<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 MARCH 31, 1996 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 May 1, 1996.
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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 March 31, December 31,
1996 1995
----------- ------------
(unaudited)
<S> <C> <C>
Cash and cash equivalents........................................ $ 159 $ 599
Receivables (Note 2)
Commercial loans
Term loans..................................................... 2,681 2,743
Revolving loans................................................ 1,626 1,425
Real estate loans................................................ 1,630 1,677
Equipment loans and leases....................................... 1,241 1,241
Factored accounts receivable..................................... 996 816
Indirect consumer loans.......................................... 95 183
------ ------
Total receivables........................................... 8,269 8,085
Less: Allowance for losses of receivables (Note 2)............... 230 229
------ ------
Net receivables............................................. 8,039 7,856
Investments...................................................... 739 693
Investments in international joint ventures...................... 240 233
Other assets..................................................... 261 257
------ ------
Total assets................................................ $9,438 $9,638
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Senior debt
Commercial paper and short-term borrowings...................... $2,136 $2,223
Notes and debentures (Note 3)................................... 4,992 5,145
------ ------
Total debt.................................................. 7,128 7,368
Credit balances of factoring clients............................. 591 497
Other payables and accruals...................................... 263 343
------ ------
Total liabilities........................................... 7,982 8,208
Minority interest in equity of Heller International Group, Inc... 48 46
Stockholders' equity
Cumulative Perpetual Senior Preferred Stock, Series A
($.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.............................................. 595 571
------ ------
Total stockholders' equity.................................. 1,408 1,384
------ ------
Total liabilities and stockholders' equity.................. $9,438 $9,638
====== ======
</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
Ended March 31,
--------------------
1996 1995
----- -----
(unaudited)
<S> <C> <C>
Interest income................................................. $ 202 $ 206
Interest expense................................................ 112 112
----- -----
Net interest income........................................... 90 94
Fees and other income........................................... 32 44
Income of international joint ventures.......................... 9 8
----- -----
Operating revenues............................................ 131 146
Operating expenses.............................................. 59 50
Provision for losses............................................ 24 50
---- -----
Income before income taxes and minority interest.............. 48 46
Income tax provision............................................ 12 15
Minority interest in income of Heller International Group, Inc.. 2 1
----- -----
Net income.................................................... $ 34 $ 30
===== =====
</TABLE>
CONSOLIDATED CONDENSED STATEMENTS OF
CHANGES IN RETAINED EARNINGS
(in millions)
<TABLE>
<CAPTION>
For the Three Months
Ended March 31,
---------------
1996 1995
---- ----
(unaudited)
<S> <C> <C>
Retained earnings at December 31, 1995 and 1994............................... $ 571 $ 517
Net income................................................................. 34 30
Common stock dividends..................................................... (12) (10)
Preferred stock dividends.................................................. (3) (3)
Net changes in unrealized holding gains or losses on securities available
for sale, net of tax...................................................... 6 5
Deferred translation adjustment, net of tax................................ (1) 5
----- -----
Retained earnings at March 31, 1996 and 1995.................................. $ 595 $ 544
===== =====
</TABLE>
The retained earnings balance includes unrealized net gains on securities
available for sale of $1 and $10, net of tax, at March 31, 1996 and 1995,
respectively. Retained earnings also includes deferred foreign currency
translation adjustments of $(15) and $(12), net of tax, at March 31, 1996 and
1995, 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 Three Months Ended
March 31,
--------------------------
1996 1995
------ ------
(Unaudited)
<S> <C> <C>
OPERATING ACTIVITIES
Net income............................................................... $ 34 $ 30
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for losses.................................................... 24 50
Losses from equity investments.......................................... 9 --
Decrease in net deferred tax asset...................................... 1 --
Decrease in accounts payable and accrued liabilities.................... (41) (10)
Undistributed income of international joint ventures.................... (9) (8)
Decrease in interest payable............................................ (7) (2)
Other................................................................... 2 9
----- -----
Net cash provided by operating activities.............................. 13 69
INVESTING ACTIVITIES
Longer-term loans funded................................................. (726) (720)
Collections of principal................................................. 722 491
Sales of longer-term loans............................................... 171 148
Net increase in short-term loans and
advances to factoring clients........................................... (356) (386)
Investment in equity interests, equipment on lease,
and other investments................................................... (56) (39)
Sales of investments and equipment on lease.............................. 32 7
Other.................................................................... (20) (25)
------ ------
Net cash used for investing activities................................. (233) (524)
FINANCING ACTIVITIES
Senior note issues....................................................... 32 228
Retirement of notes and debentures....................................... (183) (70)
(Decrease) increase in commercial paper and other short-term borrowings.. (87) 250
Net decrease in advances to affiliates................................... 33 22
Dividends paid on common and preferred stock............................. (15) (13)
------ ------
Net cash provided by (used for) financing activities................... (220) 417
------ ------
Decrease in cash and cash equivalents..................................... (440) (38)
Cash and cash equivalents at the beginning of the period.................. 599 99
------ ------
Cash and cash equivalents at the end of the period........................ $ 159 $ 61
====== ======
</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 in
conjunction 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, 1995. 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. Certain prior year amounts
have been reclassified in order to conform to the current year's presentation.
(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>
March 31, December 31,
1996 1995
--------- ------------
(in millions)
<S> <C> <C>
Impaired receivables...................................... $280 $261
Repossessed assets........................................ 30 28
---- ----
Total nonearning assets.................................. $310 $289
==== ====
Ratio of total nonearning assets to total lending assets.. 3.7% 3.6%
===== ====
</TABLE>
A valuation allowance for repossessed assets of $2 million is included in
other assets on the balance sheet at December 31, 1995.
The average investment in nonearning impaired receivables was $268 million
for the three months ended March 31, 1996.
Loan Modifications--
The Company had $14 million of loans that are considered troubled debt
restructures at March 31, 1996 and December 31, 1995. The Company also had $7
million of loans at March 31, 1996 that were restructured at a market rate of
interest, written down from the original loan balance and returned to earning
status. The recorded investment of these receivables is expected to be fully
recoverable. Interest income of less than $1 million has been recorded on these
receivables under the modified terms. At March 31, 1996, the Company was not
committed to lend significant additional funds under the restructured
agreements.
Allowance for Losses--
The change in the allowance for losses of receivables during the three
month period included an additional provision of $20 million and gross
writedowns and recoveries of $34 million and $15 million, respectively. Impaired
receivables with identified reserve requirements were $216 million at March 31,
1996 and $234 million at December 31, 1995.
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
--------- ------------
(in millions)
<S> <C> <C>
Identified reserve requirement for impaired receivables.. $ 56 $ 57
Additional allowance for losses of receivables........... 174 172
----- -----
Total allowance for losses of receivables............. $ 230 $ 229
===== =====
Ratio of allowance for losses of receivables to
nonearning impaired receivables....................... 82% 88%
===== =====
</TABLE>
5
<PAGE>
(3) Notes and Debentures
The Company issued and retired the following notes and debentures during
the three months ended March 31, 1996 (excluding unamortized premium and
discount):
<TABLE>
<CAPTION>
Principal
Senior Debt - Notes and Debentures Amount
-------------
Issuances: (in millions)
<S> <C>
Variable rate medium-term notes due on various dates ranging from
January 22, 1997 to April 9, 1998................................... $ 32
----
$ 32
====
Retirements:
Variable rate medium-term notes due on September 10, 1997............. $145
Nikkei equity indexed medium-term notes due on December 20, 1999...... 23
6.45% notes due February 15, 1997..................................... 10
9.22% medium-term notes due on March 28, 1996......................... 5
----
$183
====
</TABLE>
In April 1996, the Company replaced its existing bank credit facilities
with a new agreement that provides $2.3 billion of liquidity support at more
favorable terms to the Company. The modified terms of the agreement primarily
include reduced pricing and an option to increase the aggregate facilities to
$3 billion.
4) Derivative Financial Instruments Used for Risk Management Purposes
The Company entered into a $10 million interest rate swap during the three
months ended March 31, 1996 to more closely match the interest rate and currency
characteristics of its debt and assets. This instrument had the effect of
converting an equivalent amount of variable rate medium-term notes based on the
federal funds rate to a rate based on three month LIBOR.
The Company invests in and operates commercial finance companies throughout
the world. In order to minimize the effect of movements in foreign currency
exchange rates on its financial results, the Company periodically enters into
forward contracts and purchases options. These financial instruments serve as
hedges of its investment in international subsidiaries and joint ventures or
effectively hedge the translation of the related foreign currency income. The
Company held $240 million of forward contracts and $15 million of purchased
options at March 31, 1996.
(5) Statement of Cash Flows
Noncash investing activities which occurred during the three month period
ended March 31, 1996 include $8 million of receivables which were classified as
repossessed assets. For the three month periods ended March 31, 1996 and 1995,
the Company paid income taxes to its Parent of $39 million and $13 million,
respectively, of which $25 million paid in 1996 was related to 1995 income tax
provisions.
(6) Accounting Developments
Effective January 1, 1996, the Company adopted the provisions of 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."
SFAS No. 121 requires that long-lived assets and certain identifiable
intangibles held and used by an entity be reviewed for impairment. Whenever
events indicate that the carrying amount of an asset may not be recoverable, an
impairment loss should be recorded based on the fair value of the asset. The
statement also requires that long-lived assets and certain identifiable
intangibles to be disposed of be reported at the lower of carrying amount or
fair value less cost to sell.
6
<PAGE>
The Company had previously recognized impairment on long-lived assets when
events indicated that the carrying amount may not be recoverable. Consequently,
the adoption of this standard did not have a material impact on the Company's
consolidated financial statements.
Effective January 1, 1996, the Company adopted the provisions of Financial
Accounting Standards ("SFAS") No. 122, "Accounting for Mortgage Servicing
Rights." SFAS No. 122 requires that a separate asset be recognized for rights to
service mortgage loans for others, however those servicing rights are acquired.
The total cost of the mortgage loan should be allocated between the servicing
rights and the loans, without the servicing rights, based on their relative fair
values. The adoption of this standard did not have a material impact on the
Company's consolidated financial statements.
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
March 31,
---------------------------
Percent
1996 1995 Change
----- ----- -------
(dollars in millions)
<S> <C> <C> <C>
Interest income......................... $ 202 $ 206 (2)%
Interest expense........................ 112 112 -
----- -----
Net interest income.................... 90 94 (4)
Fees and other income................... 32 44 (27)
Income of international joint ventures.. 9 8 12
----- -----
Operating revenues..................... 131 146 (10)
Operating expenses...................... 59 50 18
Provision for losses.................... 24 50 (52)
----- -----
Income before taxes and minority
interest.............................. 48 46 4
Income tax provision.................... 12 15 (20)
Minority interest in income of Heller
International Group, Inc............... 2 1 100
----- -----
Net income............................ $ 34 $ 30 13%
===== =====
</TABLE>
Net income for the first quarter of 1996 increased by $4 million or 13% due
to lower provisions for losses and income taxes which more than offset reduced
fees and other income, a decline in net interest income and continued spending
for developing businesses.
Net interest income declined by $4 million or 4% for the first quarter of
1996. Net interest income declined for the first quarter of 1996 reflecting
competitive pricing pressures, and the continued shift of the portfolio to lower
risk, lower priced asset based products.
Fees and other income decreased due to lower net gains on investments
versus the prior year. Gross gains totaled $15 million and were partially offset
by losses and writedowns of $9 million in 1996. Also, fees and other income for
the first quarter of 1995 included a one-time prepayment fee of $6 million on a
specialized finance transaction.
Income of international joint ventures increased modestly for the quarter
ended March 31, 1996 due to earnings growth primarily from European joint
ventures.
Operating expenses were higher principally due to continued investment in
the developing asset based businesses and increased expenditures for marketing
and systems development.
The provision for losses decreased by $26 million for the three month
period ended March 31, 1996 due to the continued strong credit performance of
the post-1990 lending assets and a $14 million recovery on one pre-1990
corporate finance account. The post-1990 portfolio demonstrated excellent credit
quality requiring only $5 million of writedowns during the quarter.
The Company's effective tax rate decreased from 33% for the three months
ended March 31, 1995 to 25% for the same period in 1996. The Company's effective
rate remained below statutory rates due to the utilization of tax benefits and a
favorable tax issue resolution. The Company's provision for income taxes for the
three months ended March 31, 1995 was lower than the statutory rate due to
certain state tax adjustments.
8
<PAGE>
PORTFOLIO COMPOSITION
In line with the Company's strategy to build a more balanced, lower-risk
portfolio and diversify its sources of income, the asset based finance portfolio
continued to grow, becoming the largest product category at 37% of the Company's
portfolio at March 31, 1996. Total lending assets and investments grew by $239
million or 3% as growth in asset based products was partially offset by
continued runoff in the pre-1990 corporate finance and real estate portfolios.
Lending assets include receivables and repossessed assets.
<TABLE>
<CAPTION>
Lending Assets and Investments as of
March 31, December 31,
---------------- ----------------
1996 Percent 1995 Percent
------ ------- ------ -------
(dollars in millions)
<S> <C> <C> <C> <C>
BY PRODUCT CATEGORY:
Asset based finance.............................. $3,382 37% $3,003 33%
Corporate finance................................ 2,990 32 3,092 34
Real estate finance.............................. 1,944 21 1,966 22
International factoring and asset based finance.. 498 5 506 6
Specialized finance and investments.............. 464 5 472 5
------ --- ------ ---
Total lending assets and investments........... $9,278 100% $9,039 100%
====== === ====== ===
BY ASSET TYPE:
Receivables...................................... $8,269 89% $8,085 89%
Repossessed assets............................... 30 1 28 1
------ --- ------ ---
Total lending assets........................... $8,299 90% $8,113 90%
Investments...................................... 739 8 693 8
International joint ventures..................... 240 2 233 2
------ --- ------ ---
Total investments.............................. $ 979 10% $ 926 10%
------ --- ------ ---
Total lending assets and investments........... $9,278 100% $9,039 100%
====== === ====== ===
</TABLE>
The asset based lending portfolio is comprised of factored accounts
receivable, secured working capital finance, vendor finance program loans and
leases, equipment loans and leases to end-users, small business finance
activities and indirect consumer finance. The following provides a breakdown
among the Company's various asset based product groups:
<TABLE>
<CAPTION>
Lending Assets and Investments as of
March 31, December 31,
---------------- ---------------
1996 Percent 1995 Percent
------ ------- ------ -------
(dollars in millions)
<S> <C> <C> <C> <C>
Current Asset Management Group......... $1,039 31% $ 802 27%
Business Credit........................ 750 22 601 20
Vendor Finance Division................ 646 19 663 22
Commercial Equipment Finance Division.. 589 17 543 18
First Capital.......................... 253 8 208 7
Sales Finance.......................... 105 3 186 6
------ --- ------ -----
Total lending assets and investments.. $3,382 100 % $3,003 100%
====== === ====== =====
</TABLE>
Growth in asset based lending assets and investments of $379 million during
the quarter was distributed among four of the asset based product groups.
Increases in the current asset management group were principally due to
increased factoring volume from its existing client base and some growth from
its new product initiatives. Lending assets and investments for business credit,
commercial equipment finance division and first capital increased due to strong
new business fundings during the three month period. Lending assets and
investments of the sales finance portfolio decreased from year end 1995 levels
primarily due to a paydown as a result of one borrower securitizing receivables
which were used to pay down their working capital facility. The Company achieved
these levels of funding while continuing to maintain strong credit disciplines
in all of its asset based businesses. This is evidenced by these portfolios
having less than $2 million in net write downs for the first three months of
1996 and nonearning assets below 1% of lending assets.
At March 31, 1996, the Company had contractually committed to finance an
additional $878 million to new
9
<PAGE>
and existing borrowers of asset based finance.
Corporate finance lending assets and investments decreased by $102 million
due to pre-1990 portfolio runoff while the post-1990 portfolio remained
consistent with the level at year-end 1995. The Company funded $230 million of
corporate financings during the three months ended March 31, 1996 and continues
to maintain strong credit disciplines on average hold size and debt multiples.
At March 31, 1996, the Company was contractually committed to finance an
additional $691 million to new and existing corporate finance borrowers.
Corporate financings are generally considered by certain regulatory agencies as
highly leveraged transactions.
The real estate portfolio decreased modestly in total and as a percentage
of the overall portfolio to 21% of total lending assets and investments. The
decline in lending assets was diversified among the various property types, with
no one property type experiencing a significant change during the quarter.
Fundings, primarily in the self storage, mobile home and hotel property types of
$193 million during the quarter, were offset by continued strong liquidity in
the post-1990 portfolio demonstrated by the sale of $49 million of receivables
during the quarter and the runoff of pre-1990 accounts. Unfunded contractual
loan commitments to new and existing borrowers were $189 million at March 31,
1996.
The Company's obligation to fund loan commitments is generally contingent
upon the maintenance of specific credit standards by the borrowers.
Total revenues include interest income, net fees and other income from
domestic and consolidated international operations, and the Company's share of
the net income of its international joint ventures.
<TABLE>
<CAPTION>
Total Revenues
For the Three Months Ended March 31,
------------------------------------
1996 Percent 1995 Percent
----- ------- ----- -------
(dollars in millions)
<S> <C> <C> <C> <C>
Asset based finance.............................. $ 84 35% $ 65 25%
Corporate finance................................ 84 35 104 40
Real estate finance.............................. 56 23 61 24
International factoring and asset based finance.. 18 7 13 5
Specialized finance and investments.............. 1 -- 15 6
----- --- ----- ---
Total revenues.................................. $ 243 100% $ 258 100%
===== === ===== ===
</TABLE>
Total revenues decreased $15 million or 6% from the prior year principally
reflecting lower fees and other income and a decrease in interest income. Asset
based finance experienced a $19 million increase in interest income as a result
of asset growth of $379 million. Corporate finance interest income decreased by
$18 million from the first quarter 1995. This variance was the result of lower
levels of lending assets and investments as the pre-1990 portfolio continued to
runoff, as well as lower interest rates. Specialized finance and investments had
lower fees and other income than the prior year first quarter due to a decline
in the level of net gains from the sale of investments coupled with the
recognition of a one-time prepayment fee of $6 million on a project investment
in 1995.
10
<PAGE>
PORTFOLIO QUALITY
The overall credit quality of the portfolio remained stable as portfolio
growth was concentrated in the Company's lower risk asset based product areas.
These portfolios and those in corporate finance and real estate finance funded
under the Company's post-1990 revised lending strategies continued to exhibit
strong credit quality.
<TABLE>
<CAPTION>
March 31, December 31,
--------- ------------
1996 1995
---------- ---------
(dollars in millions)
<S> <C> <C>
LENDING ASSETS AND INVESTMENTS:
Receivables............................................... $8,269 $8,085
Repossessed assets........................................ 30 28
------ ------
Total lending assets.................................... 8,299 8,113
Investments............................................... 979 926
------ ------
Total lending assets and investments.................... $9,278 $9,039
====== ======
NONEARNING ASSETS:
Impaired receivables...................................... $ 280 $ 261
Repossessed assets........................................ 30 28
------ ------
Total nonearning assets................................. $ 310 $ 289
====== ======
Ratio of nonearning impaired receivables to receivables... 3.4% 3.2%
====== ======
Ratio of total nonearning assets to total lending assets.. 3.7% 3.6%
====== ======
ALLOWANCES FOR LOSSES:
Allowance for losses of receivables....................... $ 230 $ 229
RATIO OF ALLOWANCE FOR LOSSES OF RECEIVABLES TO:
Receivables............................................. 2.8% 2.8%
===== ====
Nonearning impaired receivables......................... 82% 88%
===== ====
DELINQUENCIES:
Earning loans delinquent 60 days or more................. $ 90 $117
===== ====
Ratio of earning loans delinquent 60 days or more
to receivables......................................... 1.1% 1.4%
===== ====
For The Three Months
--------------------
Ended March 31,
--------------------
1996 1995
---- ----
Net writedowns of lending assets: (dollars in millions)
Net writedowns on receivables............................ $ 19 $ 37
Net writedowns on repossessed assets..................... 4 1
------ ------
Total net writedowns................................... $ 23 $ 38
====== ======
Ratio of net writedowns to average lending
assets (annualized)..................................... 1.1% 1.9%
====== ======
Net writedowns on post-1990 lending assets................ $ 5 $ -
====== ======
Ratio of post-1990 net writedowns to average total
lending assets (annualized)............................. 0.3% -
====== ======
</TABLE>
11
<PAGE>
Nonearning assets increased slightly from 3.6% at December 31, 1995 to 3.7%
of total lending assets at March 31, 1996, but remained within management's
targeted range. Nonearning assets continue to be principally comprised of pre-
1990 corporate finance and real estate accounts.
Total net writedowns decreased $15 million for the three month period ended
March 31, 1996. The decrease is a result of the continued strong performance of
the Company's post-1990 portfolio and a $14 million recovery on one pre-1990
corporate finance account. The post-1990 portfolio demonstrated excellent
credit quality requiring only $5 million of net writedowns during the quarter.
Loans considered troubled debt restructures were $14 million, unchanged from
December 31, 1995. The Company also had $7 million of receivables at March 31,
1996 that were restructured at market rates of interest, written down from the
original loan balance and returned to earning status. The recorded investment
of these receivables is expected to be fully recoverable.
<TABLE>
<CAPTION>
PRE-1990 PORTFOLIO PROFILE
- --------------------------
MARCH 31, DECEMBER 31,
--------- ------------
1996 1995
--------- ------------
<S> <C> <C>
Pre-1990 lending assets and investments........... $1,321 $1,526
====== ======
Pre-1990 nonearning assets........................ $ 217 $ 202
====== ======
Ratio of pre-1990 lending assets and investments
to total lending assets and investments.......... 14.2% 16.9%
====== ======
</TABLE>
The pre-1990 portfolio decreased by $205 million or 13% due to the resolution or
run-off of credits during the quarter ended March 31, 1996. The increase in
pre-1990 nonearning assets primarily relates to the addition of one corporate
finance account.
LIQUIDITY AND CAPITAL RESOURCES
During the first three months of 1996, the Company increased lending assets
and investments by $239 million, reduced the level of commercial paper and short
term borrowings by $87 million, retired $183 million of senior notes, and paid
$15 million in dividends to common and preferred stockholders. To meet these
funding requirements, the Company supplemented its cash flow from operations by
reducing the level of cash and cash equivalents and issuing $32 million of
senior notes and debentures.
The ratio of commercial paper and short-term borrowings to total debt was 30%
at March 31, 1996 and December 31, 1995. Leverage (net of short-term
investments) remained unchanged at 5.0x at March 31, 1996 and December 31, 1995.
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.
On April 10, 1996 the Company extended and revised its bank credit facilities
to include $2.3 billion of support. The total bank credit facility is comprised
of two equal facilities, a 364-day facility expiring April 9, 1997 and a 5-year
facility expiring April 10, 2001. In addition, at March 31, 1996 the Company
had $494 million available under the factored accounts receivable sale program,
$116 million (U.S. dollar equivalent) in committed foreign bank credit
facilities for the consolidated international subsidiaries, and $23 million
available under the foreign currency revolving credit facility. Committed
credit and sale facilities from unaffiliated financial institutions represent
129% of outstanding commercial paper and short-term borrowings at March 31,
1996.
12
<PAGE>
RISK MANAGEMENT
The Company uses derivatives as an integral part of its asset/liability
management program to reduce its overall level of financial risk arising from
normal business operations. 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. The Company is not an interest rate swap dealer nor is it a trader
in derivative securities, and it has not used speculative derivative products
for the purpose of generating earnings from changes in market conditions.
Agreements entered into during the first three months of 1996 were entirely
related to accomplishing these risk management objectives and consisted of
notional amounts approximating $10 million of basis swap agreements.
The Company invests in and operates commercial finance companies throughout
the world. Over the course of time, reported results from 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
results will be influenced to a lesser extent by the exchange rate movements in
the currencies of other countries in which our subsidiaries and investments are
located. To limit the effect of movements in exchange rates on financial
results, the Company will periodically enter into forward currency exchange
contracts and purchases options. These financial instruments serve as hedges of
translation of its investment in international subsidiaries and joint ventures
to effectively hedge the translation of the related foreign currency income. As
of March 31, 1996, the Company held $255 million of forward currency exchange
contracts and purchased options related to this purpose.
ACCOUNTING DEVELOPMENTS
Effective January 1, 1996, the Company adopted the provisions of 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."
SFAS No. 121 requires that long-lived assets and certain identifiable
intangibles held and used by an entity be reviewed for impairment. Whenever
events indicate that the carrying amount of an asset may not be recoverable, an
impairment loss should be recorded based on the fair value of the asset. The
statement also requires that long-lived assets and certain identifiable
intangibles to be disposed of be reported at the lower of carrying amount or
fair value less cost to sell.
The Company had previously recognized impairment on long-lived assets when
events indicated that the carrying amount may not be recoverable. Consequently,
the adoption of this standard did not have a material impact on the Company's
consolidated financial statements.
Effective January 1, 1996, the Company adopted the provisions of Financial
Accounting Standards ("SFAS") No. 122, "Accounting for Mortgage Servicing
Rights." SFAS No. 122 requires that a separate asset be recognized for rights to
service mortgage loans for others, however those servicing rights are acquired.
The total cost of the mortgage loan should be allocated between the servicing
rights and the loans, without the servicing rights, based on their relative fair
values. The adoption of this standard did not have a material impact on the
Company's consolidated financial statements.
13
<PAGE>
PART II. OTHER INFORMATION
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 29, 1996, the Company filed with the U.S. Securities and Exchange
Commission a Current Report on Form 8-K, dated January 26, 1996, to announce the
Company's earnings for the year ended December 31, 1995.
On April 25, 1996, the Company filed with the U.S. Securities and Exchange
Commission a Current Report on Form 8-K, dated April 24, 1996, to announce the
Company's earnings for the quarter ended March 31, 1996.
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
Chairman of the Board and
Chief Executive Officer
By: Lawrence G. Hund
-------------------------------------
Lawrence G. Hund
Senior Vice President, Controller and
Chief Accounting Officer
Date: May 1, 1996
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 Three
Months Ended
March 31, 1996
--------------
<S> <C>
Net income before income taxes and minority interest in
income of Heller International Group, Inc........................ $ 48
Add-Fixed charges
Interest and debt expense........................................ 112
One-third of rentals............................................. 2
-----
Total fixed charges......................................... 114
-----
Net income, as adjusted............................................ $ 162
-----
Ratio of earnings to fixed charges................................. 1.42x
=====
Preferred stock dividends on a pre-tax basis....................... 4
Total combined fixed charges and preferred stock dividends.. $ 118
-----
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 March
31, 1996 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
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 0
<INT-BEARING-DEPOSITS> 159
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 25
<INVESTMENTS-HELD-FOR-SALE> 170
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 8,269
<ALLOWANCE> (230)
<TOTAL-ASSETS> 9,438
<DEPOSITS> 0
<SHORT-TERM> 2,136
<LIABILITIES-OTHER> 854
<LONG-TERM> 4,992
<COMMON> 663
0
150
<OTHER-SE> 595
<TOTAL-LIABILITIES-AND-EQUITY> 9,438
<INTEREST-LOAN> 202
<INTEREST-INVEST> 0
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 202
<INTEREST-DEPOSIT> 0
<INTEREST-EXPENSE> 112
<INTEREST-INCOME-NET> 90
<LOAN-LOSSES> 20
<SECURITIES-GAINS> 0<F1>
<EXPENSE-OTHER> 63
<INCOME-PRETAX> 48
<INCOME-PRE-EXTRAORDINARY> 34
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 34<F3>
<EPS-PRIMARY> .0<F2>
<EPS-DILUTED> .0<F2>
<YIELD-ACTUAL> 4.55
<LOANS-NON> 280
<LOANS-PAST> 39
<LOANS-TROUBLED> 14
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 229
<CHARGE-OFFS> 34
<RECOVERIES> 15
<ALLOWANCE-CLOSE> 230
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 230
<FN>
<F1> The Company is a finance company whose normal operations do not include the
trading of investment securities.
<F2> Earnings per share information not provided as Heller Financial, Inc. has
only one common shareholder.
<F3> Net income is net of $12 million income tax provision and $2 million of
minority interest in international income.
</FN>
</TABLE>
