thousands) November 30, February 28,
1997 1997
-- ---------------------------------------------- -------- -------------- ---------- -------------- ---------
Balance Sheets:
Mortgage loans and mortgage-backed
<S> <C> <C>
securities held for sale $ 4,493,420 $2,579,972
Other assets 6,267,980 4,835,078
============== ==============
Total assets $10,761,400 $7,415,050
============== ==============
Short- and long-term debt $ 8,110,622 $5,220,277
Other liabilities 984,646 742,435
Equity 1,666,132 1,452,338
============== ==============
Total liabilities and equity $10,761,400 $7,415,050
============== ==============
-- ---------------------------------------------- -------- -------------- ---------- -------------- ---------
</TABLE>
<TABLE>
<CAPTION>
--- ----------------------------------------- --- -------------------------------------------------- --------
(Dollar amounts in thousands) Nine Months Ended November 30,
--------------- ---------- ---------------
1997 1996
--- --------------------------------------------- ------- --------------- ---------- --------------- --------
Statements of Earnings:
<S> <C> <C>
Revenues $914,084 $740,193
Expenses 603,599 468,165
Provision for income taxes 120,774 106,091
=============== ===============
Net earnings $189,711 $165,937
=============== ===============
--- --------------------------------------------- ------- --------------- ---------- --------------- --------
</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.
<TABLE>
<CAPTION>
The following table presents basic and diluted EPS for the three months and nine
months ended November 30, 1997 and 1996, computed under the provisions of SFAS
No. 128.
- ------------------------ -- -- ----- ------------------------------------- -- ---- -------
Three Months Ended November 30,
-- -- ----- ------------------------------------- -- ---- -------
1997 1996
--------- --------- --------- ---------- --------- -----------
(Dollar amounts in Per-Share Per-Share
thousands, except per Net Amount Net Amount
share data) Earnings Shares Earnings Shares
- --------------------- ------------ -------- --------- ----------- --------- -----------
Net earnings $80,183 $65,935
========= ==========
Basic EPS
Net earnings available
<S> <C> <C> <C> <C> <C> <C>
to common shareholders $80,183 107,572 $0.75 $65,935 103,135 $0.64
Effect of dilutive
stock options - 4,918 - 3,207
--------- --------- ---------- ---------
Diluted EPS
Net earnings available
to common shareholders $80,183 112,490 $0.71 $65,935 106,342 $0.62
========= ========= ========= ========== ========= -----------
- ------------------------ --------- --------- --------- -- ---------- --------- -----------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------ -- -- ----- ------------------------------------- -- ----- ------
Nine Months Ended November 30,
-- -- ----- ------------------------------------- -- ----- ------
1997 1996
--------- --------- --------- ----------- --------- ----------
(Dollar amounts in Per-Share Per-Share
thousands, except per Net Amount Net Amount
share data) Earnings Shares Earnings Shares
- ------------------------ --------- --------- --------- --------- --------- ----------
Net earnings $259,881 $189,056
========= ===========
Basic EPS
Net earnings available
<S> <C> <C> <C> <C> <C> <C>
to common shareholders $259,881 107,111 $2.43 $189,056 102,666 $1.84
Effect of dilutive
stock options - 4,062 - 2,287
--------- --------- ----------- ---------
Diluted EPS
Net earnings available
to common shareholders $259,881 111,173 $2.34 $189,056 104,953 $1.80
========= ========= ========= =========== ========= ----------
- ------------------------ --------- --------- --------- -- ----------- --------- ----------
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides a "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 November 30, 1997 Compared to Quarter Ended November 30, 1996
Revenues for the quarter ended November 30, 1997 increased 33% to
$375.1 million from $281.5 million for the quarter ended November 30, 1996. Net
earnings increased 22% to $80.2 million for the quarter ended November 30, 1997
from $65.9 million for the quarter ended November 30, 1996. The increase in
revenues and net earnings for the quarter ended November 30, 1997 compared to
the quarter ended November 30, 1996 was primarily attributable to an increase in
the size of the Company's servicing portfolio, a 53% increase in production with
improved pricing margins on prime credit quality first mortgages and an increase
in the income of the non-mortgage banking subsidiaries. These positive factors
during the quarter ended November 30, 1997 were partially offset by an increase
in amortization of the servicing asset and an increase in expenses.
The total volume of loans produced increased 53% to $12.7 billion for
the quarter ended November 30, 1997 from $8.3 billion for the quarter ended
November 30, 1996. The increase in loan production was primarily due to
generally lower interest rates that prevailed during the quarter ended November
30, 1997 compared to the quarter ended November 30, 1996, as well as to the
continuing expansion of the Company's Consumer Markets and Wholesale divisions.
Refinancings totaled $5.1 billion, or 40% of total fundings, for the quarter
ended November 30, 1997, as compared to $2.2 billion, or 26% of total fundings,
for the quarter ended November 30, 1996. Fixed-rate mortgage loan production
totaled $9.9 billion, or 77% of total fundings, for the quarter ended November
30, 1997, as compared to $5.9 billion, or 71% of total fundings, for the quarter
ended November 30, 1996.
<TABLE>
<CAPTION>
Total loan volume in the Company's production divisions is summarized below.
- -------------------------------------------- ---------------------------------------- -----
(Dollar amounts in millions) Three Months Ended November 30,
- -------------------------------------------- ---------------------------------------- -----
1997 1996
--------------- ----------------
<S> <C> <C>
Consumer Markets Division $ 3,498 $ 1,787
Wholesale Lending Division 4,194 2,096
Correspondent Lending Division 5,041 4,436
=============== ================
Total Loan Volume $12,733 $ 8,319
=============== ================
- -------------------------------------------- --------------- ------- ---------------- -----
</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 $372
million of home equity loans funded in the quarter ended November 30, 1997 and
$172 million funded in the quarter ended November 30, 1996. Sub-prime credit
quality loan production, which is also included in the Company's total
production volume, was $427 million for the quarter ended November 30, 1997 and
$255 million for the quarter ended November 30, 1996.
At November 30, 1997 and 1996, the Company's pipeline of loans in
process was $7.9 billion and $4.7 billion, respectively. Historically,
approximately 43% to 77% of the pipeline of loans in process has funded. In
addition, at November 30, 1997, the Company had committed to make loans in the
amount of $1.1 billion, subject to property identification and approval of the
loans (the "LOCK `N SHOP(R) Pipeline"). At November 30, 1996, the LOCK `N
SHOP(R) Pipeline was $1.7 billion. For the quarters ended November 30, 1997 and
1996, the Company received 180,702 and 117,821 new loan applications,
respectively, at an average daily rate of $315 million and $195 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 increased during the quarter ended November 30,
1997 as compared to the quarter ended November 30, 1996 due to higher loan
production. The percentage increase in loan origination fees was more than the
percentage increase 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 60% of the total fundings during the quarter
ended November 30, 1997 compared to 47% during the quarter ended November 30,
1996. Gain on sale of loans improved during the quarter ended November 30, 1997,
as compared to the quarter ended November 30, 1996 due in part to improved
pricing margins on prime credit quality first mortgages. The sales of home
equity loans contributed $17.8 million to the gain on sale of loans during the
quarter ended November 30, 1997 and $12.0 during the quarter ended November 30,
1996. Sub-prime loans contributed $13.0 million and $23.1 million to the gain on
sale of loans for the quarters ended November 30, 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) increased
to $9.6 million for the quarter ended November 30, 1997 from $8.1 million for
the quarter ended November 30, 1996. Net interest income is principally a
function of: (i) net interest income earned from the Company's mortgage loan
warehouse ($21.4 million and $16.2 million for the quarters ended November 30,
1997 and 1996, respectively); (ii) interest expense related to the Company's
investment in servicing rights ($56.2 million and $37.3 million for the quarters
ended November 30, 1997 and 1996, respectively) and (iii) interest income earned
from the custodial balances associated with the Company's servicing portfolio
($41.9 million and $28.5 million for the quarters ended November 30, 1997 and
1996, respectively). The Company earns interest on, and incurs interest expense
to carry, mortgage loans held in its warehouse. The increase in net interest
income from the mortgage loan warehouse was primarily attributed to an increase
in the average amount of mortgage loan warehouse due to higher production. The
increase in interest expense related to the investment in servicing rights
resulted primarily from a larger servicing portfolio and an increase in interest
costs incurred on payoffs. The increase in net interest income earned from the
custodial balances was related to an increase in the average custodial balances
from the quarter ended November 30, 1996 to the quarter ended November 30, 1997.
During the quarter ended November 30, 1997, loan servicing income was
positively affected by the continued growth of the loan servicing portfolio. At
November 30, 1997, the Company serviced $175.2 billion of loans (including $6.2
billion of loans subserviced for others) compared to $152.9 billion (including
$3.1 billion of loans subserviced for others) at November 30, 1996, a 15%
increase. The growth in the Company's servicing portfolio during the quarter
ended November 30, 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 November 30, 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 November 30, 1997, the prepayment rate of the
Company's servicing portfolio was 16%, as compared to 9% for the quarter ended
November 30, 1996. In general, the prepayment rate is affected by the overall
level of refinance activity, which in turn is driven primarily by the relative
level of mortgage interest rates.
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"),
interest rate swaps ("Swaps"), options on interest rate swaps ("Swaptions"),
interest rate caps, principal-only ("P/O") swaps, certain tranches of
collateralized mortgage obligations ("CMOs") and Callable Pass-through
Certificates ("CPC").
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 Swaps, the Company receives and pays interest on a specified
notional amount. The rate received is fixed; the rate paid is adjustable and is
indexed to the London Interbank Offered Rates for U.S. dollar deposits
("LIBOR").
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. This 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 CPC is an option with a mortgage-backed security as the underlying
collateral. The option gives the holder the right to call the mortgage-backed
security at par and receive the remaining cashflows from the particular pool.
This option has a one year lockout, meaning it cannot be exercised until the end
of the first year. After the lockout period, the option can be exercised at
anytime. This option expires in 2025.
The Servicing Hedge is 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, CMOs and CPC, 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 November 30, 1997, the Company estimates that
its maximum exposure to loss over the contractual term is $19.8 million. With
respect to the Swap contracts entered into by the Company as of November 30,
1997, the Company estimates that its maximum exposure to loss over the
contractual term is $169.0 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 November 30, 1997, the
Company recognized a net benefit of $161.5 million from its Servicing Hedge. The
net benefit included unrealized net gains of $148.0 million and realized gains
of $13.5 million from the premium amortization and sale of various financial
instruments that comprise the Servicing Hedge. In the quarter ended November 30,
1996, the Company recognized a net benefit of $140.2 million from its Servicing
Hedge. The net benefit included unrealized gains of $164.2 million and net
realized losses of $24.0 million from the premium amortization and sale of
various financial instruments that comprise the Servicing Hedge. There can be no
assurance that the 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 impairment of its MSRs in the
quarter ended November 30, 1997 totaling $243.7 million (consisting of normal
amortization amounting to $76.8 million and impairment of $166.9 million),
compared to $198.7 million of amortization and a net impairment (consisting of
normal amortization amounting to $55.0 million and net impairment of $143.7
million) in the quarter ended November 30, 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 November 30, 1997, the Company acquired bulk
servicing rights for loans with principal balances aggregating $215 million at a
price of 1.17% of the aggregate outstanding principal balances of the servicing
portfolios acquired. During the quarter ended November 30, 1996, the Company
acquired bulk servicing rights for loans with principal balances aggregating $60
million at a price of 1.08% of the aggregate outstanding principal balances of
the servicing portfolios acquired.
<TABLE>
<CAPTION>
Salaries and related expenses are summarized below for the quarters
ended November 30, 1997 and 1996.
-- --------------------------- -- -- --------- ------------------------------------------------- -- --- --- -----
(Dollar amounts in Quarter Ended November 30, 1997
thousands)
-- --------- ------------------------------------------------- -- --- --- -----
-- --------------------------- --
Production Loan Corporate Other
Activities Administration Administration Activities Total
-- --------------------------- -- ------------ -- ------------- - ------------- -- ------------- -- -------------
<S> <C> <C> <C> <C> <C>
Base Salaries $35,462 $11,262 $17,853 $6,514 $71,091
Incentive Bonus 20,826 316 4,096 2,606 27,844
Payroll Taxes and Benefits 5,373 2,138 3,440 572 11,523
------------ ------------- ------------- ------------- -------------
Total Salaries and Related
Expenses $61,661 $13,716 $25,389 $9,692 $110,458
============ ============= ============= ============= -------------
Average Number of 3,452 1,669 1,431 488 7,040
Employees
-- --------------------------- -- ------------ -- ------------- - ------------- -- ------------- -- -------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
-- --------------------------- -- --- -------- ------------------------------------------------- ---- --- -- ----
(Dollar amounts in Quarter Ended November 30, 1996
thousands)
--- -------- ------------------------------------------------- ---- --- -- ----
-- --------------------------- --
Production Loan Corporate Other
Activities Administration Administration Activities Total
-- --------------------------- -- ------------ - -------------- - ------------- -- ------------- -- -------------
<S> <C> <C> <C> <C> <C>
Base Salaries $23,050 $10,716 $13,994 $3,281 $51,041
Incentive Bonus 7,870 203 3,733 1,892 13,698
Payroll Taxes and Benefits 3,220 1,833 1,302 454 6,809
------------ -------------- ------------- ------------- -------------
Total Salaries and Related
Expenses $34,140 $12,752 $19,029 $5,627 $71,548
============ ============== ============= ============= -------------
Average Number of 2,325 1,593 1,155 250 5,323
Employees
-- --------------------------- -- ------------ - -------------- - ------------- -- ------------- -- -------------
</TABLE>
The amount of salaries increased during the quarter ended November 30,
1997 from the quarter ended November 30, 1996 reflecting the Company's strategy
of expanding and enhancing its Consumer Markets and Wholesale branch networks,
including 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
November 30, 1997 increased primarily due to higher production and a change in
production mix.
Occupancy and other office expenses for the quarter ended November 30,
1997 increased to $49.2 million from $33.0 million for the quarter ended
November 30, 1996, reflecting the Company's goal of expanding its Consumer
Markets and Wholesale branch networks, including the new retail sub-prime
branches. In addition, a larger servicing portfolio and growth in the Company's
non-mortgage banking activities 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 November 30, 1997, guarantee fees increased 7% to $43.5 million
from $40.6 million for the quarter ended November 30, 1996. The factors which
affect the amount of guarantee fees in a period include the size of the
servicing portfolio, the mix of permanent investors and the terms negotiated at
the time of loan sales.
Marketing expenses for the quarter ended November 30, 1997 increased
26% to $9.7 million from $7.7 million for the quarter ended November 30, 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 November 30, 1997
increased from the quarter ended November 30, 1996 by $10.4 million, or 51%.
This increase was due primarily to higher loan production, a larger servicing
portfolio, increased reserves for bad debts, increased systems development and
growth in the Company's non-mortgage banking subsidiaries.
Profitability of Loan Production and Servicing Activities
In the quarter ended November 30, 1997, the Company's pre-tax income from
its loan production activities (which include loan origination and purchases,
warehousing and sales) was $62.9 million. In the quarter ended November 30,
1996, the Company's comparable pre-tax income was $36.7 million. The increase of
$26.2 million was primarily attributable to increased loan production, positive
trends in the production mix and in the pricing margins on prime credit quality
first mortgages. These positive results were partially offset by higher
production and overhead costs. In the quarter ended November 30, 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, acting as tax payment agent, marketing foreclosed properties and
acting as a reinsurer) was $58.4 million as compared to $64.3 million in the
quarter ended November 30, 1996. The decrease of $5.9 million from November 30,
1996 to November 30, 1997 was due primarily to increased amortization and
increased interest expense resulting from a higher cost basis in the MSRs and an
increase in interest expense incurred on payoffs. This was partially offset by
an increase in servicing fees and miscellaneous revenue.
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 November 30, 1997, these activities contributed $10.2 million to the
Company's pre-tax income compared to $7.1 million for the quarter ended November
30, 1996.
RESULTS OF OPERATIONS
Nine Months Ended November 30, 1997 Compared to Nine Months Ended
November 30, 1996
Revenues from ongoing operations for the nine months ended November 30,
1997 increased 35% to $1.1 billion from $815.6 million for the nine months ended
November 30, 1996. Net earnings from ongoing operations increased 19% to $224.9
million for the nine months ended November 30, 1997 from $189.1 million for the
nine months ended November 30, 1996. Both revenues and net earnings from ongoing
operations for the nine months ended November 30, 1997 exclude a nonrecurring
pre-tax gain of $57.4 million on the sale of a subsidiary. The increase in
revenues and net earnings from ongoing operations for the nine months ended
November 30, 1997 compared to the nine months ended November 30, 1996 was
primarily attributable to an increase in the size of the Company's servicing
portfolio, a 53% increase in production with improved pricing margins on prime
credit quality first mortgages and greater sales of higher-margin home equity
loans. These positive factors were partially offset by an increase in
amortization of the servicing asset and increased expenses in the nine months
ended November 30, 1997 from the nine months ended November 30, 1996 which is
mainly attributable to the ongoing branch expansion effort, which has resulted
in 55 Consumer Markets, 18 Wholesale and 20 sub-prime retail branches being
opened over the last twelve months.
The total volume of loans produced increased 15% to $32.7 billion for
the nine months ended November 30, 1997 from $28.5 billion for the nine months
ended November 30, 1996. Refinancings totaled $10.9 billion, or 33% of total
fundings, for the nine months ended November 30, 1997, as compared to $8.9
billion, or 31% of total fundings, for the nine months ended November 30, 1996.
Fixed-rate loan production totaled $23.6 billion, or 72% of total fundings, for
the nine months ended November 30, 1997, as compared to $21.4 billion, or 75% of
total fundings, for the nine months ended November 30, 1996.
Included in the Company's total volume of loans produced are $1.0
billion of home equity loans funded in the nine months ended November 30, 1997
and $405 million funded in the nine months ended November 30, 1996. Sub-prime
credit quality loan production, which is also included in the Company's total
production volume, was $1.1 billion for the nine months ended November 30, 1997
and $634 million for the nine months ended November 30, 1996.
For the nine months ended November 30, 1997 and 1996, the Company
received 474,664 and 378,383 new loan applications, respectively, at an average
daily rate of $263 million and $208 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.
<TABLE>
<CAPTION>
Total loan volume in the Company's production divisions is summarized below.
- -------------------------------------------- --------------------------------------- --------
(Dollar amounts in millions) Nine Months Ended November 30,
- -------------------------------------------- ---------------------------------------
1997 1996
------------- ----------------
<S> <C> <C>
Consumer Markets Division $ 8,870 $ 6,017
Wholesale Lending Division 10,024 6,020
Correspondent Lending Division 13,760 16,454
============= ================
Total Loan Volume $32,654 $28,491
============= ================
- -------------------------------------------- ------------- -------- ---------------- --------
</TABLE>
Loan origination fees increased during the nine months ended November
30, 1997 as compared to the nine months ended November 30, 1996 due to higher
production. The percentage increase in loan origination fees was more than the
increase in production. This was primarily because production by the Consumer
Markets Division and the Wholesale Lending Division (which, due to their cost
structures, charge higher origination fees per dollar loaned than the
Correspondent Division) comprised a greater percentage of total production in
the nine months ended November 30, 1997 than in the nine months ended November
30, 1996 as a result of the continuing expansion of these divisions coupled with
an initiation to improve margins in the Correspondent Lending Division. Gain on
sale of loans improved during the nine months ended November 30, 1997 as
compared to the nine months ended November 30, 1996 primarily due to greater
sales of higher margin home equity loans and improved pricing margins on prime
credit quality first mortgages.
Net interest income (interest earned net of interest charges) decreased
to $13.7 million for the nine months ended November 30, 1997 from $29.7 million
for the nine months ended November 30, 1996. Consolidated net interest income is
principally a function of: (i) net interest income earned from the Company's
mortgage loan warehouse ($53.4 million and $47.8 million for the nine months
ended November 30, 1997 and 1996, respectively); (ii) interest expense related
to the Company's investment in servicing rights ($152.4 million and $108.0
million for the nine months ended November 30, 1997 and 1996, respectively) and
(iii) interest income earned from the custodial balances associated with the
Company's servicing portfolio ($106.0 million and $87.8 million for the nine
months ended November 30, 1997 and 1996, respectively). The Company earns
interest on, and incurs interest expense to carry, mortgage loans held in its
warehouse. The increase in interest expense on the investment in servicing
rights resulted primarily from a larger servicing portfolio and an increase in
interest costs incurred on payoffs. The increase in net interest income earned
from the custodial balances was related to an increase in the average custodial
balances (caused by growth of the servicing portfolio) combined with an increase
in the earnings rate from the nine months ended November 30, 1996 to the nine
months ended November 30, 1997.
During the nine months ended November 30, 1997, loan servicing income
was positively affected by the continued growth of the loan servicing portfolio.
The growth in the Company's servicing portfolio during the nine months ended
November 30, 1997 was the result of loan production volume and the acquisition
of bulk servicing rights, partially offset by prepayments, partial prepayments,
and scheduled amortization of mortgage loans.
The prepayment rate of the Company's servicing portfolio was 13% and 11%
for the nine month periods ended November 30, 1997 and November 30, 1996,
respectively.
During the nine months ended November 30, 1997, the Company recognized
a net benefit of $150.2 million from its Servicing Hedge. The net benefit
included an unrealized gain of $139.2 million and a net realized gain of $11.0
million from the amortization and sale of various financial instruments that
comprise the Servicing Hedge. During the nine months ended November 30, 1996,
the Company recognized a net benefit of $22.0 million from its Servicing Hedge.
The net benefit included an unrealized gain of $75.8 million and a net realized
loss of $53.8 million from the amortization and sale of various financial
instruments that comprise the Servicing Hedge.
The Company recorded amortization and net impairment of its MSRs in the
nine months ended November 30, 1997 totaling $375.1 million (consisting of
normal amortization amounting to $213.8 million and net impairment of $161.3
million), compared to amortization and net impairment of its MSRs of $185.1
million (consisting of normal amortization amounting to $158.8 million and net
impairment of $26.3 million) in the nine months ended November 30, 1996.
During the nine months ended November 30, 1997, the Company acquired
bulk servicing rights for loans with principal balances aggregating $574 million
at a price of approximately 1.16% of the aggregate outstanding principal balance
of the servicing portfolios acquired. During the nine months ended November 30,
1996, the Company acquired bulk servicing rights for loans with principal
balances aggregating $1.2 billion at a price of approximately 1.69% of the
aggregate outstanding principal balance of the servicing portfolios acquired.
<TABLE>
<CAPTION>
Salaries and related expenses are summarized below for the nine months ended
November 30, 1997 and 1996.
-- --------------------------- -- -- --------- ------------------------------------------------- -- --- --- -----
(Dollar amounts in Nine Months Ended November 30, 1997
thousands)
-- --------- ------------------------------------------------- -- --- --- -----
-- --------------------------- --
Production Loan Corporate Other
Activities Administration Administration Activities Total
-- --------------------------- -- ------------ -- ------------- - ------------- -- ------------- -- -------------
<S> <C> <C> <C> <C> <C>
Base Salaries $95,626 $32,936 $51,079 $17,417 $197,058
Incentive Bonus 51,199 901 12,541 7,576 72,217
Payroll Taxes and Benefits 15,279 6,220 6,645 1,624 29,768
------------ ------------- ------------- ------------- -------------
Total Salaries and Related
Expenses $162,104 $40,057 $70,265 $26,617 $299,043
============ ============= ============= ============= -------------
Average Number of 3,132 1,637 1,364 434 6,567
Employees
-- --------------------------- -- ------------ -- ------------- - ------------- -- ------------- -- -------------
</TABLE>
<TABLE>
<CAPTION>
-- --------------------------- -- -- --------- ------------------------------------------------- -- --- --- -----
(Dollar amounts in Nine Months Ended November 30, 1996
thousands)
-- --------- ------------------------------------------------- -- --- --- -----
-- --------------------------- --
Production Loan Corporate Other
Activities Administration Administration Activities Total
-- --------------------------- -- ------------ -- ------------- - ------------- -- ------------- -- -------------
<S> <C> <C> <C> <C> <C>
Base Salaries $ 66,202 $30,617 $39,436 $ 9,437 $145,692
Incentive Bonus 24,884 545 10,994 4,681 41,104
Payroll Taxes and Benefits 10,436 5,455 4,602 1,248 21,741
------------ ------------- ------------- ------------- -------------
Total Salaries and Related
Expenses $101,522 $36,617 $55,032 $15,366 $208,537
============ ============= ============= ============= -------------
Average Number of 2,225 1,524 1,083 247 5,079
Employees
-- --------------------------- -- ------------ -- ------------- - ------------- -- ------------- -- -------------
</TABLE>
The amount of salaries increased during the nine months ended November
30, 1997 from the nine months ended November 30, 1996 primarily due to an
increased number of employees resulting from expansion of the Consumer Markets
and Wholesale division branch networks, a larger servicing portfolio and growth
in the Company's non-mortgage banking activities. The increase in incentive
bonuses was due primarily to the increased Consumer Markets and Wholesale
divisions' production.
Occupancy and other office expenses for the nine months ended November
30, 1997 increased to $128.7 million from $94.3 million for the nine months
ended November 30, 1996, reflecting the Company's goal of expanding its Consumer
Markets and Wholesale branch networks. In addition, higher loan production, a
larger servicing portfolio and growth in the Company's non-mortgage banking
activities also contributed to the increase.
Guarantee fees for the nine months ended November 30, 1997 increased
10% to $128.9 million from $117.5 million for the nine months ended November 30,
1996. This increase resulted from an increase in the servicing portfolio,
changes in the mix of permanent investors and terms negotiated at the time of
loan sales.
Marketing expenses for the nine months ended November 30, 1997
increased 18% to $30.4 million from $25.7 million for the nine months ended
November 30, 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 nine months ended November 30, 1997
increased from the nine months ended November 30, 1996 by $26.3 million, or 44%.
This increase was due primarily to higher loan production, a larger servicing
portfolio, increased reserves for bad debts and increased systems development in
the nine months ended November 30, 1997 as compared to the nine months ended
November 30, 1996.
Profitability of Loan Production and Servicing Activities
In the nine months ended November 30, 1997, the Company's pre-tax
income from its loan production activities (which include loan origination and
purchases, warehousing and sales) was $158.1 million. In the nine months ended
November 30, 1996, the Company's comparable pre-tax income was $101.4 million.
The increase of $56.7 million was primarily attributable to a larger gain on
sale of loans resulting from the sale of higher margin home equity loans and
improved pricing margins on prime credit quality first mortgages. These positive
results were partially offset by higher production costs. In the nine months
ended November 30, 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, acting as tax payment agent, marketing
foreclosed properties and acting as a reinsurer) was $178.7 million as compared
to $190.7 million in the nine months ended November 30, 1996. The decrease of
$12.0 million was principally due to increased amortization resulting from a
higher cost basis in the MSRs and an increase in interest expense incurred on
payoffs. This was partially offset by an increase in servicing fees and
miscellaneous revenues.
Profitability of Other Activities
Other ancillary products and services, excluding the sale of a
subsidiary, contributed $31.8 million to the Company's pre-tax income in the
nine months ended November 30, 1997, compared to $17.8 million during the nine
months ended November 30, 1996. This increase to pre-tax income primarily
resulted from improved performance of the title insurance, escrow and Capital
Markets businesses.
During the nine months ended November 30, 1997, Countrywide Asset Management
Corporation, a subsidiary of the Company, was sold to INMC Mortgage Holdings,
Inc., (INMC) a publicly traded real estate investment trust for 3.44 million
shares of INMC stock. The impact of this sale on earnings was a $57.4 million
pre-tax gain.
INFLATION
Inflation affects the Company in the areas of loan production and
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 over
capacity 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 effects
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 partially 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
subordinated notes payable, an optional cash purchase feature in the dividend
reinvestment plan, redeemable capital securities of subsidiary trust and cash
flow from operations. 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, 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 used 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 nine months ended November 30, 1997, the
Company's operating activities used cash of approximately $2.1 billion primarily
to increase 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 during the nine months ended November 30, 1997 was the investment in
servicing. Net cash used by investing activities was $0.8 billion and $0.7
billion for the nine months ended November 30, 1997 and November 30, 1996,
respectively.
Financing Activities Net cash provided by financing activities amounted
to $2.9 billion and $11.0 million for the nine months ended November 30, 1997
and November 30, 1996, respectively. 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".
YEAR 2000 COMPLIANCE
The Company has and will continue to make certain investments in its
software systems and applications to ensure the Company is year 2000 compliant.
The financial impact to the Company has not been and is not anticipated to be
material to its financial position or results of operations in any given year.
PROSPECTIVE TRENDS
Applications and Pipeline of Loans in Process
For the month ended December 31, 1997, the Company received new loan
applications at an average daily rate of $303 million compared to a daily
application rate for the month ended December 31, 1996 of $229 million. The
Company's pipeline of loans in process was $7.6 billion and $4.5 billion at
December 31, 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
Pipeline(R) at December 31, 1997 was $769.1 million and at December 31, 1996 was
$1.1 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 lower during the quarter ended
November 30, 1997 compared to the quarter ended November 30, 1996. Loan
production increased 53% from the quarter ended November 30, 1996 to the quarter
ended November 30, 1997. The Company benefited from a relatively strong home
purchase market during the quarter ended November 30, 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 the quarter ended November 30, 1996.
The Company's primary competitors are commercial banks, savings and
loans and mortgage banking subsidiaries of diversified companies, as well as
other mortgage bankers. Certain commercial banks have expanded their mortgage
banking operations through acquisition of formerly independent mortgage banking
companies, the integration of which has not, in all cases, been completed, 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.
Some regions in which the Company operates, particularly some regions
of California, had been experiencing slower economic growth, and real estate
financing activity in these regions had been negatively impacted. The Company's
California mortgage loan production (measured by principal balance) constituted
26% of its total production during the nine months ended November 30, 1997, up
slightly from 25% for the nine months ended November 30, 1996. The Company is
continuing its efforts to expand its production capacity outside of California.
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 the state.
The delinquency rate in the Company-owned servicing portfolio increased
to 4.29% at November 30, 1997 from 3.23% at November 30, 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 48% of the portfolio at November 30, 1996
to 49% at November 30, 1997. In addition, the weighted average age of the
portfolio was 30 months at November 30, 1997, up from 27 months at November 30,
1996. Delinquency rates tend to increase as loans age, reaching a peak at three
to five years of age. However, 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's owned servicing portfolio that
are in foreclosure is 0.62% at November 30, 1997 and 1996. Generally, the
Company is not exposed to credit risk. Because the Company services
substantially all prime credit quality loans on a non-recourse basis,
foreclosure losses are generally the responsibility of the investor or insurer
and not the Company. The Company retains credit risk on the home equity and
sub-prime loans it sells in the form of pools backing securities. As such,
through retention of a subordinated interest in the trust, the Company bears
primary responsibility for credit losses on the loans. At November 30, 1997, the
Company had investments in such subordinated interests amounting to $181
million, which represents the maximum exposure to credit losses on the
securitized home equity and sub-prime loans. While the Company generally does
not retain credit risk with respect to the prime credit quality mortgage loans
it sells, it does have potential liability under representations and warranties
made to purchasers and insurers of the loans. In the event of a breach of the
representations and warranties, the Company may be required to repurchase a
mortgage loan and any subsequent loss on the mortgage loan may be borne by the
Company. Similarly, government loans serviced by the Company (29% of the
Company's servicing portfolio at November 30, 1997) are insured by the Federal
Housing Administration or partially guaranteed against loss by the Department of
Veterans Administration. The Company is exposed to credit losses to the extent
that the partial guarantee provided by the Department of Veterans Administration
is inadequate to cover the total credit losses incurred.
The Company's bad debt expense is primarily driven by the exposures
associated with foreclosure activity. Bad debt expense is included with other
operating expenses and amounted to $24.9 million for the nine months ended
November 30, 1997 and $17.2 million for the nine months ended November 30, 1996.
Servicing Hedge
As previously discussed, the Company's Servicing Hedge is designed to
protect the value of its investment in mortgage 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 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.
<TABLE>
<CAPTION>
The following table presents basic and diluted EPS for the three months and nine
months ended November 30, 1997 and 1996, computed under the provisions of SFAS
No. 128.
- ------------------------ -- -- ----- ------------------------------------ -- ----- ----
Three Months Ended November 30,
-- -- ----- ------------------------------------ -- ----- ----
1997 1996
--------- --------- --------- ---------- --------- ---------
(Dollar amounts in Per-Share Per-Share
thousands, except per Net Amount Net Amount
share data) Earnings Shares Earnings Shares
- ------------------------ --------- --------- --------- --------- --------- ---------
Net earnings $80,183 $65,935
========= ==========
Basic EPS
Net earnings available
<S> <C> <C> <C> <C> <C> <C>
to common shareholders $80,183 107,052 $0.75 $65,935 103,135 $0.64
Effect of dilutive
stock options - 4,918 - 3,207
--------- --------- ---------- ---------
Diluted EPS
Net earnings available
to common shareholders $80,183 112,490 $0.71 $65,935 106,342 $0.62
========= ========= ========= ========== ========= ---------
- ------------------------ --------- --------- --------- - ---------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------ -- -- ----- ------------------------------------ -- ----- ----
Nine Months Ended November 30,
-- -- ----- ------------------------------------ -- ----- ----
1997 1996
--------- --------- --------- ---------- --------- ---------
(Dollar amounts in Per-Share Per-Share
thousands, except per Net Amount Net Amount
share data) Earnings Shares Earnings Shares
- ------------------------ --------- --------- --------- --------- --------- ---------
Net earnings $259,881 $189,056
========= ==========
Basic EPS
Net earnings available
<S> <C> <C> <C> <C> <C> <C>
to common shareholders $259,881 107,111 $2.43 $189,056 102,666 $1.84
Effect of dilutive
stock options - 4,062 - 2,287
--------- --------- ---------- ---------
Diluted EPS
Net earnings available
to common shareholders $259,881 111,173 $2.34 $189,056 104,953 $1.80
========= ========= ========= ========== ========= ---------
- ------------------------ --------- --------- --------- - ---------- --------- ---------
</TABLE>
<PAGE>
Page 28
Page 24
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.11.1 First Amendment to the 1987 Stock Option Plan as Amended and Restated.
10.11.2 Second Amendment to the 1987 Stock Option Plan as Amended and Restated.
10.11.3 Third Amendment to the 1987 Stock Option Plan as Amended and Restated.
10.20.6 Sixth Amendment to the 1991 Stock Option Plan.
10.20.7 Seventh Amendment to the 1991 Stock Option Plan.
10.21.1 First Amendment to the 1992 Stock Option Plan.
10.21.2 Second Amendment to the 1992 Stock Option Plan.
10.22.2 Second Amendment to the Amended and Restated 1993 Stock Option 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>
Page 25
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: January 14, 1998
--------------------------------------
Stanford L. Kurland
Senior Managing Director and
Chief Operating Officer
DATE: January 14, 1998
--------------------------------------
Carlos M. Garcia
Managing Director; Chief Financial
Officer and Chief Accounting Officer
(Principal Financial Officer and
Principal Accounting Officer)
<PAGE>
Page 26
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: January 14, 1997 /s/ Stanford L. Kurland
-------------------------------------
Senior Managing Director and
Chief Operating Officer
DATE: January 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
10.11.1 First Amendment to the 1987 Stock Option Plan as Amended and Restated.
10.11.2 Second Amendment to the 1987 Stock Option Plan as Amended and Restated.
10.11.3 Third Amendment to the 1987 Stock Option Plan as Amended and Restated.
10.20.6 Sixth Amendment to the 1991 Stock Option Plan.
10.20.7 Seventh Amendment to the 1991 Stock Option Plan.
10.21.1 First Amendment to the 1992 Stock Option Plan.
10.21.2 Second Amendment to the 1992 Stock Option Plan.
10.22.2 Second Amendment to the Amended and Restated 1993 Stock Option 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>
FIRST AMENDMENT
TO THE
COUNTRYWIDE CREDIT INDUSTRIES, INC.
1987 STOCK OPTION PLAN AS AMENDED AND RESTATED
WHEREAS, Countrywide Credit Industries, Inc. (the "Company")previously
adopted the Countrywide Credit Industries, Inc. 1987 Stock Option Plan (the
"1987 Plan"); and
WHEREAS, the terms of the 1987 Plan were intended to
comply with Rule 16b-3 under the Securities Exchange Act of
1934; and
WHEREAS, Rule 16b-3 has been amended by the
Securities and Exchange Commission since the date of the last
amendment to the 1987 Plan; and
WHEREAS, the Board of Directors of the Company
desires to amend the 1987 Plan to comply with the new
provisions of Rule l6b-3.
NOW, THEREFORE, BE IT RESOLVED, That the 1987 Plan
be, and hereby is, amended effective this 22nd day of January,
1992 as follows:
A. Section 2(a) is amended to read in its entirety as follows:
2. ADMINISTRATION
(a) The Plan shall be administered by a committee
(the "Committee") to be appointed from time to time by the
Board of Directors of the Company (the "Board"), and the
Committee shall consist of at least two disinterested
directors within the meaning of Rule l6b-3 under the
Securities Exchange Act of 1934.
B. Section 4 is amended to read in its entirety as follows:
4. ELIGIBILITY
Options may be granted only to persons who are (i)
both directors and employees or (ii) key employees of the
Company or any subsidiary thereof; provided, however, that no
director or key employee shall be entitled to receive an
incentive stock option under the Plan unless he is an employee
of the Company or any subsidiary thereof at the time the
incentive stock option is granted; provided further, that no
individual who owns stock possessing more than 10% of the
total combined voting power of all classes of stock of the
Company, or any subsidiary of the Company, shall be eligible.
to receive an incentive stock option.
RESOLVED FURTHER, That Jack L. Bruckner, Ben M. Enis, Harley W. Snyder and
Victor R. Witt be, and hereby are, appointed to serve as the Committee to
administer the 1987 Plan.
DATED: January 22, 1992
SECOND AMENDMENT TO THE
COUNTRYWIDE CREDIT INDUSTRIES, INC.
1987 STOCK OPTION PLAN AS AMENDED AND RESTATED
WHEREAS, Countrywide Credit Industries, Inc. (the "Company") desires to
amend its 1987 Stock Option Plan as Amended and Restated (the "Plan") to revise
the definition of "Change of Control."
NOW, THEREFORE, Paragraph (b)(i) of Section 18 of the Plan is hereby deleted in
its entirety and the following is inserted in its place:
(i) "Change in Control" shall mean the occurrence during the term of
the Plan of any one of the following events:
(1) An acquisition (other than directly from Company)
of any common stock or other "Voting Securities"
(as hereinafter defined) of Company 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 Company's
common stock or the combined voting power of
Company'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 Acquisition" (as
hereinafter defined) shall not constitute an
acquisition which would cause a Change in Control.
For purposes of this Agreement, (A) "Voting
Securities" shall mean Company's outstanding voting
securities entitled to vote generally in the
election of directors and (B) a "Non-Control
Acquisition" shall mean an acquisition by (i) an
employee benefit plan (or a trust forming a part
thereof) maintained by (x) Company or (y) 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 Company (for purposes of this definition, a
"Subsidiary"), (ii) Company or any of its
Subsidiaries, or (iii) any Person in connection
with a "Non-Control Transaction" (as hereinafter
defined);
(2) 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
Company'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
(3) The consummation of:
(A) A merger, consolidation or reorganization
involving Company, unless such merger,
consolidation or reorganization is a
"Non-Control Transaction." A "Non-Control
Transaction" shall mean a merger,
consolidation or reorganization of
Company where:
(i) the stockholders of Company, 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;
(ii) 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, or 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
(iii) no Person other than (w) Company, (x) any Subsidiary, (y) any
employee benefit plan (or any trust forming a part thereof) maintained by
Company, the Surviving Corporation, or any Subsidiary, or (z) 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 Company, has Beneficial
Ownership of twenty five percent (25%) or more of the combined voting power
of the Surviving Corporation's then outstanding Voting Securities or its
common stock;
(B) A complete liquidation or dissolution of Company; or
(C) The sale or other disposition of all or substantially all of the assets
of Company 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 Company 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
Company, and after such share acquisition by Company, the Subject
Person becomes the Beneficial Owner of any additional common stock or
Voting Securities which increases the percentage of the then
outstanding common stock or Voting Securities Beneficially Owned by the
Subject Person, then a Change in Control shall occur.
IN WITNESS WHEREOF, the Company has caused this Second Amendment to be executed
this 13th day of September, 1996.
COUNTRYWIDE CREDIT INDUSTRIES, INC.
By:_________________________
Sandor E. Samuels
Managing Director
Attest: _____________________
Gwen J. Eells
Assistant Secretary
s:\gje\1987opamend2
AMENDMENT NUMBER THREE
COUNTRYWIDE CREDIT INDUSTRIES, INC.
1987 STOCK OPTION PLAN
(AMENDED AND RESTATED AS OF JULY 12, 1989)
WHEREAS, Countrywide Credit Industries, Inc. (the "Company") desires to
amend its 1987 Stock Option Plan, amended and restated as of July 12, 1989, and
as further amended (the "Plan"), to allow for the naming of death beneficiaries
to exercise options upon the death of an option holder so as to avoid the
inclusion of options in the option holder's probate estate and certain
jurisdictions;
NOW, THEREFORE, the Plan shall be amended as follows effective September
22, 1997. 1. Section 8(c) shall be amended in its entirety to read as
follows: (c) If an Optionee dies while a director or an employee of the
Company or any Subsidiary or within three (3) months after termination as
described in clause (a) of this Section 8 or within one (1) year after
termination as a result of Disability as described in clause (b) of this
Section 8, the Option may be exercised at any time within one (1) year
after the Optionee's death by the person or persons to whom the Optionee's
rights pass by designation pursuant to Section 21, or, absent such a
designation, by the person or persons to whom such rights under the Option
shall pass by will or by the laws of descent and distribution; provided,
however, that an Option may be ----------------- exercised to the extent,
and only to the extent, that the Option or portion thereof was exercisable
on the date of death or earlier termination.
2. Section 9 shall be amended in its entirety to read as follows: 9.
Options not Transferable. Options granted under the Plan shall, by their
terms, be nontransferable except pursuant to a beneficiary designation made
under Section 21 hereof or by will or by the laws of descent and
distribution and, during the lifetime of the person to whom an option is
granted, only the grantee or the duly appointed guardian or personal
representative of the grantee may exercise it.
3. The first sentence of Section 10 shall be amended by inserting ",
beneficiary," after "legatee" in the second line thereof.
4. A new section 21 shall be added to read as follows: 21. Designation of
Beneficiaries. The person granted an option hereunder
---------------------------- may file with the Company a written
designation of a beneficiary or beneficiaries under this Plan on a form and
in such manner as the Committee prescribes and may from time to time revoke
or change any such designation of beneficiary. Any designation of
beneficiary under the Plan shall be controlling over any other disposition,
testamentary or otherwise; provided, however, that if the Committee is in
doubt as to the entitlement of any such beneficiary to any option, the
Committee may determine to recognize only the legal representative of the
option grantee in which case the Company, the Committee and the members
thereof shall not be under any further liability to anyone.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this amendment number three
to be executed by its duly authorized officer this _______ day of September,
1997.
Countrywide Credit Industries, Inc.
By:____________________________
Sandor E. Samuels
Managing Director
Attest:
- -------------------------------
Gwen J. Eells
Assistant Secretary
LT972590.086/1+
SIXTH AMENDMENT TO THE
COUNTRYWIDE CREDIT INDUSTRIES, INC.
1991 STOCK OPTION PLAN
WHEREAS, Countrywide Credit Industries, Inc. (the "Company") desires to amend
its 1991 Stock Option Plan (the "Plan") to revise the definition of "Change
of Control."
NOW, THEREFORE, Paragraph (f) of Section 2 of the Plan is hereby deleted in its
entirety and the following is inserted in its place:
(f) "Change in Control" shall mean the occurrence during the term
of the Plan of any one of the following events:
(1) An acquisition (other than directly from Company)
of any common stock or other "Voting Securities"
(as hereinafter defined) of Company 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 Company's
common stock or the combined voting power of
Company'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 Acquisition" (as
hereinafter defined) shall not constitute an
acquisition which would cause a Change in Control.
For purposes of this Agreement, (A) "Voting
Securities" shall mean Company's outstanding voting
securities entitled to vote generally in the
election of directors and (B) a "Non-Control
Acquisition" shall mean an acquisition by (i) an
employee benefit plan (or a trust forming a part
thereof) maintained by (x) Company or (y) 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 Company (for purposes of this definition, a
"Subsidiary"), (ii) Company or any of its
Subsidiaries, or (iii) any Person in connection
with a "Non-Control Transaction" (as hereinafter
defined);
(2) 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
Company'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
(3) The consummation of:
(A) A merger, consolidation or reorganization
involving Company, unless such merger,
consolidation or reorganization is a
"Non-Control Transaction." A "Non-Control
Transaction" shall mean a merger,
consolidation or reorganization of
Company where:
(i) the stockholders of Company, 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;
(ii) 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, or 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
(iii)no Person other than (w) Company, (x) any Subsidiary, (y) any employee
benefit plan (or any trust forming a part thereof) maintained by Company,
the Surviving Corporation, or any Subsidiary, or (z) 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 Company, has Beneficial
Ownership of twenty five percent (25%) or more of the combined voting power
of the Surviving Corporation's then outstanding Voting Securities or its
common stock;
(B) A complete liquidation or dissolution of Company; or
(C) The sale or other disposition of all or substantially all of the assets of
Company 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 Company 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
Company, and after such share acquisition by Company, the Subject
Person becomes the Beneficial Owner of any additional common stock or
Voting Securities which increases the percentage of the then
outstanding common stock or Voting Securities Beneficially Owned by the
Subject Person, then a Change in Control shall occur.
IN WITNESS WHEREOF, the Company has caused this Sixth Amendment to be executed
this 13th day of September, 1996.
COUNTRYWIDE CREDIT INDUSTRIES, INC.
By:_________________________
Sandor E. Samuels
Managing Director
Attest: _____________________
Gwen J. Eells
Assistant Secretary
s:\gje\1991opamend6
AMENDMENT NUMBER SEVEN
COUNTRYWIDE CREDIT INDUSTRIES, INC.
1991 STOCK OPTION PLAN
WHEREAS, Countrywide Credit Industries, Inc. (the "Company") desires to
amend its 1991 Stock Option Plan, as amended (the "Plan"), to allow for the
naming of death beneficiaries to exercise options upon the death of an option
holder so as to avoid the inclusion of options in an option holder's probate
estate in certain jurisdictions;
NOW, THEREFORE, the Plan shall be amended as follows, effective September
22, 1997:
1. The first sentence of Section 7(a) shall be amended to read as follows: (a)
Non-transferability. No Option granted hereunder shall be transferable by
the Optionee to whom granted otherwise than pursuant to a beneficiary
designation made under Section 14(d) hereof or by will or the laws of
descent and distribution, and an Option may be exercised during the
lifetime of such Optionee only by the Optionee or his or her guardian or
legal representative.
2. Section 7(d)(4) shall be amended in its entirety to read as follows: (4) If
an Optionee dies while a director or an employee of the Company or any
Subsidiary or within three (3) months after termination as described in
clause (1) of this Section 7(d) or within one (1) year after termination as
a result of Disability as described in clause (2) of this Section 7(d), the
Option may be exercised at any time within one (1) year after the
Optionee's death by the person or persons to whom the Optionee's rights
pass by designation pursuant to Section 14(d), or, absent such a
designation, by the person or persons to whom such rights under the Option
shall pass by will or by the laws of descent and distribution; provided,
however, that an Option may be exercised to the extent, and only to the
extent, that the Option or portion thereof was exercisable on the date of
death or earlier termination.
3. New Sections 14(c) and (d) shall be added
to read as follows:
(c) Effect of Death. In the event of the death of any Optionee hereunder, the
term "Optionee" as used hereunder shall thereafter be deemed to refer to
the beneficiary or beneficiaries designated pursuant to Section 14(d)
hereof or if no such designation is in effect, the person to whom the
Optionee's rights pass by will or applicable law, or, if no such person has
such right, the executor or administrator of the estate of such Optionee.
(d) Designation of Beneficiaries. An Optionee hereunder may file with
---------------------------- the Company a written designation of a
beneficiary or beneficiaries under this Plan on a form and in such manner
as the Committee prescribes and may from time to time revoke or amend any
such designation. Any designation of beneficiary under the Plan shall be
controlling over any other disposition, testamentary or otherwise;
provided, however that if the Committee is in doubt as to the entitlement
of any such beneficiary to any Option, the Committee may determine to
recognize only the legal representative of the Optionee in which case the
Company, the Committee and the members thereof shall not be under any
further liability to anyone.
IN WITNESS WHEREOF, the Company has caused this amendment
number seven to be executed by its duly authorized officer this _______ day of
September, 1997.
Countrywide Credit Industries, Inc.
By:____________________________
Sandor E. Samuels
Managing Director
Attest:
- -------------------------------
Gwen J. Eells
Assistant Secretary
LT972590.088/1+
FIRST AMENDMENT TO THE
COUNTRYWIDE CREDIT INDUSTRIES, INC.
1992 STOCK OPTION PLAN
WHEREAS, Countrywide Credit Industries, Inc. (the "Company") desires to
amend its 1992 Stock Option Plan (the "Plan") to revise the definition
of "Change of Control."
NOW, THEREFORE, Paragraph (f) of Section 2 of the Plan is hereby deleted in its
entirety and the following is inserted in its place:
(f) "Change in Control" shall mean the occurrence during the term of
the Plan of any one of the following events:
(1) An acquisition (other than directly from Company)
of any common stock or other "Voting Securities"
(as hereinafter defined) of Company 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 Company's
common stock or the combined voting power of
Company'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 Acquisition" (as
hereinafter defined) shall not constitute an
acquisition which would cause a Change in Control.
For purposes of this Agreement, (A) "Voting
Securities" shall mean Company's outstanding voting
securities entitled to vote generally in the
election of directors and (B) a "Non-Control
Acquisition" shall mean an acquisition by (i) an
employee benefit plan (or a trust forming a part
thereof) maintained by (x) Company or (y) 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 Company (for purposes of this definition, a
"Subsidiary"), (ii) Company or any of its
Subsidiaries, or (iii) any Person in connection
with a "Non-Control Transaction" (as hereinafter
defined);
(2) 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
Company'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
(3) The consummation of:
(A) A merger, consolidation or reorganization
involving Company, unless such merger,
consolidation or reorganization is a
"Non-Control Transaction." A "Non-Control
Transaction" shall mean a merger,
consolidation or reorganization of
Company where:
(i) the stockholders of Company, 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;
(ii) 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, or 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
(iii)no Person other than (w) Company, (x) any Subsidiary, (y) any
employee benefit plan (or any trust forming a part thereof) maintained
by Company, the Surviving Corporation, or any Subsidiary, or (z) 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
Company, has Beneficial Ownership of twenty five percent (25%) or more
of the combined voting power of the Surviving Corporation's then
outstanding Voting Securities or its common stock;
(B) A complete liquidation or dissolution of Company; or
(C) The sale or other disposition of all or substantially all of the
assets of Company 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 Company 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 Company, and after such share acquisition by Company,
the Subject Person becomes the Beneficial Owner of any additional
common stock or Voting Securities which increases the percentage of
the then outstanding common stock or Voting Securities Beneficially
Owned by the Subject Person, then a Change in Control shall occur.
IN WITNESS WHEREOF, the Company has caused this First Amendment to be executed
this 13th day of September, 1996.
COUNTRYWIDE CREDIT INDUSTRIES, INC.
By:_________________________
Sandor E. Samuels
Managing Director
Attest: _____________________
Gwen J. Eells
Assistant Secretary
s:\gje\1992opamend1
AMENDMENT NUMBER TWO
COUNTRYWIDE CREDIT INDUSTRIES, INC.
1992 STOCK OPTION PLAN
WHEREAS, Countrywide Credit Industries, Inc. (the "Company") desires to
amend its 1992 Stock Option Plan, as amended (the "Plan"), to add further
provisions to clarify the procedure in the Plan allowing for the naming of death
beneficiaries to exercise options upon the death of an option holder so as to
avoid the inclusion of options in an option holder's probate estate in certain
jurisdiction.
NOW, THEREFORE, the Plan shall be amended as follows effective September
22, 1997:
1. The first sentence of Section 5(f) shall be amended in its entirety to
read as follows:
No Option granted hereunder shall be transferable by the Optionee to whom
granted otherwise then pursuant to a beneficiary designation made
under Section 12(c) hereof or by will or the laws of descent and
distribution, and an Option may be exercised during the lifetime of
such Optionee only by the Optionee or his or her guardian or legal
representative.
2. Section 5(i)(4) shall be amended in its entirety to read as follows:
(4) If an Optionee dies while an employee of the Company or any
Subsidiary or within three (3) months after termination as described
in clause (1) of this Section 5(i) or within one (1) year after
termination as a result of Disability as described in clause (2) of
this Section 5(i), the Option may be exercised at any time within one
(1) year after the Optionee's death by the person or persons to whom
the Optionee's rights pass by designation pursuant to Section 12(c),
or, absent such a designation, by the person or persons to whom such
rights under the Option shall pass by will or by the laws of descent
and distribution; provided, however, that an Option may be exercised
to the extent, and only to the extent, that the Option or portion
thereof was exercisable on the date of death or earlier termination.
3. A new Section 12(d) shall be added to read as follows: (d) Effect of
Death. In the event of the death of any Optionee hereunder, the term
"Optionee" as used hereunder shall thereafter be deemed to refer to
the beneficiary of beneficiaries designated pursuant to Section 12(c)
hereof, or if no such designation is in effect, the person to whom the
Optionee's rights pass by will or applicable law, or, if no such
person has such right, the executor or administrator of the estate of
such Optionee.
IN WITNESS WHEREOF, the Company has caused this first amendment to be
executed by its duly authorized officer this ____ day of September, 1997.
Countrywide Credit Industries, Inc.
By:____________________________
Sandor E. Samuels
Managing Director
Attest:
- -------------------------------
Gwen J. Eells
Assistant Secretary
LT972590.090/1+
AMENDMENT NUMBER TWO
COUNTRYWIDE CREDIT INDUSTRIES, INC.
1993 STOCK OPTION PLAN
(AMENDED AND RESTATED AS OF MARCH 27, 1996)
WHEREAS, Countrywide Credit Industries, Inc. (the "Company") desires to
amend its 1993 Stock Option Plan, amended and restated as of March 27, 1996 (the
"Plan"), to allow for the naming of death beneficiaries to exercise options upon
the death of an Optionee so as to avoid the inclusion of options in an
optionee's probate estate in certain jurisdictions;
NOW, THEREFORE, the Plan shall be amended as follows effective September
10, 1997:
1. The first sentence of Section 7(a) shall be amended to read as
follows:
(a) Non-transferability. No option granted hereunder shall be transferred
by the Optionee to whom granted otherwise then pursuant to a
beneficiary designation made under Section 14(d) hereof or by will or
the laws of descent and distribution, and an Option may be exercised
during the lifetime of such Optionee only by the Optionee or his or
her guardian or legal representative.
2. Section 7(d)(4) shall be amended in its entirety to read as follows:
(4) If an Optionee dies while a director or an employee of the Company
or any Subsidiary or within three (3) months after termination as
described in clause (1) of this Section 7(d) or within one (1) year
after termination as a result of Disability as described in clause (2)
of this Section 7(d), the Option may be exercised at any time within
one (1) year after the Optionee's death by the person or persons to
whom the Optionee's rights pass by designation pursuant to Section
14(d), or, absent such a designation, by the person or persons to whom
such rights under the Option shall pass by will or by the laws of
descent and distribution; provided, however, that an Option may be
exercised to the extent, and only to the extent, that the Option or
portion thereof was exercisable on the date of death or earlier
termination.
3. New Sections 14(c) and (d) shall be added to read as follows:
(c) Effect of Death. In the event of the death of any Optionee hereunder,
the term "Optionee" as used hereunder shall thereafter be deemed to
refer to the beneficiary or beneficiaries designated pursuant to
Section 14(d) hereof or if no such designation is in effect, the
person to whom the Optionee's rights pass by will or applicable law,
or, if no such person has such right, the executor or administrator of
the estate of such Optionee.
(d) Designation of Beneficiaries. An Optionee hereunder may file with the
Company a written designation of a beneficiary or beneficiaries under
this Plan and may from time to time revoke or amend any such
designation. Any designation of beneficiary under the Plan shall be
controlling over any other disposition, testamentary or otherwise;
provided, however that if the Committee is in doubt as to the
entitlement of any such beneficiary to any
<PAGE>
Option, the Committee may determine to recognize only the legal
representative of the Optionee in which case the Company, the
Committee and the members thereof shall not be under any further
liability to anyone.
IN WITNESS WHEREOF, the Company has caused this second amendment to be
executed by its duly authorized officer this ____ day of September, 1997.
Countrywide Credit Industries, Inc.
By:____________________________
Sandor E. Samuels
Managing Director
Attest:
- -------------------------------
Gwen J. Eells
Assistant Secretary
LT972510.092/2+
<TABLE>
<CAPTION>
Exhibit 11.1
COUNTRYWIDE CREDIT INDUSTRIES, INC.
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
Nine Months
Ended November 30,
1997 1996
---------------- -----------------
(Dollar amounts in thousands,
except per share data)
Primary
<S> <C> <C>
Net earnings applicable to common stock $259,881 $189,056
================ =================
Average shares outstanding 107,111 102,666
Net effect of dilutive stock options --
based on the treasury stock method
using average market price 4,062 2,287
---------------- -----------------
Total average shares 111,173 104,953
================ =================
Per share amount $2.34 $1.80
================ =================
Fully diluted
Net earnings applicable to common stock $259,881 $189,056
================ =================
Average shares outstanding 107,111 102,665
Net effect of dilutive stock options --
based on the treasury stock method using
the closing market price, if higher than
average market price. 5,608 3,401
---------------- -----------------
Total average shares 112,719 106,066
================ =================
Per share amount $2.31 $1.78
================ =================
</TABLE>
<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 nine months ended November 30, 1997 and 1996 and for the five
fiscal years ended February 29(28), 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).
Nine Months Ended
November 30, Fiscal Years Ended February 29(28),
------------------------- ------------------------------------------------------------------
1997 1996 1997 1996 1995 1994 1993
------------ ------------ ------------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net earnings $259,881 $189,056 $257,358 $195,720 $ 88,407 $179,460 $140,073
Income tax expense 166,154 120,872 164,540 130,480 58,938 119,640 93,382
Interest charges 291,935 230,547 316,705 281,573 205,464 219,898 128,612
Interest portion of rental
expense 2,703 5,486 7,420 6,803 7,379 6,372 4,350
------------ ------------ ------------- ------------ ------------- ------------ ------------
Earnings available to cover
fixed charges $720,676 $545,961 $746,023 $614,576 $360,188 $525,370 $366,417
============ ============ ============= ============ ============= ============ ============
Fixed charges
Interest charges $291,935 $230,547 $316,705 $281,573 $205,464 $219,898 $128,612
Interest portion of rental
expense 2,703 5,486 7,420 6,803 7,379 6,372 4,350
------------ ------------ ------------- ------------ ------------- ------------ ------------
Total fixed charges $294,638 $236,033 $324,125 $288,376 $212,843 $226,270 $132,962
============ ============ ============= ============ ============= ============ ============
Ratio of earnings to fixed
charges 2.45 2.31 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> Nov-30-1997
<CASH> 17,438
<SECURITIES> 0
<RECEIVABLES> 1,745,250
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 341,709
<DEPRECIATION> 124,930
<TOTAL-ASSETS> 11,314,415
<CURRENT-LIABILITIES> 0
<BONDS> 3,651,500
0
0
<COMMON> 5,397
<OTHER-SE> 1,922,495
<TOTAL-LIABILITY-AND-EQUITY> 11,314,415
<SALES> 0
<TOTAL-REVENUES> 1,098,942
<CGS> 0
<TOTAL-COSTS> 672,907
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 426,035
<INCOME-TAX> 166,154
<INCOME-CONTINUING> 259,881
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 259,881
<EPS-PRIMARY> 2.34
<EPS-DILUTED> 2.31
<FN> Total revenues includes $291,935 of interest expense
related to mortgage loan activities.
</FN>
</TABLE>
