<PAGE>
1993
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the Fiscal Year Ended December 31, 1993
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
[NO FEE REQUIRED]
Commission file number 1-6157
HELLER FINANCIAL, INC.
(Exact name of registrant as specified in its charter)
36-1208070
Delaware (I.R.S. Employer Identification No.)
(State or other jurisdiction of
incorporation or organization)
500 West Monroe Street, Chicago,
Illinois 60661
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number, including area code: (312) 441-7000
Securities registered pursuant to Section 12(b) of the Act:
Cumulative Perpetual Senior Preferred Stock, Series A
New York Stock Exchange, Inc.
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X
No .
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
Aggregate market value of voting stock held by non-affiliates: None.
Number of shares of common stock outstanding at February 7, 1994: 100.
Documents incorporated by reference: None.
- --------------------------------------------------------------------------------
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Index to Exhibits
at Page 64
Page 1 of 106
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ITEM NO. NAME OF ITEM PAGE
-------- ------------ ----
PART I
<C> <S> <C>
Item 1. Business........................................................ 3
Corporate Financing............................................. 3
Real Estate Financing........................................... 3
Current Asset Management........................................ 3
Asset Based Financing........................................... 4
Specialized Financing and Investments........................... 4
International Factoring and Asset Based Financing............... 4
Ownership....................................................... 5
Summary of Total Revenues, Lending Assets and Investments....... 5
Rates Charged; Competition; Regulation.......................... 5
Item 2. Properties...................................................... 5
Item 3. Legal Proceedings............................................... 5
Item 4. Submission of Matters to a Vote of Security Holders............. 6
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters......................................................... 6
Item 6. Selected Financial Data......................................... 7
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.......................................... 8
Results of Operations........................................... 8
Portfolio Composition........................................... 10
Product Categories.............................................. 11
Credit Management............................................... 15
Nonearning and Troubled Account Activity........................ 16
Liquidity and Capital Resources................................. 18
Accounting Developments......................................... 19
Item 8. Financial Statements and Supplementary Data..................... 20
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure........................................... 46
PART III
Item 10. Directors and Executive Officers of the Registrant.............. 47
Item 11. Executive Compensation.......................................... 51
Summary Compensation Table...................................... 51
Retirement and Other Defined Benefit Plans...................... 52
Compensation of Directors....................................... 53
Employment Contracts and Termination of Employment and Change of
Control Arrangements........................................... 53
Compensation Committee Interlocks and Insider Participation..... 53
Item 12. Security Ownership of Certain Beneficial Owners and Management.. 54
Voting Securities............................................... 54
Equity Securities............................................... 54
Item 13. Certain Relationships and Related Transactions.................. 55
Keep Well Agreement with Fuji Bank.............................. 55
Tax Allocation Agreement........................................ 57
Certain Transactions with the Parent and its Subsidiaries....... 57
Certain Other Relationships..................................... 58
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K. 59
</TABLE>
2
<PAGE>
PART I
ITEM 1. BUSINESS
Heller Financial, Inc. (the "Company") was incorporated in 1919 under the
laws of the State of Delaware and is engaged in various aspects of the
commercial finance business. The Company and its consolidated subsidiaries
employ approximately 1,400 people. The executive offices of the Company are
located at 500 West Monroe Street, Chicago, Illinois 60661 (telephone: (312)
441-7000). Unless the context indicates otherwise, references to the Company
include Heller Financial, Inc. and its consolidated subsidiaries.
The Company operates in the middle market segment of the commercial finance
industry, which generally includes entities in the manufacturing and service
sectors with annual sales in the range of $15 million to $200 million and in
the real estate sector with property values in the range of $5 million to $40
million. The Company currently provides services in six product categories: (1)
corporate financing, (2) real estate financing, (3) current asset management,
(4) asset based financing, (5) specialized financing and investments and (6)
international factoring and asset based financing.
The Company has undertaken a long term program to strengthen its performance
by diversifying its lending portfolio and earnings sources, strengthening
earnings and asset quality and maintaining capital strength. The portfolio and
earnings sources are being diversified by reducing reliance on the corporate
financing business and growing the asset based businesses and specialized
financing and investment activities. The Company is attempting to strengthen
earnings by developing more stable earning streams, reducing the level and
volatility of credit quality costs and increasing productivity. Improved asset
quality is being pursued through aggressive resolution of problem accounts,
more conservative underwriting and reduced transaction and hold sizes. Lastly,
the Company is maintaining a strong financial position through moderate
leverage, strong reserves and liquidity.
CORPORATE FINANCING
The Corporate Finance group offers a broad spectrum of services based on the
cash flows underlying a client's business. These services include the financing
of corporate recapitalizations, refinancings, acquisitions and buy-outs of
publicly and privately held entities in a wide variety of industries. Loans are
provided on both a term and revolving basis for periods of up to ten years and
are predominantly collateralized by senior liens on the borrower's stock or
assets or both. Corporate financings may also include some unsecured,
subordinated or non-voting equity financing. From time to time the Company
sells assignments and participations in its loans.
REAL ESTATE FINANCING
The Real Estate Financial Services group provides interim financing to
owners, investors and developers primarily for the acquisition, refinancing and
renovation of commercial and residential income producing properties in a wide
range of property types and geographic areas. These loans generally have terms
ranging from one to five years and are principally collateralized by first
mortgages. The Company also offers a number of financing products including
financing for discounted loan portfolio acquisitions, participating junior debt
financing to developers of single family and multi-family housing, credit sale-
leaseback financing for single tenant properties, credit enhancements for
multi-family tax exempt bonds and standby commitments with terms of one to two
years.
CURRENT ASSET MANAGEMENT
The Current Asset Management group primarily offers factoring services to the
apparel, textile and home furnishings industries. In return for a commission,
the group purchases the client's accounts receivable and provides collection
and management information services. Working capital is provided by advancing
on a
3
<PAGE>
formula basis a percentage of the purchase price of the client's factored
accounts receivable prior to the due date. In 1993, the Company was one of the
largest factors in the highly competitive United States factoring industry,
with volume of $6.4 billion. During 1993, Small Business Finance was
established to provide receivables financing products and services to the
smaller end of the middle market and Healthcare Financial Services expanded its
activities which include working capital financing and medical insurance claims
management services.
ASSET BASED FINANCING
Asset based financing is offered by Vendor Finance, Commercial Equipment
Finance, Heller First Capital ("First Capital") and Heller Business Credit
("Business Credit"). Vendor Finance provides leasing and financing of equipment
through manufacturer and vendor programs and direct relationships with end
users, with individual transactions generally under $500,000. This division
supports the machining, graphics, healthcare, communication, plastics and
production equipment markets. Commercial Equipment Finance provides financing
of general equipment transactions ranging in size from $1 million to $10
million to a diverse group of businesses for expansion, replacement and
modernization or refinancing of existing equipment obligations. During 1993,
Vendor Finance and Commercial Equipment Finance leases were consolidated in
Heller Financial Leasing, a wholly-owned subsidiary of the Company, which was
formed to provide additional focus for this growing portfolio.
First Capital is a provider of long-term financial products for small
businesses under U.S. Small Business Administration loan programs, which
guarantee from 70% to 90% of such financings. Loans of up to $1,250,000 are
made to small businesses in a wide variety of industries, for working capital,
equipment and owner-occupied facilities. The guaranteed portions of these loans
are sold in the secondary market, with servicing rights generally retained by
First Capital.
Business Credit was established as a separate unit during 1993, to rebuild a
strong national presence in asset based lending. Its financings are secured by
receivables, inventory and property, plant and equipment and are generally used
by middle market companies in a variety of industries for working capital,
refinancings, restructurings, and acquisitions. In addition to established
businesses, clients include high growth and established turnaround companies.
SPECIALIZED FINANCING AND INVESTMENTS
Specialized financing and investments are originated by four units: Project
Investment and Advisory, Equity Capital, Heller Investments and Aircraft
Finance. Project Investment and Advisory offers financing to independent power
producers and industrial projects in the form of senior and junior secured
loans, development loans and industrial project equity investments. Equity
Capital and Heller Investments make investments in middle market companies.
Equity Capital primarily focuses on established middle market companies, while
Heller Investments focuses on companies requiring an operational and financial
turnaround. Aircraft Finance offers financing for commercial aircraft through
leases or junior secured loans to an operating lessor, with terms ranging from
2 to 10 years.
INTERNATIONAL FACTORING AND ASSET BASED FINANCING
The Company provides factoring and asset based financing outside the United
States through investments in commercial finance companies located in 18
countries in Europe, Asia, Australia and Latin America. These companies, which
may be wholly-owned or joint ventures, offer factoring, asset based finance,
acquisition finance, leasing, vendor finance and/or trade finance programs to
the mid-sized corporate sector. During 1993, the Company established factoring
joint ventures in Mexico and Malaysia.
4
<PAGE>
OWNERSHIP
All of the outstanding common stock of the Company is owned by Heller
International Corporation (the "Parent"), a wholly-owned subsidiary of The Fuji
Bank, Limited ("Fuji Bank"), headquartered in Tokyo, Japan. Fuji Bank also
directly owns 21% of the outstanding shares of Heller International Group,
Inc., a consolidated subsidiary of the Company engaged in factoring and asset
based financing activities outside the U.S. Fuji Bank is one of the largest
banks in the world, with total deposits of approximately $356 billion at
September 30, 1993. Management of the Company believes that Fuji Bank's
ownership of the Company permits it to compete more effectively in the
commercial finance business. For a discussion of the "Keep Well Agreement"
between Fuji Bank and the Company, see "Certain Relationships and Related
Transactions--Keep Well Agreement with Fuji Bank."
SUMMARY OF TOTAL REVENUES, LENDING ASSETS AND INVESTMENTS
A summary of total revenues, lending assets and investments by product
category is included in the "Portfolio Composition" section of "Management's
Discussion and Analysis of Financial Condition and Results of Operations." This
summary closely corresponds to a classification by operating unit. In addition,
for information about international operations, see Note 16 to the Consolidated
Financial Statements.
RATES CHARGED; COMPETITION; REGULATION
Rates charged by the Company vary depending on the risk and maturity of the
loan, competition, current cost of borrowing to the Company and state usury
laws and other governmental regulations. The Company's portfolio of receivables
primarily earns interest at variable rates. These variable rates float in
accordance with various agreed upon reference rates, including the prime or
corporate base lending rates, or the London Inter-bank Offered Rate.
Competition varies by operating group. In general, the Company is subject to
competition from a variety of financial institutions, including commercial
finance companies, banks and leasing companies.
As a subsidiary of Fuji Bank, the Company is subject to the limitations
imposed by the Bank Holding Company Act of 1956, as amended, and related
regulations adopted by the Board of Governors of the Federal Reserve System.
Those regulations restrict the Company to activities that have been defined as
being so closely related to banking as to be incidental thereto and also
restrict certain lending activities. The Company's guaranteed loan operations
and certain of its equity investment activities are subject to the supervision
and regulation of the Small Business Administration. To date, such regulations
have not had a material adverse effect on the Company.
ITEM 2. PROPERTIES
The Company leases executive offices located at 500 West Monroe Street,
Chicago, Illinois 60661 and maintains various offices throughout the United
States, Europe, Asia and Australia, all of which are leased premises. For
information concerning the Company's lease obligations, see Note 7 to the
Consolidated Financial Statements.
ITEM 3. LEGAL PROCEEDINGS
The Company is party to a number of legal proceedings as plaintiff and
defendant, all arising in the ordinary course of its business. The Company
believes that the amounts, if any, which may ultimately be funded or paid with
respect to these matters will not have a materially adverse effect on the
financial condition or results of operations of the Company.
5
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were acted upon in the fourth quarter of 1993.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The outstanding common stock of the Company is owned entirely by the Parent,
which is wholly owned by Fuji Bank, and there is no public trading market for
the Company's common stock.
During 1993 and 1992, no cash dividends were declared on the Company's common
stock or NW Preferred Stock, Class B ("NW Preferred Stock"), and all dividends
declared on the Cumulative Perpetual Senior Preferred Stock, Series A
("Perpetual Preferred Stock") and the Cumulative Convertible Preferred Stock,
Series D ("Convertible Preferred Stock") have been paid through December 31,
1993. The Company is prohibited from paying cash dividends on common stock, NW
Preferred Stock, and Convertible Preferred Stock unless full cumulative
dividends on all outstanding shares of Perpetual Preferred Stock have been
paid. Under the terms of the Convertible Preferred Stock, all of which is owned
by the Parent, the Company is prohibited from paying dividends on common stock
unless full cumulative dividends on all outstanding shares of the Convertible
Preferred Stock have been paid.
6
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following table presents information from the Company's consolidated
financial statements for the five years ended December 31, 1993, which have
been audited by Arthur Andersen & Co., independent public accountants, as
indicated in their report included herein. This information should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations," and the "Financial Statements and Supplementary
Data."
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------------
1993 1992 1991 1990 1989
---------- ---------- ---------- ---------- ----------
INCOME STATEMENT DATA
(FOR THE YEAR ENDED): (DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Interest income......... $ 619,591 $ 634,169 $ 729,911 $ 812,918 $ 753,093
Interest expense........ 263,563 295,489 405,519 488,226 469,611
---------- ---------- ---------- ---------- ----------
Net interest income.... 356,028 338,680 324,392 324,692 283,482
Fees and other income... 137,850 100,641 94,333 84,165 118,778
Income of international
joint ventures......... 22,753 26,560 18,974 19,662 22,646
---------- ---------- ---------- ---------- ----------
Operating revenues..... 516,631 465,881 437,699 428,519 424,906
Operating expenses...... 178,403 171,868 169,835 183,108 178,326
Provision for losses.... 210,383 251,895 201,425 144,168 111,402
---------- ---------- ---------- ---------- ----------
Income before income
taxes and tax
accounting credit..... 127,845 42,118 66,439 101,243 135,178
Income tax
provision/(benefit).... 10,732 (5,002) 2,340 17,499 22,683
---------- ---------- ---------- ---------- ----------
Income before tax
accounting credit..... 117,113 47,120 64,099 83,744 112,495
Cumulative effect of a
change in accounting
principle for income
taxes.................. -- 41,100 -- -- --
---------- ---------- ---------- ---------- ----------
Net income............. 117,113 88,220 64,099 83,744 112,495
Preferred stock
dividends*............. 11,531 2,964 6,475 21,241 34,354
---------- ---------- ---------- ---------- ----------
Net income available
for common stock...... $ 105,582 $ 85,256 $ 57,624 $ 62,503 $ 78,141
========== ========== ========== ========== ==========
Net income available
for common stock
before tax accounting
credit................ $ 105,582 $ 44,156 $ 57,624 $ 62,503 $ 78,141
========== ========== ========== ========== ==========
Ratio of earnings to
combined fixed charges
and preferred stock
dividends**............ 1.43 1.14 1.15 1.15 1.22
========== ========== ========== ========== ==========
<CAPTION>
DECEMBER 31,
-------------------------------------------------------
BALANCE SHEET DATA (AT 1993 1992 1991 1990 1989
THE END OF THE YEAR): ---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Receivables............. $7,012,508 $7,419,720 $7,116,325 $7,218,092 $6,680,948
Allowance for losses on
receivables............ 211,357 221,277 167,008 154,795 143,176
Total assets............ $7,912,598 $7,952,349 $7,529,391 $7,772,337 $7,256,464
========== ========== ========== ========== ==========
Senior debt:
Commercial paper and
short-term borrowings. $1,981,370 $2,422,367 $2,797,044 $3,267,892 $3,559,320
Notes and debentures... 3,893,084 3,520,538 2,809,426 2,251,845 1,358,194
Subordinated debt....... -- -- 87,967 196,240 352,729
Junior subordinated
debt................... 74,993 224,979 230,431 233,883 237,335
---------- ---------- ---------- ---------- ----------
Total debt............. $5,949,447 $6,167,884 $5,924,868 $5,949,860 $5,507,578
========== ========== ========== ========== ==========
Preferred stock......... $ 150,000 $ 150,000 $ 25,000 $ 300,000 $ 300,000
Common equity........... 1,102,516 994,191 943,488 890,862 810,880
---------- ---------- ---------- ---------- ----------
Total stockholders'
equity................ $1,252,516 $1,144,191 $ 968,488 $1,190,862 $1,110,880
========== ========== ========== ========== ==========
</TABLE>
- --------
* During 1989, the Company declared and paid $10.7 million of dividends that
accumulated from March 30, 1984 to December 31, 1988.
** See Exhibit 12.
7
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
During 1993, the Company's results of operations and financial position
improved as earnings and asset quality improved, portfolio diversification
increased and balance sheet strength was maintained. Earnings quality improved
as operating revenues grew at a faster rate than operating expenses, in part
due to strong growth in fees and other income from newer businesses, while
credit quality costs decreased from the high level of 1992. Asset quality
improved as nonearning assets decreased by 22%. The portfolio became more
balanced due to the lower level of corporate financings and growth in asset
based financing and specialized financing and investments. Although the Company
has made progress in these areas, initiatives to strengthen the earnings
quality, diversify assets and improve asset quality will continue through 1994.
RESULTS OF OPERATIONS
The following table summarizes the Company's operating results for the years
ended December 31, 1993, 1992, and 1991.
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
---------------------- ----------------------
PERCENT PERCENT
1993 1992 CHANGE 1992 1991 CHANGE
------ ------ ------- ------ ------ -------
(DOLLARS IN MILLIONS) (DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Interest income.................. $619.6 $634.2 (2)% $634.2 $729.9 (13)%
Interest expense................. 263.6 295.5 (11) 295.5 405.5 (27)
------ ------ ------ ------
Net interest income............ 356.0 338.7 5 338.7 324.4 4
Fees and other income............ 137.8 100.6 37 100.6 94.3 7
Income of international joint
ventures........................ 22.8 26.6 (14) 26.6 19.0 40
------ ------ ------ ------
Operating revenues............. 516.6 465.9 11 465.9 437.7 6
Operating expenses............... 178.4 171.9 4 171.9 169.9 1
Provision for losses............. 210.4 251.9 (16) 251.9 201.4 25
------ ------ ------ ------
Income before income taxes and
tax accounting credit......... 127.8 42.1 204 42.1 66.4 (37)
Income tax provision/(benefit)... 10.7 (5.0) -- (5.0) 2.3 --
------ ------ ------ ------
Income before tax accounting
credit........................ 117.1 47.1 149 47.1 64.1 (27)
Cumulative change in accounting
principle for income taxes...... -- 41.1 -- 41.1 -- --
------ ------ ------ ------
Net income..................... 117.1 88.2 33 88.2 64.1 38
Preferred stock dividends........ 11.5 2.9 297 2.9 6.5 (55)
------ ------ ------ ------
Net income available for common
stock......................... $105.6 $ 85.3 24 $ 85.3 $ 57.6 48
------ ------ ------ ------
Net income available for common
stock before tax accounting
credit........................ $105.6 $ 44.2 139% $ 44.2 $ 57.6 (23)%
====== ====== ====== ======
</TABLE>
1993 vs. 1992
The Company achieved record net income available for common stock of $106
million, an increase of $61 million or 139%, before a tax accounting credit
recorded in 1992. This increase reflects lower credit quality costs, strong
gains on investments and increased fees and other income from newer business
initiatives, as well as continued growth in net interest income. These factors
more than offset increased spending on new business initiatives and a higher
provision for income taxes.
Net interest income increased due to the improved funding spreads resulting
from the low interest rate environment, coupled with increased turnover in the
portfolio. Interest income decreased as a result of lower floating rate
indices. While average earning funds employed remained relatively stable, a
shift in the
8
<PAGE>
composition of the portfolio occurred, as average corporate financings
decreased and average asset based and specialized financing and investments
increased. Rates charged on 86% of total average earning funds employed were
based on floating rate indices such as the average three month London Inter-
bank Offered Rate, which decreased to 3.31% from 3.79% in 1992. Interest
expense decreased as a result of a reduction in the average borrowing rate to
4.4% from 4.7% in 1992. The effect of the lower average borrowing rate was
partially offset by an increase in the costs associated with the extension of
the average maturity of the debt portfolio.
Fees and other income increased $37 million, principally as a result of
strong gains on investments from specialized and corporate financings and
increased income from real estate and small business loan activities.
Although income of international joint ventures declined primarily as the
result of a sale of an interest in a leasing joint venture, overall
international operations achieved a $7 million increase in net income,
reflecting a lower provision for losses.
Operating expenses were higher as spending for diversification efforts
increased $14 million in 1993. This increase was partially offset by the
benefits of productivity enhancements and expense controls in core businesses.
Although the provision for losses declined in 1993, significant progress was
made in addressing the risks associated with troubled credits in the corporate
financing and real estate portfolios. The Company maintained its reserve levels
at 3% of receivables or 99% of nonearning receivables at December 31, 1993,
even though the level of problem accounts receded and the performance of new
financings over the last three years has remained strong.
The 8% effective tax rate reflects the recognition of deferred tax benefits.
In 1994, management expects the effective tax rate to approach the statutory
tax rate.
1992 vs. 1991
Net income available for common stock in 1992 was $85 million, up 48% over
1991 as the Company benefitted from the adoption of a new accounting standard
for income taxes and increases in net interest income and other operating
revenues. This level of earnings was accomplished while the Company
strengthened its loss reserves and increased spending associated with new
business initiatives.
Net interest income increased as a 4% growth in average earning funds and
reduced costs of carrying nonearning assets more than offset a modest spread
compression due to an increase in the average term of the debt portfolio. Rates
charged on 87% of total average earning funds employed were based on floating
rate indices, such as the average prime rate which decreased to 6.3% in 1992
from 8.5% in 1991. As a result of the lower variable market rates, interest
income declined, and interest expense fell as the average borrowing rate was
4.7% compared to 6.7% in 1991.
Other revenue sources rose $14 million as a result of improved earnings from
unconsolidated joint ventures and continued gains on sales of capital
appreciation rights and other non-voting equity investments.
Operating expenses remained relatively flat for the year, as reductions in
legal and rent expense and the benefits of productivity improvements and
expense controls were offset by operating expenses for new business
initiatives. Spending for these efforts under the Company's diversification
program amounted to $17 million during the year.
The provision for losses increased as the Company strengthened its allowance
for losses to 3% of receivables to improve coverage ratios and address the
risks associated with certain troubled credits in the corporate financing and
real estate portfolios.
Effective January 1, 1992, the Company adopted the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes,"
which resulted in the recognition of $41 million of previously unrecognized tax
benefits. In addition, the Company recorded an income tax benefit in 1992
compared with a provision in 1991, as a result of the favorable settlement of
certain tax audits and recognition of additional deferred tax benefits in
excess of the current tax provision.
9
<PAGE>
PORTFOLIO COMPOSITION
During 1993, the Company continued to make progress in diversifying its
assets and sources of income, as corporate financing decreased to 46% of the
portfolio and asset based financing continued to increase in amount and as a
percentage of the portfolio.
The following tables present the lending assets and investments and the total
revenues of the Company by product category. The Current Asset Management group
lending assets and investments and total revenues are included in the asset
based product category. Lending assets include receivables and repossessed
assets. Total revenues include interest income, fees and other income and the
income of the international joint ventures.
<TABLE>
<CAPTION>
LENDING ASSETS AND INVESTMENTS AS OF DECEMBER 31,
-----------------------------------------------------
1993 1992 1991
----------------- ----------------- -----------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
--------- ------- --------- ------- --------- -------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
BY PRODUCT CATEGORY:
Corporate financing...... $ 3,571.9 46% $ 4,478.1 56% $ 4,611.9 61%
Real estate financing.... 1,956.5 25 1,855.5 23 1,545.3 21
Asset based financing.... 1,512.5 20 1,088.6 14 938.1 12
Specialized financing and
investments............. 416.6 5 327.6 4 191.4 3
International factoring
and asset
based financing......... 285.1 4 260.5 3 258.1 3
--------- ---- --------- ---- --------- ----
Total lending assets
and investments....... $ 7,742.6 100% $ 8,010.3 100% $ 7,544.8 100%
========= ==== ========= ==== ========= ====
BY ASSET TYPE:
Receivables.............. $ 7,012.5 90% $ 7,419.7 93% $ 7,116.3 94%
Repossessed assets....... 215.8 3 170.1 2 115.5 2
--------- ---- --------- ---- --------- ----
Total lending assets... 7,228.3 93 7,589.8 95 7,231.8 96
International joint
ventures................ 143.8 2 139.7 2 128.9 2
Other investments........ 370.5 5 280.8 3 184.1 2
--------- ---- --------- ---- --------- ----
Total investments...... 514.3 7 420.5 5 313.0 4
--------- ---- --------- ---- --------- ----
Total lending assets
and investments....... $ 7,742.6 100% $ 8,010.3 100% $ 7,544.8 100%
========= ==== ========= ==== ========= ====
<CAPTION>
TOTAL REVENUES FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------------------------
1993 1992 1991
----------------- ----------------- -----------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
--------- ------- --------- ------- --------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Corporate financing...... $ 389,364 50% $ 427,946 56% $ 513,395 61%
Real estate financing.... 160,730 21 141,354 19 136,419 16
Asset based financing.... 150,660 19 123,389 16 130,112 15
Specialized financing and
investments............. 40,364 5 24,946 3 15,397 2
International factoring
and asset
based financing......... 39,076 5 43,735 6 38,737 5
Other.................... -- -- -- -- 9,158 1
--------- ---- --------- ---- --------- ----
Total revenues......... $ 780,194 100% $ 761,370 100% $ 843,218 100%
========= ==== ========= ==== ========= ====
</TABLE>
Lending Assets and Investments. During 1993, lending assets decreased $362
million while the investment portfolio increased $94 million. The slight
decline in lending assets principally reflects the reduction of corporate
financings which was caused by increased liquidity and activity in the debt and
equity markets. Equipment financings, working capital loans, and higher
factoring receivables account for the increase in asset based lending, which
the Company will continue to grow as it pursues its diversification program.
10
<PAGE>
The increase in investments is primarily attributable to equity interests and
other investments related to power project financings and investments in
established companies with high growth potential.
Concentrations of lending assets of 5% or more, based on the standard
industrial classification of the borrower, are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1993 1992
-------------- --------------
AMOUNT PERCENT AMOUNT PERCENT
------ ------- ------ -------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Department and general merchandise retail
stores...................................... $505.8 7% $710.8 9%
General purpose office buildings............. 504.2 7 620.7 8
Textiles and apparel manufacturing........... 502.3 7 468.4 6
General industrial machines.................. 449.8 6 475.7 6
Mobile home parks............................ 414.3 6 334.3 4
Apartments................................... 371.0 5 437.5 6
</TABLE>
The majority of the lending assets in the department and general merchandise
retail stores category is comprised of factored accounts receivable which
represent short-term trade receivables from numerous customers. The receivables
in the general purpose office buildings and apartments categories represent
interim financing for properties principally located in major U.S. cities, with
no concentration in any one geographic location. The textile and apparel
manufacturing receivables are distributed among 14 borrowers. The general
industrial machines classification is distributed among machinery used for many
different industrial applications.
Total Revenues. The growth in total revenues is primarily attributable to the
$37 million increase in fees and other income principally resulting from newer
business initiatives in specialized financing and investments, asset based and
real estate financings and small business loan activities. This increase
largely offsets a $39 million decrease in revenues associated with the
reduction in the level of corporate financings and the effect on revenues of
the lower level of floating interest rates.
PRODUCT CATEGORIES
Corporate financing. Due to continuing efforts to strengthen portfolio
quality and reduce concentrations, the Company financed transactions with
smaller individual balances and lower debt multiples, while it broadened its
syndication capabilities. Accordingly, the number of transactions funded during
1993 increased, while the amount of new fundings decreased to $906 million from
$1,199 million in the prior year. The reduction in lending assets during 1993
reflects more rapid turnover of the portfolio caused by increased market and
portfolio liquidity.
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1993 1992 1991
--------- -------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Lending assets................................... $ 3,479.0 $4,403.2 $4,495.7
Investments...................................... 92.9 74.9 116.2
--------- -------- --------
Total lending assets and investments........... $ 3,571.9 $4,478.1 $4,611.9
========= ======== ========
Nonearning assets................................ $ 294.4 $ 392.3 $ 452.8
========= ======== ========
Average balance of lending assets................ $ 21.2 $ 26.1 $ 31.7
========= ======== ========
Number of investments............................ 65 61 64
========= ======== ========
Ratio of nonearning assets to lending assets..... 8.5% 8.9% 10.1%
========= ======== ========
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
--------------------------
1993 1992 1991
-------- -------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Interest income.................................. $ 349.2 $ 397.0 $ 486.4
Fees and other income............................ 40.2 30.9 27.0
-------- -------- --------
Total revenues................................. $ 389.4 $ 427.9 $ 513.4
======== ======== ========
Net writedowns................................... $ 125.2 $ 153.7 $ 80.0
======== ======== ========
Ratio of net writedowns to average lending
assets.......................................... 3.1% 3.5% 1.8%
======== ======== ========
Interest income decreased due to the lower interest rate environment and
lower average corporate financing funds employed. This decrease was partially
offset by loan prepayment income. Fees and other income increased in 1993 due
to higher gains from the sale of various equity investments. Net writedowns of
corporate financings continued at a high level during 1993, as the Company made
significant progress in addressing the risks associated with troubled credits.
Accordingly, management believes the Company has resolved or written down the
majority of the problem accounts in this portfolio.
At December 31, 1993, the Company was contractually committed to finance an
additional $796 million under existing agreements, generally contingent upon
the maintenance of specific credit standards by the borrowers. Since many of
the commitments are expected to remain unused, the total commitment amounts do
not necessarily represent future cash requirements.
Corporate financings are generally considered by certain regulatory agencies
as highly leveraged transactions.
Real estate financing. During 1993, the group continued to expand its lending
programs by capitalizing on opportunities in the current lending environment.
These opportunities include the financing of borrowers engaged in the
acquisition and resolution of discounted loan portfolios, the ownership and
management of mobile home parks, retail centers, single tenant properties and
apartments and the development of single-family and multi-family housing. The
majority of the $37.6 million of total investments represent participating debt
financings.
<CAPTION>
DECEMBER 31,
--------------------------
1993 1992 1991
-------- -------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Lending assets................................... $1,918.9 $1,836.4 $1,542.2
Investments...................................... 37.6 19.1 3.1
-------- -------- --------
Total lending assets and investments........... $1,956.5 $1,855.5 $1,545.3
======== ======== ========
Nonearning assets................................ $ 97.9 $ 127.9 $ 44.8
======== ======== ========
Average balance of lending assets................ $ 7.6 $ 7.0 $ 7.6
======== ======== ========
Ratio of nonearning assets to lending assets..... 5.1% 7.0% 2.9%
======== ======== ========
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
--------------------------
1993 1992 1991
-------- -------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Interest income.................................. $ 142.8 $ 136.5 $ 135.2
Fees and other income............................ 17.9 4.9 1.2
-------- -------- --------
Total revenues................................. $ 160.7 $ 141.4 $ 136.4
======== ======== ========
Net writedowns................................... $ 70.8 $ 30.5 $ 18.7
======== ======== ========
Ratio of net writedowns to average lending
assets.......................................... 3.8% 1.8% 1.3%
======== ======== ========
</TABLE>
12
<PAGE>
Interest income increased, due to the higher level of average real estate
funds employed which offset the effects of the lower interest rate environment.
Fees and other income increased primarily due to income from newer business
initiatives. The increased writedowns taken in 1993 reflects management's
efforts to resolve problem real estate accounts, with general purpose office
buildings accounting for the majority of the increase.
The real estate portfolio was distributed by geographic location and property
type as follows:
<TABLE>
<CAPTION>
1993 1992
---- ----
<S> <C> <C>
West.................... 23% 24%
Midwest................. 19 19
Mid-Atlantic States..... 17 15
Southeast............... 16 16
New York................ 12 13
Southwest............... 9 10
New England............. 4 3
---- ----
100% 100%
==== ====
</TABLE>
<TABLE>
<CAPTION>
1993 1992
---- ----
<S> <C> <C>
General purpose office
buildings.............. 26% 34%
Mobile home parks....... 22 18
Apartments.............. 19 24
Retail.................. 10 9
Industrial.............. 9 11
Loan portfolios......... 6 --
Other................... 8 4
---- ----
100% 100%
==== ====
</TABLE>
As of December 31, 1993, over 90% of the real estate loans were
collateralized by first mortgages. The real estate portfolio is geographically
dispersed throughout the United States. Loan portfolios are financings of
borrowers engaged in the acquisition of discounted portfolios of residential,
commercial and industrial loans. Over the last three years, in an effort to
reduce its exposure to general purpose office buildings, the Company has
substantially curtailed fundings in this sector. New financings were
principally in the loan portfolio acquisition, mobile home park and retail
categories. Additionally, certain borrowers in the general purpose office
building portfolio converted $122 million of variable rate debt to fixed debt,
at market rates, in order to limit exposure to interest rate risk.
Asset based financing. Asset based lending assets increased $424 million or
39% and related revenues increased $27 million or 22%, through the expansion of
various lending products. The asset based lending portfolio is comprised of
factored accounts receivable, equipment loans and leases, working capital
financings and other collateralized loans. Factored accounts are short-term
trade receivables primarily from department and general merchandise retailers.
These accounts, which are purchased from approximately 545 clients, are highly
liquid with an average turnover of 51 days, and are managed continuously by
evaluating the consolidated exposure from all clients to a particular customer.
Credit files are maintained for approximately 210,000 customers in order to
control this credit exposure. Equipment loans and leases are managed by Vendor
Finance and are often made with recourse to the vendor. Commercial Equipment
Finance provides financing of equipment loans and leases that are central to a
borrower's operations. Business Credit and First Capital loans are secured by
inventory, receivables, property, plant, equipment and real estate.
13
<PAGE>
Presented below is summarized information about the asset based portfolio and
related revenues. The asset and revenue growth illustrates the emphasis the
Company has placed on growing its asset based businesses and diversifying its
earnings sources.
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1993 1992 1991
-------- -------- ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Current Asset Management........................... $ 712.5 $ 677.2 $610.8
Vendor Finance..................................... 409.9 315.7 251.9
Commercial Equipment Finance....................... 168.2 16.9 --
Business Credit.................................... 102.7 -- --
First Capital...................................... 55.6 30.5 --
Other.............................................. 63.0 47.7 74.9
-------- -------- ------
Total lending assets............................. $1,511.9 $1,088.0 $937.6
Investments........................................ .6 .6 .5
-------- -------- ------
Total lending assets and investments............. $1,512.5 $1,088.6 $938.1
======== ======== ======
Nonearning assets.................................. $ 15.6 $ 17.7 $ 18.6
======== ======== ======
Ratio of nonearning assets to total lending assets. 1.0% 1.6% 2.0%
======== ======== ======
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
------------------------
1993 1992 1991
-------- -------- ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Interest income.................................... $ 89.2 $ 65.4 $ 71.4
Fees and other income.............................. 61.5 58.0 58.7
-------- -------- ------
Total revenues................................... $ 150.7 $ 123.4 $130.1
======== ======== ======
Net writedowns..................................... $ 12.2 $ 8.7 $ 20.3
======== ======== ======
Ratio of net client writedowns to average lending
assets............................................ .42% .38% .16%
======== ======== ======
Factoring customer net writedowns to factoring
volume............................................ .10% .08% .27%
======== ======== ======
</TABLE>
During 1993, the Company signed an agreement to acquire substantially all of
the assets of an insurance premium finance company. The regulatory process
could not be completed by the date required under the agreement and,
accordingly, the agreement was terminated by the seller.
Specialized financing and investments. Specialized financing and investments
principally consist of financing of leases of aircraft and related equipment
through Aircraft Finance, independent power projects through Project Investment
and Advisory and equity investments in middle market companies through Equity
Capital and Heller Investments.
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1993 1992 1991
------ ------ ------
(DOLLARS IN
MILLIONS)
<S> <C> <C> <C>
Aircraft Finance........................................ $ 50.1 $ 44.1 $ 44.3
Project Investment and Advisory......................... 83.6 42.8 47.4
Equity Capital.......................................... 33.6 37.9 21.2
Heller Investments...................................... 23.4 16.6 15.1
------ ------ ------
Total lending assets.................................. $190.7 $141.4 $128.0
Equipment on lease...................................... 147.5 158.4 55.6
Other investments....................................... 78.4 27.8 7.8
------ ------ ------
Total lending assets and investments.................. $416.6 $327.6 $191.4
====== ====== ======
Nonearning assets....................................... $ 14.2 $ 5.1 $ --
====== ====== ======
Ratio of nonearning assets to total lending assets...... 7.5% 3.6% -- %
====== ====== ======
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
--------------------
1993 1992 1991
------ ------ ------
(DOLLARS IN
MILLIONS)
<S> <C> <C> <C>
Total revenues.......................................... $ 40.4 $ 24.9 $ 15.4
====== ====== ======
Net writedowns.......................................... $ 5.0 $ -- $ --
====== ====== ======
Ratio of net writedowns to average lending assets....... 2.9% -- % -- %
====== ====== ======
In 1993, $15 million of gains were realized on the sale of investments in the
Project Investment and Advisory and Equity Capital divisions. The increase in
nonearning assets and the net writedowns were in the aircraft portfolio.
International factoring and asset based financing. International financings
include wholly-owned and joint venture investments in commercial finance
companies in 18 countries. These companies offer factoring, asset based
finance, acquisition finance, leasing, vendor finance and/or trade finance
programs to the mid-sized corporate sector.
<CAPTION>
DECEMBER 31,
--------------------
1993 1992 1991
------ ------ ------
(DOLLARS IN
MILLIONS)
<S> <C> <C> <C>
Lending assets.......................................... $127.8 $120.8 $128.3
International joint ventures............................ 143.8 139.7 128.9
Other investments....................................... 13.5 -- .9
------ ------ ------
Total lending assets and investments.................. $285.1 $260.5 $258.1
====== ====== ======
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
--------------------
1993 1992 1991
------ ------ ------
(DOLLARS IN
MILLIONS)
<S> <C> <C> <C>
Income of international joint ventures.................. $ 22.8 $ 26.6 $ 19.0
Interest, fees and other income......................... 16.3 17.1 19.7
------ ------ ------
Total revenues........................................ $ 39.1 $ 43.7 $ 38.7
====== ====== ======
</TABLE>
International lending assets include the assets of the wholly-owned
subsidiaries, principally in Australia and Singapore, while the investments in
joint ventures consist of the equity investments in 50% or less owned companies
in 15 countries in Europe, Asia, and Latin America. International lending
assets increased reflecting the higher level of factoring receivables. The
higher level of investments in joint ventures reflects 1993 joint venture
income, net of distributions. Overall international operations achieved higher
net income, as the reduction in joint venture income was more than offset by
the reduction in the provision for losses of wholly-owned subsidiaries. Income
of international joint ventures represents the Company's share of net income
from each joint venture investment. The Company periodically enters into
currency exchange contracts to hedge the earnings and net investments in its
international joint ventures from exposure to foreign currency fluctuations.
CREDIT MANAGEMENT
The Company manages credit risk through its underwriting procedures,
centralized approval of individual transactions and active portfolio and
account management. Underwriting procedures have been developed for each
product category which enables the Company to assess a prospective borrower's
ability to perform in accordance with established loan terms. These procedures
may include reviewing the ability of the business or property to perform in
differing economic environments, analyzing cash flows and collateral values,
performing financial sensitivity analysis and assessing potential exit
strategies. Financing and restructuring transactions over a certain amount are
reviewed by an independent corporate credit function and require approval by a
centralized credit committee.
15
<PAGE>
The Company manages the portfolio by monitoring transaction size and
diversification by industry, geographic area and property type. Through these
methods, management identifies and limits exposure to unfavorable risks, and
seeks favorable financing opportunities. Additionally, a centralized
department, independent of operations, periodically reviews the ongoing credit
management of the individual portfolios. Examples of recent portfolio
management actions include a significant reduction of new financings of general
purpose office buildings and media transactions, financing of smaller
transactions, and reductions in individual commitment sizes and amounts
retained. Loan grading systems are used to monitor the performance of loans by
product category. These systems generally consider debt service coverage, the
relationship of loan to underlying business or property value, collateral
value, industry characteristics, economic trends, principal and interest risk
and the value of additional credit enhancements such as guarantees, irrevocable
letters of credit and recourse provisions. When problem accounts are
identified, specialized professionals with expertise in various industries
formulate strategies to accelerate the resolution process.
NONEARNING AND TROUBLED ACCOUNT ACTIVITY
During 1993, the Company made progress towards improving asset quality by
continuing to resolve and write down problem accounts. Accordingly, nonearning
assets decreased by $120 million or 22%.
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1993 1992 1991
-------- -------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
LENDING ASSETS AND INVESTMENTS:
Receivables...................................... $7,012.5 $7,419.7 $7,116.3
Repossessed assets............................... 215.8 170.1 115.5
-------- -------- --------
Total lending assets........................... $7,228.3 $7,589.8 $7,231.8
Investments...................................... 514.3 420.5 313.0
-------- -------- --------
Total lending assets and investments........... $7,742.6 $8,010.3 $7,544.8
======== ======== ========
NONEARNING ASSETS:
Nonearning receivables........................... $ 214.1 $ 379.7 $ 409.1
Repossessed assets............................... 215.8 170.1 115.5
-------- -------- --------
Total nonearning assets........................ $ 429.9 $ 549.8 $ 524.6
======== ======== ========
Ratio of total nonearning receivables to
receivables..................................... 3.1% 5.1% 5.7%
======== ======== ========
Ratio of total nonearning assets to total lending
assets.......................................... 5.9% 7.2% 7.3%
======== ======== ========
ALLOWANCES FOR LOSSES:
Allowance for losses on receivables.............. $ 211.4 $ 221.3 $ 167.0
Valuation allowance on repossessed assets........ 15.2 8.8 5.2
-------- -------- --------
Total allowances............................... $ 226.6 $ 230.1 $ 172.2
======== ======== ========
Ratio of allowance for losses on receivables to
receivables..................................... 3.0% 3.0% 2.3%
======== ======== ========
DELINQUENCIES:
Earning loans delinquent 60 days or more......... $ 145.1 $ 214.8 $ 318.3
Ratio of earning loans delinquent
60 days or more to receivables.................. 2.1% 2.9% 4.5%
======== ======== ========
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
--------------------------
1993 1992 1991
-------- -------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
NET WRITEDOWNS OF LENDING ASSETS:
Net writedowns................................... $ 213.2 $ 192.7 $ 227.6
Ratio of net writedowns to average lending
assets.......................................... 2.8% 2.6% 3.1%
======== ======== ========
</TABLE>
16
<PAGE>
Nonearning Assets. Receivables are classified as nonearning when there is
significant doubt as to the ability of the debtor to meet current contractual
terms as evidenced by loan delinquency, reduction of cash flows, deterioration
in the loan to value relationship or other considerations. Nonearning assets
decreased $120 million, from 7.2% to 5.9% of total lending assets during 1993,
through the aggressive resolution and writedown of problem accounts in the
corporate financing and real estate portfolios. The Company is managing risk in
new financings through more conservative underwriting practices in corporate
and real estate financings and growth in asset based businesses, which are
believed to have lower risk characteristics. During 1994, one of the Company's
primary goals will be to continue to lower nonearning assets and reduce credit
quality costs. The table below presents the nonearning assets by product
category.
<TABLE>
<CAPTION>
NONEARNING ASSETS BY PRODUCT CATEGORY
--------------------------------------------
1993 1992 1991
-------------- -------------- --------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
------ ------- ------ ------- ------ -------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Corporate financing............... $294.4 68% $392.3 72% $452.8 86%
Real estate financing............. 97.9 23 127.9 23 44.8 8
Asset based financing............. 15.6 4 17.7 3 18.6 4
Specialized financing and invest-
ments............................ 14.2 3 5.1 1 -- --
International factoring and asset
based financing.................. 7.8 2 6.8 1 8.4 2
------ ---- ------ ---- ------ ----
Total nonearning assets........... $429.9 100% $549.8 100% $524.6 100%
====== ==== ====== ==== ====== ====
</TABLE>
Corporate financing and real estate nonearning assets decreased $98 million
and $30 million, respectively, during 1993, reflecting management's concerted
efforts to resolve problem accounts. The remaining corporate financing
nonearning assets are principally comprised of three accounts which were
originated prior to 1990, while the real estate nonearning assets are
principally comprised of financings of general purpose office buildings.
Allowances for Losses. The allowance for losses on receivables is a general
reserve available to absorb losses in the entire portfolio. This allowance is
established through direct charges to income and losses are charged to the
allowance when all or a portion of a receivable is deemed uncollectible. The
allowance is reviewed periodically and adjusted when necessary given the size
and loss experience of the overall portfolio, the effect of current economic
conditions and the collectibility and workout potential of identified risk
accounts. For repossessed assets, if the fair value declines after the time of
repossession, a valuation allowance is established to reflect this reduction in
value.
Delinquent Earning Accounts and Troubled Debt Restructurings. The level of
delinquent earning accounts changes between periods based on the timing of
payments and the effects of changes in general economic conditions on the
Company's borrowers. Delinquent earning accounts decreased primarily reflecting
the lower level of new problem accounts in the corporate financing portfolio.
At December 31, 1993 and 1992, the Company had $53 million and $57 million of
loans, respectively, which are defined as troubled debt restructurings. Loans
in the real estate portfolio accounted for $36 million of the current year
total and $39 million of the 1992 amount.
Writedowns. Total net writedowns increased during 1993 as the increase in
real estate net writedowns were partially offset by the $29 million reduction
in the level of corporate financing net writedowns. The Company has addressed a
substantial portion of the problem accounts. Management believes that
writedowns will decrease in 1994 as a result of these actions, coupled with
forecasted favorable economic conditions.
17
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1993 1992 1991
------ ------ ------
(DOLLARS IN
MILLIONS)
<S> <C> <C> <C>
NET WRITEDOWNS OF LENDING ASSETS:
Corporate financing...................................... $125.2 $153.7 $ 80.0
Real estate financing.................................... 70.8 30.5 18.7
Asset based financing.................................... 12.2 8.7 20.3
Specialized financing and investments.................... 5.0 -- --
International factoring and asset based financing........ -- (.2) .9
Other.................................................... -- -- 107.7
------ ------ ------
Total net writedowns..................................... $213.2 $192.7 $227.6
====== ====== ======
</TABLE>
As a result of management's efforts to resolve problem real estate accounts,
the amount of writedowns taken in 1993 increased, with general purpose office
buildings accounting for the majority of the increase. Other writedowns
represent losses incurred on a construction loan portfolio which was sold in
1991.
LIQUIDITY AND CAPITAL RESOURCES
During 1993, the Company's financial position continued to strengthen as it
lowered its leverage and improved its liquidity through a reduction in
commercial paper.
The Company was active in the debt market through the issuance of $1,020
million of senior debt during 1993, the proceeds of which were used to retire
maturing senior notes and reduce commercial paper obligations. The issuance of
the notes, which had maturities ranging from 1995 to 2000, enabled the Company
to reduce commercial paper and other short-term borrowings as a percentage of
total debt to 33% at December 31, 1993, compared with 39% at December 31, 1992,
and 47% at December 31, 1991. The Company extended the average maturity of the
debt portfolio including commercial paper from 23 months to 26 months during
1993. The ratio of debt to total stockholders' equity at December 31, 1993, was
4.7X, compared with 5.4X at December 31, 1992 and 6.1X at December 31, 1991.
The Company plans to continue to be active in issuing senior debt during
1994, primarily due to the need to replace $808 million of maturing debt,
potentially refinance an additional $70 million which is subject to repayment
at the option of the holders and support the growth of the asset based and
other portfolios.
The Company's domestic bank credit arrangements include a $1,344 million
three-year credit facility and a $756 million one-year credit facility. These
credit arrangements together with $500 million in liquidity support from Fuji
Bank under the "Keep Well Agreement," and $494 million available under the
factored accounts receivable sale program provide the Company with an aggregate
amount of $3,094 million of committed credit and sale facilities. Total
committed credit and sale facilities represent 162% of outstanding commercial
paper, while total committed credit and sale facilities, excluding the
liquidity support under the "Keep Well Agreement," represent 136% of
outstanding commercial paper at December 31, 1993. The maturity of the
Company's one-year credit facility is extendible every six months at the banks'
discretion. The maturity of the three-year credit facility is extendible
annually at the banks' discretion. Extensions on these facilities were granted
during 1993 and extensions will be requested in 1994.
International subsidiaries are funded primarily through committed and
uncommitted foreign bank credit facilities totaling $17 million and $77
million, respectively, at December 31, 1993.
Net cash provided by operating activities increased 11% in 1993 from the
amount provided in 1992, principally reflecting improved profitability of the
Company.
The cash provided by investing activities was $100 million in 1993 compared
with a use of $676 million in 1992. This change in funding activities reflects
a significant increase in collections and sales of longer term loans, which
more than offset a 13% increase in new business funding. The low net funding
requirements enabled the Company to use its cash provided by operations to
reduce its debt.
18
<PAGE>
The Company seeks to maintain a conservative posture with respect to currency
and interest rate risk. The Company has numerous swap agreements with financial
institutions of a notional amount which aggregated $3.5 billion at December 31,
1993. The purpose of these agreements is to manage exposure to interest rate
and currency exchange rate fluctuations. At December 31, 1993, after the effect
of the interest rate swap agreements, variable rate liabilities exceeded
variable rate assets by approximately $139 million which represented 2% of
total assets. In addition, at December 31, 1993, the Company was a party to
$201 million of foreign currency exchange contracts in order to hedge the
exposures to foreign currency fluctuations of international earnings and
investments.
The average interest rates paid by the Company on outstanding indebtedness,
after the effect of swap agreements, during the three years ended December 31,
1993, are summarized below.
<TABLE>
<CAPTION>
INTEREST RATES INTEREST RATES ON OTHER DEBT WEIGHTED AVERAGE
YEAR ON COMMERCIAL PAPER INCLUDING THE EFFECT OF SWAP AGREEMENTS INTEREST RATES
---- ------------------- --------------------------------------- ----------------
<S> <C> <C> <C>
1993.................... 3.4% 4.9% 4.4%
1992.................... 3.9 5.3 4.7
1991.................... 6.2 7.2 6.7
</TABLE>
ACCOUNTING DEVELOPMENTS
In May 1993, the Financial Accounting Standards Board released Statement of
Financial Accounting Standards ("SFAS") No. 114, "Accounting by Creditors for
Impairment of a Loan," which the Company is required to adopt no later than
1995. SFAS 114 requires impaired loans to be measured based on the present
value of expected future cash flows discounted at the loan's effective interest
rate or the value of the collateral if the loan is collateral dependent. The
statement also requires changes in the disclosures of impaired loans. The
Company does not expect the adoption of this pronouncement to have a material
effect on its results of operations or financial position. The future impact is
not currently determinable, however, since it will be based on the existing
impaired loans as of the date of adoption.
19
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
HELLER FINANCIAL, INC. AND SUBSIDIARIES
MANAGEMENT REPORT ON RESPONSIBILITY FOR FINANCIAL REPORTING
The management of Heller Financial, Inc. and its subsidiaries has the
responsibility for preparing the accompanying financial statements and for
their integrity and objectivity. The statements were prepared in accordance
with generally accepted accounting principles and are not misstated due to
material fraud or error. The financial statements include amounts that are
based on management's best estimates and judgments. Management also prepared
the other information in the December 31, 1993, annual report filed on Form 10-
K and is responsible for its accuracy and consistency with the financial
statements.
The Company's financial statements have been audited by Arthur Andersen &
Co., independent public accountants selected by the holder of the common stock.
Management has made available to Arthur Andersen & Co. all the Company's
financial records and related data, as well as the minutes of the stockholders'
and directors' meetings. Furthermore, management believes that all
representations made to Arthur Andersen & Co. during its audit were valid and
appropriate.
Management of the Company has established and maintains a system of internal
control that provides reasonable assurance as to the integrity and reliability
of the financial statements, the protection of assets from unauthorized use or
disposition, and the prevention and detection of fraudulent financial
reporting. The system of internal control provides for appropriate division of
responsibility and is documented by written policies and procedures that are
communicated to employees with significant roles in the financial reporting
process and updated as necessary. Management monitors the system of internal
control for compliance. The Company maintains an internal auditing program that
independently assesses the effectiveness of the internal controls and
recommends possible improvements. The Company's independent public accountants
have developed an overall understanding of our accounting and financial
controls and have conducted other tests they consider necessary to support
their opinion on the financial statements. Management has considered the
internal auditors' and Arthur Andersen & Co.'s recommendations concerning the
Company's system of internal control and has taken actions that it believes are
cost-effective in the circumstances to respond appropriately to these
recommendations. Management believes that, as of December 31, 1993, the
Company's system of internal control is adequate to accomplish the objectives
discussed above.
Management also recognizes its responsibility for fostering a strong ethical
climate so that the Company's affairs are conducted according to the highest
standards of personal and corporate conduct. This responsibility is
characterized and reflected in the Company's code of ethical business
practices, which is publicized throughout the Company. The code of ethical
business practices addresses, among other things, the necessity of ensuring
open communication within the Company, potential conflicts of interest,
compliance with all domestic and foreign laws, including those relating to
financial disclosure, and the confidentiality of proprietary information.
Michael S. Blum
Chairman and Chief Executive Officer
Richard J. Almeida
Executive Vice President and
Chief Financial Officer
Anthony O'B. Beirne
Senior Vice President and Controller
20
<PAGE>
HELLER FINANCIAL, INC. AND SUBSIDIARIES
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Heller Financial, Inc.:
We have audited the accompanying consolidated balance sheets of HELLER
FINANCIAL, INC. (a Delaware corporation) AND SUBSIDIARIES as of December 31,
1993 and 1992, and the related consolidated statements of income, changes in
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1993. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Heller Financial, Inc. and
Subsidiaries as of December 31, 1993 and 1992, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1993, in conformity with generally accepted accounting principles.
As explained in Note 13 to the Consolidated Financial Statements, the Company
changed its method of accounting for income taxes, effective January 1, 1992.
We have also previously audited, in accordance with generally accepted
auditing standards, the consolidated balance sheets as of December 31, 1991,
1990 and 1989, and the related consolidated statements of income, changes in
stockholders' equity and cash flows for each of the two years in the period
ended December 31, 1990 (none of which are presented herein), and we have
expressed an unqualified opinion on those financial statements. In our opinion,
the information set forth in the selected financial data for each of the five
years in the period ending December 31, 1993, appearing on page 7 is fairly
stated in all material respects in relation to the consolidated financial
statements from which it has been derived.
ARTHUR ANDERSEN & CO.
Chicago, Illinois,
January 21, 1994
21
<PAGE>
HELLER FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT FOR INFORMATION ON SHARES)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1993 1992
---------- ----------
<S> <C> <C>
Cash and cash equivalents................................ $ 170,358 $ 47,568
Receivables (Note 2)
Commercial loans
Term loans............................................. 2,806,595 3,411,763
Revolving loans........................................ 934,809 1,140,615
Real estate loans....................................... 1,886,366 1,801,527
Factored accounts receivable............................ 720,658 635,640
Equipment loans and leases.............................. 657,544 427,162
Other receivables....................................... 6,536 3,013
---------- ----------
Total receivables.................................... 7,012,508 7,419,720
Less: Allowance for losses on receivables (Note 2)...... 211,357 221,277
---------- ----------
Net receivables...................................... 6,801,151 7,198,443
Investments and other assets (Note 2 and 3).............. 941,089 706,338
---------- ----------
$7,912,598 $7,952,349
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Senior debt (Note 4)
Commercial paper and short-term borrowings.............. $1,981,370 $2,422,367
Notes and debentures.................................... 3,893,084 3,520,538
Junior subordinated notes (Note 4)....................... 74,993 224,979
---------- ----------
Total debt........................................... 5,949,447 6,167,884
Credit balances of factoring clients..................... 433,291 408,396
Other payables and accruals.............................. 242,325 200,289
---------- ----------
Total liabilities.................................... 6,625,063 6,776,569
Minority interest in equity of Heller International
Group, Inc.............................................. 35,019 31,589
Stockholders' equity (Notes 8, 9 and 10)
Cumulative Perpetual Senior Preferred Stock, Series A
("Perpetual Preferred Stock") ($.01 Par Value; 8.125%;
$25 stated value; 5,000,000 shares authorized and
outstanding)........................................... 125,000 125,000
Cumulative Convertible Preferred Stock, Series D (No Par
Value; 1/2% under prime; 1,000 shares authorized and
outstanding)........................................... 25,000 25,000
Common Stock ($.25 Par Value; 1,000 shares authorized;
100 shares outstanding) and additional paid-in capital. 663,067 663,067
Retained earnings....................................... 439,449 331,124
---------- ----------
Total stockholders' equity........................... 1,252,516 1,144,191
---------- ----------
$7,912,598 $7,952,349
========== ==========
</TABLE>
The accompanying Notes to Consolidated Financial Statements
are an integral part of these statements.
22
<PAGE>
HELLER FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
---------------------------
1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
Interest income..................................... $619,591 $634,169 $729,911
Interest expense.................................... 263,563 295,489 405,519
-------- -------- --------
Net interest income............................... 356,028 338,680 324,392
Fees and other income............................... 137,850 100,641 94,333
Income of international joint ventures.............. 22,753 26,560 18,974
-------- -------- --------
Operating revenues................................ 516,631 465,881 437,699
Operating expenses (Note 11)........................ 178,403 171,868 169,835
Provision for losses (Note 2)....................... 210,383 251,895 201,425
-------- -------- --------
Income before taxes and cumulative effect of a
change in accounting principle................... 127,845 42,118 66,439
Income tax provision (benefit) (Note 13)............ 10,732 (5,002) 2,340
-------- -------- --------
Income before cumulative effect of a change
in accounting principle.......................... 117,113 47,120 64,099
Cumulative effect of a change in accounting
principle for income taxes (Note 13)............... -- 41,100 --
-------- -------- --------
Net income........................................ 117,113 88,220 64,099
Preferred stock dividends (Notes 8, 9 and 10)....... 11,531 2,964 6,475
-------- -------- --------
Net income available for common stock............. $105,582 $ 85,256 $ 57,624
======== ======== ========
</TABLE>
The accompanying Notes to Consolidated Financial Statements
are an integral part of these statements.
23
<PAGE>
HELLER FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
DUTCH CUMULATIVE COMMON
AUCTION RATE CONVERTIBLE STOCK AND
TRANSFERABLE PERPETUAL PREFERRED ADDITIONAL
SECURITIESSM PREFERRED STOCK, PAID-IN RETAINED
DARTS STOCK SERIES D CAPITAL EARNINGS TOTAL
------------ --------- ----------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT
DECEMBER 31, 1990...... $ 275,000 $ -- $25,000 $689,298 $201,564 $1,190,862
Net income.............. -- -- -- -- 64,099 64,099
Redemption of DARTS..... (275,000) -- -- -- -- (275,000)
Preferred stock
dividends
(Notes 8, 9 and 10).... -- -- -- -- (6,475) (6,475)
Deferred translation
adjustment, net of tax. -- -- -- -- (4,998) (4,998)
--------- -------- -------- -------- -------- ----------
BALANCE AT
DECEMBER 31, 1991...... -- -- 25,000 689,298 254,190 968,488
Net income.............. -- -- -- -- 88,220 88,220
Issuance of preferred
stock.................. -- 125,000 -- (4,375) -- 120,625
Repurchase of Heller
International Group,
Inc. Common Stock...... -- -- -- (21,856) -- (21,856)
Preferred stock
dividends
(Notes 8, 9 and 10).... -- -- -- -- (2,964) (2,964)
Deferred translation
adjustment, net of tax. -- -- -- -- (8,322) (8,322)
--------- -------- -------- -------- -------- ----------
BALANCE AT
DECEMBER 31, 1992...... -- 125,000 25,000 663,067 331,124 1,144,191
Net income.............. -- -- -- -- 117,113 117,113
Preferred stock
dividends
(Notes 8, 9 and 10).... -- -- -- -- (11,531) (11,531)
Unrealized net gains on
securities available
for sale, net of tax
(Note 3)............... -- -- -- -- 7,994 7,994
Deferred translation
adjustment, net of tax. -- -- -- -- (5,251) (5,251)
--------- -------- -------- -------- -------- ----------
BALANCE AT
DECEMBER 31, 1993...... $ -- $125,000 $ 25,000 $663,067 $439,449 $1,252,516
========= ======== ======== ======== ======== ==========
</TABLE>
- --------
At December 31, 1993, 1992, 1991 and 1990 the Retained Earnings balance
includes deferred foreign currency translation adjustments of $(12,588),
$(7,337), $985, and $5,983, respectively.
The accompanying Notes to Consolidated Financial Statements
are an integral part of these statements.
24
<PAGE>
HELLER FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------
1993 1992 1991
---------- ---------- ----------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income............................... $ 117,113 $ 88,220 $ 64,099
Adjustments to reconcile net income to
net cash provided by operating activi-
ties:
Provision for losses................... 210,383 251,895 201,425
Increase in net deferred tax asset..... (49,400) (65,100) --
Increase in accounts payable and
accrued liabilities................... 6,716 6,045 24,172
Undistributed income of international
joint ventures........................ (16,599) (18,464) (13,811)
Increase/(decrease) in interest
payable............................... (3,830) (1,425) 3,065
Other.................................. 22,903 (2,905) 7,600
---------- ---------- ----------
Net cash provided by operating
activities.......................... 287,286 258,266 286,550
INVESTING ACTIVITIES
Longer-term loans funded................. (1,969,665) (1,738,521) (1,085,447)
Collections of principal................. 1,854,989 1,017,946 838,228
Sales of longer-term loans............... 248,200 119,405 44,641
Sales of investments..................... 29,075 30,753 33,810
Investment in equity interests and other
investments............................. (97,951) (32,690) (18,920)
Net decrease in short-term loans and
advances to factoring clients........... 31,799 50,011 10,253
Sales of factored accounts receivable.... 5,725 5,530 5,310
Investment in equipment on lease......... (4,711) (107,776) (55,649)
Sale of Project Real Estate portfolio.... -- -- 241,500
Other.................................... 2,414 (20,361) (13,463)
---------- ---------- ----------
Net cash provided by (used for)
investing activities................ 99,875 (675,703) 263
FINANCING ACTIVITIES
Senior note issues....................... 1,020,205 1,853,325 1,774,000
Retirement of notes and debentures....... (798,659) (1,236,318) (1,328,175)
Decrease in commercial paper and other
short-term borrowings................... (440,997) (374,677) (504,336)
Net decrease (increase) in advances to
affiliates.............................. (24,515) 7,081 45,465
Dividends paid on preferred stock........ (11,531) (2,964) (6,933)
Proceeds from Perpetual Preferred Stock
issuance................................ -- 125,000 --
Proceeds from non-recourse debt.......... -- 65,200 --
Repurchase of Heller International Group,
Inc. Common Stock....................... -- (21,856) --
Redemption of DARTS...................... -- -- (275,000)
Other.................................... (8,843) (12,302) (17,387)
---------- ---------- ----------
Net cash provided by (used for)
financing activities................ (264,340) 402,489 (312,366)
Effect of exchange rates on cash......... (31) 1,781 (682)
---------- ---------- ----------
Increase (decrease) in cash and cash
equivalents............................. 122,790 (13,167) (26,235)
Cash and cash equivalents at the
beginning of the year................... 47,568 60,735 86,970
---------- ---------- ----------
Cash and cash equivalents at the end of
the year................................ $ 170,358 $ 47,568 $ 60,735
========== ========== ==========
</TABLE>
The accompanying Notes to Consolidated Financial Statements
are an integral part of these statements.
25
<PAGE>
HELLER FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF ACCOUNTING POLICIES
Affiliated Group--
All of the common stock of Heller Financial, Inc. (the "Company") is owned by
Heller International Corporation (the "Parent"), which is a wholly-owned
subsidiary of The Fuji Bank, Limited ("Fuji Bank") of Tokyo, Japan.
Basis of Presentation--
The accompanying consolidated financial statements include the accounts of
the Company and its majority-owned subsidiaries. Investments in affiliated
companies owned 50% or less are accounted for by the equity method. The Company
does not own less than 20% of any affiliated companies. All intercompany
accounts and transactions have been eliminated.
Cash and cash equivalents consist of cash deposits maintained in various
banks and other short-term investments with original maturities of less than
three months. These short-term investments include $50 million of debt
securities held to maturity and $62 million of securities available for sale,
classified in accordance with Statement of Financial Accounting Standards
("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity
Securities," which was adopted by the Company as of December 31, 1993. The fair
value of cash equivalents approximates the carrying value.
Receivables are presented net of unearned income in the consolidated balance
sheet and are carried at net realizable value.
Income Recognition--
Loan origination and commitment fees as well as certain direct loan
origination costs are deferred and amortized to interest income using the
effective interest method over the life of the related loan or commitment
period. From time to time, the Company sells portions of loans which it
originates. Upon sale of a portion of a loan, the Company's recorded investment
is allocated between the portion sold and the portion retained based on the
relative fair values. Any deferred fees relating to the portion of the loan
sold are recognized in income as part of the gain or loss on sale. For loan
sales which qualify as syndications, fees received are generally recognized in
income, subject to certain yield tests, when the syndication is complete.
When the Company receives equity interests and other investments in
connection with certain financings, unearned income is recorded in an amount
that is equal to the relative fair value of the investment received. The
unearned income is amortized to interest income over the contractual life of
the related loan using the effective interest method. Increased unearned income
resulting from a redemption of certain equity interests and other investments
is amortized to fees and other income using the effective interest method over
the life of the related loan or commitment period. The valuation of these
investments is periodically reviewed and, if the recorded value of an
investment is permanently impaired, the investment balance is written down to
its newly established value and amortization of any unearned income is
suspended. Upon disposition of an investment and retirement of the related
loan, the difference between the cash or other consideration received and the
book value of the investment is recognized as a gain or loss and recorded in
fees and other income.
As a commercial finance company, income recognition is reviewed on an account
by account basis. Collateral is evaluated regularly, primarily by assessing the
current and future cash flow streams from the collateral. Loans are classified
as nonearning and all unearned income amortization is suspended when there is
significant doubt as to the ability of the debtor to meet current contractual
terms. Numerous factors including loan covenant defaults, deteriorating loan-
to-value relationships, delinquencies greater than 120 days, the sale of major
income generating assets or other major operational or organizational changes
may lead to income suspension.
26
<PAGE>
HELLER FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
An account may be restored to earning status either when all delinquent
principal and interest has been paid under the original contractual terms or
the account has been restructured and has demonstrated both the capacity to
service the amended terms of the debt and adequate loan to value coverage.
Allowance for Losses--
The allowance for losses on receivables is established through direct charges
to income. Losses are charged to the allowance when all or a portion of a
receivable is deemed impaired and uncollectible as determined by account
management procedures. These procedures include assessing how the borrower is
affected by economic and market conditions, evaluating operating performance
and reviewing loan-to-value relationships.
Management evaluates the general allowance for losses on a quarterly basis.
Nonearning assets and all loans with certain loan grading characteristics are
reviewed to determine if there is a potential risk of loss under varying
scenarios of performance. The estimates of potential loss for these individual
loans are aggregated and added to a general reserve requirement, which is based
on the total of all other loans in the portfolio. This total reserve
requirement is then compared to the existing allowance for losses and
adjustments are made, if necessary.
Repossessed Assets--
Assets which have been legally or substantively acquired in satisfaction of
receivables are carried at fair value and are included in investments and other
assets, net of the related valuation allowance. After repossession, operating
costs are expensed and cash receipts are applied to the asset balance.
Investments--
The Company adopted the provisions of SFAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities," effective December 31, 1993. SFAS
No. 115 requires that certain investments be classified as investments held to
maturity, trading securities or securities available for sale. Securities which
are held to maturity are reported at amortized cost. Trading securities are
carried at fair value, with the unrealized gains or losses included in
earnings. Securities available for sale are also carried at fair value, with
the unrealized gains or losses included in stockholders' equity, net of related
taxes.
Interest Rate Swap Agreements--
The differential paid or received with respect to the Company's interest rate
swap agreements is recognized over the life of the related agreement.
Income Taxes--
The Company and its wholly-owned domestic subsidiaries are included in the
consolidated United States federal income tax return of the Parent. Heller
International Group, Inc. ("International") files a separate United States
federal income tax return.
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes." According to the provisions of SFAS No. 109, the
Company reports income tax expense as if it were a separate taxpayer and
records future tax benefits as soon as it is more likely than not that such
benefits will be realized.
27
<PAGE>
HELLER FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Benefit Plans--
The Company provides health care benefits for eligible retired employees and
their eligible dependents. Effective January 1, 1993, the Company adopted the
provisions of SFAS No. 106, "Employers' Accounting for Postretirement Benefits
Other than Pensions" which requires accrual accounting for postretirement
health care benefits. The adoption of SFAS No. 106 resulted in a $7.1 million
transition obligation which is being amortized prospectively over twenty years.
The Company also adopted SFAS No. 112, "Employers' Accounting for
Postemployment Benefits" effective June 30, 1993, which establishes accounting
standards for benefits provided to former or inactive employees after
employment but before retirement. The adoption of SFAS No. 112 had no effect on
the consolidated financial statements since the Company's accounting practices
have been consistent with this accounting standard.
Information About Operations by Businesses and Geographic Areas--
The Company and its subsidiaries are engaged principally in furnishing
commercial financing to businesses in the United States and to a lesser extent,
investing in and operating commercial finance companies throughout the world.
Currency Exchange Contracts and Foreign Currency Translation--
The Company periodically enters into currency exchange contracts to hedge its
exposure to foreign currency fluctuations from its earnings and net investments
in subsidiaries outside the United States.
Gains and losses resulting from translation of certain foreign currency
financial statements and the related effects of hedges of the net investments
in subsidiaries outside the United States are deferred and accumulated in
stockholders' equity, net of related taxes, until the investment is sold or
substantially liquidated. Net investment hedging gains and losses are also
included in stockholders' equity, net of related taxes.
2. LENDING ASSETS
Lending assets include receivables and repossessed assets.
Diversification of Credit Risk--
Concentrations of lending assets of 5% or more, based on the standard
industrial classification of the borrower, are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1993 1992
-------------- --------------
AMOUNT PERCENT AMOUNT PERCENT
------ ------- ------ -------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Department and general merchandise retail
stores...................................... $505.8 7% $710.8 9%
General purpose office buildings............. 504.2 7 620.7 8
Textiles and apparel manufacturing........... 502.3 7 468.4 6
General industrial machines.................. 449.8 6 475.7 6
Mobile home parks............................ 414.3 6 334.3 4
Apartments................................... 371.0 5 437.5 6
</TABLE>
The majority of the lending assets in the department and general merchandise
retail stores category is comprised of factored accounts receivable which
represent short-term trade receivables from numerous customers. The receivables
in the general purpose office building and apartment categories represent
interim
28
<PAGE>
HELLER FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
financing for properties principally located in major U.S. cities with no
concentration in any one geographic location. The textile and apparel
manufacturing receivables are distributed among 14 borrowers. The general
industrial machines classification is distributed among machinery used for many
different industrial applications.
The Company provides financing for recapitalizations, refinancings,
acquisitions and corporate buy-outs ("corporate financings"), which are
generally considered to be highly leveraged transactions by regulatory
agencies. As of December 31, 1993, the Company's total corporate financing
lending assets amounted to $3,479.0 million, consisting of 164 accounts with an
average balance of $21.2 million, to borrowers in a wide variety of industries.
Total corporate financing lending assets as of December 31, 1992 were $4,403.2
million and consisted of 169 accounts having an average balance of $26.1
million. The corporate financing portfolio is predominantly collateralized by
senior liens on the borrower's stock or assets, or both.
The commercial loans consist principally of corporate financing and asset
based receivables. The asset based receivables are collateralized by inventory,
receivables or fixed assets of the borrowers. The Company's real estate loans
are principally collateralized by first mortgages on residential and commercial
real estate. The equipment loans and leases are secured by the underlying
equipment, and the Company often has recourse to the equipment vendor.
Contractual Maturity of Loan Receivables--
The contractual maturities of the Company's receivables at December 31, 1993,
which are presented in the table below, should not be regarded as a forecast of
cash flows (in millions):
<TABLE>
<CAPTION>
AFTER
1994 1995 1996 1997 1998 1998 TOTAL
------- ------- ----- ----- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Commercial Loans................ $ 623 $ 724 $ 572 $ 591 $ 537 $ 694 $ 3,741
Real Estate Loans............... 421 544 279 197 305 140 1,886
Factored Accounts Receivable.... 721 -- -- -- -- -- 721
Equipment Loans and Leases...... 158 127 130 102 79 62 658
Other........................... 2 -- -- -- -- 5 7
------- ------- ----- ----- ----- ----- -------
Total........................... $ 1,925 $ 1,395 $ 981 $ 890 $ 921 $ 901 $ 7,013
======= ======= ===== ===== ===== ===== =======
</TABLE>
Nonearning Assets and Troubled Debt Restructurings--
The Company has loans for which it has ceased to recognize interest and fee
income. The following table sets forth information regarding nonearning
receivables and repossessed assets.
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1993 1992 1991
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Nonearning receivables........................ $ 214,091 $ 379,664 $ 409,161
Repossessed assets............................ 215,825 170,112 115,480
--------- --------- ---------
Total nonearning assets....................... $ 429,916 $ 549,776 $ 524,641
========= ========= =========
Ratio of nonearning assets to total lending
assets....................................... 5.9% 7.2% 7.3%
========= ========= =========
</TABLE>
Nonearning assets have decreased $119.9 million, from 7.2% to 5.9% of total
lending assets during 1993, through the aggressive resolution and writedown of
problem accounts in the corporate financing and real estate portfolios. The
remaining corporate financing nonearning assets are principally comprised of
three
29
<PAGE>
HELLER FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
accounts which were originated prior to 1990, while the real estate nonearning
assets are principally comprised of general purpose office building financings.
Repossessed assets include in-substance repossessions of $50.4 million, $45.4
million and $54.8 million at December 31, 1993, 1992 and 1991, respectively,
which were accounted for in the same manner as collateral that had been
formally repossessed, even though the Company did not hold legal title.
At December 31, 1993 and 1992, the Company had $53.2 million and $56.5
million, respectively, of loans which resulted from troubled debt
restructurings. At December 31, 1993, the Company was not committed to lend
significant additional funds in connection with troubled debt restructurings.
The following table indicates the effect on income if interest on nonearning
loans and troubled debt restructurings outstanding at year-end had been
recognized at original contractual rates during the year.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1993 1992 1991
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Interest income which would have been recorded... $ 29,465 $ 38,390 $ 56,392
Interest income recorded......................... 10,183 17,752 25,873
-------- -------- --------
Effect on interest income........................ $ 19,282 $ 20,638 $ 30,519
======== ======== ========
</TABLE>
Allowance for Losses--
The changes in the allowance for losses on receivables and in the valuation
allowance on repossessed assets were as follows:
<TABLE>
<CAPTION>
ALLOWANCE FOR LOSSES ON
RECEIVABLES
-------------------------------
1993 1992 1991
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance at the beginning of the year........ $ 221,277 $ 167,008 $ 154,795
Provision for losses........................ 184,331 240,814 160,885
Writedowns.................................. (214,733) (197,022) (159,795)
Recoveries.................................. 20,950 15,146 17,614
Transfers and other......................... (468) (4,669) (6,491)
--------- --------- ---------
Balance at the end of the year.............. $ 211,357 $ 221,277 $ 167,008
========= ========= =========
<CAPTION>
VALUATION ALLOWANCE ON
REPOSSESSED ASSETS
-------------------------------
1993 1992 1991
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance at the beginning of the year........ $ 8,771 $ 5,158 $ 48,209
Provision for losses........................ 26,052 11,081 40,540
Writedowns.................................. (19,545) (11,021) (86,302)
Recoveries.................................. 130 221 868
Transfers and other......................... (202) 3,332 1,843
--------- --------- ---------
Balance at the end of the year.............. $ 15,206 $ 8,771 $ 5,158
========= ========= =========
</TABLE>
Writedowns occurring at the time of repossession are considered writedowns of
receivables.
30
<PAGE>
HELLER FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. INVESTMENTS AND OTHER ASSETS
The following table sets forth a summary of the major components of
investments and other assets:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1993 1992
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Investments:
Equipment on lease..................................... $ 147,542 $ 158,392
Investments in unconsolidated joint ventures........... 143,803 139,732
Equity interests and other investments................. 155,367 102,481
Securities available for sale.......................... 20,032 --
Trading securities..................................... 12,273 --
Marketable equity securities........................... -- 1,690
Other investments...................................... 35,261 18,166
--------- ---------
Total investments....................................... $ 514,278 $ 420,461
Repossessed assets, net of allowance of $15,206 and
$8,771, respectively (Note 2).......................... 200,619 161,341
Deferred income tax benefits, net of allowance of
$13,466 and $55,017, respectively (Note 13)............ 109,101 65,100
Prepaid expenses and other assets....................... 65,942 38,952
Net advances to affiliates.............................. 31,298 6,783
Furniture, fixtures and equipment....................... 19,851 13,701
--------- ---------
Total investments and other assets..................... $ 941,089 $ 706,338
========= =========
</TABLE>
Equipment on lease is comprised of aircraft and related equipment.
Noncancelable future minimum rental receipts under the leases are $17.9
million, $16.4 million, $14.5 million, $9.8 million and $1.3 million for 1994
through 1998.
Investments in unconsolidated joint ventures represent investments in
companies in 15 foreign countries. These investments are owned 50% or less by
the Company, and offer factoring, asset based finance, acquisition finance,
leasing, vendor and/or trade finance programs to the mid-sized corporate
sector.
Equity interests and other investments as well as investments which are
classified as securities available for sale are obtained in connection with
certain financings and investing activities of the Company. There were 92
investments recorded at December 31, 1993.
In accordance with SFAS No. 115, the Company has classified its marketable
equity securities portfolio as securities available for sale. These securities
are primarily received in conjunction with corporate financings and are carried
at their fair values using the specific identification method. Upon adoption of
SFAS No. 115, the Company recognized $13.6 million of gross unrealized gains
and $.2 million of gross unrealized losses on these securities, net of $5.4
million of taxes, through stockholders' equity. The Company holds certain
foreign investments which are classified as trading securities according to the
provisions of SFAS No. 115. Net gains of $.8 million related to these
investments were recorded in income for the year ended December 31, 1993.
In accordance with the provisions of SFAS No. 109, the Company recorded net
deferred tax benefits for which future realization of the benefits is more
likely than not to occur.
31
<PAGE>
HELLER FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4. DEBT
Under the terms of existing debt agreements, the Company could have borrowed
an additional $6.6 billion at December 31, 1993.
Senior Debt-Commercial Paper and Short-Term Borrowings--The table below sets
forth information concerning commercial paper. These amounts are computed based
on the average daily balances outstanding during the year. The Company issues
commercial paper with maturities ranging up to 270 days.
<TABLE>
<CAPTION>
1993 1992 1991
---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Commercial Paper:
End of period borrowings.................. $1,912,426 $2,367,832 $2,693,088
Average borrowings........................ $2,176,529 $2,728,196 $3,223,240
Maximum month-end borrowings.............. $2,537,557 $3,035,379 $3,720,469
Average interest rate--
At year-end.............................. 3.30% 3.56% 4.83%
During the year.......................... 3.16% 3.74% 6.03%
During the year, including the effect of
commitment fees......................... 3.42% 3.95% 6.19%
</TABLE>
In addition, the Company has short-term borrowings of $68.9 million, $54.5
million and $104.0 million at December 31, 1993, 1992 and 1991, respectively,
which are used to finance the consolidated international operations.
The Company and Fuji Bank are parties to a "Keep Well Agreement," which
cannot be terminated by either party prior to December 31, 2000. After December
31, 2000, either Fuji Bank or the Company may terminate the agreement upon 30
business days prior written notice. As long as the Perpetual Preferred Stock is
outstanding and held by third parties other than Fuji Bank, the agreement may
not be terminated by either party unless the Company has received written
certifications from Moody's Investors Services, Inc. and Standard and Poor's
Corporation that, upon such termination, the Perpetual Preferred stock will be
rated no lower than "a3" and "A-", respectively. The Keep Well Agreement
provides that if the Company should lack sufficient cash or credit facilities
to meet its commercial paper obligations, Fuji Bank will lend the Company up to
$500 million. That loan would be payable on demand and the proceeds from the
loan could only be used by the Company to meet its commercial paper
obligations. Commitment fees paid by the Company to Fuji Bank under the
agreement amounted to $.3 million in 1993, 1992 and 1991. Interest on any loans
will be charged at the prime rate of Morgan Guaranty Trust Company of New York
plus .25% per annum. No loans have been made by Fuji Bank under this agreement.
32
<PAGE>
HELLER FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
At December 31, 1993, the Company had committed credit and asset sale
facilities which totaled $3,094 million. This total includes $2,100 million in
bank facilities, $500 million in liquidity support from Fuji Bank as part of
the "Keep Well Agreement," and $494 million of additional liquidity available
under a factored accounts receivable sale program.
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1993 1992
----------- ----------
(IN THOUSANDS)
<S> <C> <C>
Senior Debt-Notes and Debentures--
3.56% to 9.8% medium-term notes due on various dates
ranging from January 4, 1994 to May 19, 1999........ $ 1,101,750 $ 413,750
8.375% notes due June 15, 1994....................... 100,000 100,000
Variable rate notes due on various dates ranging from
October 3, 1994 to December 1, 1996................. 399,903 1,487,820
6.5% notes due November 15, 1995..................... 149,948 149,919
8.85% notes due April 15, 1996....................... 100,000 100,000
9.31% Eurobonds due April 22, 1996................... 50,000 50,000
Variable rate Eurobonds denominated in U.S. dollars
due
November 18, 1996................................... 100,083 --
6.45% notes due from February 15, 1994 to February
15, 1997............................................ 65,000 85,000
Variable rate notes denominated in Japanese yen due
on various dates ranging from March 24, 1997 to
January 27, 1998.................................... 329,468 --
7.75% notes due May 15, 1997......................... 199,722 199,639
9.375% notes due March 15, 1998...................... 499,096 498,882
8% notes due December 15, 1998....................... 199,496 199,395
9.125% notes due August 1, 1999...................... 199,407 199,303
5.625% notes due March 15, 2000...................... 199,761 --
6.5% notes due May 15, 2000.......................... 199,450 --
7.5% notes denominated in Singapore dollars due May
19, 1993............................................ -- 1,830
8.3% Eurobonds denominated in Japanese yen due
December 10, 1993................................... -- 35,000
----------- ----------
Senior notes and debentures, net of unamortized
discount........................................... $ 3,893,084 $3,520,538
=========== ==========
Junior Subordinated Notes--
13% junior notes due September 15, 1994.............. $ 74,993 $ 74,982
8.875% junior notes due February 15, 1993............ -- 149,997
----------- ----------
Junior subordinated notes, net of unamortized
discount........................................... $ 74,993 $ 224,979
=========== ==========
</TABLE>
The Company enters into swap agreements with various financial institutions
as a means of managing its interest rate exposure. At December 31, 1993, these
agreements had the effect of converting $1,986 million of fixed rate debt to
variable rate debt at a weighted average interest rate of 4.23%. The Company
also used swaps to convert $195 million of variable rate debt from one index to
another index, resulting in a weighted average interest rate of 3.69% at
December 31, 1993. In addition, the Company used swaps to convert $328.2
million from one currency and variable rate to another currency and variable
rate resulting in a weighted average interest rate of 3.88% at December 31,
1993. The overall weighted average interest rate paid under these debt swap
agreements was 4.14% at December 31, 1993.
The interest rates on the variable rate notes are primarily based on indices
such as the commercial paper rate published by the Board of Governors of the
Federal Reserve System plus .20% to .25%, the U.S. dollar London Inter-bank
Offered Rate plus .20% to .95%, and the prime rate less 2.00% to 2.28%. The
rates on
33
<PAGE>
HELLER FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
these notes are adjusted periodically based on changes in the underlying
indices. The average interest rates on the variable rate notes at December 31,
1993 and 1992, were 4.07% and 4.54%, respectively. The fixed rate medium-term
notes had a weighted average interest rate of 8.94% and 8.91% at December 31,
1993 and 1992, respectively. The $200 million and $128.2 million variable rate
notes denominated in Japanese yen which are outstanding as of December 31,
1993, are valued on the basis of fixed exchange rates of 125 and 117 Japanese
yen per U.S. dollar, respectively, as a result of cross currency interest rate
swap agreements.
The scheduled maturities of debt outstanding at December 31, 1993, other than
commercial paper and short-term borrowings and excluding unamortized discount,
are as follows:
<TABLE>
<CAPTION>
JUNIOR
SENIOR SUBORDINATED
YEAR DEBT DEBT TOTAL
---- ---------- ------------ ----------
(IN THOUSANDS)
<S> <C> <C> <C>
1994...................................... $ 803,250 $75,000 $ 878,250
1995...................................... 458,500 -- 458,500
1996...................................... 430,000 -- 430,000
1997...................................... 581,205 -- 581,205
1998...................................... 972,000 -- 972,000
Thereafter................................ 650,000 -- 650,000
---------- ------- ----------
$3,894,955 $75,000 $3,969,955
========== ======= ==========
</TABLE>
Notes totaling $70 million are repayable at the option of the holders prior
to the final maturity date are reflected in the table above as maturing at the
earliest possible repayment date. Notes redeemable solely at the option of the
Company prior to the final maturity date are reflected in the table above as
maturing on the final maturity date.
5. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The Company is a party to several agreements involving financial instruments
with off-balance-sheet risk in order to meet the financing needs of its
borrowers and to manage its own exposure to interest rate and currency exchange
rate fluctuations. These financial instruments, which include loan commitments,
letters of credit, guarantees, and various swap and cap agreements, involve
elements of credit and interest rate risk in excess of the amount recognized in
the consolidated balance sheets.
The Company's exposure to credit loss in the event of nonperformance by the
other party to loan commitments, letters of credit and guarantees is
represented by the contractual amount of those instruments. The Company uses
similar credit policies in making commitments and incurring conditional
obligations as it does for loans and receivables. These financial instruments
and their contract amounts at December 31, 1993 and 1992, are as follows:
<TABLE>
<CAPTION>
CONTRACT AMOUNT
---------------------
1993 1992
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Loan commitments...................................... $1,662,476 $1,188,354
Factoring credit guarantees........................... 335,315 341,012
Letters of credit and financial guarantees............ 497,492 408,051
</TABLE>
At December 31, 1993 and 1992, loan commitments represent agreements to
provide $1,162.6 million and $1,014.9 million, respectively, of additional
financing to existing borrowers, generally contingent upon the borrowers
maintaining specific credit standards. In addition, loan commitments include
$499.9 million
34
<PAGE>
HELLER FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
and $173.5 million at December 31, 1993 and 1992, respectively, to provide
funding to new borrowers. Commitments to fund new borrowers generally have
fixed expiration dates and termination clauses and typically require payment of
a fee. The Company evaluates each borrower's creditworthiness on an individual
basis and the collateral required varies depending upon the nature of the
financing. Since many of the commitments are expected to remain unused, the
total commitment amounts do not necessarily represent future cash requirements.
For factoring credit guarantees, the Company receives a fee for guaranteeing
the collectibility of certain factoring clients' accounts receivable. The
Company employs the same credit approval procedures for these services as it
does for its traditional factoring services. Under this arrangement, clients
generally retain the responsibility for collection and bookkeeping. Losses
related to these services have historically been insignificant.
Letters of credit and financial guarantees are conditional commitments issued
by the Company to guarantee the performance of a borrower to a third party. The
credit risk involved in issuing letters of credit and financial guarantees is
essentially the same as that involved in extending loans to borrowers and the
collateral required is also similar to that involved in the Company's normal
lending transactions.
The Company is also a party to several agreements involving financial
instruments where the contract or notional amounts exceed the potential credit
loss. These financial instruments and their contract or notional amounts at
December 31, 1993 and 1992, are as follows:
<TABLE>
<CAPTION>
CONTRACT OR NOTIONAL
AMOUNT
---------------------
1993 1992
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Interest rate swap agreements......................... $2,950,701 $3,059,700
Interest rate cap agreements.......................... 25,000 25,000
Cross currency interest rate swap agreements.......... 328,205 35,000
Basis swap agreements................................. 195,000 --
Spot and forward currency exchange contracts.......... 201,222 179,377
Sale of factored accounts receivable.................. 5,725 5,530
</TABLE>
Interest rate swap transactions involve the exchange of fixed and floating
rate interest payment obligations without the exchange of the underlying
principal amounts and are used to manage interest rate exposure. Interest rate
caps are used to mitigate the impact of an increase in interest rates. Currency
swap transactions involve the exchange of the underlying principal amounts and
interest payments and are used to manage the currency risk created by the
issuance of debt denominated in a foreign currency. Basis swap transactions
involve the exchange of two different floating rate interest payment
obligations without the exchange of the underlying principal amounts and are
used to manage the basis risk between different floating rate indices. Entering
into swap and cap agreements involves the risk of dealing with counterparties
and their ability to meet the terms of the contracts. Swap and cap agreements
have a credit risk defined by the cost of replacing the instrument if the
counterparty defaults. Notional amounts often are used to express the volume of
these transactions, but the amount of credit risk is much smaller. The Company
manages this risk by establishing minimum credit ratings for counterparties and
by limiting the exposure to individual counterparties as measured by the total
notional amount and the current replacement cost of existing transactions. Spot
and forward currency exchange contracts are used to hedge the Company's
exposure to foreign currency fluctuations of international earnings and
investments.
35
<PAGE>
HELLER FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company is party to a receivables purchase agreement with Dynamic Funding
Corporation ("Dynamic"). Under this agreement, which expires March 31, 1995,
the Company may sell to Dynamic, with limited recourse, an undivided interest
of up to $500 million in a designated pool of its factored accounts receivable.
As of December 31, 1993 and 1992, the Company had sold $5.7 million and $5.5
million, respectively, of such receivables to Dynamic for cash. As the average
maturity of factored accounts receivable is 51 days and the historical loss
experience is substantially less than 1%, the Company's recourse exposure is
minimal. Dynamic has entered into a standby credit agreement and an operating
agreement with Fuji Bank and one of its affiliates. The Company believes the
terms of the agreement are similar to those which might apply in any similar
arrangement among unaffiliated parties.
6. LEGAL PROCEEDINGS
The Company is party to a number of legal proceedings as plaintiff and
defendant, all arising in the ordinary course of its business. The Company
believes that the amounts, if any, which may ultimately be funded or paid with
respect to these matters will not have a materially adverse effect on the
financial condition or results of operations of the Company.
7. RENTAL COMMITMENTS
The Company and its consolidated subsidiaries have minimum rental commitments
under noncancellable operating leases at December 31, 1993, as follows (in
millions):
<TABLE>
<S> <C>
1994................................... $13.3
1995................................... 12.7
1996................................... 13.3
1997................................... 11.2
1998................................... 9.3
Thereafter............................. 23.2
-----
$83.0
=====
</TABLE>
The total rent expense, net of rental income from subleases, was $15.3
million, $12.1 million and $14.1 million in 1993, 1992 and 1991, respectively.
8. REDEEMABLE PREFERRED STOCK
The Company has authorized the issuance of 100,000 shares of a series of
preferred stock designated NW Preferred Stock, Class B (No Par Value) ("NW
Preferred Stock"), pursuant to the "Keep Well Agreement" between the Company
and Fuji Bank wherein, among other things, Fuji Bank has agreed to purchase NW
Preferred Stock in an amount required to maintain the Company's net worth at
$500 million. The Company's net worth was $1,253 million at December 31, 1993.
If and when issued, dividends will be paid quarterly on NW Preferred Stock at a
rate per annum equal to 1% over the three-month London Inter-bank Offered Rate.
Subject to certain conditions, NW Preferred Stock will be redeemable at the
option of the holder within a specified period of time after the end of a
calendar quarter in an aggregate amount not greater than the excess of the net
worth of the Company as of the end of such calendar quarter over $500 million
and at a redemption price equal to the price paid for such stock plus
accumulated dividends. No purchases of NW Preferred Stock have been made by
Fuji Bank under this agreement.
36
<PAGE>
HELLER FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9. PREFERRED STOCK
The Company's 5,000,000 shares of 8.125% Perpetual Preferred Stock have a par
value of $.01 per share. The Company is prohibited from paying cash dividends
on Common Stock or any other preferred stock that ranks, with respect to
payment of dividends, equal or junior to the Perpetual Preferred Stock, unless
full cumulative dividends on the Perpetual Preferred Stock have been paid. The
Perpetual Preferred Stock is not redeemable prior to September 22, 2000. On or
after this date, the Perpetual Preferred Stock will be redeemable at the option
of the Company, in whole or in part at a redemption price of $25 per share,
plus accrued and unpaid dividends. The Perpetual Preferred Stock ranks senior
with respect to payments of dividends and liquidation to other outstanding or
authorized preferred stock of the Company. During 1993 and 1992, the Company
declared and paid $10.1 million and $1.5 million, respectively, of Perpetual
Preferred Stock dividends.
The Company's Cumulative Convertible Preferred Stock, Series D ("Convertible
Preferred Stock") is held by the Parent. The Convertible Preferred Stock has a
dividend yield established quarterly at a rate of 1/2% less than the announced
prime commercial lending rate of Morgan Guaranty Trust Company of New York,
payable quarterly. Under the terms of the Convertible Preferred Stock, the
Company is prohibited from paying cash dividends on Common Stock unless full
cumulative dividends on all outstanding shares of Convertible Preferred Stock
for all past dividend periods have been paid. During 1993, 1992 and 1991, the
Company declared and paid $1.4 million, $1.5 million and $2.1 million of
dividends, respectively. The Convertible Preferred Stock is convertible into
Common Stock of the Company at the conversion price of one share of Common
Stock for each 200 shares of Convertible Preferred Stock. Subject to certain
conditions, the Convertible Preferred Stock is redeemable at any time at the
option of the Company at a redemption price equal to the price paid for such
stock plus accumulated dividends.
During 1991, the Company retired $275 million of Dutch Auction Rate
Transferable Securities and paid $4.4 million of dividends on this stock.
10. DIVIDEND RESTRICTIONS
Dividends may legally be paid only out of the Company's surplus, as
determined under the provisions of the Delaware General Corporation Law, or net
profits for either the current or preceding fiscal year, or both.
11. OPERATING EXPENSES
The following table sets forth a summary of the major components of operating
expenses and the amount of minority interest in Heller International Group,
Inc. income which has been included in operating expenses rather than as a
separate caption in the Consolidated Statements of Income due to the
immateriality of the amount:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1993 1992 1991
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Employee salaries................................ $ 69,340 $ 64,202 $ 61,744
Other compensation............................... 43,270 39,764 31,867
Occupancy costs.................................. 17,663 13,428 18,434
Repossessed property expense..................... 3,280 5,785 3,891
Minority interest in international income........ 4,825 3,432 3,175
Other............................................ 40,025 45,257 50,724
-------- -------- --------
$178,403 $171,868 $169,835
======== ======== ========
</TABLE>
The Parent performs services for the Company and charges the Company for the
related costs incurred. These charges are reflected in certain of the above
captions.
37
<PAGE>
HELLER FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
12. BENEFIT PLANS AND OTHER POST RETIREMENT BENEFITS
The Company has various incentive compensation plans and a savings and
profit-sharing plan which provide for annual contributions to eligible
employees based on the Company's achievement of certain financial objectives
and employee achievement of certain job related objectives.
In addition, the Company has noncontributory defined benefit pension plans
covering substantially all of its domestic employees. Certain foreign employees
are covered by contributory or noncontributory defined contribution plans. The
Company's policy is to fund, at a minimum, pension contributions as required by
the Employee Retirement Income Security Act of 1974. Benefits are based on an
employee's years of service and average earnings for the five highest
consecutive years of compensation occurring during the last ten years before
retirement.
The following table summarizes the funded status of the defined benefit
pension plans at December 31, 1993 and 1992:
<TABLE>
<CAPTION>
1993 1992
------- -------
(IN THOUSANDS)
<S> <C> <C>
Actuarial present value of vested benefit obligations........ $11,918 $ 7,810
======= =======
Plan assets at fair value.................................... $29,559 $27,826
Projected benefit obligations for service rendered to date... 25,377 20,094
------- -------
Plan assets in excess of projected benefit obligation....... $ 4,182 $ 7,732
======= =======
Prepaid pension cost......................................... $ 1,678 $ 2,673
======= =======
</TABLE>
At December 31, 1993, the Company reduced the discount rate used to calculate
the projected pension benefit obligation to 7.5%, reflecting the change in the
interest rate environment. This reduction in the discount rate is expected to
increase 1994 pension expense by approximately $1 million. The discount rate
reduction had no effect on 1993 pension expense, which was $1.0 million
compared to $1.2 million and $.9 million in 1992 and 1991, respectively. The
Company also decreased the salary rate assumption from 7% to 6% at December 31,
1993, based on the Company's experience. This rate reduction had no effect on
the 1993 pension expense and is expected to reduce 1994 pension expense by $.7
million.
The Company also provides health care benefits for eligible retired employees
and their eligible dependents. Effective January 1, 1993, the Company adopted
the provisions of SFAS No. 106, "Employers' Accounting for Postretirement
Benefits Other than Pensions" which requires accrual accounting for
postretirement health care benefits. At December 31, 1993, $6.7 million of the
transition obligation remains unamortized. This obligation, under the terms of
the amended healthcare plan, was calculated using relevant actuarial
assumptions and health care cost trend rates projected at annual rates ranging
from 12% in 1993 to 6% in 2002 and thereafter and using a discount rate of
8.5%. The effect of a 1% annual increase in these assumed cost trend rates
would increase the accumulated postretirement benefit obligation by
approximately $.8 million; while annual service and interest cost components in
the aggregate would not be materially affected. Consistent with the reduction
in the discount rate for the pension plan, the discount rate used to calculate
the accumulated postretirement benefit obligation was reduced to 7.5%, at
December 31, 1993. The reduction in the discount rate had no effect on the
postretirement benefit expense for 1993 but is expected to increase 1994
expense by less than $.1 million. The net postretirement benefit liability and
associated expense were $1.1 million for the year ended December 31, 1993.
Postretirement benefit expense was $.3 million for 1992 and 1991, when retiree
medical claims were expensed as incurred.
38
<PAGE>
HELLER FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
13. INCOME TAXES
The Company accounts for income taxes in accordance with the provisions of
SFAS No. 109, "Accounting for Income Taxes". SFAS No. 109 requires the Company
to record deferred tax benefits for deductible temporary differences if it is
more likely than not that these benefits will be realized and also requires the
Company to report income tax expense as if it were a separate taxpayer. In
1992, the Company recognized $41.1 million of previously unrecognized tax
benefits and amended the tax allocation agreement with the Parent, to conform
to the new accounting standard. In prior years, income taxes provided on a
consolidated basis were allocated between the Company and the Parent based on
their separate taxable income or loss before state income taxes and
carryforwards of net operating losses, tax credits and capital losses.
Management believes that it is more likely than not that at December 31, 1993
and 1992, $109.1 million and $65.1 million, respectively, will be realized from
the Company's existing deductible temporary differences. These tax benefits are
shown net of valuation allowances of $13.5 million and $55.0 million at
December 31, 1993 and 1992, respectively. The valuation allowance was reduced
in 1993 as a result of management's increased confidence in the deductibility
of temporary differences.
The provision for income taxes is summarized in the following table:
<TABLE>
<CAPTION>
1993 1992 1991
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal...................................... $ 75,230 $ 19,985 $ 17,064
Allocation of consolidated group benefits.... -- -- (13,040)
Utilization of investment, foreign tax and
AMT credits................................. (32,637) (7,685) (2,312)
-------- -------- --------
Net federal............................... 42,593 12,300 1,712
State........................................ 16,200 5,300 700
Foreign...................................... 1,339 1,398 (72)
-------- -------- --------
Total current............................. 60,132 18,998 2,340
-------- -------- --------
Deferred:
Federal...................................... (40,837) (20,606) 4,374
State........................................ (6,428) (3,394) --
Effect of change in tax rates................ (2,135) -- --
Effect of consolidated net operating loss
carryforwards............................... -- -- (5,299)
Deferred tax asset not utilized.............. -- -- 925
-------- -------- --------
Total deferred............................ (49,400) (24,000) --
-------- -------- --------
$ 10,732 $ (5,002) $ 2,340
======== ======== ========
</TABLE>
In accordance with the provisions of the current tax allocation agreement,
payments of $55.7 million were made to the Parent in 1993 for the Company's
estimated current income tax liability. In 1992 and 1991, income taxes paid
amounted to $24.2 million and $.2 million, respectively.
Included in the above table are amounts relating to International, which
files a separate United States federal income tax return. Income taxes paid by
International in 1993, 1992 and 1991 amounted to $1.2 million, $.4 million, and
$1.7 million, respectively.
39
<PAGE>
HELLER FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
During 1993, the statutory federal income tax rate increased to 35% from 34%,
the rate in effect for 1992 and 1991. The reconciliation between the statutory
federal income tax provision and the actual effective tax provision for each of
the three years ended December 31 is as follows:
<TABLE>
<CAPTION>
1993 1992 1991
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Tax provision at statutory rate............... $ 44,746 $ 14,320 $ 24,063
Net allocation of consolidated group benefits. -- -- (18,339)
State and foreign income taxes, net of federal
income tax effects........................... 11,869 1,710 924
Income of international joint ventures........ (8,766) (10,325) (7,308)
Actual and deemed distributions............... 15,381 8,003 5,613
Rate differential between alternative minimum
tax and regular tax.......................... -- (3,068) --
Resolution of tax issues...................... -- (6,466) --
Change in valuation allowance................. (41,551) (3,918) --
Change in tax rate............................ (2,135) -- --
Other, net.................................... (8,812) (5,258) (2,613)
-------- -------- --------
$ 10,732 $ (5,002) $ 2,340
======== ======== ========
</TABLE>
In 1994, management expects the effective tax rate to approach the statutory
tax rate.
The significant components of the deferred tax liabilities and assets at
December 31, 1993 and 1992 are shown below:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1993 1992
--------- --------
<S> <C> <C>
Deferred Tax Liabilities:
Equity interests and other investments................ $ (1,933) $ (3,888)
Deferred income on lease financing.................... (18,119) (16,356)
Unrealized net gains on securities available for sale. (5,441) --
Other................................................. -- (294)
--------- --------
Gross deferred tax liabilities......................... (25,493) (20,538)
--------- --------
Deferred Tax Assets:
Allowance for loan losses............................. 132,622 99,372
Investment tax credits................................ -- 13,764
Foreign tax credits................................... 4,385 14,849
Accrued expenses...................................... 7,510 6,746
Alternative minimum tax credit carryforwards.......... 1,187 5,924
Other................................................. 2,356 --
--------- --------
Gross deferred tax assets.............................. 148,060 140,655
Valuation allowance.................................... (13,466) (55,017)
--------- --------
Gross deferred tax assets, net of valuation allowance.. 134,594 85,638
--------- --------
Net deferred tax asset................................. $ 109,101 $ 65,100
========= ========
</TABLE>
Provision has not been made for United States or additional foreign taxes on
$85.7 million of undistributed earnings of subsidiaries outside the United
States, as those earnings are intended to be reinvested. Such earnings would
become taxable upon the sale or liquidation of these international operations
or upon the remittance of dividends. Given the availability of foreign tax
credits and various tax planning strategies, management believes any tax
liability which may ultimately be paid on these earnings would be
40
<PAGE>
HELLER FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
substantially less than that computed at the statutory federal income tax rate.
Upon remittance, certain foreign countries impose withholding taxes that are
then available, subject to certain limitations, for use as credits against the
Company's U.S. tax liability, if any. The amount of withholding tax that would
be payable upon remittance of the entire amount of undistributed earnings would
be approximately $10.2 million.
During 1993, the Company utilized alternative minimum tax credit
carryforwards of $5.1 million, which were available at December 31, 1992, for
federal income tax purposes. In addition, the Company utilized its remaining
investment tax credits of $13.8 million. The Company had unused foreign tax
credit carryforwards of $4.4 million at December 31, 1993. Due to substantial
restrictions on the utilization of foreign tax credits imposed by the Tax
Reform Act of 1986, the Company may not be able to utilize a significant
portion of foreign tax credit carryforwards prior to expiration and,
accordingly, the Company has not recorded any deferred tax benefits related to
these credits.
14. RELATED PARTIES
Services Provided by Fuji Bank and the Parent for the Company. Certain
employees of Fuji Bank and the Parent perform managerial, administrative and
other related functions for the Company. The Company compensates Fuji Bank and
the Parent for these services at a rate which reflects current costs which were
$1.8 million and $43.5 million, respectively for 1993, and $1.7 million and
$41.0 million for 1992.
From time to time, certain subsidiaries of Fuji Bank serve as managers for
various offerings of the Company's debt securities. The fees paid by the
Company are similar to those the Company would pay an unaffiliated agent in an
arms-length transaction. The Fuji Bank and Trust Company acts as registrar and
paying agent for various debt issuances by the Company.
Services Provided by the Company for Fuji and the Parent. The Company
performs services for its affiliates, and charges them for the cost of the work
performed. Effective November 1, 1991, Heller Capital Markets Group, Inc.
("CMG"), a wholly-owned subsidiary of the Company, agreed to act as placement
agent for the sale of commercial paper issued by the Parent. CMG is compensated
based on the face amount of the commercial paper notes sold. CMG received
compensation of $.4 million in 1993 and 1992 and $.1 million in 1991, pursuant
to this agreement. Management believes the terms of the agreement are similar
to those which would apply in any similar arrangement among unaffiliated
parties.
The Company provides advisory services to Fuji Bank with respect to real
estate clients at the request of Fuji Bank. During 1993, 1992 and 1991, the
Company charged Fuji Bank approximately $.1 million, $.2 million, and $.3
million respectively, for these services.
In the ordinary course of its business, the Company participates in joint
financings with certain affiliates of the Company. From time to time the
Company guarantees its clients' obligations under letters of credit issued by
financial institutions, some of which are affiliates of the Company. The
Company believes that these joint financings and letter of credit arrangements
with affiliates are on terms similar to those available from unaffiliated
financial institutions.
The Company has agreements with certain other subsidiaries of the Parent
which provide for the Company to receive an annual negotiated fee for servicing
assets which have been sold by the Company to the Parent and these affiliates.
The Company continues to service these assets and all other direct costs and
expenses, including any additional advances made after the date of the
agreement, are borne by the subsidiaries of the Parent. The amount of fees for
servicing the transferred assets in 1993, 1992 and 1991, was approximately $4.3
million, $4.7 million and $3.5 million, respectively. These amounts are
recorded as a reduction of operating expenses in the consolidated statements of
income.
41
<PAGE>
HELLER FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Intercompany Receivables and Financial Instruments. The Company is party to a
$250 million interest rate swap agreement (the "$250 million agreement") with
the Parent which was amended in 1992 and expires July 31, 1995. The Company
also entered into a $200 million interest rate swap agreement with the Parent,
effective January 13, 1994 which expires December 15, 2000. The purpose of the
agreements is to manage the Company's exposure to interest rate fluctuations.
Under these agreements, the Company pays interest to the Parent at a variable
rate based on the commercial paper rate published by the Board of Governors of
the Federal Reserve System and the Parent pays interest to the Company at fixed
rates of 5.0% and 5.57%, respectively. The fixed rates were determined based
upon the prevailing market rate for such transactions. The $250 million
agreement had the effect of reducing the Company's interest expense by $4.6
million in 1993, $6.9 million in 1992 and $5.1 million in 1991.
The Company is a party to a $24.7 million interest rate swap agreement with
Fuji Bank, New York branch, which became effective in March, 1990 and expires
in February, 1995. During 1993, $1.5 million had been paid to Fuji Bank under
this agreement. Additionally, the Company entered into cross-currency basis
swap agreements with a subsidiary of Fuji Bank, which had the effect of
converting debt denominated in Japanese Yen to $148.2 million of U.S. currency.
During 1993, $4.2 million had been paid to Fuji Bank under these agreements.
At December 31, 1993 and 1992, other assets include net amounts due from
affiliates of $31.3 million and $6.8 million, respectively. The amounts are
comprised principally of interest bearing demand notes representing amounts due
to the Company under the interest rate swap agreement with the Parent,
advances, administrative fees and costs charged to other subsidiaries of the
Parent. The notes bear interest at rates which approximate the average rates on
the Company's commercial paper obligations or short-term bank borrowing rates
outstanding during the period.
Fuji Bank and one of its subsidiaries provided uncommitted lines of credit to
consolidated international subsidiaries totaling $12.9 million and $21.1
million at December 31, 1993 and 1992, respectively. Borrowings under these
facilities totaled $8.7 million and $12.7 million at December 31, 1993 and
1992, respectively. In addition, Fuji Bank provides uncommitted lines of credit
to certain international joint ventures.
42
<PAGE>
HELLER FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
15. FAIR VALUE DISCLOSURES
SFAS No. 107 "Disclosures about Fair Value of Financial Instruments,"
requires disclosure of fair value information for certain financial
instruments, for which it is practicable to estimate that value. These values
must be estimated as there is no well established market for many of the
Company's assets and financial instruments. Fair values are based on estimates
using present value, property yield, historical rate of return and other
valuation techniques. These techniques are significantly affected by the
assumptions used, including the discount rate and estimates of future cash
flows. These assumptions are inherently judgmental and changes in such
assumptions could significantly affect fair value calculations. In that regard,
the derived fair value estimates may not be substantiated by comparison to
independent markets and may not be realized in immediate liquidation of the
instrument.
The book values and estimated fair market values of the Company's financial
instruments at December 31, 1993 and 1992, are as follows:
<TABLE>
<CAPTION>
1993 1992
----------------- -----------------
BOOK FAIR BOOK FAIR
VALUE VALUE VALUE VALUE
-------- -------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Net receivables......................... $6,801.2 $6,863.3 $7,198.4 $7,145.7
Non-voting equity and other investments. $ 370.5 $ 420.9 $ 280.7 $ 359.0
Debt.................................... $5,949.4 $6,045.8 $6,167.9 $6,202.9
</TABLE>
The following methods and assumptions were used by the Company in estimating
its fair value disclosures for financial instruments. Carrying values
approximate fair values for all financial instruments which are not
specifically addressed.
Certain variable rate receivables that reprice frequently and have no
significant credit risk, fair values were assumed to equal carrying values. All
other receivables were pooled by loan type and risk rating. The fair value for
these receivables was estimated via discounted cash flow analyses, using
interest rates equal to the London Inter-bank Offered Rate or the prime rate
offered as of December 31, 1993 and 1992, plus an adjustment for normal spread,
credit quality and the remaining terms of the loans.
Book and fair values of the trading securities and securities available for
sale are based on quoted market prices. The fair values of equity interests and
other investments are calculated by first using the Company's business
valuation model to determine the estimated value of these investments as of the
anticipated exercise date. The business valuation model analyzes the cash flows
of the related company and considers values for similar equity investments. The
determined value is then discounted back to December 31, 1993 and 1992, using a
rate appropriate for returns on equity investments. Although the investments in
international joint ventures accounted for by the equity method are not
considered financial instruments and as such are not included in the above
table, management believes that the fair values of these investments
significantly exceed the carrying value of these investments.
The fair values of the Company's debt and swap agreements were estimated
using discounted cash flow analyses, based on current incremental borrowing and
swap rates for arrangements with similar terms and remaining maturities, as
quoted by independent financial institutions as of December 31, 1993 and 1992.
The fair value of debt is presented net of the fair value of interest rate,
cross currency interest rate and basis swap agreements which amounted to a
$148.1 million and $83.8 million, respectively, net favorable position as of
December 31, 1993 and 1992. The fair values of loan commitments, letters of
credit and guarantees are negligible after consideration of the time value of
money.
43
<PAGE>
HELLER FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
16. FINANCIAL DATA BY REGION
The following table shows certain financial information for the years ended
December 31, 1993, 1992 and 1991, attributable to United States and
international operations by geographic region.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------------------------------
UNITED STATES EUROPE ASIA-PACIFIC OTHER CONSOLIDATED
------------- -------- ------------ ------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Assets
1993.................. $7,456,700 $237,675 $182,866 $35,357 $7,912,598
1992.................. 7,652,240 157,924 104,498 37,687 7,952,349
1991.................. 7,255,127 157,655 96,085 20,524 7,529,391
Interest income, fees
and other income, and
income of international
joint ventures
1993.................. $ 741,870 $ 26,092 $ 10,374 $ 1,858 $ 780,194
1992.................. 719,945 24,502 10,822 6,101 761,370
1991.................. 810,489 21,758 6,470 4,501 843,218
Income before taxes and
cumulative effect of
change in accounting
principle
1993.................. $ 98,961 $ 23,672 $ 4,288 $ 924 $ 127,845
1992.................. 14,832 19,538 3,544 4,204 42,118
1991.................. 49,661 15,167 2,432 (821) 66,439
Net income
1993.................. $ 89,175 $ 23,672 $ 3,343 $ 923 $ 117,113
1992.................. 62,324 19,026 2,634 4,236 88,220
1991.................. 46,363 16,222 2,311 (797) 64,099
</TABLE>
44
<PAGE>
HELLER FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
17. SUMMARY OF QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following financial information for the calendar quarters of 1993, 1992
and 1991, is unaudited. In the opinion of management, all adjustments necessary
to present fairly the results of operations for such periods have been
included.
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------
MARCH 31 JUNE 30 SEPT. 30 DEC. 31
-------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net interest income--
1993...................................... $ 86,254 $ 89,781 $ 91,585 $ 88,408
1992...................................... 82,343 81,676 81,765 92,896
1991...................................... 76,532 81,874 83,457 82,529
Operating revenues--
1993...................................... $117,527 $136,951 $127,420 $134,733
1992...................................... 110,600 110,456 115,015 129,810
1991...................................... 96,367 126,056 104,127 111,149
Provision for losses--
1993...................................... $ 48,369 $ 56,922 $ 52,559 $ 52,533
1992...................................... 43,407 48,160 51,091 109,237
1991...................................... 31,678 69,801 43,681 56,265
Net income--
1993...................................... $ 25,465 $ 36,850 $ 28,196 $ 26,602
1992...................................... 58,490 17,110 11,157 1,463
1991...................................... 18,190 13,734 15,365 16,810
</TABLE>
Net income for the quarter ended March 31, 1992 includes $41.1 million of
income for the cumulative effect of the recognition of a deferred tax asset
through December 31, 1991, resulting from the adoption of SFAS No. 109,
"Accounting for Income Taxes." The provision for losses increased in the
quarter ending December 31, 1992, as the Company strengthened its allowance for
losses to 3.0% of receivables to improve coverage ratios and to address the
risks associated with certain troubled credits in the corporate financing and
real estate portfolios.
45
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
46
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The names and ages of all directors and executive officers of the Company as
of January 1, 1994, and a biographical summary for each such person, appear in
the following pages. No family relationship exists among the persons named
below.
DIRECTORS
<TABLE>
<CAPTION>
NAME, AGE & POSITIONS FROM TO
- --------------------- ---- --
<S> <C> <C>
MICHAEL S. BLUM (54)
Director, the Company.................................. July, 1986 Present
Chairman of the Board and Chief Executive Officer, the
Company............................................... November, 1990 Present
Director, Heller International Corporation ("Parent")
and Heller International Group, Inc.
("International")..................................... July, 1986 Present
Chairman of the Board and Chief Executive Officer,
International; Chairman of the Board, Chief Executive
Officer and President, Parent......................... November, 1990 Present
Director, Chairman of the Board and Chief Executive
Officer, Heller International Holdings, Inc.
("Holdings").......................................... December, 1992 Present
Vice Chairman of the Board, the Company................ 1987 1990
President, Heller Real Estate Financial Services Group,
the Company........................................... 1986 1990
TOMOHIRO KAMIO (53)
Director, the Company, Parent and International........ June, 1992 Present
Director, Holdings..................................... December, 1992 Present
Director, the Company and Parent....................... 1990 1991
Managing Director, The Fuji Bank, Limited ("Fuji
Bank")................................................ May, 1992 Present
Director and General Manager, Fuji Bank, International
Planning Division..................................... 1991 1992
Director and General Manager, Fuji Bank, New York
Branch................................................ 1990 1991
General Manager, Fuji Bank, Americas Division.......... 1989 1990
Joint General Manager, Fuji Bank, International
Planning Division..................................... 1986 1989
RICHARD J. ALMEIDA (51)
Director, Executive Vice President and Chief Financial
Officer, the Company, Parent and International........ November, 1987 Present
Director, Executive Vice President and Chief Financial
Officer, Holdings..................................... December, 1992 Present
TETSUYA FUKABORI (41)
Director, the Company, Parent and International........ May, 1992 Present
Senior Vice President, Parent.......................... June, 1992 Present
Director, Holdings..................................... December, 1992 Present
Senior Vice President, Fuji Bank, Americas Division.... 1990 1992
Senior Vice President, Fuji Bank, New York Office,
International Project Finance Division................ 1990 1990
Senior Manager, Fuji Bank Head Office, Corporate
Banking Division II................................... 1987 1990
HIDETSUNE ISEKI (50)
Director, the Company and Parent....................... May, 1990 Present
Director, International................................ July, 1992 Present
Director, Holdings..................................... December, 1992 Present
Director and General Manager, Fuji Bank, New York
Branch................................................ June, 1993 Present
General Manager, Fuji Bank, New York Branch............ June, 1992 1993
General Manager, Fuji Bank, Los Angeles Branch......... 1990 1992
General Manager, Fuji Bank, San Francisco Branch....... 1988 1990
</TABLE>
47
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE & POSITIONS FROM TO
- --------------------- ---- --
<S> <C> <C>
HIROKAZU ISHIKAWA (47)
Director, the Company and Parent....................... May, 1992 Present
General Manager, Fuji Bank, Chicago Branch............. April, 1992 Present
Deputy General Manager, Fuji Bank, International
Division.............................................. 1991 1992
Deputy General Manager, Fuji Bank, Personnel Affairs
Division.............................................. 1987 1991
MINORU ITOSAKA (44)
Director, the Company, Parent, International and
Holdings.............................................. July, 1993 Present
General Manager, Fuji Bank, Americas Division.......... July, 1993 Present
Deputy General Manager, Fuji Bank, International
Planning Division..................................... 1989 1993
Deputy General Manager, Fuji Bank, Corporate Banking
Division II........................................... 1987 1989
TATSUO IWASAKI (40)
Director, the Company and Parent....................... July, 1991 Present
Director, the Company.................................. 1990 1990
Deputy General Manager, Fuji Bank, Americas Division... July, 1991 Present
Senior Manager, Fuji Bank, Americas Division........... 1990 1991
Manager, Fuji Bank, Regional Headquarters for the
Americas.............................................. 1988 1990
MARK KESSEL (52)
Director, the Company and Parent....................... July, 1992 Present
Partner, law firm of Shearman & Sterling............... 1977 Present
Director, CEI Holdings Corporation, a subsidiary of
Graseby p.l.c......................................... 1983 1991
OSAMU KITA (50)
Director, the Company, Parent and International........ November, 1990 Present
Executive Vice President, Parent....................... July, 1991 Present
Director, Holdings..................................... December, 1992 Present
General Manager, Fuji Bank, Americas Division.......... 1990 1991
Joint General Manager, Fuji Bank, International
Planning Division..................................... 1989 1990
Deputy General Manager, Fuji Bank, International Credit
Division.............................................. 1988 1989
MICHAEL J. LITWIN (46)
Director, the Company and Parent....................... April, 1990 Present
Senior Group President, the Company.................... October, 1990 Present
President, Leveraged Funding Group, the Company........ 1987 1990
Executive Vice President, International................ January, 1989 Present
Executive Vice President, Holdings..................... December, 1992 Present
DENNIS P. LOCKHART (47)
Director, the Company, Parent and International;
President, International; Executive Vice President,
Parent................................................ January, 1988 Present
Director and President, Holdings....................... December, 1992 Present
Director, Tri Valley Corp.............................. 1981 Present
</TABLE>
48
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE & POSITIONS FROM TO
- --------------------- ---- --
<S> <C> <C>
LAURALEE E. MARTIN (43)
Director, the Company and Parent....................... May, 1991 Present
Senior Group President, the Company.................... October, 1990 Present
Director and President, Heller Financial Leasing, Inc.
("Leasing")........................................... December, 1993 Present
Executive Vice President, Heller Real Estate Financial
Services Group, the Company........................... 1986 1990
ATSUSHI TAKANO (48)
Director, the Company and Parent....................... July, 1992 Present
General Manager, Fuji Bank, Los Angeles Agency......... June, 1992 Present
General Manager, Fuji Bank, International Treasury
Division.............................................. 1989 1992
Joint General Manager, Fuji Bank, New York Branch...... 1984 1992
MITCHELL F. VERNICK (38)
Director, the Company and Parent....................... May, 1991 Present
Senior Group President, the Company.................... October, 1990 Present
Executive Vice President, International................ June, 1989 Present
Executive Vice President, Holdings..................... December, 1992 Present
President, Capital Markets Group, the Company.......... 1987 1990
MASASHI YAMAMOTO (47)
Director, the Company and Parent....................... May, 1992 Present
President, The Fuji Bank and Trust Company, New York... April, 1992 Present
Senior Joint General Manager, Fuji Bank, New York
Branch................................................ 1991 1992
Senior Executive Vice President, The Fuji Bank and
Trust Company, New York Branch........................ 1991 1992
Deputy General Manager, Fuji Bank Head Office,
International Planning Division....................... 1987 1991
</TABLE>
EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
NAME, AGE & POSITIONS FROM TO
- --------------------- ---- --
<S> <C> <C>
ANTHONY O'B. BEIRNE (45)
Senior Vice President and Controller, the Company,
Parent and International............................... March, 1988 Present
Senior Vice President and Controller, Holdings.......... December, 1992 Present
JAMES B. CURRIE (45)
Executive Vice President, General Counsel and Secretary,
the Company, Parent, International and Holdings........ December, 1993 Present
Senior Vice President, Secretary and General Counsel,
Coldwell Banker Real Estate Group...................... 1990 1993
Vice President, Secretary and General Counsel, Coldwell
Banker Real Estate Group............................... 1986 1990
Senior Vice President and Director, Sears Savings Bank.. 1990 1993
Vice President, Homart Development Co., Coldwell Banker
Residential Affiliates, Inc., Coldwell Banker Real
Estate and Sears Mortgage Corporation.................. 1990 1993
Vice President and Director, BorrowersChoice Corp....... 1991 1993
</TABLE>
49
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE & POSITIONS FROM TO
- --------------------- ---- --
<S> <C> <C>
CHRISTOPHER L. GILLOCK (39)
Senior Vice President, Corporate Development and
Investments, the Company and Parent.................. July, 1991 Present
Managing Director and Senior Vice President,
Investment Group, the Company........................ 1988 1990
JOHN L. GUY, JR. (41)
Senior Vice President and Treasurer, the Company and
Parent............................................... July, 1992 Present
Senior Vice President, Internal Audit, the Company.... April, 1992 1992
Vice President, Internal Audit, the Company........... 1989 1992
Vice President, Financial Planning and Analysis, the
Company.............................................. 1987 1989
THOMAS A. JAEKEL (36)
President, Heller Real Estate Financial Services
Group, the Company................................... October, 1993 Present
Senior Vice President, Manager Field Operations,
Heller Real Estate Financial Services Group, the
Company.............................................. 1990 1993
Senior Vice President, Regional Manager (Chicago),
Heller Real Estate Financial Services Group, the
Company.............................................. 1988 1990
TOMONORI KOBAYASHI (44)
Senior Vice President, Corporate Planning &
Administration, the Company and Parent............... January, 1991 Present
Senior Vice President, Parent......................... 1990 1991
Deputy General Manager, Fuji Bank, Capital Markets
Planning Division.................................... 1987 1990
J. PARKER LAPP (40)
President, Current Asset Management Group, the
Company.............................................. April, 1990 Present
President, Special Industries Group, the Company...... 1987 1990
CHALLIS M. LOWE (48)
Senior Vice President, Human Resources, the Company
and Parent........................................... September, 1993 Present
Senior Vice President, Administrative Services, Sanwa
Business Credit Corporation.......................... 1985 1993
MICHAEL J. ROCHE (42)
Senior Vice President and Chief Information Officer,
Information Technology, the Company.................. October, 1990 Present
Senior Vice President and Chief Information Officer,
Information Technology, Parent....................... January, 1991 Present
Managing Director, Information Technology, Continental
Illinois National Bank............................... 1988 1990
</TABLE>
Each of the officers and directors of the Company are elected at the annual
meeting for a term of one year until their successors are duly elected and
qualified.
An Initial Statement Of Beneficial Ownership Of Securities on Form 3 was
filed by: (i) Challis Lowe (elected effective September 7, 1993 as Senior Vice
President--Human Resources) on November 17, 1993, (ii) Thomas Jaekel (elected
effective October 14, 1993 as President, Real Estate Financial Services Group)
on December 3, 1993, and (iii) Minoru Itosaka (elected effective July 23, 1993
as Director), on January 14, 1994. In all filings, there were no reported
holdings of the Registrant's equity securities.
50
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
The following information is furnished as to all plan and non-plan
compensation awarded to, earned by, or paid to the Chief Executive Officer of
the Company and the four next most highly compensated executive officers of the
Company (as determined at December 31, 1993) for services rendered in all
capacities to the Company and its subsidiaries during the years ended December
31, 1993, 1992 and 1991.
SUMMARY COMPENSATION TABLE (1) (2)
ANNUAL COMPENSATION
<TABLE>
<CAPTION>
OTHER ANNUAL ALL OTHER
NAME AND PRINCIPAL COMPENSATION($) COMPENSATION($)
POSITION YEAR SALARY($) BONUS($) (4)(5) (4)(7)
- ------------------ ---- --------- -------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Michael S. Blum......... 1993 656,250 (3) 330,750 4,481
(Chairman of the Board
and 1992 581,250 478,223 302,831 4,361
Chief Executive
Officer) 1991 483,333 435,001 -- --
Richard J. Almeida...... 1993 268,000 (3) 104,435 4,487
(Chief Financial
Officer) 1992 259,875 175,000 91,866 4,363
1991 245,125 125,000 -- --
Dennis P. Lockhart...... 1993 233,000 (3) 88,808 4,496
(President, Heller 1992 222,000 110,000 78,477 4,355
International Group,
Inc.) 1991 211,000 94,000 -- --
Mitchell F. Vernick..... 1993 230,833 (3) 155,476(6) 4,497
(Senior Group
President) 1992 212,250 125,000 125,030(6) 4,363
1991 195,266 120,000 -- --
Lauralee E. Martin...... 1993 227,292 (3) 86,632 4,497
(Senior Group
President) 1992 201,875 125,000 71,363 4,364
1991 181,950 125,000 -- --
</TABLE>
- --------
(1) All numbers are rounded to the nearest whole dollar.
(2) Certain executive officers of the Company whose compensation is included
above are employed and paid by the Parent. Pursuant to a management
agreement between the Company and the Parent, the Company reimburses the
Parent for their services.
(3) The cash bonus under the management incentive plan for services rendered to
the Company and its subsidiaries during the year ended December 31, 1993
was not calculable as of the date of this report. Such amounts will be
disclosed in the Company's annual report for the subsequent fiscal year in
the appropriate column for the year in which earned. Annual bonus amounts
are earned and accrued during the year shown, and paid subsequent to the
end of such year.
(4) Amounts in the Other Annual Compensation column and in the All Other
Compensation column for the year ended December 31, 1991 have been excluded
under the transition period provisions of the Securities and Exchange
Commission ("SEC") Executive Compensation Disclosure rules which became
effective on October 21, 1992.
(5) During 1993, the Company had a Long Term Incentive Plan that commenced on
January 1, 1992 and terminates on December 31, 1994 ("1992-94 LTIP"), which
it had historically considered as a long term compensation plan. The SEC,
however, pursuant to its Release 33-7009, dated August 6, 1993, requires
that the Company report accrued compensation under the 1992-94 LTIP as
annual compensation since accruals are based upon the Company's performance
in one year and are not affected by the Company's performance in subsequent
years. As a result, the Company is reporting in this column annual accruals
under the 1992-94 LTIP. Under the terms of the 1992-94 LTIP, payouts of
accruals occur after the
51
<PAGE>
termination of the 1992-94 LTIP to officers who are active employees of the
Company and participants in the 1992-94 LTIP through its termination date
(subject to exceptions in the case of disability, death or retirement).
Payouts of accruals under a prior Long Term Incentive Plan that commenced on
January 1, 1990 and terminated on December 31, 1992 ("1990-92 LTIP"), were
made to the named executive officers in 1992 for the following accruals
attributable to 1992 and 1991, respectively: Mr. Blum, $348,750 and
$290,000; Mr. Almeida, $95,504 and $90,083; Mr. Lockhart, $81,585 and
$77,543; Mr. Vernick, $78,002 and $71,760; and Ms. Martin, $74,189 and
$66,867. These payouts were previously reported, in aggregate, as 1992 LTIP
Payouts in the Company's 1992 Annual Report on Form 10-K. Perquisites and
other personal benefit amounts for each of the named executive officers are
omitted since the amounts fall below the minimum level for disclosure.
(6) A significant portion of the 1993 and 1992 amounts consists of special
payments attributable to the performance of specific business units and
investments.
(7) Amounts reported reflect the Company's contribution made in the form of a
match on amounts deferred by the officer in the Company's Savings and
Profit Sharing Plan, that is qualified under Section 501(a) of the Internal
Revenue Code. This Plan is available to all employees who work at least 900
hours per year. The Company makes matching contributions equal to 50% of
the employee's contribution provided, however, that the Company's
contribution will not exceed 2.5% of the employee's base salary.
RETIREMENT AND OTHER DEFINED BENEFIT PLANS
The Company has a defined benefit retirement income plan (the "Retirement
Plan") for the benefit of its employees that is a qualified plan under Section
401 of the Internal Revenue Code of 1986 (the "Code"). Substantially all
domestic employees of the Company who have one year of service, including
executive officers and directors of the Company, and also certain executive
officers and directors of International, participate in the Retirement Plan.
Non-employee directors are not eligible for retirement benefits.
The Company adopted a Supplemental Executive Retirement Plan ("SERP"),
effective October 28, 1987, which provides benefits to all officers at the
level of Senior Vice President and above who participate in the Company's LTIP
and the Retirement Plan, which are in excess of the limitations imposed by
Sections 401(a)(17) and 415 of the Internal Revenue Code, as amended from time
to time.
Under a defined benefit plan, such as the Company's, contributions are not
specifically allocated to individual participants. The table below shows
estimated annual retirement benefits for executives in specified remuneration
and service classifications.
ESTIMATED ANNUAL RETIREMENT BENEFITS
<TABLE>
<CAPTION>
YEARS OF CREDITED SERVICE
FINAL -------------------------------------------
AVERAGE 25 AND
PAY 5 10 15 20 OVER
------- ------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$100,000........................ $13,000 $ 26,000 $ 39,000 $ 52,000 $ 65,000
125,000........................ 16,250 32,500 48,750 65,000 81,250
150,000........................ 19,500 39,000 58,500 78,000 97,500
175,000........................ 22,750 45,500 68,250 91,000 113,750
200,000........................ 26,000 52,000 78,000 104,000 130,000
225,000........................ 29,250 58,500 87,750 117,000 146,250
250,000........................ 32,500 65,000 97,500 130,000 162,500
275,000........................ 35,750 71,500 107,250 143,000 178,750
300,000........................ 39,000 78,000 117,000 156,000 195,000
400,000........................ 52,000 104,000 156,000 208,000 260,000
450,000........................ 58,500 117,000 175,500 234,000 292,500
500,000........................ 65,000 130,000 195,000 260,000 325,000
600,000........................ 78,000 156,000 234,000 312,000 390,000
</TABLE>
52
<PAGE>
In general, remuneration covered by the retirement plan consists of the
annual base salary determined before any salary reduction contributions to the
Company's Savings and Profit Sharing Plan.
The number of years of credited service as of December 31, 1993, and the
actual average remuneration for their respective years of credited service with
the Company for those individuals listed on the Summary Compensation Table are
as follows: Michael S. Blum, $464,050, 7 years 6.5 months, Richard J. Almeida,
$240,400, 6 years 5 months, Dennis P. Lockhart, $210,972, 6 years, Mitchell F.
Vernick, $188,582, 7 years 4.5 months, and Lauralee E. Martin, $185,667, 7
years 4.5 months.
The figures shown in the table above include benefits payable under the SERP
as described above. However, the figures shown are prior to offsets for Social
Security, Retirement Plan and Company match benefits (under its Savings and
Profit Sharing Plan) as specified by the SERP benefit formula. The estimates
assume that benefits commence at age 65 under a straight life annuity form.
COMPENSATION OF DIRECTORS
Directors of the Company are not compensated for provision of services as a
director to the Company.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE OF CONTROL
ARRANGEMENTS
Michael S. Blum has an employment contract with the Parent which expires on
December 31, 1996 and provides that if his employment is terminated by the
Parent without cause (as defined in the contract), or if he resigns in response
to a significant diminution of his assigned duties and responsibilities by the
Parent, he will be entitled to receive full salary and all executive
perquisites through the later of December 31, 1996, or the last day of the
twelfth month following the month in which his termination occurred (the
"Cutoff Date"). He will also receive a pro rata portion of his estimated
incentive plan payments for the year of termination and will continue to be
covered under certain benefit plans through the Cutoff Date. If Mr. Blum's
employment is terminated pursuant to either of the situations described above,
he will receive 50% of his full salary from the Cutoff Date until August 30,
1998. In the event that Mr. Blum and the Parent do not reach an agreement
regarding the terms of an extension or renewal of his contract, Mr. Blum is
entitled to receive full salary until the later of December 31, 1996, or nine
months from the date the Parent informs him that it does not intend to extend
his employment and thereafter at the rate of 50% of his full salary through
August 30, 1998 (subject to reduction for compensation received from another
employer). Mr. Blum would also receive coverage under certain benefit plans
through August 30, 1998 and perquisites through December 31, 1997.
Mitchell Vernick participates in special incentive arrangements with the
Company pursuant to which he is eligible to receive payments based upon the
performance of specific business units and investments.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Michael S. Blum, Tomohiro Kamio, and Osamu Kita served as members of the
Compensation Committee of the Board of Directors of the Company during 1993.
Mr. Blum also served as Chairman and Chief Executive Officer of the Company,
and its subsidiaries, International and Holdings. In addition, Mr. Blum served
as the Chairman of the Board, Chief Executive Officer and President of the
Parent and served as a member of the Compensation Committee of the Parent,
International, and Holding. Another executive officer of the Parent, Osamu
Kita, also served as a member of the Compensation Committee of the Company.
As identified below, several directors of the Company also served as
executive officers of one or more of the other companies for whom Mr. Blum
served as a member of the Compensation Committee of the Board of Directors: Mr.
Almeida, Parent, International and Holdings; Mr. Fukabori, Parent; Mr. Litwin,
International and Holdings; Mr. Lockhart, Parent, International and Holdings;
Mr. Vernick, International and Holdings.
No other relationships exist between the directors and executive officers of
the Company and the directors and executive officers of the Company's Parent or
subsidiaries.
53
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
VOTING SECURITIES
The following table sets forth the ownership of all of the outstanding common
stock of the Company, as of February 1, 1994:
<TABLE>
- ------------------------------------------------------------
<CAPTION>
NAME AND
ADDRESS OF BENEFICIAL AMOUNT AND NATURE PERCENT
OWNER OF BENEFICIAL OWNERSHIP OF CLASS
- ------------------------------------------------------------
<S> <C> <C>
Heller International
Corporation (Parent)... 100 Shares 100%
500 West Monroe Street
Chicago, Illinois 60661
</TABLE>
EQUITY SECURITIES
All of the outstanding common stock of the Parent is owned by Fuji Bank. As
of November 30, 1993, certain directors and executive officers of the Company
owned beneficially certain amounts of Fuji Bank's common stock, all as
indicated below.
<TABLE>
- --------------------------------------------------------------------------------
<CAPTION>
AMOUNT OF
NAME OF BENEFICIAL
BENEFICIAL OWNER OWNERSHIP
- --------------------------------------------------------------------------------
<S> <C>
Tetsuya Fukabori............................................... 0
Hidetsune Iseki................................................ 18,290 Shares
Hirokazu Ishikawa.............................................. 3,258 Shares
Minoru Itosaka................................................. 2,848 Shares
Tatsuo Iwasaki................................................. 1,157 Shares
Tomohiro Kamio................................................. 21,974 Shares
Osamu Kita..................................................... 11,814 Shares
Atsushi Takano................................................. 2,714 Shares
Masashi Yamamoto............................................... 5,305 Shares
Mark Kessel.................................................... 0
Michael Litwin................................................. 0
Michael Blum................................................... 0
Richard Almeida................................................ 0
Dennis Lockhart................................................ 0
Mitchell Vernick............................................... 0
Lauralee E. Martin............................................. 0
Tomonori Kobayashi............................................. 1,000 Shares
-------------
Total Shares............................................... 68,360
=============
</TABLE>
In addition, Messrs. Fukabori, Ishikawa, Itosaka, Iwasaki, Kita, Kobayashi,
Takano and Yamamoto participate in a Fuji Bank employee stock purchase plan
and, as of November 30, 1993, beneficially held a total of approximately 31,808
shares. The aggregate number of shares of Fuji Bank common stock that are
beneficially owned by the Company's directors and officers, considered as a
group, including those shares held in the Fuji Bank employee stock purchase
plan, does not exceed 1% of the outstanding shares of such stock.
54
<PAGE>
The following table sets forth the ownership of all outstanding equity
securities of the Company, and its subsidiaries, as of February 1, 1994:
<TABLE>
- -------------------------------------------------------------------------------
<CAPTION>
AMOUNT OF
NAME OF BENEFICIAL
TITLE OF CLASS BENEFICIAL OWNER OWNERSHIP PERCENT OF CLASS
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
HELLER FINANCIAL, INC.
Cumulative
Convertible Heller International 1,000 Shares 100%
Preferred Stock, Corporation (Parent)
Series D
8 1/8% Cumulative Michael S. Blum 4,000 Shares (a)
Perpetual Senior Richard J. Almeida 0 0
Preferred Stock, Dennis P. Lockhart 0 0
Series A Mitchell F. Vernick 0 0
Lauralee E. Martin 0 0
Tomohiro Kamio 0 0
Tetsuya Fukabori 0 0
Hidetsune Iseki 0 0
Hirokazu Ishikawa 0 0
Minoru Itosaka 0 0
Tatsuo Iwasaki 0 0
Mark Kessel 0 0
Osamu Kita 0 0
Michael J. Litwin 0 0
Atsushi Takano 0 0
Masashi Yamamoto 0 0
All Directors and
Executive Officers as
a Group (a) (a)
HELLER INTERNATIONAL
GROUP, INC.
Common Stock Heller Financial, Inc. 553 Shares 79%
The Fuji Bank, Ltd. 147 Shares 21%
HELLER INTERNATIONAL
HOLDINGS, INC.
Common Stock Heller International 700 Shares 100%
Group, Inc.
HELLER FINANCIAL
LEASING, INC.
Common Stock Heller Financial, Inc. 1,000 Shares 100%
</TABLE>
- --------
(a) The aggregate number of shares of 8 1/8% Cumulative Perpetual Senior
Preferred Stock, Series A that were beneficially owned did not exceed 1% of
the outstanding shares of such stock.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
KEEP WELL AGREEMENT WITH FUJI BANK
The Company entered into a Keep Well Agreement (the "Agreement") with Fuji
Bank on April 23, 1983 in order to assist the Company in maintaining its credit
rating. The Agreement was amended and supplemented on January 26, 1984, in
connection with the consummation of the purchase of the Company by Fuji Bank
and has been amended since that date from time to time.
55
<PAGE>
The Agreement provides that Fuji Bank will maintain the Company's net worth
in an amount equal to $500 million. Accordingly, if the Company should
determine, at the close of any month, that its net worth is less than $500
million, then Fuji Bank will purchase, or cause one of its subsidiaries to
purchase, shares of the Company's NW Preferred Stock, Class B (No Par Value)
("NW Preferred Stock") in an amount necessary to increase the Company's net
worth to $500 million. If and when issued, dividends will be paid quarterly on
the NW Preferred Stock at a rate per annum equal to 1% over the three-month
London Inter-bank Offered Rate. Such dividends will not be paid during a
default in the payment of principal or interest on any of the outstanding
indebtedness for money borrowed by the Company. Subject to certain conditions,
the NW Preferred Stock will be redeemable at the option of the holder, within
a specified period of time after the end of a calendar quarter in an aggregate
amount not greater than the excess of net worth of the Company as of the end
of such calendar quarter over $500 million.
The Agreement further provides that if the Company should lack sufficient
cash, other liquid assets or credit facilities to meet its payment obligations
on its commercial paper, then Fuji Bank will lend the Company up to $500
million (the "Liquidity Commitment"), payable on demand, which the Company may
use only for the purpose of meeting such payment obligations. Any such loan by
Fuji Bank to the Company (a "Liquidity Advance" or "Advances") will bear
interest at a fluctuating interest rate per annum equal to the announced prime
commercial lending rate of Morgan Guaranty Trust Company of New York plus .25%
per annum. Each Liquidity Advance will be repayable on demand at any time
after the business day following the 29th day after such Advance was made. No
repayment of the Liquidity Advance will be made during a period of default in
the payment of the Company's senior indebtedness for borrowed money.
No Advances or purchases of NW Preferred Stock have been made by Fuji Bank
under the Agreement; other infusions of capital in the Company have been made
by International.
Under the Agreement, the Company has covenanted to maintain, and Fuji Bank
has undertaken to assure that the Company will maintain, unused short-term
lines of credit and committed credit facilities in an amount approximately
equal to 75% of the amount of its commercial paper obligations from time to
time outstanding. In addition, under the Agreement, neither Fuji Bank nor any
of its subsidiaries can sell, pledge or otherwise dispose of any shares of the
Company's Common Stock or permit the Company to issue shares of its Common
Stock except to Fuji Bank or a Fuji Bank affiliate.
Neither Fuji Bank nor the Company may terminate the Agreement for any reason
prior to December 31, 2000. After December 31, 2000 either Fuji Bank or the
Company may terminate the Agreement upon 30 business days' prior written
notice. So long as the Perpetual Preferred Stock is outstanding and held by
third parties other than Fuji Bank, the Agreement may not be terminated by
either party unless the Company has received written certifications from
Moody's Investors Services, Inc. and Standard and Poor's Corporation that upon
termination the Perpetual Preferred Stock will be rated by them no lower than
"a3" and "A-", respectively. For these purposes the Preferred Stock will no
longer be deemed outstanding at such time as an effective notice of redemption
of all of the Preferred Stock shall have been given by the Company and funds
sufficient to effectuate such redemption shall have been deposited with the
party designated for such purpose in the notice. In addition, any termination
of the Keep Well Agreement by the Company must be consented to by Fuji Bank.
Any such termination will not relieve the Company of its obligations in
respect of any NW Preferred Stock outstanding on the date of termination or
the dividends thereon, any amounts owed in respect of Liquidity Advances on
the date of termination or the unpaid principal or interest on those Advances
or Fuji Bank's fee relating to the Liquidity Commitment. Any such termination
will not adversely affect the Company's commercial paper obligations
outstanding on the date of termination. The Agreement can be modified or
amended by a written agreement of Fuji Bank and the Company. However, no such
modification or amendment may change the prohibition against termination
before December 31, 2000. Further, no such modification or amendment may
adversely affect the Company's then-outstanding commercial paper obligations.
Under the Agreement, the Company's commercial paper obligations and any
other debt instruments are solely the obligations of the Company. The
Agreement is not a guarantee by Fuji Bank of the payment of the Company's
commercial paper obligations, indebtedness, liabilities or obligations of any
kind.
56
<PAGE>
TAX ALLOCATION AGREEMENT
Under the terms of the tax allocation agreement between the Parent and its
subsidiaries, as amended, each company covered by the agreement calculates its
current and deferred income taxes based on its separate company taxable income
or loss, utilizing separate company net operating losses, tax credits, capital
losses and deferred tax assets or liabilities.
CERTAIN TRANSACTIONS WITH THE PARENT AND ITS SUBSIDIARIES
Services Provided for the Company. Certain employees of the Parent perform
managerial, administrative and other related functions for the Company. During
1993, the Company compensated the Parent $43.5 million for these services.
Services Provided by the Company. The Company performs services for its
affiliates and charges those companies for the cost of the work performed.
Heller Capital Markets Group, Inc. ("CMG"), a wholly-owned subsidiary of the
Company, acts as placement agent for the sale of commercial paper issued by the
Parent. CMG receives compensation, based upon the face amount of the commercial
paper notes sold. For the year ending December 31, 1993, the Parent paid $.4
million to CMG as compensation pursuant to this arrangement. Management
believes the terms of this arrangement are similar to those which might apply
in any similar arrangement among unaffiliated parties.
The Company has agreements with certain subsidiaries of the Parent which
provide for the Company to receive an annual negotiated fee for servicing
assets which have previously been sold by the Company to the Parent and those
affiliates. The Company continues to service these assets and all other direct
costs and expenses, including any additional advances made after the date of
the agreement, are borne by the subsidiaries of the Parent. In 1993, the amount
of fees the Company received for servicing the transferred assets was
approximately $4.3 million. These amounts are recorded as a reduction of
operating expenses in the consolidated statement of income.
Financial Transactions and Instruments. In the ordinary course of its
business, the Company participates in joint financings with certain affiliates
of the Company. From time to time the Company guarantees its clients'
obligations under letters of credit issued by financial institutions, some of
which are affiliates of the Company. The Company believes that these joint
financings and letter of credit arrangements with affiliates are on terms
similar to those available from unaffiliated financial institutions.
The Company is a party to a master swap agreement with its Parent. The
Company and its Parent have entered into two swap transactions under that
agreement. The first is a $250 million swap transaction, which was initially
entered into in 1985, and was last amended in 1992, in part, to extend the term
through July 31, 1995 ("1985 agreement"). The second was a $200 million swap
transaction, which commenced on January 13, 1994 and expires on December 15,
2000 ("1994 agreement"). The purpose of the 1985 and 1994 agreements
(collectively the "agreements") is to manage the Company's exposure to interest
rate fluctuations. Under the provisions of these agreements, the Company pays
interest to the Parent at a variable rate based on the commercial paper rate
published by the Board of Governors of the Federal Reserve System and the
Parent pays interest to the Company at a fixed rate of 5.0% and 5.57% under the
1985 and 1994 swap agreements, respectively. The fixed rate was determined
based upon prevailing market rates for such transactions at the time of such
swap. The 1985 agreement had the effect of reducing the Company's interest
expense by $4.6 million in 1993.
On February 15, 1985, the Company issued to the Parent 1,000 shares of
previously subscribed Cumulative Convertible Preferred Stock, Series D (No Par
Value) ("Convertible Preferred Stock"), which has a dividend yield established
quarterly at the rate of 1/2% under the announced prime commercial lending rate
of Morgan Guaranty Trust Company of New York, cumulative from March 30, 1984
and payable quarterly commencing on March 31, 1989. During 1993, the Company
declared and paid approximately $1.4 million of dividends on the Convertible
Preferred Stock. The Convertible Preferred Stock is convertible into
57
<PAGE>
Common Stock of the Company at the conversion price of one share of Common
Stock for each 200 shares of Convertible Preferred Stock. Subject to certain
conditions, the Convertible Preferred Stock is redeemable, in whole or in part,
at any time at the option of the Company at a redemption price equal to the
price paid for such stock plus accumulated dividends. Upon voluntary or
involuntary liquidation, the holder of the Convertible Preferred Stock is
entitled to be paid an amount equal to the price paid for each share plus
accumulated dividends.
At December 31, 1993, net amounts due from affiliates was $31.3 million. The
amounts were comprised principally of interest bearing demand notes
representing amounts due to the Company under the interest rate swap agreement
with the Parent, advances, administrative fees and costs charged to other
subsidiaries of the Parent. The notes bear interest at rates which approximate
the average rates on the Company's commercial paper obligations or short-term
bank borrowing rates outstanding during the period.
CERTAIN OTHER RELATIONSHIPS
Services Provided for the Company. Certain employees of Fuji Bank perform
managerial, administrative and other related functions for the Company. The
Company compensates Fuji Bank for the use of such individuals' services at a
rate which reflects current costs to Fuji Bank. In 1993, the Company's cost for
such services was approximately $1.8 million.
Certain subsidiaries of Fuji Bank serve as managers for various offerings of
the Company's debt securities. The fees paid by the Company are similar to
those the Company would pay an unaffiliated agent in an arms-length
transaction. The Fuji Bank and Trust Company acts as registrar and paying agent
for various debt issuances by the Company.
Services Provided by the Company. The Company provides advisory services to
Fuji Bank real estate clients at the request of Fuji Bank. During 1993, the
Company charged Fuji Bank less than $.1 million for these services.
Financial Instruments. During March, 1990, the Company entered into a
receivables purchase agreement with Dynamic Funding Corporation ("Dynamic").
Under this agreement, which expires March 31, 1995, the Company may sell to
Dynamic with limited recourse an undivided interest of up to $500 million in a
designated pool of its factored accounts receivable. As of December 31, 1993,
the Company had sold a $5.7 million interest to Dynamic for cash. Dynamic has
entered into a standby credit agreement and an operating agreement with Fuji
Bank and one of its affiliates.
The Company is a party to a $24.7 million interest rate swap agreement with
Fuji Bank, New York branch, which became effective in March 1990 and expires in
February 1995. During 1993, $1.5 million had been paid to Fuji Bank under this
Agreement. Additionally, the Company entered into cross-currency basis swap
agreements with a subsidiary of Fuji Bank which had the effect of converting
debt denominated in Japanese Yen to $148.2 million of U.S. currency. During
1993, $4.2 million had been paid to Fuji Bank under these agreements.
Fuji Bank and one of its subsidiaries provided uncommitted lines of credit to
consolidated international subsidiaries totaling $12.9 million at December 31,
1993. Borrowings under these facilities totaled $8.7 million at December 31,
1993. In addition, Fuji Bank provides uncommitted lines of credit to certain
international joint ventures.
58
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents Filed as Part of This Report:
1. Financial Statements:
Heller Financial, Inc. and Subsidiaries--
Report of Independent Public Accountants--Arthur Andersen & Co.
Consolidated Balance Sheets--December 31, 1993 and 1992
Consolidated Statements of Income for the Years Ended December 31,
1993, 1992 and 1991
Consolidated Statements of Changes in Stockholders' Equity for the
Years Ended December 31, 1993, 1992 and 1991
Consolidated Statements of Cash Flows for the Years Ended December
31, 1993, 1992 and 1991
Notes to Consolidated Financial Statements
2. Financial Statement Schedules:
Schedule II--Heller Financial, Inc. Amounts Receivable From Employees
Other Than Related Parties.
All other schedules are omitted because they are not applicable or
because the required information appears in the financial statements
or the notes thereto.
3. Exhibits:
<TABLE>
<C> <S> <C>
(3)(a) Amended and Restated Certificate of Incorporation of the
Company as amended on September 16, 1992 [Incorporated by
reference to Exhibits 4(a) and 4(b) to the Company's
Registration Statement on Form S-3 filed September 4, 1992
(File No. 33-51692)]
(3)(b) By-laws of the Company, as amended on June 2, 1992
[Incorporated by reference to Exhibit 3(b) to the
Company's Annual Report on Form 10-K for the Fiscal Year
Ended December 31, 1992 (File No. 1-6157)]
(4)(a) Certificate of Designation, Preferences and Rights of
Cumulative Perpetual Senior Preferred Stock, Series A,
filed September 6, 1992 [Incorporated by reference to
Exhibit 4(a) to the Company's Annual Report on Form 10-K
for the Fiscal Year Ended December 31, 1992 (File No. 1-
6157)]
(4)(b) Heller Financial, Inc. Standard Multiple-Series Indenture
Provisions dated February 5, 1987 [Incorporated by
reference to Exhibit (4)(a) to the Company's Registration
Statement on Form S-3 dated February 5, 1987 (File No. 33-
11757)]
(4)(c) Form of Indenture dated as of February 5, 1987 between the
Company and The First National Bank of Chicago, Trustee,
with respect to Senior Securities [Incorporated by
reference to Exhibit (4)(b) to the Company's Registration
Statement on Form S-3 dated February 5, 1987 (File No. 33-
11757)]
(4)(d) Form of Indenture dated as of February 5, 1987 between the
Company and Chemical Bank, Trustee, with respect to Senior
Securities [Incorporated by reference to Exhibit (4)(c) to
the Company's Registration Statement on Form S-3 dated
February 5, 1987 (File No. 33-11757)]
(4)(e) First Supplemental Indenture dated as of December 1, 1989
to the Indenture dated as of February 5, 1987 by and
between Chemical Bank, as Trustee and the Company
[Incorporated by reference to Exhibit (4)(c)(i) to the
Company's Current Report on Form 8-K dated December 8,
1989 (File No. 1-6157)]
</TABLE>
59
<PAGE>
<TABLE>
<C> <S> <C>
(4)(f) Form of Indenture dated as of February 24, 1993 between
the Company and The First National Bank of Boston,
Trustee, with respect to Senior Securities [Incorporated
by reference to Exhibit (4)(h) to the Company's
Registration Statement on Form S-3 dated February 24, 1993
(File No. 33-58716)]
(4)(g) Form of Indenture dated as of February 5, 1987 between the
Company and Continental Illinois National Bank and Trust
Company of Chicago (now known as Continental Bank,
National Association), Trustee, with respect to Junior
Subordinated Securities [Incorporated by reference to
Exhibit (4)(e) to the Company's Registration Statement on
Form S-3 dated February 5, 1987 (File No. 33-11757)]
(4)(h) Form of Indenture dated as of September 30, 1991 between
the Company and The Bank of New York, Trustee, with
respect to Senior Securities. [Incorporated by reference
to Exhibit 4(h) to the Company's Registration Statement on
Form S-3 dated September 30, 1991 (File No. 33-43020)]
(4)(i) Form of Indenture dated as of September 30, 1991 between
the Company and Chemical Bank, Trustee, with respect to
the Subordinated Securities. [Incorporated by reference to
the Company's Registration Statement on Form S-3 dated
September 30, 1991 (File No. 33-43020)]
(4)(j) Form of Indenture dated as of February 24, 1993 between
the Company and The First National Bank of Boston, Trustee
with respect to the Junior Subordinated Securities
[Incorporated by reference to Exhibit (4)(e) to the
Company's Registration Statement on Form S-3 dated
February 24, 1993 (File No. 33-58716)]
(10)(a) Amended and Restated Keep Well Agreement between Fuji Bank
and the Company dated as of August 28, 1992 (including, as
Appendix A, the Keep Well Agreement dated as of April 23,
1983 between Fuji Bank and the Company) [Incorporated by
reference to Exhibit to the Company's Registration
Statement on Form S-3 filed September 4, 1992 (File No.
33-51692)]
(10)(b) Nonrecourse Participation Agreement dated September 30,
1985 between the Company and Interstate [Incorporated by
reference to Exhibit 10(b) to the Company's Annual Report
on Form 10-K for the Fiscal Year Ended December 31, 1992
(File No. 1-6157)]
(10)(c) Amendment to Interest Rate Swap Agreement dated July 24,
1992 between the Company and the Parent [Incorporated by
reference to Exhibit 10(c) to the Company's Annual Report
on Form 10-K for the Fiscal Year Ended December 31, 1992
(File No. 1-6157)]
*(10)(d) Employment Agreement dated November 27, 1990, as amended
and restated as of February 3, 1994 between the Parent and
Michael S. Blum
(10)(e) Service Agreement dated January 1, 1985 between the Parent
and Fuji Bank [Incorporated by reference to Exhibit 10(e)
to the Company's Annual Report on Form 10-K for the Fiscal
Year Ended December 31, 1992 (File No. 1-6157)]
*(10)(f) Revised Long-Term Incentive Plan of Heller International
Corporation, effective January 1, 1992
(10)(g) Management Incentive Plan (the Parent) [Incorporated by
reference to Exhibit (10)(p) to the Company's Annual
Report on Form 10-K for the year ended December 31, 1989
(File No. 1-6157)]
(10)(h) Supplemental Retirement Benefit Plan, effective October
28, 1987 [Incorporated by reference to Exhibit 10(h) to
the Company's Annual Report on Form 10-K for the Fiscal
Year Ended December 31, 1992 (File No. 1-6157)]
</TABLE>
60
<PAGE>
<TABLE>
<C> <S> <C>
(10)(i) Management Agreement dated as of January 1, 1991 between
Heller International Corporation and Heller Financial,
Inc. [Incorporated by reference to Exhibit (10)(m) to the
Company's Quarterly Report on Form 10-Q for the period
ending March 31, 1991 (File No. 1-6157)]
*(10)(j) Agreement for the Allocation of Federal, State and Foreign
Tax Liability and Benefits Among the Members of the Heller
International Corporation Affiliated Group, effective as
of January 1, 1993
(10)(k) Heller Financial Inc., Capital Markets Group/Merchant
Banking Division Equity Investment Compensation Plan
effective August 1, 1988 and letter amendment dated April
18, 1989 [Incorporated by reference to Exhibit 10(k) to
the Company's Annual Report on Form 10-K for the Fiscal
Year Ended December 31, 1992 (File No. 1-6157)]
*(10)(l) Summary of Special Incentive Arrangement
*(10)(m) January, 1994 Amendment to Interest Rate Swap Agreement,
dated July 29, 1985 between the Company and the Parent.
*(12) Computation of Ratio of Earnings to Combined Fixed Charges
and Preferred Stock Dividends
*(21) Subsidiaries of the Registrant
*(23) Consent of independent public accountants
*(24) Powers of Attorney
</TABLE>
- --------
*Filed herewith.
Instruments defining the rights of holders of certain issues of long-
term debt of the Company have not been filed as exhibits to this Report
because the authorized principal amount of any one of such issues does
not exceed 10% of the total assets of the Company. In accordance with
paragraph (b)(4)(iii) of Item 601 of Regulation S-K, the Company hereby
agrees to furnish to the Securities and Exchange Commission, upon
request, a copy of each instrument that defines the rights of holders
of the Company's long-term debt.
(b) Current Reports on Form 8-K:
During the fourth quarter of 1993, the Company filed a Current Report
on Form 8-K dated October 31, 1993.
On January 28, 1994, the Company filed with the U.S. Securities and
Exchange Commission a Current Report on Form 8-K, dated January 27,
1994, to announce the Company's earnings for the year ended December
31, 1993.
61
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, ON THE 7TH DAY OF
FEBRUARY, 1994.
Heller Financial, Inc.
Michael S. Blum
By ----------------------------------
Michael S. Blum
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATE INDICATED.
Michael S. Blum *
By----------------------------------- By-----------------------------------
Michael S. Blum Mark Kessel
(Chairman, Chief Executive (Director)
Officer and Director)
* *
By----------------------------------- By-----------------------------------
Tomohiro Kamio Osamu Kita
(Director) (Director)
Richard J. Almeida *
By----------------------------------- By-----------------------------------
Richard J. Almeida Michael J. Litwin
(Executive Vice President, (Director)
Chief Financial Officer and
Director)
*
Anthony O'B. Beirne By-----------------------------------
By----------------------------------- Dennis P. Lockhart
Anthony O'B. Beirne (Director)
(Senior Vice President, Controller
and
Chief Accounting Officer)
* By-----------------------------------
By----------------------------------- Lauralee E. Martin
Tetsuya Fukabori (Director)
(Director)
*
* By-----------------------------------
By----------------------------------- Atsushi Takano
Hidetsune Iseki (Director)
(Director)
*
* By-----------------------------------
By----------------------------------- Mitchell F. Vernick
Hirokazu Ishikawa (Director)
(Director)
*
* By-----------------------------------
By----------------------------------- Masashi Yamamoto
Tatsuo Iwasaki (Director)
(Director)
James B. Currie
* *By-----------------------------------
By----------------------------------- James B. Currie
Minoru Itosaka Attorney-in-Fact
(Director)
February 7, 1994
62
<PAGE>
SCHEDULE II
HELLER FINANCIAL, INC.
AMOUNTS RECEIVABLE FROM EMPLOYEES OTHER THAN RELATED PARTIES
<TABLE>
<CAPTION>
DEDUCTIONS
----------------- BALANCE
BALANCE AT AMOUNTS AT END SCHEDULED
BEGINNING AMOUNTS WRITTEN OF DUE INTEREST MONTHLY
NAME OF DEBTOR OF PERIOD ADDITIONS COLLECTED OFF PERIOD DATE RATE PAYMENTS
-------------- ---------- --------- --------- ------- ------- ---- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1993
Ang Miah Khiang....... 264,104 -- 16,928 -- 247,176(b) 2008 4.0% $2,783
Charles Baldini....... -- 185,400 -- -- 185,400(a) -- -- --
Chong Mong Ting....... 85,695 89,232 62,804 -- 112,123(c) 2001 4.0 553
Seah Yen Goon......... 102,804 -- 7,201 -- 95,603(b) 2003 4.0 1,136
1992
Ang Miah Khiang....... 290,450 11,169 37,515 -- 264,104(b) 2008 4.0 2,783
Seah Yen Goon......... 111,813 4,309 13,318 -- 102,804(b) 2003 4.0 1,136
1991
Ang Miah Khiang....... -- 315,121 24,671 -- 290,450(b) 2008 4.0 2,783
Seah Yen Goon......... -- 126,630 14,817 -- 111,813(b) 2003 4.0 1,136
</TABLE>
- --------
(a)Bridge loan.
(b) The amounts relate to mortgage receivables which are denominated in
Singapore dollars.
(c) The amount relates to a car loan receivable which is denominated in
Singapore dollars.
63
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
------- ----------- ----------
<C> <S> <C>
(3)(a) Amended and Restated Certificate of Incorporation of the
Company as amended on September 16, 1992 [Incorporated
by reference to Exhibits 4(a) and 4(b) to the Company's
Registration Statement on Form S-3 filed September 4,
1992 (File No 33-51692)]
(3)(b) By-laws of the Company, as amended on June 2, 1992
[Incorporated by reference to Exhibit 3(b) to the
Company's Annual Report on Form 10-K for the Fiscal Year
Ended December 31, 1992 (File No 1-6157)]
(4)(a) Certificate of Designation, Preferences and Rights of
Cumulative Perpetual Senior Preferred Stock, Series A,
filed September 6, 1992 [Incorporated by reference to
Exhibit 4(a) to the Company's Annual Report on Form 10-K
for the Fiscal Year Ended December 31, 1992 (File No 1-
6157)]
(4)(b) Heller Financial, Inc. Standard Multiple-Series Indenture
Provisions dated February 5, 1987 [Incorporated by
reference to Exhibit (4)(a) to the Company's
Registration Statement on Form S-3 dated February 5,
1987 (File No. 33-11757)]
(4)(c) Form of Indenture dated as of February 5, 1987 between
the Company and The First National Bank of Chicago,
Trustee, with respect to Senior Securities [Incorporated
by reference to Exhibit (4)(b) to the Company's
Registration Statement on Form S-3 dated February 5,
1987 (File No. 33-11757)]
(4)(d) Form of Indenture dated as of February 5, 1987 between
the Company and Chemical Bank, Trustee, with respect to
Senior Securities [Incorporated by reference to Exhibit
(4)(c) to the Company's Registration Statement on Form
S-3 dated February 5, 1987 (File No. 33-11757)]
(4)(e) First Supplemental Indenture dated as of December 1, 1989
to the Indenture dated as of February 5, 1987 by and
between Chemical Bank, as Trustee and the Company
[Incorporated by reference to Exhibit (4)(c)(i) to the
Company's Current Report on Form 8-K dated December 8,
1989 (File No. 1-6157)]
(4)(f) Form of Indenture dated as of February 24, 1993 between
the Company and The First National Bank of Boston,
Trustee, with respect to Senior Securities [Incorporated
by reference to Exhibit (4)(h) to the Company's
Registration Statement on Form S-3 dated February 24,
1993 (File No. 33-58716)]
(4)(g) Form of Indenture dated as of February 5, 1987 between
the Company and Continental Illinois National Bank and
Trust Company of Chicago (now known as Continental Bank,
National Association), Trustee, with respect to Junior
Subordinated Securities [Incorporated by reference to
Exhibit (4)(e) to the Company's Registration Statement
on Form S-3 dated February 5, 1987 (File No. 33-11757)]
(4)(h) Form of Indenture dated as of September 30, 1991 between
the Company and The Bank of New York, Trustee, with
respect to Senior Securities. [Incorporated by reference
to Exhibit 4(h) to the Company's Registration Statement
on Form S-3 dated September 30, 1991 (File No. 33-
43020)]
(4)(i) Form of Indenture dated as of September 30, 1991 between
the Company and Chemical Bank, Trustee, with respect to
the Subordinated Securities. [Incorporated by reference
to the Company's Registration Statement on Form S-3
dated September 30, 1991 (File No. 33-43020)]
</TABLE>
64
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
------- ----------- ----------
<C> <S> <C>
(4)(j) Form of Indenture dated as of February 24, 1993 between
the Company and The First National Bank of Boston,
Trustee with respect to the Junior Subordinated
Securities [Incorporated by reference to Exhibit (4)(e)
to the Company's Registration Statement on Form S-3
dated February 24, 1993 (File No. 33-58716)]
(10)(a) Amended and Restated Keep Well Agreement between Fuji
Bank and the Company dated as of August 28, 1992
(including, as Appendix A, the Keep Well Agreement
dated as of April 23, 1983 between Fuji Bank and the
Company) [Incorporated by reference to Exhibit to the
Company's Registration Statement on Form S-3 filed
September 4, 1992 (File No. 33-51692)]
(10)(b) Nonrecourse Participation Agreement dated September 30,
1985 between the Company and Interstate [Incorporated
by reference to Exhibit 10(b) to the Company's Annual
Report on Form 10-K for the Fiscal Year Ended December
31, 1992 (File No 1-6157)]
(10)(c) Amendment to Interest Rate Swap Agreement dated July 24,
1992 between the Company and the Parent [Incorporated
by reference to Exhibit 10(c) to the Company's Annual
Report on Form 10-K for the Fiscal Year Ended December
31, 1992 (File No 1-6157)]
*(10)(d) Employment Agreement dated November 27, 1990, as amended 67-77
and restated as of February 3, 1994 between the Parent
and Michael Blum
(10)(e) Service Agreement dated January 1, 1985 between the
Parent and Fuji Bank [Incorporated by reference to
Exhibit 10(e) to the Company's Annual Report on Form
10-K for the Fiscal Year Ended December 31, 1992 (File
No 1-6157)]
*(10)(f) Revised Long-Term Incentive Plan of Heller International 78-80
Corporation, effective January 1, 1992
(10)(g) Management Incentive Plan (the Parent) [Incorporated by
reference to Exhibit (10)(p) to the Company's Annual
Report on Form 10-K for the year ended December 31,
1989 (File No. 1-6157)]
(10)(h) Supplemental Retirement Benefit Plan, effective October
28, 1987 [Incorporated by reference to Exhibit 10(h) to
the Company's Annual Report on Form 10-K for the Fiscal
Year Ended December 31, 1992 (File No 1-6157)]
(10)(i) Management Agreement dated as of January 1, 1991 between
Heller International Corporation and Heller Financial,
Inc. [Incorporated by reference to Exhibit (10)(m) to
the Company's Quarterly Report on Form 10-Q for the
period ending March 31, 1991 (File No. 1-6157)]
*(10)(j) Agreement for the Allocation of Federal, State and 81-85
Foreign Tax Liability and Benefits Among the Members of
the Heller International Corporation Affiliated Group,
effective as of January 1, 1993
(10)(k) Heller Financial Inc., Capital Markets Group/Merchant
Banking Division Equity Investment Compensation Plan
effective August 1, 1988 and letter amendment dated
April 18, 1989 [Incorporated by reference to Exhibit
10(k) to the Company's Annual Report on Form 10-K for
the Fiscal Year Ended December 31, 1992 (File No 1-
6157)]
</TABLE>
65
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
------- ----------- ----------
<C> <S> <C>
*(10)(l) Summary of Special Incentive Arrangement 86
*(10)(m) January, 1994 Amendment to Interest Rate Swap Agreement, 87-89
dated July 29, 1985, between the Company and the
Parent.
*(12) Computation of Ratio of Earnings to Combined Fixed 90
Charges and Preferred Stock Dividends
*(21) Subsidiaries of the Registrant 91
*(23) Consent of independent public accountants 92
*(24) Powers of Attorney 93-106
</TABLE>
- --------
*Filed herewith.
66
<PAGE>
EXHIBIT 10(d)
November 27, 1990 As Amended and
Restated as of February 3, 1994
Mr. Michael S. Blum
Dear Michael,
The following is a restatement of the Letter Agreement dated November 27,
1990 between Heller International Corporation and you detailing the terms and
conditions of your employment as Chief Executive Officer of Heller
International Corporation as amended as of February 3, 1994.
LETTER AGREEMENT
----------------
Heller International Corporation (hereinafter sometimes referred to as the
"Company" or "Heller") agrees to employ you as chairman of the Board of
Directors and its Chief Executive Officer effective as of November 26, 1990
and you agree to accept such employment under the terms and conditions
provided in this Letter Agreement. In this capacity, you shall have the
usual powers and duties vested in the office of the chairman of the board of
directors and chief executive officer of a corporation of the size, stature,
and nature of the Company. Consistent with and under the ultimate authority
which reposes in the Board of Directors of the Company, you will have full
authority over and the responsibility for overall policy making and for the
day-to-day operations of the Company, including, without limitation, the
right to hire and fire personnel of the Company and its subsidiaries and to
set guidelines as to credit policy, personnel compensation and the nature and
pricing of the business of the
<PAGE>
Mr. Michael S. Blum
February 3, 1994
Page 2
Company and its subsidiaries. In addition to the foregoing authorities and
responsibilities, you also may be given additional authority and/or
responsibility as deemed appropriate by the Board of Directors of the
Company.
The terms and conditions of your employment are specified below:
1. Your employment, pursuant to this Letter Agreement, shall commence on
November 26, 1990, and terminate on December 31, 1996, unless earlier
terminated pursuant to paragraph 7. Your salary for the period from
December 1, 1990 through November 30, 1991 was $475,000 on an annualized
basis, and for the period from December 1, 1991 through November 30, 1992
was $575,000 on an annualized basis, and for the period from December 1,
1992, to November 30, 1993 was $650,000 on an annualized basis. Your
salary from December 1, 1993 to November 30, 1994 shall be $60,417 per
month, $725,000 on an annualized basis, and your salary from December 1,
1994 to December 31, 1996 shall be subject to negotiations each year which
shall recognize competitive analysis but in no event shall be lower than
$725,000 on an annualized basis. Any additional increases in salary will
be consistent with the Heller salary administration program and approved
by the Board of Directors of the Company. Except as provided in paragraph
7 of this Letter Agreement, your salary will not be reduced below the
levels stated in this paragraph during the term of this Letter Agreement.
2. Assuming continued employment for the 1994, 1995 and 1996 plan years, you
will be a participant in the annual Management Incentive Plan or whatever
other incentive plan is established in
- 2 -
<PAGE>
Mr. Michael S. Blum
February 3, 1994
Page 3
place of the Management Incentive Plan for the calendar years 1994, 1995
and 1996 at a target bonus of 60% of salary, and your annual Management
Incentive Plan bonus from the Management Incentive Plan or its successor
plan will be no less than $125,000 per year. In calculating your bonus
under this plan four measurements will be used, three financial
measurements, Net Income, Return on Assets, and the Ratio of Non Earning
Assets, weighted 50%, 10% and 30% respectively, and one non-financial
measurement, "quality of assets", as determined by the Chairman of the
Executive Committee of the Company with a 10% weight will be used for the
years 1994, 1995 and 1996. The Company and you will agree to the specific
target numbers for the three financial measurements for 1994, 1995 and 1996
as soon as practicable, but no later than March 4 of each such year. In
the event no Management Incentive Plan is in effect for any year covered by
this Letter Agreement, or in the event that any successor to the Management
Incentive Plan provides you with a smaller bonus than you would have
received under the Management Incentive Plan, as in effect on the date
hereof, in any year covered by this Letter Agreement, the Company agrees to
provide you with an individual incentive plan which, together with whatever
successor plan is in effect, will provide you with the same bonus as you
would have received if the Management Incentive Plan, as in effect on the
date hereof, had continued to be in effect.
3. You will continue to be a participant in the Long Term Incentive Plan for
the 1992-1994 plan cycle. For 1993 and 1994 your annual target bonus
under this plan will be 50% of your salary. In calculating your bonus
under this plan for these years, three financial measurements will be
used--Net Income, Return on Assets, and the Ratio on
- 3 -
<PAGE>
Mr. Michael S. Blum
February 3, 1994
Page 4
Non Earning Assets weighted 50%, 20% and 30% respectively. You will also
be a participant in the 1994-1996 plan cycle of the Long Term Incentive
Plan. For 1994, 1995 and 1996, your annual target bonus under this Plan
will be 50% of your salary. In calculating your bonus under this plan for
these years four measurements will be used: three financial measurements,
Net Income, Return on Assets and the Ratio of Non earning Assets, weighted
50%, 10% and 30% respectively and one non-financial measurement "quality of
assets", as determined by the Chairman of the Executive Committee of the
Company with a 10% weight. The Company and you will agree to the specific
target numbers for the 1994-1996 plan cycle using the 1994 budget numbers
and 1995 and 1996 mid-range forecast numbers as soon as practicable, but no
later than July 15, 1994. Assuming continued employment throughout the
term of this Letter Agreement, you are guaranteed a payment for each plan
year of no less than $100,000. You will also be eligible to participate in
any successor Long Term Incentive Plans of the Company for the period that
you are employed by the Company under this Letter Agreement.
4. Except as it relates to pension vesting credit, all obligations under your
prior Letter Agreement with the company dated June 5, 1986 are satisfied.
5. You will continue to be eligible for the normal executive perquisites
outlined in the Company's policies except that your annual allowance for
financial counseling, tax and financial legal assistance, will be $12,000.
- 4 -
<PAGE>
Mr. Michael S. Blum
February 3, 1994
Page 5
Expenses associated with the legal review of this amended Letter
Agreement will be reimbursed under the $12,000 total for 1993. Normal
monthly dues and special assessments relating to the country club
membership heretofore paid for by the Company will be borne by the Company.
6. a. You will continue to be covered under all Heller health, welfare, and
pension programs including the "excess IRS" supplemental coverage to which
you are now entitled. Specifically, as part of this coverage, you will
receive credit for vesting purposes under the Company's retirement plan
for your years of service with General Electric and you will also receive
a supplemental pension under the "Supplemental Executive Retirement Plan"
which, together with the benefits you are entitled to receive under the
Company's retirement plan, provides you with a benefit equivalent to the
amount you would have received under the Company's retirement plan without
regard to the annual retirement benefit limitations of Sections 401(a)(17)
and 415 of the Internal Revenue Code, as amended from time to time.
b. In addition to the foregoing benefits, if you retire on or after
August 30, 1994, the Company will provide you, under a supplemental pension
arrangement, "early retirement pension benefits" calculated consistent with
the Company's pension formula in place at that time (the 15 years service
requirement will be waived). Your right to receive these "early retirement
pension benefits" upon retirement on or after August 30, 1994 as described
herein will not be affected in any way by any termination or cessation of
your employment with the Company except termination for "cause" as defined
in paragraph 7(c) of this Letter Agreement.
- 5 -
<PAGE>
Mr. Michael S. Blum
February 3, 1994
Page 6
c. If your employment ends due to your death during the term of this
Letter Agreement, the Company shall pay to your legal representatives all
amounts and benefits which have accrued under this Letter Agreement but
which have not been paid out; including, but not limited to, amounts
accrued as of the date of your death under the Management Incentive Plan
and the Long Term Incentive Plan. Such amounts shall be paid in a lump
sum to your estate or beneficiary within 45 days of the end of the year
of your death.
7. (a) 1) if your employment is terminated by the Company at its election
for any reason other than for "cause", as defined in subparagraph (b)
below, or 2) if employment is terminated by you at your election,
because there has been a significant diminution of your assigned duties
and responsibilities then the Company will pay you, subject to the
provisions of paragraph 8 hereof, severance benefits consisting of all
of the following:
(i) Salary through the later of (x) December 31, 1996 or (y) the last
day of the twelfth month following the month in which such
termination shall have occurred (the later of (x) or (y) being
called the "Full Salary Cutoff Date") at full salary in effect at
the time of your termination and 50% of your then current salary
from the Full Salary Cutoff Date through August 30, 1998.
(ii) For the year in which your employment is terminated, you will
receive a pro rata Management Incentive Plan bonus based on your
termination date, calculated at the end of the Plan year, but no
less than a pro rata portion of your
- 6 -
<PAGE>
Mr. Michael S. Blum
February 3, 1994
Page 7
minimum guarantee. If termination occurs prior to December 31 of
any year, you will not be eligible for a Management Incentive Plan
bonus for any subsequent year.
(iii) For the year in which your employment is terminated, you will
receive a pro rata Long Term Incentive Plan bonus based on your
termination date, calculated at the end of the Plan, but no less
than a pro rata portion of your minimum guarantee.
(iv) Deleted
(v) You will continue to be covered for all health, welfare, and
pension benefits, including pension service credit (but excluding
disability coverage) through August 30, 1998.
(vi) Perquisites will continue through the Full Salary Cutoff Date.
(b) For purposes of this Letter Agreement, termination of your employment
by the Company shall be deemed to have been for "cause" only
(i) if such termination shall have been the result of fraud or other
criminal conduct on your part resulting in material adverse impact
upon the Company or any of its affiliates, including impact upon its
reputation, or
- 7 -
<PAGE>
Mr. Michael S. Blum
February 3, 1994
Page 8
(ii) if there has been a material and willful breach on your part of
your responsibilities and/or a willful failure to comply with the
reasonable directives or policies of the Company's Board of
Directors, but in each case, only if you shall have received written
notice from the Company specifying the breach or failure to comply
complained of, demanding that you remedy such breach or failure to
comply and affording you an opportunity to be heard in connection
therewith, and if you either shall have failed to remedy such
alleged breach or failed to comply within 30 days from your receipt
of such written notice or shall have failed to take all reasonable
steps to that end during such 30-day period and thereafter.
7 (c) 1) If your employment is terminated "for cause" as defined in
paragraph 7(b) above, you will immediately be deemed to have forfeited
the right to receive any payment or benefits not paid prior to the date
of such termination (other than accrued and unpaid salary and any prior
year's Management Incentive Plan bonus earned but not yet paid) and
coverage (including, without limitation, future accrual of service
credit) under all pension and other benefit plans and all perquisites
shall cease immediately, subject only to statutory rights to
continuation of health benefits.
- 8 -
<PAGE>
Mr. Michael S. Blum
February 3, 1994
Page 9
7 (c) 2) If you resign for any reason other than that specified in Paragraph
7a2 above, you will immediately be deemed to have forfeited (A) the
right to receive any payment under (1) the Management Incentive Plan
"(this shall not include amounts already credited to the Executive
Deferral Compensation Plan)" and (2) the Long Term Incentive Plan
"(this shall not include amounts already credited to the Executive
Deferred Compensation Plan)" in each case as in effect at the date of
any such resignation, and (B) salary under Paragraph 1 above and
perquisites under Paragraph 5 above for any periods subsequent to the
date of such resignation.
(d) In the event you and the Company do not reach a mutually acceptable
agreement regarding your employment subsequent to December 31, 1996:
(i) you will continue to receive all incentive compensation as provided
for in this Letter Agreement until December 31, 1996, (ii) you will
also receive your full salary at the then current rate until December
31, 1996 or nine months from the date on which the Company notifies you
that it does not intend to extend your employment whichever is later
and, thereafter at the rate of 50% of your then current salary through
August 30, 1998, (iii) you will also receive all health, welfare, and
pension benefits including pension service credit (but excluding
disability coverage) through August 30, 1998; and (iv) you will also
receive all of your perquisites through December 31, 1997. If at any
time while you are receiving payments at the rate of 50% of your salary
under the preceding sentence you are employed full time in a position
with an annual salary equal to or
- 9 -
<PAGE>
Mr. Michael S. Blum
February 3, 1994
Page 10
greater than $100,000, (i) your monthly salary from the Company will
be immediately reduced by the amount of your new monthly salary but in
no event below $1,000 per month through August 30, 1998, and (ii) you
will continue to be covered for all health, welfare, and pension
benefits including pension service credit (but excluding disability
coverage) through August 30, 1998 (subject to reduction/cancellation of
health benefits to the extent you are covered for same by your new
employer.
8. With respect to any dispute regarding the nature of a termination of your
employment or your rights following such a termination, the parties agree
that any such dispute shall be submitted to and determined by arbitration
in accordance with the Commercial Arbitration Rules of the American
Arbitration Association, and the parties agree to be bound by the decision
in any such arbitration proceeding.
9. The terms relating to Heller benefits and incentive plans referred to in
this Letter Agreement may be changed by the Board of Directors or any of
its committees and such changes shall not be deemed to be a breach of this
Letter Agreement, except that no such change shall reduce your health,
welfare and/or pension benefits, unless such changes are applicable to all
the Company's employees nor shall such changes reduce your perquisites,
and/or the minimum amounts of your annual Management Incentive Plan or
Long Term Incentive Plan bonus.
- 10 -
<PAGE>
Mr. Michael S. Blum
February 3, 1994
Page 11
If you are in accord with the foregoing, please so indicate by
countersigning and returning the enclosed copy of this letter.
Very truly yours,
HELLER INTERNATIONAL
CORPORATION
By: Tomohiro Kamio
----------------
Tomohiro Kamio
Agreed:
Michael S. Blum
---------------
Michael S. Blum
- 11 -
<PAGE>
EXHIBIT 10(f)
REVISED LONG-TERM INCENTIVE PLAN
Heller International Corporation
Effective January 1, 1992
_______________________________________________________________________________
I. Eligibility
-----------
Participation in the Long-Term Incentive Plan (the "Plan") is limited to
key executives of the Company as approved by the Chairman and the
Compensation Committee of the Board of Directors. In determining
eligibility, consideration will be given only to those executives who are
in positions whose management decisions directly and significantly impact
the long-term performance and strategic direction of the Company.
II. Plan Term
---------
The term of the Plan shall be three years in length beginning January 1,
1992 and ending December 31, 1994 (the "Term").
III. Company Performance Measures
----------------------------
The criteria for measuring performance of the Company during each year of
the Plan Term shall be Heller Financial, Inc.'s consolidated net income
("operational") after taxes ("Actual Net Income"), as defined in Exhibit
A. Actual Net Income will be compared against Heller Financial, Inc.'s
consolidated target net income ("operational") for each year of the Term,
which shall be the amounts contained in the Mid-Range Forecast set forth
in Exhibit A hereto.
IV. Target Bonus Awards
-------------------
Target bonus awards will vary based on the duties and responsibilities of
the position and competitive bonus survey data. Each participant will be
assigned a target bonus level at the commencement of the Plan (or upon
joining the Plan for participants joining after commencement).
TARGET AS A PERCENT OF ELIGIBLE BASE SALARY
-------------------------------------------
50% of "Base Salary"
35% of "Base Salary"
30% of "Base Salary"
25% of "Base Salary"
"Base Salary" shall mean the participant's gross regular salary paid
during any period, exclusive of any bonus payments, sign-on bonus,
relocation expense reimbursement, or any other extraordinary payments. In
the event a participant moves from one target level to another during the
Term, Base Salary will be
- 1 -
<PAGE>
prorated and calculated for the period during the year before and after
the change, using the different Bonus Targets.
V. Bonus Target Adjustments
------------------------
The percentage of the Bonus Target earned by each participant each year
will be determined by comparing that year's Actual Net Income to the
Target Net Income as follows:
<TABLE>
<CAPTION>
Actual Net Income as a Percentage of
Percentage of Net Income Bonus Target Earned
-------------------------------------------------------------------------
<S> <C>
Below 80% 0%
80% - 120% Equal Percentage
Over 120% 120%
See Exhibit A for target levels for
1992, 1993 and 1994
-------------------------------------------------------------------------
</TABLE>
VI. Bonus Calculation and Payment
-----------------------------
Bonus accrual amounts will be calculated annually after the end of the
calendar year, and amounts accrued during each year will not be affected
by the Company's performance in subsequent years. Subject to the
limitations set forth below under the heading "Termination of Employment",
bonuses will be paid as soon as possible after the end of the Term, but in
no event later than four months after the Term.
VII. Termination of Employment
-------------------------
An individual must be an active employee of the Company and a participant
in the Plan on the last day of the Term in order to receive any payment
under the Plan. Notwithstanding the foregoing, any participant who dies,
becomes disabled, or retires (in accordance with established Company
retirement policies) will be eligible to receive bonus payments to be paid
at the same time as those for active participants, provided that for
calculation purposes the Base Salary used will be the participant's
regular base salary paid through the date of termination of active
employment.
VIII. New Participant
---------------
Individuals who become participants after the commencement of the Term
will be eligible to receive bonus payments, but the Base Salary used will
be that actually earned from the date the individual becomes a participant
through the end of the Term.
IX. Administration of the Plan Policies
-----------------------------------
- 2 -
<PAGE>
The Compensation Committee of the Board of Directors shall have the
authority to approve new participants in the Plan and the establishment of
financial goals for each plan year.
The Plan shall be administered by employees designated by the Chief
Executive Officer of the Company. These designated employees shall have
the authority to establish the terms and conditions under which the awards
become payable to adopt rules and regulations, and make all other
determinations deemed necessary or desirable for the implementation and
administration of the Plan.
Plan Changes
------------
Any changes in the design of the Plan herein described must be approved by
the Chief Executive Officer. The Chief Executive Officer may discontinue
the Plan at any time. Actual Net Income and Target Net Income shall be
subject to adjustment at the sole discretion of the Chief Executive
Officer to take into account the effects of extraordinary events,
including, without limitation, acquisitions and divestitures.
Prior Plans
-----------
This Plan amends, supersedes and replaces all prior issued long-term
incentive plans.
- 3 -
<PAGE>
EXHIBIT 10(j)
AGREEMENT FOR THE ALLOCATION OF FEDERAL, STATE
AND FOREIGN INCOME TAX LIABILITY AND BENEFITS AMONG
HELLER INTERNATIONAL CORPORATION AND ITS SUBSIDIARIES
-----------------------------------------------------
This Agreement, effective as of January 1, 1993, is made by and between Heller
International Corporation and its affiliates ("HIC Group"). Each affiliate and
its member designation is set forth in Exhibit I.
1. GENERAL PURPOSE
---------------
Each of the Members agrees that it shall adhere to the following policy with
respect to the annual allocation of the consolidated U.S. federal income,
aggregate state income and foreign tax provisions or refunds of the Group, and
in the calculation of deferred income tax liability or assets under Statement of
Financial Accounting Standards ("SFAS") No. 109 (Accounting for Income Taxes).
2. CALCULATION OF TAX
------------------
I. HIC GROUP
The HIC Group is comprised of two Members: the HFI Member and the Non-HFI
Member. For the HIC Group, the total current and deferred tax provision and/or
benefit is equal to the sum of the total current and deferred tax provision
and/or benefit based on the filing of the following federal and state income tax
returns and foreign tax provision:
A. Heller International Corporation and Consolidated Subsidiaries tax
return; and
B. Heller International Group, Inc. and Consolidated Subsidiaries tax
return.
II. HFI MEMBER
The total current and deferred tax provision and/or benefit of the HFI Member is
equal to the sum of the total current and deferred tax provision and/or benefit
of -
A. Heller Financial, Inc. and its 100%-owned subsidiaries ("HFI
Component"); and
B. Heller International Group, Inc. and its consolidated subsidiaries ("HIG
Component").
III. NON-HFI MEMBER
The total current and deferred tax provision and/or benefit of the Non-HFI
Member is equal to the total current and deferred tax provision and/or benefit
of the HIC Group less the total current and deferred tax provision and/or
benefit of the HFI Member.
3. CURRENT TAX PROVISION OF HFI MEMBER
-----------------------------------
I. HFI COMPONENT
- 1 -
<PAGE>
A. The HFI Component will determine its U.S. federal income tax provision
for regular or alternative minimum tax ("AMT") or refunds for any period
for which tax is computed as if it had filed a SEPARATE consolidated
U.S. federal income tax return.
B. The HFI Component will determine the aggregate state income tax
provision for regular or AMT or refunds for any period for which tax is
computed as if HFI and its 100%-owned subsidiaries and HIG and its
consolidated subsidiaries had filed SEPARATE single entity state
returns, combined state returns or consolidated state returns (depending
on the states' applicable laws)./1/
C. The foreign tax provision will be attributed to the HFI Component if it
bears the tax liability and any refund shall be attributed to the HFI
Component if it had originally been attributed the foreign tax provision
being refunded.
II. HIG COMPONENT
A. The HIG Component will determine its U.S. federal income tax provision
for regular or alternative minimum tax ("AMT") or refunds for any period
for which tax is computed based on its own separate consolidated U.S.
federal tax return.
B. The foreign tax provision will be attributed to the HIG Component if it
bears the tax liability and any refund shall be attributed to the HIG
Component if it had originally been attributed the foreign tax provision
being refunded.
4. DEFERRED TAX PROVISION OR BENEFIT OF HFI MEMBER
-----------------------------------------------
The deferred tax provision and benefit shall be computed in accordance with SFAS
No. 109 and allocated in the same manner as the current tax provision; that is,
the HIC Group's consolidated deferred tax provision or benefit for regular tax
or AMT shall be allocated to the HFI Member as follows:
A. HFI Component -
1. As if the HFI Component had filed a consolidated U.S. federal return
on a SEPARATE basis; and
2. As if the HFI and its 100%-owned subsidiaries and HIG and its
consolidated subsidiaries had filed SEPARATE single entity state
returns, combined state reports or consolidated state returns
(depending on the states' applicable laws).
B. HIG Component -
- ------------
/1/ Since the HIG Component files state tax returns only as a part of
the HFI Component, any state tax provision will be included in the
calculation of the HFI Component's state income tax provision.
- 2 -
<PAGE>
1. Based on its own separate consolidated U.S. federal tax return.
5. ALLOCATION OF ADDITIONAL CURRENT TAX PROVISION
----------------------------------------------
If an additional HIC Group current tax provision is required due to a tax
assessment by the Internal Revenue Service or state departments of revenue, or
due to the filing of an amended return, such additional current provision shall
be allocated to the Members of the Group on the same basis as the current tax
provision is allocated.
6. PAYMENT OF CURRENT TAX PROVISION TO PARENT
------------------------------------------
On or about the last day of each calendar quarter, the HFI Component will pay a
prorated estimate of its current year tax liability (provision), if any, to its
parent (Heller International Corporation). If the total estimated current year
tax liability differs from the HFI Component's final tax liability (as
determined from the federal and state tax returns for Heller International
Corporation and Consolidated Subsidiaries filed in the subsequent year), then,
as appropriate, Heller International Corporation shall refund any overpayment to
the HFI Component or the HFI Component shall pay to Heller International
Corporation any deficiency.
7. INTRA-MEMBER ALLOCATION OF CURRENT & DEFERRED TAX PROVISION OR BENEFITS
-----------------------------------------------------------------------
The intra-Member allocation of current and deferred federal, state and foreign
income tax provisions and benefits among the corporations and subsidiaries will
be consistent with the methodology described in Section 3 of this Agreement.
This Agreement between the parties amends and supersedes the prior Agreement
dated as of January 1, 1992 on the subject matter hereof and is effective for
tax years beginning on and after January 1, 1993.
HELLER FINANCIAL, INC.
By: Deborah Samz
-------------------
Title: Assistant Secretary
-------------------
HELLER INTERNATIONAL GROUP, INC.
By: Deborah Samz
-------------------
Title: Assistant Secretary
-------------------
HELLER INTERNATIONAL CORPORATION
By: Deborah Samz
-------------------
Title: Assistant Secretary
-------------------
WALTER E. HELLER & COMPANY
By: Robert J. Kelderhouse
---------------------
Title: Treasurer
---------------------
- 3 -
<PAGE>
HELLER REAL ESTATE, INC.
By: Robert J. Kelderhouse
---------------------
Title: Treasurer
---------------------
HELLER REAL ESTATE LOAN, INC.
By: Robert J. Kelderhouse
---------------------
Title: Treasurer
---------------------
HELLER REAL ESTATE PROPERTY, INC.
By: Robert J. Kelderhouse
---------------------
Title: Treasurer
---------------------
HELLER ADVISORY CORPORATION
By: Robert E. Williams
------------------
Title: Treasurer
--------------
HELLER INVESTMENT CORPORATION
By: Deborah Samz
-------------------
Title: Assistant Secretary
-------------------
HELLER DELAWARE HOLDINGS, INC.
By: Robert J. Kelderhouse
---------------------
Title: Assistant Treasurer
---------------------
- 4 -
<PAGE>
AGREEMENT FOR THE ALLOCATION OF FEDERAL AND
STATE INCOME TAX LIABILITY AND BENEFIT AMONG THE
MEMBERS OF THE HELLER INTERNATIONAL CORPORATION
AFFILIATED (AT LEAST 80% OWNED) GROUP
--------------------------------------
EXHIBIT I
MEMBERS OF THE GROUP
--------------------
The term "Members" as used in this Agreement is defined as follows:
1. Heller Financial, Inc. and subsidiaries Member ("HFI Member") which is
comprised of -
a. Heller Financial, Inc. and its 100%-owned subsidiaries ("HFI
Component"); and
b. Heller International Group, Inc. and its subsidiaries ("HIG
Component");
2. All other non-HFI Member corporations (collectively referred to as the
"Non-HFI Member") which are comprised of the following:
a. Heller International Corporation;
b. Walter E. Heller & Company and its Subsidiaries;
c. Heller Real Estate, Inc. and its Subsidiaries;
d. Heller Real Estate Loan, Inc. and its Subsidiaries;
e. Heller Real Estate Property, Inc.;
f. Heller Advisory Corporation;
g. Heller Investment Corporation; and
h. Heller Delaware Holdings, Inc.
- 5 -
<PAGE>
EXHIBIT 10(l)
Summary of Special Incentive Arrangement
A Special Incentive Arrangement ("SIA") was established for Mitchell Vernick but
has not been set forth in a formal plan document. Under the SIA, Mr. Vernick is
eligible to receive the following incentive payments, one payment of $75,000 in
1992, two payments of $25,000 each in 1993, and one payment of $50,000 in each
of 1994 and 1995. The payout of each incentive payment is contingent upon (i)
the achievement of a specified target as to future value or earnings before
interest and taxes, for a designated investment or business unit and (ii) Mr.
Vernick remaining an employee of the Company until the payment is earned. The
SIA is subject to termination at any time by the Chairman of the Company.
<PAGE>
EXHIBIT 10(m)
EXHIBIT B
---------
RATE SWAP AGREEMENT
This Agreement, dated as of January 13, 1994 between Heller International
Corporation and Heller Financial, Inc., amends the Interest Rate Swap Agreement,
dated as of July 29, 1985, entered into between said parties (the "Master
Agreement"), to add the following Rate Swap Agreement, as Exhibit B, to the
Master Agreement.
NOW THEREFORE, in consideration of the mutual covenants and agreements
contained or incorporated by reference in this Rate Swap Agreement, the parties
agree as follows:
1. This Agreement is a "Rate Swap Agreement", as referred to in the Master
Agreement and is subject to the terms and provisions of the Master Agreement.
All terms and provisions contained or incorporated by reference in the Master
Agreement are incorporated by reference herein in their entirety, except as
expressly modified in this Agreement, and as so modified, are deemed to be a
part of this Rate Swap Agreement as fully as if set forth in full in this
Agreement.
2. Notwithstanding anything to the contrary in the terms of the Master
Agreement, the definitions and provisions contained in the 1991 ISDA
Definitions (as published by the International Swap Dealers Association,
Inc.) are incorporated into this Rate Swap Agreement. In the event of any
inconsistency between those definitions and provisions and this Rate Swap
Agreement, the terms of this Rate Swap Agreement will govern.
3. The terms of this particular Rate Swap Transaction are as follows:
Notional Principal: $200,000,000.00
Trade Date: January 13, 1994
Effective Date: January 13, 1994
Termination Date: December 15, 2000
Fixed Rate Payer: Heller International Corporation (Counterparty)
Fixed Rate: 5.57%
Fixed Rate Day
Count Fraction: Actual/365
- 1 -
<PAGE>
Fixed Rate Payer
Payment Dates: The 15th Day of each June and December commencing
on June 15, 1994, to and including the Termination
Date, subject to adjustment in accordance with the
Modified Following Business Day Convention.
Floating Rate Payer: Heller Financial, Inc.
Floating Rate Option: USD-CP-H.15
Designated Maturity: One Month
Floating Rate Spread: None
Reset Dates: Each Business Day
Method of Averaging: Unweighted Average Rate
Compounding: Applicable
Compounding Dates: Monthly, the 15th Day of each month commencing on
February 15, 1994 subject to adjustment in
accordance with Modified Following Business Day
Convention
Floating Rate Day
Count Fraction: Actual/360
Floating Rate Payor
Payment Dates: The 15th Day of each June and December commencing
on June 15, 1994, to and including the Termination
Date, subject to adjustment in accordance with the
Modified Following Business Day Convention.
4. Any notice or communication under this Agreement is to be addressed as
follows: if to Counterparty to: Heller International Corporation, Attention
Mr. Soichi Hosoi, at 500 West Monroe Street, Chicago, IL. 60661 and if to
Heller Financial, Inc. to: Heller Financial, Inc., Attention Treasurer, at
500 West Monroe Street, Chicago, IL. 60661, or at such other address as
either party may notify the other in writing.
- 2 -
<PAGE>
5. Each party agrees to make payments to the other in accordance with the
provisions set forth or incorporated by reference in this Rate Swap
Agreement.
6. This Agreement constitutes the entire agreement and understanding of the
parties on the subject matter hereof, and, as of the date hereof, supercedes
any and all prior understandings on the subject matter hereof.
IN WITNESS WHEREOF, the parties have executed this Rate Swap Agreement as of the
date first written above.
Heller Financial, Inc.
By: Ronald C. Mishler
-----------------
Name: Ronald C. Mishler
Title: Vice President and Assistant Treasurer
Accepted and confirmed
Heller International Corporation, as Counterparty
By: Tetsuya Fukabori
----------------
Name: Tetsuya Fukabori
Title: Senior Vice President
- 3 -
<PAGE>
EXHIBIT (12)
HELLER FINANCIAL, INC.
COMPUTATION OF RATIO OF EARNINGS
TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
<TABLE>
<CAPTION>
1993 1992 1991 1990 1989
--------- --------- -------- --------- ---------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net income before income taxes
and minority interest in
income of Heller
International Group, Inc..... $ 132,669 $ 45,550 $ 69,614 $ 103,581 $ 138,080
--------- --------- -------- --------- ---------
Add-Fixed charges
Interest and debt expense... 263,563 295,489 405,519 488,226 469,611
One-third of rentals........ 5,116 4,034 4,727 4,735 5,481
--------- --------- -------- --------- ---------
Total fixed charges..... 268,679 299,523 410,246 492,961 475,092
--------- --------- -------- --------- ---------
Net income as adjusted........ $ 401,348 $ 345,073 $479,860 $ 596,542 $ 613,172
--------- --------- -------- --------- ---------
Ratio of earnings to fixed
charges...................... 1.49 1.15 1.17 1.21 1.29
========= ========= ======== ========= =========
Preferred stock dividends on a
pre-tax basis................ 12,588 2,964 6,711 25,679 28,457
Total combined fixed
charges and preferred
stock dividends........ $ 281,267 $ 302,487 $416,957 $ 518,640 $ 503,549
--------- --------- -------- --------- ---------
Ratio of earnings to combined
fixed charges and preferred
stock dividends.............. 1.43 1.14 1.15 1.15 1.22
========= ========= ======== ========= =========
</TABLE>
For purposes of computing the ratio of earnings to combined fixed charges and
preferred stock dividends, "earnings" includes income before income taxes and
fixed charges. "Combined fixed charges and preferred stock dividends" includes
interest on all indebtedness, one third of annual rentals (approximate portion
representing interest) and preferred stock dividends on a pre-tax basis. If the
Company included the amount of dividends declared and paid on its Cumulative
Convertible Preferred Stock, Series D on June 30, 1989, cumulative from March
30, 1984 through December 31, 1988 in the above computation, the ratio of
earnings to combined fixed charges and preferred stock dividends would have
been 1.15.
<PAGE>
EXHIBIT (21)
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
JURISDICTION IN
SUBSIDIARY WHICH INCORPORATED
---------- ------------------
<S> <C>
Heller International Group, Inc........................ Delaware
Heller International Holdings, Inc..................... Delaware
</TABLE>
The names of other subsidiaries of the Company are omitted because such
unnamed subsidiaries, considered in the aggregate as a single subsidiary, would
not constitute a significant subsidiary.
<PAGE>
EXHIBIT (23)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Heller Financial, Inc.:
As independent public accountants, we hereby consent to the incorporation of
our report dated January 21, 1994, included in this Form 10-K at page 21, into
each Prospectus constituting a part of the Company's previously filed
Registration Statement on Form S-3 No. 33-58716.
ARTHUR ANDERSEN & CO.
Chicago, Illinois
February 7, 1994
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
The undersigned director of HELLER FINANCIAL, INC., a Delaware corporation
(the "Company"), hereby constitutes and appoints JAMES B. CURRIE and ROBERT S.
KIRBY, and each or either of them (with full power to act alone), his true and
lawful attorney-in-fact and agent in the name and on behalf of the undersigned,
to sign the name of the undersigned to the Company's Annual Report on Form 10-K
for the year ended December 31, 1993, to be filed with the Securities and
Exchange Commission pursuant to the Securities Exchange Act of 1934, as amended,
and to any and all amendments thereto or to any other instrument or document
filed as a part of or in connection with such Annual Report on Form 10-K or any
amendment thereto.
Dated: February 4, 1994
Tomohiro Kamio
--------------
Tomohiro Kamio
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
The undersigned director of HELLER FINANCIAL, INC., a Delaware corporation
(the "Company"), hereby constitutes and appoints JAMES B. CURRIE and ROBERT S.
KIRBY, and each or either of them (with full power to act alone), his true and
lawful attorney-in-fact and agent in the name and on behalf of the undersigned,
to sign the name of the undersigned to the Company's Annual Report on Form 10-K
for the year ended December 31, 1993, to be filed with the Securities and
Exchange Commission pursuant to the Securities Exchange Act of 1934, as amended,
and to any and all amendments thereto or to any other instrument or document
filed as a part of or in connection with such Annual Report on Form 10-K or any
amendment thereto.
Dated: February 2, 1994
Tetsuya Fukabori
----------------
Tetsuya Fukabori
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
The undersigned director of HELLER FINANCIAL, INC., a Delaware corporation
(the "Company"), hereby constitutes and appoints JAMES B. CURRIE and ROBERT S.
KIRBY, and each or either of them (with full power to act alone), his true and
lawful attorney-in-fact and agent in the name and on behalf of the undersigned,
to sign the name of the undersigned to the Company's Annual Report on Form 10-K
for the year ended December 31, 1993, to be filed with the Securities and
Exchange Commission pursuant to the Securities Exchange Act of 1934, as amended,
and to any and all amendments thereto or to any other instrument or document
filed as a part of or in connection with such Annual Report on Form 10-K or any
amendment thereto.
Dated: February 4, 1994
Hidetsune Iseki
---------------
Hidetsune Iseki
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
The undersigned director of HELLER FINANCIAL, INC., a Delaware corporation
(the "Company"), hereby constitutes and appoints JAMES B. CURRIE and ROBERT S.
KIRBY, and each or either of them (with full power to act alone), his true and
lawful attorney-in-fact and agent in the name and on behalf of the undersigned,
to sign the name of the undersigned to the Company's Annual Report on Form 10-K
for the year ended December 31, 1993, to be filed with the Securities and
Exchange Commission pursuant to the Securities Exchange Act of 1934, as amended,
and to any and all amendments thereto or to any other instrument or document
filed as a part of or in connection with such Annual Report on Form 10-K or any
amendment thereto.
Dated: February 1, 1994
Hirokazu Ishikawa
-----------------
Hirokazu Ishikawa
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
The undersigned director of HELLER FINANCIAL, INC., a Delaware corporation
(the "Company"), hereby constitutes and appoints JAMES B. CURRIE and ROBERT S.
KIRBY, and each or either of them (with full power to act alone), his true and
lawful attorney-in-fact and agent in the name and on behalf of the undersigned,
to sign the name of the undersigned to the Company's Annual Report on Form 10-K
for the year ended December 31, 1993, to be filed with the Securities and
Exchange Commission pursuant to the Securities Exchange Act of 1934, as amended,
and to any and all amendments thereto or to any other instrument or document
filed as a part of or in connection with such Annual Report on Form 10-K or any
amendment thereto.
Dated: February 4, 1994
Tatsuo Iwasaki
--------------
Tatsuo Iwasaki
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
The undersigned director of HELLER FINANCIAL, INC., a Delaware corporation
(the "Company"), hereby constitutes and appoints JAMES B. CURRIE and ROBERT S.
KIRBY, and each or either of them (with full power to act alone), his true and
lawful attorney-in-fact and agent in the name and on behalf of the undersigned,
to sign the name of the undersigned to the Company's Annual Report on Form 10-K
for the year ended December 31, 1993, to be filed with the Securities and
Exchange Commission pursuant to the Securities Exchange Act of 1934, as amended,
and to any and all amendments thereto or to any other instrument or document
filed as a part of or in connection with such Annual Report on Form 10-K or any
amendment thereto.
Dated: February 4, 1994
Minoru Itosaka
--------------
Minoru Itosaka
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
The undersigned director of HELLER FINANCIAL, INC., a Delaware corporation
(the "Company"), hereby constitutes and appoints JAMES B. CURRIE and ROBERT S.
KIRBY, and each or either of them (with full power to act alone), his true and
lawful attorney-in-fact and agent in the name and on behalf of the undersigned,
to sign the name of the undersigned to the Company's Annual Report on Form 10-K
for the year ended December 31, 1993, to be filed with the Securities and
Exchange Commission pursuant to the Securities Exchange Act of 1934, as amended,
and to any and all amendments thereto or to any other instrument or document
filed as a part of or in connection with such Annual Report on Form 10-K or any
amendment thereto.
Dated: February 7, 1994
Mark Kessel
-----------
Mark Kessel
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
The undersigned director of HELLER FINANCIAL, INC., a Delaware corporation
(the "Company"), hereby constitutes and appoints JAMES B. CURRIE and ROBERT S.
KIRBY, and each or either of them (with full power to act alone), his true and
lawful attorney-in-fact and agent in the name and on behalf of the undersigned,
to sign the name of the undersigned to the Company's Annual Report on Form 10-K
for the year ended December 31, 1993, to be filed with the Securities and
Exchange Commission pursuant to the Securities Exchange Act of 1934, as amended,
and to any and all amendments thereto or to any other instrument or document
filed as a part of or in connection with such Annual Report on Form 10-K or any
amendment thereto.
Dated: February 2, 1994
Osamu Kita
----------
Osamu Kita
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
The undersigned director of HELLER FINANCIAL, INC., a Delaware corporation
(the "Company"), hereby constitutes and appoints JAMES B. CURRIE and ROBERT S.
KIRBY, and each or either of them (with full power to act alone), his true and
lawful attorney-in-fact and agent in the name and on behalf of the undersigned,
to sign the name of the undersigned to the Company's Annual Report on Form 10-K
for the year ended December 31, 1993, to be filed with the Securities and
Exchange Commission pursuant to the Securities Exchange Act of 1934, as amended,
and to any and all amendments thereto or to any other instrument or document
filed as a part of or in connection with such Annual Report on Form 10-K or any
amendment thereto.
Dated: February 4, 1994
Michael J. Litwin
-----------------
Michael J. Litwin
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
The undersigned director of HELLER FINANCIAL, INC., a Delaware corporation
(the "Company"), hereby constitutes and appoints JAMES B. CURRIE and ROBERT S.
KIRBY, and each or either of them (with full power to act alone), his true and
lawful attorney-in-fact and agent in the name and on behalf of the undersigned,
to sign the name of the undersigned to the Company's Annual Report on Form 10-K
for the year ended December 31, 1993, to be filed with the Securities and
Exchange Commission pursuant to the Securities Exchange Act of 1934, as amended,
and to any and all amendments thereto or to any other instrument or document
filed as a part of or in connection with such Annual Report on Form 10-K or any
amendment thereto.
Dated: February 4, 1994
Dennis P. Lockhart
------------------
Dennis P. Lockhart
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
The undersigned director of HELLER FINANCIAL, INC., a Delaware corporation
(the "Company"), hereby constitutes and appoints JAMES B. CURRIE and ROBERT S.
KIRBY, and each or either of them (with full power to act alone), his true and
lawful attorney-in-fact and agent in the name and on behalf of the undersigned,
to sign the name of the undersigned to the Company's Annual Report on Form 10-K
for the year ended December 31, 1993, to be filed with the Securities and
Exchange Commission pursuant to the Securities Exchange Act of 1934, as amended,
and to any and all amendments thereto or to any other instrument or document
filed as a part of or in connection with such Annual Report on Form 10-K or any
amendment thereto.
Dated: February 2, 1994
Atsushi Takano
--------------
Atsushi Takano
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
The undersigned director of HELLER FINANCIAL, INC., a Delaware corporation
(the "Company"), hereby constitutes and appoints JAMES B. CURRIE and ROBERT S.
KIRBY, and each or either of them (with full power to act alone), his true and
lawful attorney-in-fact and agent in the name and on behalf of the undersigned,
to sign the name of the undersigned to the Company's Annual Report on Form 10-K
for the year ended December 31, 1993, to be filed with the Securities and
Exchange Commission pursuant to the Securities Exchange Act of 1934, as amended,
and to any and all amendments thereto or to any other instrument or document
filed as a part of or in connection with such Annual Report on Form 10-K or any
amendment thereto.
Dated: February 2, 1994
Mitchell F. Vernick
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Mitchell F. Vernick
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
The undersigned director of HELLER FINANCIAL, INC., a Delaware corporation
(the "Company"), hereby constitutes and appoints JAMES B. CURRIE and ROBERT S.
KIRBY, and each or either of them (with full power to act alone), his true and
lawful attorney-in-fact and agent in the name and on behalf of the undersigned,
to sign the name of the undersigned to the Company's Annual Report on Form 10-K
for the year ended December 31, 1993, to be filed with the Securities and
Exchange Commission pursuant to the Securities Exchange Act of 1934, as amended,
and to any and all amendments thereto or to any other instrument or document
filed as a part of or in connection with such Annual Report on Form 10-K or any
amendment thereto.
Dated: February 4, 1994
Masashi Yamamoto
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Masashi Yamamoto
