<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT FOR THE PERIOD ENDED JUNE 30, 1995 PURSUANT TO SECTION 13
OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 1-6157
HELLER FINANCIAL, INC.
----------------------
(Exact name of registrant as specified in its charter)
Delaware 36-1208070
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
500 W. Monroe Street, Chicago, Illinois 60661
--------------------------------------- -----
(Address of principal executive offices) (Zip Code)
(312) 441-7000
--------------
(Registrant's telephone number, including area code)
None
----
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
100 shares of Common Stock, $.25 par value, outstanding at August 3, 1995.
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<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HELLER FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(in millions, except for information on shares)
<TABLE>
<CAPTION>
ASSETS June 30, December 31,
1995 1994
----------- ------------
(unaudited)
<S> <C> <C>
Cash and cash equivalents........................... $ 89 $ 99
Receivables (Note 2)
Commercial loans
Term loans........................................ 2,776 2,786
Revolving loans................................... 1,538 1,071
Real estate loans................................... 1,979 2,031
Equipment loans and leases.......................... 1,052 943
Factored accounts receivable........................ 792 785
------ ------
Total receivables.............................. 8,137 7,616
Less: Allowance for losses of receivables (Note 2).. 241 231
------ ------
Net receivables................................ 7,896 7,385
Investments......................................... 653 634
Investments in international joint ventures......... 221 174
Other assets........................................ 218 184
------ ------
$9,077 $8,476
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Senior debt
Commercial paper and short-term borrowings........ $2,726 $2,451
Notes and debentures (Note 3)..................... 4,247 3,930
------ ------
Total debt.................................... 6,973 6,381
Credit balances of factoring clients............... 443 452
Other payables and accruals........................ 245 274
------ ------
Total liabilities............................. 7,661 7,107
Minority interest in equity of Heller International
Group, Inc.................................... 44 39
Stockholders' equity
Cumulative Perpetual Senior Preferred Stock,
Series A ($.01 Par Value; stated value, $25;
8.125%; 5,000,000 shares authorized and
outstanding)..................................... 125 125
Cumulative Convertible Preferred Stock, Series D
(No Par Value; 1/2% under prime; 1,000 shares
authorized and outstanding)...................... 25 25
Common Stock ($.25 Par Value; 1,000 shares
authorized;100 shares outstanding) and additional
paid-in capital.................................. 663 663
Retained earnings................................. 559 517
------ ------
Total stockholders' equity..................... 1,372 1,330
------ ------
$9,077 $8,476
====== ======
</TABLE>
The accompanying Notes to Consolidated Condensed Financial Statements
are an integral part of these statements.
2
<PAGE>
HELLER FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(in millions)
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
-------------------- ------------------
1995 1994 1995 1994
--------- --------- -------- --------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Interest income.................................................. $ 214 $ 170 $ 420 $ 321
Interest expense................................................. 119 80 231 149
----- ----- ----- -----
Net interest income............................................ 95 90 189 172
Fees and other income............................................ 28 30 72 83
Income of international joint ventures........................... 9 5 17 10
----- ----- ----- -----
Operating revenues............................................. 132 125 278 265
Operating expenses............................................... 52 46 102 90
Provision for losses............................................. 28 40 78 90
----- ----- ----- -----
Income before taxes and minority interest in income of
Heller International Group, Inc................................ 52 39 98 85
Income tax provision............................................. 16 3 31 20
Minority interest in income of Heller International Group, Inc... 2 1 3 2
----- ----- ----- -----
Net income....................................................... $ 34 $ 35 $ 64 $ 63
===== ===== ===== =====
</TABLE>
CONSOLIDATED CONDENSED STATEMENTS OF
CHANGES IN RETAINED EARNINGS
(in millions)
<TABLE>
<CAPTION>
For the Six Months
Ended June 30,
--------------------
1995 1994
--------- ---------
(unaudited)
<S> <C> <C>
Retained earnings at the beginning of the periods..................... $ 517 $ 440
Net income......................................................... 64 63
Common stock dividends............................................. (22) --
Preferred stock dividends.......................................... (6) (6)
Changes in unrealized net gains on securities available for sale,
net of tax........................................................ -- (4)
Deferred translation adjustment, net of tax........................ 6 (5)
----- -----
Retained earnings at June 30, 1995 and 1994........................... $ 559 $ 488
===== =====
</TABLE>
The retained earnings balance includes deferred translation adjustments of
$(11) and $(17) and unrealized net gains on securities available for sale of
$5 and $5 at June 30, 1995 and 1994, respectively.
The accompanying Notes to Consolidated Condensed Financial Statements
are an integral part of these statements.
3
<PAGE>
HELLER FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(in millions)
<TABLE>
<CAPTION>
For the Six Months Ended June 30,
-----------------------------------
1995 1994
-------- --------
(unaudited)
<S> <C> <C>
OPERATING ACTIVITIES
Net income........................................................ $ 64 $ 63
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for losses............................................. 78 90
Loans originated for resale...................................... (39) (41)
Net proceeds from sales of loans originated for resale........... 30 22
(Increase) decrease in net deferred tax asset.................... (15) 16
(Decrease) increase in accounts payable and accrued liabilities.. (24) 4
Undistributed income of international joint ventures............. (12) (7)
Increase in interest payable..................................... -- 1
Other............................................................ 28 11
------- -------
Net cash provided by operating activities...................... 110 159
INVESTING ACTIVITIES
Longer-term loans funded.......................................... (1,415) (1,392)
Collections of principal.......................................... 1,037 949
Sales of longer-term loans........................................ 233 164
Net increase in short-term loans and
advances to factoring clients.................................... (490) (311)
Investment in equity interests, equipment on lease,
and other investments............................................ (85) (72)
Sales of investments and equipment on lease....................... 50 36
Other............................................................. (31) (1)
------- -------
Net cash used for investing activities......................... (701) (627)
FINANCING ACTIVITIES
Senior note issues................................................ 489 573
Retirement of notes and debentures................................ (171) (488)
Increase in commercial paper and other short-term borrowings...... 275 263
Net decrease (increase) in advances to affiliates................. 16 (8)
Dividends paid on common and preferred stock...................... (28) (6)
------- -------
Net cash provided by financing activities...................... 581 334
------- -------
Decrease in cash and cash equivalents............................. (10) (134)
Cash and cash equivalents at the beginning of the period.......... 99 170
------- -------
Cash and cash equivalents at the end of the period................ $ 89 $ 36
======= =======
</TABLE>
The accompanying Notes to Consolidated Condensed Financial Statements
are an integral part of these statements.
4
<PAGE>
HELLER FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)
(1) Basis of Presentation
These consolidated condensed financial statements should be read with the
financial statements and notes included in the annual report on Form 10-K of
Heller Financial, Inc. (the "Company") for the year ended December 31, 1994. In
the opinion of management, all adjustments considered necessary for a fair
presentation have been included in these financial statements and were of a
normal, recurring nature.
(2) Impaired Receivables and Repossessed Assets
The Company does not recognize interest and fee income on impaired receivables
classified as nonearning and on repossessed assets, which are set forth in the
following table:
<TABLE>
<CAPTION>
June 30, December 31,
1995 1994
-------- --------
(in millions)
<S> <C> <C>
Impaired receivables............................... $ 319 $ 284
Repossessed assets................................. 55 19
----- -----
Total nonearning assets........................... $ 374 $ 303
===== =====
Ratio of total nonearning assets to total
lending assets.................................... 4.6% 4.0%
===== =====
</TABLE>
The average investment in impaired receivables was $303 million for the six
months ended June 30, 1995.
Effective January 1, 1995, the Company adopted the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 114, "Accounting by Creditors for
Impairment of a Loan" and the related disclosure requirements of SFAS No. 118,
"Accounting by Creditors for Impairment of a Loan -- Income Recognition and
Disclosure." These pronouncements require that impaired receivables be measured
based on the present value of expected future cash flows discounted at the
receivable's effective interest rate. Impairment may also be measured based on
the receivable's observable market price or the fair value of the collateral if
the receivable is collateral dependent. When the recorded balance of an impaired
receivable exceeds the relevant measure of value, impairment is recorded through
an increase in the provision for the allowance for losses of receivables.
The Company had previously measured receivable impairment using methods
consistent with those prescribed in SFAS No. 114. Accordingly, upon adoption of
these statements, there was no effect to total nonearning assets nor to the
total allowance for losses as previously reported at December 31, 1994.
SFAS No. 114 also requires changes in the presentation and disclosure of
certain impaired receivables. Receivables that were considered in-substance
repossessions of collateral are now presented as impaired receivables until the
underlying collateral is physically possessed or legally foreclosed. Upon
adoption, this requirement was retroactively applied resulting in the
reclassification of $31 million of in-substance repossessed assets to impaired
receivables and $4 million of related valuation allowance to the allowance for
losses of receivables at December 31, 1994.
5
<PAGE>
Loan Modifications --
The Company had $25 million and $54 million of loans that are considered
troubled debt restructures at June 30, 1995 and December 31, 1994, respectively.
The Company also had $30 million of receivables at June 30, 1995 that were
renegotiated at a market rate of interest and written down from the original
loan balance. The recorded investment of these receivables is expected to be
fully recoverable. Interest income of approximately $1 million has been recorded
on these receivables under the modified terms, along with cash interest
collections of the same amount. At June 30, 1995, the Company was not committed
to lend significant additional funds under the renegotiated agreements.
Allowance for Losses --
The change in the allowance for losses of receivables during the six month
period included an additional provision of $75 million and net writedowns of $65
million. Impaired receivables with identified reserve requirements were $256
million at June 30, 1995 and $195 million at December 31, 1994.
<TABLE>
<CAPTION>
June 30, December 31,
1995 1994
--------- -------------
(in millions)
<S> <C> <C>
Identified reserve requirement for impaired receivables.. $ 85 $ 66
Additional allowance for losses of receivables........... 156 165
----- -----
Total allowance for losses of receivables............. $ 241 $ 231
===== =====
Ratio of allowance for losses of receivables to
total nonearning impaired receivables................. 76% 81%
===== =====
Valuation allowance for repossessed assets............... $ 5 $ 6
===== =====
</TABLE>
(3) Notes and Debentures
The Company issued and retired the following notes and debentures during the
first six months of 1995 (excluding unamortized premium and discount):
<TABLE>
<CAPTION>
Principal
Amount
-------------
(in millions)
Senior Debt - Notes and Debentures
<S> <C>
Issuances:
Variable rate series F medium-term notes due on various dates ranging from
March 28, 1997 to March 29, 2000........................................... $228
7% notes due May 15, 2002................................................... 150
4 1/2% Eurobonds denominated in Japanese yen due June 16, 2000.............. 100
7.27% medium-term notes due May 30, 2002.................................... 11
----
$489
====
Retirements:
Variable rate series E medium-term notes due on various dates ranging from
May 5, 1995 to June 2, 1995............................................... $ 86
9.1% medium-term notes due on various dates ranging
from February 6, 1995 to February 16, 1995................................. 60
6.70%-6.77% medium-term notes due on May 22, 1995 and May 23, 1995.......... 15
6.45% notes due February 15, 1995........................................... 10
----
$171
====
</TABLE>
6
<PAGE>
The Company entered into several derivative instruments during the first six
months of 1995 to more closely match the interest rate and currency
characteristics of its debt and assets. These instruments include $950 million
of basis swaps which had the effect of changing the index on an equivalent
amount of medium-term notes from the three month London Inter-bank Offered Rate
("LIBOR") to a rate based on Prime and cross currency interest rate swap
agreements to convert the 4 1/2% Eurobonds denominated in Japanese yen to $100
million with interest based on six month LIBOR. The Company also entered into
various other swap agreements which had the effect of converting $93 million of
variable rate medium-term notes based on various floating rate indices to rates
based on three month LIBOR and $11 million of 7.27% medium-term notes to a
variable rate based on six month LIBOR. The terms of these swap agreements
generally coincide with the life of the related debt issuance. The $950 million
of basis rate swaps will expire at the end of 1995.
In April, the Company replaced its existing bank credit facilities with a new
agreement that provides $2.2 billion of liquidity support at more favorable
terms to the Company. The terms of these facilities primarily include reduced
pricing, an increase in the term for $1.1 billion of the facilities to five
years, required stockholders' equity of $900 million, and the elimination of any
funding covenant based on possible material adverse change in the financial
condition of the Company.
(4) Related Parties
On May 3, 1995 the Company and Fuji Bank agreed to extend the term of the
Keep Well Agreement for an additional two years from December 31, 2000 to
December 31, 2002.
(5) Statement of Cash Flows
Noncash investing activities which occurred during the six month period ended
June 30, 1995 include a $41 million receivable which was classified as a
repossessed asset and $31 million of in-substance repossessed assets which were
classified as impaired receivables in accordance with SFAS No. 114. During the
comparable 1994 period, $117 million of positions in two repossessed companies
were converted to equity investments. In addition, $32 million of receivables
were classified as repossessed assets and $15 million of repossessed assets were
resolved and returned to receivables. Income taxes of $46 million and $5 million
were paid during the first six months of 1995 and 1994, respectively, of which
$44 million and $4 million were paid to the Parent under the tax allocation
agreement.
(6) Reclassifications
Certain reclassifications have been performed on prior year numbers in order
to conform to the current year's presentation.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
RESULTS OF OPERATIONS For the Three Months Ended For the Six Months Ended
June 30, June 30,
--------------------------- --------------------------
Percent Percent
1995 1994 Change 1995 1994 Change
----- --------- --------- ----- -------- --------
(dollars in millions)
<S> <C> <C> <C> <C> <C> <C>
Interest income......................... $ 214 $ 170 26% $ 420 $ 321 31%
Interest expense........................ 119 80 49 231 149 55
----- ----- ----- -----
Net interest income.................... 95 90 6 189 172 10
Fees and other income................... 28 30 (7) 72 83 (13)
Income of international joint ventures.. 9 5 80 17 10 70
----- ----- ----- -----
Operating revenues..................... 132 125 6 278 265 5
Operating expenses...................... 52 46 13 102 90 13
Provision for losses.................... 28 40 (30) 78 90 (13)
----- ----- ----- -----
Income before taxes and minority
interest............................. 52 39 33 98 85 15
Income tax provision.................... 16 3 433 31 20 55
Minority interest in income of Heller
International Group, Inc............... 2 1 100 3 2 50
----- ----- ----- -----
Net income........................... $ 34 $ 35 (3)% $ 64 $ 63 2%
===== ===== ===== =====
</TABLE>
Income before taxes increased 33% for the second quarter and 15% for the six
months ended June 30 due to growth in net interest income, income of
international joint ventures and a decrease in the provision for losses. These
factors offset lower net gains from equity interests and investments, which were
strong for the six month period ended June 30, 1994, and continued increases in
spending for developing businesses. Net income increased 2% to $64 million from
the prior year's six month period but was down slightly for the quarter after
absorbing an increase in the provision for income taxes.
Net interest income increased 6% for the second quarter and 10% for the six
month period due to growth of 9% in the level of average earning funds and
higher market interest rates. Rates charged on 81% of average earning funds were
based on floating indices such as the average three month London Inter-bank
Offered Rate, which increased to 6.2% from 4.0%. Interest expense increased for
the period ended June 30, 1995 as a result of the rise in the average borrowing
rate to 7.0% from 4.9% and the higher level of debt used to finance portfolio
growth.
Income of international joint ventures increased for the quarter and for the
six month period due to growth in earnings primarily from European joint
ventures and continued weakness in the U.S. dollar.
Fees and other income decreased 7% for the second quarter and 13% for the six
month period due to lower gains from sales of equity interests and investments
and equity writedowns of $18 million in the second quarter of 1995. These
reductions were partially offset by higher revenues from real estate
transactions, gains on project investments and sales of residuals from equipment
on lease.
Operating expenses were higher principally due to increased spending on
developing businesses which continue to grow their earning fund levels. The
ratio of operating expenses to average fund levels is expected to remain
relatively stable during the balance of 1995.
8
<PAGE>
The provision for losses decreased for the second quarter and for the six
month period as the Company experienced a lower level of writedowns on
repossessed assets. The allowance for losses of receivables was maintained at
3% of receivables as the performance of new financings over the past five years
remained strong.
The Company's effective tax rate increased from 24% for the first six months
of 1994 to 32% for the same period in 1995. The Company's effective rate
remained below statutory rates due to the favorable resolution of certain tax
issues. The Company's 1994 provision for income taxes for the first six months
was lower than the statutory rate due to favorable tax issue resolution and the
recognition of additional deferred tax benefits.
PORTFOLIO COMPOSITION
During the first six months of 1995, lending assets and investments increased
$623 million or 7% as the Company continued to build a more balanced portfolio
by growing its asset base and sources of income. The asset based finance
category includes equipment loans and leases, factoring, working capital finance
and small business finance activities.
<TABLE>
<CAPTION>
Lending Assets and Investments as of
June 30, December 31,
------------ ------------------
1995 Percent 1994 Percent
------ -------- ------ ----------
BY PRODUCT CATEGORY: (dollars in millions)
<S> <C> <C> <C> <C>
Corporate finance........................................... $3,371 37% $3,309 39%
Asset based finance......................................... 2,581 28 2,103 25
Real estate finance......................................... 2,218 25 2,152 25
Specialized finance and investments......................... 464 5 505 6
International factoring and asset based finance............. 432 5 374 5
------ ---- ------ ----
Total lending assets and investments....................... $9,066 100% $8,443 100%
====== ==== ====== ====
Lending assets include receivables and repossessed assets.
BY ASSET TYPE:
Receivables................................................. $8,137 90% $7,616 91%
Repossessed assets.......................................... 55 1 19 --
------ ---- ------ ----
Total lending assets....................................... $8,192 91% $7,635 91%
Investments................................................. 653 7 634 7
International joint ventures................................ 221 2 174 2
------ ---- ------ ----
Total investments.......................................... $ 874 9% $ 808 9%
------ ---- ------ ----
Total lending assets and investments....................... $9,066 100% $8,443 100%
====== ==== ====== ====
</TABLE>
Corporate finance lending assets and investments continued to decrease as a
percent of the overall portfolio. The Company funded $705 million of corporate
financings during the first six months compared to $625 million in the prior
year period, while continuing to maintain strong credit disciplines on average
hold size and debt multiples. The average retained transaction size remained at
$18 million at June 30, 1995 which is consistent with the Company's strategy to
hold smaller positions in individual transactions. The Company was
contractually committed at June 30, 1995 to finance an additional $1.1 billion
to new and existing corporate finance borrowers generally contingent upon the
maintenance of specific credit standards by the borrowers. Corporate financings
are generally considered by certain regulatory agencies as highly leveraged
transactions.
9
<PAGE>
Asset based finance became the second largest product category during 1995
increasing $478 million to 28% of total lending assets and investments at June
30, 1995. This increase is due primarily to new business growth in the Company's
working capital finance and equipment financing and leasing groups.
Real estate finance remained at 25% of total lending assets and investments
but continued to decrease its office building concentration and diversify its
portfolio among several other product categories.
Total revenues include interest income, fees and other income from wholly-
owned domestic and international operations, and the Company's share of the net
income of its international joint ventures.
<TABLE>
<CAPTION>
Total Revenues
For the Six Months Ended June 30,
-----------------------------------
1995 Percent 1994 Percent
------ --------- ----- ---------
(dollars in millions)
<S> <C> <C> <C> <C>
Corporate finance................................ $ 201 39% $ 184 44%
Asset based finance.............................. 137 27 98 24
Real estate finance.............................. 122 24 97 23
Specialized finance and investments.............. 20 4 16 4
International factoring and asset based finance.. 29 6 19 5
----- --- ----- ---
Total revenues.................................. $ 509 100% $ 414 100%
===== === ===== ===
</TABLE>
Total revenues increased $95 million or 23% from the prior year principally
reflecting growth in assets and higher market interest rates.
10
<PAGE>
PORTFOLIO QUALITY
While new business portfolios continued to exhibit strong credit quality and
the allowance for losses of receivables was maintained at 3% of receivables, the
Company continued to resolve its pre-1990 corporate finance and real estate
troubled accounts during the second quarter.
<TABLE>
<CAPTION>
June 30, December 31, Percent
1995 1994 Change
--------- ------------ --------
(dollars in millions)
<S> <C> <C> <C>
Lending Assets and Investments:
Receivables...................................... $8,137 $7,616
Repossessed assets............................... 55 19
------ ------
Total lending assets............................ 8,192 7,635 7%
=======
Investments...................................... 874 808
------ ------
Total lending assets and investments............ $9,066 $8,443 7%
====== ====== =======
Nonearning Assets:
Impaired receivables............................. $ 319 $ 284
Repossessed assets............................... 55 19
------ ------
Total nonearning assets......................... $ 374 $ 303
====== ======
Ratio of nonearning impaired receivables to
receivables..................................... 3.9% 3.7%
====== ======
Ratio of total nonearning assets to total
lending assets.................................. 4.6% 4.0%
====== ======
Allowances for Losses:
Allowance for losses of receivables.............. $ 241 $ 231 4%
=======
Valuation allowance for repossessed assets....... 5 6
------ ------
Total allowance for losses...................... $ 246 $ 237
====== ======
Ratio of allowance for losses of receivables to:
Receivables..................................... 3.0% 3.0%
====== ======
Nonearning impaired receivables................. 76% 81%
====== ======
Delinquencies:
Earning loans delinquent 60 days or more......... $ 162 $ 103
====== ======
Ratio of earning loans delinquent 60 days
or more to receivables.......................... 2.0% 1.4%
====== ======
For The Six Months Ended
June 30,
1995 1994
------ ------
Writedowns: (dollars in millions)
Net writedowns on receivables.................... $ 65 $ 58
Net writedowns on repossessed assets............. 4 18
------ ------
Total net writedowns........................... $ 69 $ 76
====== ======
</TABLE>
Nonearning receivables increased from 3.7% to 3.9% of total receivables
primarily due to the addition of several large accounts originated prior to
1990. Repossessed assets increased from year end as one large pre-1990
apartment complex loan previously classified as a nonearning receivable was
repossessed. Nonearning assets principally consist of corporate finance and
real estate accounts originated prior to 1990. The unpredictable timing of the
resolution or restructuring of a number of large accounts in this portfolio has
caused variability in the ratio of nonearning assets to total lending assets
between quarters. However, the Company anticipates that nonearning assets will
trend downward from the second quarter level by year-end.
11
<PAGE>
Total net writedowns decreased for the first six months due to a reduction in
the level of writedowns on repossessed assets. Net writedowns were primarily
attributable to pre-1990 corporate finance and real estate troubled accounts.
Delinquent receivables increased as a percentage of total receivables due to the
addition of two large pre-1990 corporate finance accounts and as a result of
slower loan growth in the second quarter.
Loans considered troubled debt restructures decreased to $25 million from $54
million in the prior year. The Company also had $30 million of receivables at
June 30, 1995 that were renegotiated at market rates of interest and written
down from the original loan balance. The recorded investment of these
receivables is expected to be fully recoverable.
Effective January 1, 1995, The Company adopted the provisions of Statement of
Financial Accounting Standard ("SFAS") No. 114, "Accounting by Creditors for
Impairment of a Loan," and the related disclosure requirements of SFAS No. 118,
"Accounting by Creditors for Impairment of a Loan--Income Recognition and
Disclosure." These pronouncements require that impaired receivables be measured
based on the present value of expected future cash flows discounted at the
receivable's effective interest rate. Impairment may also be measured based on
the receivable's observable market price or based on the fair value of the
collateral if the receivable is collateral dependent. The Company had previously
measured impairment using methods similar to those prescribed in SFAS No. 114.
Accordingly, there was no effect to total nonearning assets nor to the total
allowance for losses as previously reported at December 31, 1994.
SFAS No. 114 also requires that receivables that were previously classified as
repossessed assets under in-substance repossession rules now be presented as
impaired receivables until the collateral is physically possessed or legally
foreclosed. This provision was retroactively applied resulting in the
reclassification of $31 million of in-substance repossessed assets to nonearning
impaired receivables and the transfer of $4 million from the related valuation
allowance to the allowance for losses of receivables at December 31, 1994.
LIQUIDITY AND CAPITAL RESOURCES
During the first six months of 1995, the Company increased lending assets and
investments by $623 million, retired $171 million of senior notes and paid $28
million in dividends to common and preferred stockholders. To meet these funding
requirements, the Company supplemented its cash flow from operations by issuing
$489 million of senior notes and debentures and increasing commercial paper and
short-term borrowings by $275 million.
Leverage and the level of commercial paper and short-term borrowings continue
to remain within ranges targeted by the Company to maintain a strong financial
position. The ratio of commercial paper and short-term borrowings to total debt
was 39% at June 30, 1995 compared with 38% at December 31, 1994. Leverage was
5.1x at period end and 4.8x at December 31, 1994 principally due to the 7%
growth in lending assets and investments.
At June 30, 1995, the Company had unused bank credit facilities of $2,210
million, liquidity support of $500 million from Fuji Bank under the Keep Well
Agreement and $494 million available under the factored accounts receivable sale
program, all of which provide the Company with an aggregate amount of $3,204
million of committed credit and sale facilities representing 118% of outstanding
commercial paper and short-term borrowings. Committed credit and sale
12
<PAGE>
facilities from unaffiliated financial institutions represent 97% of outstanding
commercial paper and short-term borrowings at June 30, 1995. The liquidity
provided by the bank credit facilities and the Keep Well Agreement remain unused
at June 30, 1995.
During the second quarter, the bank credit facilities' terms were changed to
include reduced pricing, an increase in the term for $1.1 billion of the
facilities to five years, required stockholders' equity of $900 million, and the
elimination of any funding covenant based on possible material adverse change in
the financial condition of the Company.
On May 3, 1995 the Company and Fuji Bank agreed to extend the term of the Keep
Well Agreement for an additional two years from December 31, 2000 to December
31, 2002.
RISK MANAGEMENT
The Company maintains a conservative currency and interest rate risk posture
by using derivatives as an integral part of its asset/liability management
program to reduce its overall level of financial risk. These derivatives,
particularly interest rate swap agreements, are used to lower funding costs,
diversify sources of funding or alter interest rate exposure arising from
mismatches between assets and liabilities. Agreements entered into during the
first six months of 1995 were entirely related to accomplishing these risk
management objectives and consisted of notional amounts approximating $1.2
billion of basis and cross currency interest rate swap agreements.
The Company invests in and operates commercial finance companies throughout
the world. Over the course of time, reported amounts of the operations and
investments in foreign countries may fluctuate in response to exchange rate
movements in relation to the U.S. dollar. While the Western European operations
and investments are the largest areas of the Company's activities, reported
amounts will also be influenced by the exchange rate movements in the currencies
of other countries in which our subsidiaries and investments are located. To
minimize the effect of movements in exchange rates on financial results, the
Company will periodically enter into forward currency exchange contracts which
serve as hedges of translation of foreign currency income and investment amounts
to U.S. dollars.
ACCOUNTING DEVELOPMENTS
The Financial Accounting Standards Board has released Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed of," and SFAS No.
122, "Accounting for Mortgage Servicing Rights," effective for financial
statements for fiscal years beginning after December 15, 1995. The Company does
not expect the adoption of these pronouncements to have a material effect on its
results of operations or financial position.
13
<PAGE>
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's annual meeting of the stockholders held on May 26, 1995, the
following persons were elected as directors:
Michael S. Blum, Richard J. Almeida, Hajime Maeda, Tetsuya Fukabori, Hidehiko
Ide, Minoru Itosaka, Mark Kessel, Tomonori Kobayashi, Michael J. Litwin, Dennis
P. Lockhart, Lauralee E. Martin, Kenji Miyamoto, Osamu Ogura, Atsushi Takano,
Mitchell F. Vernick, Kenji Watanabe.
No other matters were acted upon.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(12) Computation of Ratio of Earnings to Combined Fixed Charges and
Preferred Stock Dividends
(27) Financial Data Schedule
(b) Reports on Form 8-K
On January 30, 1995, the Company filed with the U.S. Securities and Exchange
Commission a Current Report on Form 8-K, dated January 27, 1995, to announce the
Company's earnings for the year ended December 31, 1994.
On April 26, 1995, the Company filed with the U.S. Securities and Exchange
Commission a Current Report on Form 8-K, dated April 26, 1995, to announce the
Company's earnings for the quarter ended March 31, 1995.
On May 24, 1995, the Company filed with the U.S. Securities and Exchange
Commission a Current Report on Form 8-K, dated May 24, 1995, to announce the May
15, 1995 issuance of $150,000,000 7% Notes due May 15, 2002 under its
Registration Statement on Form S-3.
On July 31, 1995, the Company filed with the U.S. Securities and Exchange
Commission a Current Report on Form 8-K, dated July 27, 1995, to announce the
Company's earnings for the quarter ended June 30, 1995.
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this quarterly report to be signed on its behalf by
the undersigned thereunto duly authorized.
HELLER FINANCIAL, INC.
By: Richard J. Almeida
------------------
Richard J. Almeida
Executive Vice President and
Chief Financial Officer
By: Lawrence G. Hund
----------------
Lawrence G. Hund
Senior Vice President, Controller and
Chief Accounting Officer
Date: August 3, 1995
15
<PAGE>
EXHIBIT (12)
HELLER FINANCIAL, INC. AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS
TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
(unaudited)
(dollars in millions)
<TABLE>
<CAPTION>
For the Six
Months Ended
June 30, 1995
-------------
<S> <C>
Net income before income taxes and minority interest in
income of Heller International Group, Inc........................ $ 98
Add-Fixed charges
Interest and debt expense........................................ 231
One-third of rentals............................................. 3
----
Total fixed charges......................................... 234
----
Net income, as adjusted............................................ $332
----
Ratio of earnings to fixed charges................................. 1.42x
====
Preferred stock dividends on a pre-tax basis....................... 9
Total combined fixed charges and preferred stock dividends.. $243
----
Ratio of earnings to combined fixed charges and
preferred stock dividends....................................... 1.37x
=====
</TABLE>
For purposes of computing the ratio of earnings to combined fixed charges and
preferred stock dividends, "earnings" includes income before income taxes, the
minority interest in Heller International Group, Inc. income 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.
16
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE HELLER FINANCIAL, INC. QUARTERLY REPORT FORM 10Q FOR THE PERIOD ENDING JUNE
30, 1995 PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<EXCHANGE-RATE> 1
<CASH> 0
<INT-BEARING-DEPOSITS> 89
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 21
<INVESTMENTS-HELD-FOR-SALE> 86
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 8,137
<ALLOWANCE> (241)
<TOTAL-ASSETS> 9,077
<DEPOSITS> 0
<SHORT-TERM> 2,726
<LIABILITIES-OTHER> 688
<LONG-TERM> 4,247
<COMMON> 663
0
150
<OTHER-SE> 559
<TOTAL-LIABILITIES-AND-EQUITY> 9,077
<INTEREST-LOAN> 420
<INTEREST-INVEST> 0
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 420
<INTEREST-DEPOSIT> 0
<INTEREST-EXPENSE> 231
<INTEREST-INCOME-NET> 189
<LOAN-LOSSES> 75
<SECURITIES-GAINS> 0<F1>
<EXPENSE-OTHER> 105
<INCOME-PRETAX> 98
<INCOME-PRE-EXTRAORDINARY> 64
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 64<F3>
<EPS-PRIMARY> 0<F2>
<EPS-DILUTED> 0<F2>
<YIELD-ACTUAL> 4.95
<LOANS-NON> 319
<LOANS-PAST> 90
<LOANS-TROUBLED> 25
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 231
<CHARGE-OFFS> 71
<RECOVERIES> 6
<ALLOWANCE-CLOSE> 241
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 241
<FN>
<F1> The Company is a finance company whose normal operations do not include the
trading of investment securities.
<F2> Earnings per share informatin not provided as Heller Financial, Inc. has
only one common shareholder.
<F3> Net income is net of $31 million income tax provision and $3 million of
minority interest in international income.
</FN>
</TABLE>
