<PAGE>
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly report for the period ended March 31, 1997 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 April 30, 1997.
================================================================================
<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,
1997 1996
----------- ------------
(unaudited)
<S> <C> <C>
Cash and cash equivalents............................................ $ 320 $ 296
Receivables (Note 2)
Commercial loans
Term loans......................................................... 2,526 2,434
Revolving loans.................................................... 1,570 1,493
Real estate loans.................................................... 1,646 1,726
Equipment loans and leases........................................... 1,689 1,614
Factored accounts receivable......................................... 990 994
Indirect consumer loans.............................................. 252 268
------- ------
Total receivables............................................... 8,673 8,529
Less: Allowance for losses of receivables (Note 2)................... 226 225
------- ------
Net receivables................................................. 8,447 8,304
Equity and real estate investments................................... 410 419
Debt securities...................................................... 251 251
Operating leases..................................................... 172 135
Investments in international joint ventures.......................... 259 272
Other assets......................................................... 269 249
------- ------
Total assets.................................................... $10,128 $9,926
======= ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Senior debt
Commercial paper and short-term borrowings.......................... $ 2,752 $2,745
Notes and debentures (Note 3)....................................... 4,996 4,761
------- ------
Total debt...................................................... 7,748 7,506
Credit balances of factoring clients................................. 542 590
Other payables and accruals.......................................... 307 306
------- ------
Total liabilities............................................... 8,597 8,402
Minority interest in equity of Heller International Group, Inc....... 54 57
Stockholders' equity
Cumulative Perpetual Senior Preferred Stock, Series A ("Perpetual
Preferred Stock")
($.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.................................................. 664 654
------- ------
Total stockholders' equity...................................... 1,477 1,467
------- ------
Total liabilities and stockholders' equity...................... $10,128 $9,926
======= ======
</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,
--------------------
1997 1996
--------- ---------
(unaudited)
<S> <C> <C>
Interest income................................................. $ 208 $ 202
Interest expense................................................ 116 112
----- -----
Net interest income........................................... 92 90
Fees and other income........................................... 39 32
Income of international joint ventures.......................... 10 9
----- -----
Operating revenues............................................ 141 131
Operating expenses.............................................. 62 59
Provision for losses............................................ 22 24
----- -----
Income before income taxes and minority interest.............. 57 48
Income tax provision............................................ 17 12
Minority interest in income of Heller International Group, Inc.. 1 2
----- -----
Net income.................................................... $ 39 $ 34
===== =====
</TABLE>
CONSOLIDATED CONDENSED STATEMENTS OF
CHANGES IN RETAINED EARNINGS
(in millions)
<TABLE>
<CAPTION>
For the Three Months
Ended March 31,
----------------------
1997 1996
------- -------
(unaudited)
<S> <C> <C>
Retained earnings at December 31, 1996 and 1995............................... $ 654 $ 571
Net income................................................................. 39 34
Common stock dividends..................................................... (14) (12)
Preferred stock dividends.................................................. (3) (3)
Net changes in unrealized holding gains or losses on securities available
for sale, net of tax...................................................... (5) 6
Deferred translation adjustment, net of tax................................ (7) (1)
----- -----
Retained earnings at March 31, 1997 and 1996.................................. $ 664 $ 595
===== =====
</TABLE>
The retained earnings balance includes unrealized net gains on securities
available for sale of $8 and $1, net of tax, at March 31, 1997 and 1996,
respectively. Retained earnings also includes deferred foreign currency
translation adjustments of $(21) and $(15), net of tax, at March 31, 1997 and
1996, 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,
--------------------------
1997 1996
----- -----
(Unaudited)
OPERATING ACTIVITIES
<S> <C> <C>
Net income............................................................... $ 39 $ 34
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for losses.................................................... 22 24
Losses from equity investments.......................................... 15 9
Provision for deferred tax asset........................................ (2) 1
Decrease in accounts payable and accrued liabilities.................... (10) (41)
Undistributed income of international joint ventures.................... (6) (9)
Decrease in interest payable............................................ -- (7)
Other................................................................... (4) 2
----- -----
Net cash provided by operating activities.............................. 54 13
INVESTING ACTIVITIES
Longer-term loans funded................................................. (909) (726)
Collections of principal................................................. 736 722
Sales and syndications of longer-term loans.............................. 140 171
Net increase in short-term loans and advances to factoring clients....... (233) (356)
Investment in operating leases........................................... (40) (1)
Investments in equity interests and other investments.................... (63) (55)
Sales of investments and equipment on lease.............................. 85 32
Other.................................................................... (2) (20)
----- -----
Net cash used for investing activities................................. (286) (233)
FINANCING ACTIVITIES
Senior note issues....................................................... 629 32
Retirement of notes and debentures....................................... (394) (183)
Increase (decrease) in commercial paper and other short-term borrowings.. 7 (87)
Net decrease in advances to affiliates................................... 31 33
Dividends paid on common and preferred stock............................. (17) (15)
----- -----
Net cash provided by (used for) financing activities................... 256 (220)
----- -----
Increase (decrease) in cash and cash equivalents.......................... 24 (440)
Cash and cash equivalents at the beginning of the period.................. 296 599
----- -----
Cash and cash equivalents at the end of the period........................ $ 320 $ 159
===== =====
</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, 1996. 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 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,
1997 1996
---------- -------------
(in millions)
<S> <C> <C>
Impaired receivables...................................... $ 259 $ 264
Repossessed assets........................................ 31 14
----- -----
Total nonearning assets.................................. $ 290 $ 278
===== =====
Ratio of total nonearning assets to total lending assets.. 3.3% 3.3%
===== =====
</TABLE>
The average investment in nonearning impaired receivables was $261 million for
the three months ended March 31, 1997.
Loan Modifications--
The Company had $14 million of loans that are considered troubled debt
restructures at March 31, 1997 and December 31, 1996. The Company also had $12
million of loans at March 31, 1997 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, 1997, 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 $22 million and gross writedowns and
recoveries of $27 million and $6 million, respectively. Impaired receivables
with identified reserve requirements were $177 million at March 31, 1997 and
$176 million at December 31, 1996.
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
---------- -------------
(in millions)
<S> <C> <C>
Identified reserve requirement for impaired receivables.. $ 52 $ 57
Additional allowance for losses of receivables........... 174 168
----- -----
Total allowance for losses of receivables............... $ 226 $ 225
===== =====
Ratio of allowance for losses of receivables to
nonearning impaired receivables......................... 87% 85%
===== =====
</TABLE>
5
<PAGE>
(3) Notes and Debentures
The Company issued and retired the following notes and debentures during the
three months ended March 31, 1997 (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
April 7, 1998 to March 19, 2002.................................. $554
6.58% medium-term notes due February 28, 2002...................... 10
6.70% medium-term notes due March 20, 2000......................... 10
6.71% medium-term notes due March 21, 2000......................... 10
7.00% medium-term notes due March 19, 2002......................... 40
7.03% medium-term notes due March 21, 2002......................... 5
----
$629
====
Retirements:
Variable rate medium-term notes due on various dates ranging from
January 15, 1997 to March 31, 1997............................. $261
6.45% notes due February 15, 1997................................ 5
Variable rate notes due on March 24, 1997........................ 128
----
$394
====
</TABLE>
In April 1997, the Company increased its existing bank credit facilities with
a new agreement that provides $3.0 billion of liquidity support at more
favorable terms to the Company. The total bank credit facility is comprised of
two equal facilities, a 364-day facility expiring April 7, 1998 and a 5-year
facility expiring April 8, 2002. The modified terms of the agreement primarily
include reduced pricing.
(4) Derivative Financial Instruments Used for Risk Management Purposes
The Company entered into $289 million of interest rate swaps during the three
months ended March 31, 1997 to more closely match the interest rate and currency
characteristics of its debt and assets. These instruments had the effect of
converting $279 million of three-month LIBOR based medium-term notes to a fixed
rate and $10 million of fixed rate medium term notes to variable rate.
The Company invests in and operates commercial finance companies
internationally. To minimize the effect of movements in exchange rates on its
financial results, the Company periodically enters into forward currency
exchange contracts. 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 $457
million of forward contracts at March 31, 1997, of which $174 million were
entered into to hedge the purchase price for the acquisition of our joint
venture partner's interest in Factofrance in April, 1997.
(5) Statement of Cash Flows
Noncash investing activities which occurred during the three month period
ended March 31, 1997 include $21 million of receivables which were classified as
repossessed assets. For the three month periods ended March 31, 1997 and 1996,
the Company paid income taxes to its Parent of $22 million and $39 million,
respectively.
(6) Accounting Developments
Effective January 1, 1997, the Company adopted the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities." This
Statement provides accounting and reporting standards for transfers and
servicing of financial assets and extinguishment of liabilities. After a
transfer of financial assets, an entity recognizes the financial and servicing
assets it controls and the liabilities it has incurred, derecognizes financial
assets when control has been
6
<PAGE>
surrendered, and derecognizes liabilities when extinguished. This Statement
provides standards for distinguishing transfers of financial assets that are
sales from transfers that are secured borrowings.
The adoption of this Statement did not have a material impact on the Company's
consolidated financial statements.
(7) Subsequent Event
Effective April 2, 1997, the Company's subsidiary, Heller International Group
Inc., purchased the interests of its joint venture partner, Compagnie de Suez,
in Factofrance Heller S.A., the largest factoring company in France. As a
result, the Company increased its ownership interest in Factofrance from 48.8%
to 97.6%. Heller International Group has been an owner of Factofrance for over
30 years, using the equity method of accounting for its 48.8% ownership
position. At March 31, 1997, the International Group's investment in Factofrance
is included on the balance sheet in Investments in International Joint Ventures
with its share of earnings included in Income of International Joint Ventures on
the income statement. The joint venture partner's interest in Factofrance was
acquired for $174 million.
The acquisition will result in the consolidation of Factofrance's operations
in future periods. On April 2, 1997, Factofrance had assets and equity of
approximately $1.6 billion and $155 million, respectively. In accordance with
the purchase method of accounting, assets and liabilities of Factofrance will be
recorded at their estimated fair value at the date of purchase.
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
1997 1996 Change
----- ----- -------
<S> <C> <C> <C>
(dollars in millions)
Interest income.................................................. $ 208 $ 202 3%
Interest expense................................................. 116 112 4
----- -----
Net interest income............................................. 92 90 2
Fees and other income............................................ 39 32 22
Income of international joint ventures........................... 10 9 11
----- -----
Operating revenues.............................................. 141 131 8
Operating expenses............................................... 62 59 5
Provision for losses............................................. 22 24 (8)
----- -----
Income before taxes and minority interest....................... 57 48 19
Income tax provision............................................. 17 12 42
Minority interest in income of Heller International Group, Inc... 1 2 (50)
----- -----
Net income..................................................... $ 39 $ 34 15%
===== =====
</TABLE>
Net income for the first quarter of 1997 increased by $5 million or 15% due to
increases in all operating revenue components, modest growth in operating
expenses and continued strong credit performance in the ongoing portfolios.
Net interest income increased by $2 million or 2% for the first quarter of
1997. This increase reflects growth in the overall portfolio, offset by the
continued shift of the portfolio to lower risk, but lower yielding asset based
products, and the impact of competitive pricing pressures in certain product
categories.
Fees and other income, which is comprised of factoring commissions, fees,
participating and other income and net investment gains, increased by 22% for
the first quarter of 1997. Factoring commissions totaled $13 million for the
three months ended March 31, 1997 and 1996. Fees, participating and other income
increased to $23 million from $13 million for the three months ended March 31,
1997 and 1996, respectively, primarily due to residual participations on real
estate transactions. Net investment gains were $3 million for the three month
period ended March 31, 1997 compared to $6 million for the same period in 1996.
Gross investment gains were $18 million and $15 million, while losses and
writedowns were $15 million and $9 million for the three months ended March 31,
1997 and 1996, respectively.
Income of international joint ventures increased 11% for the quarter ended
March 31, 1997 primarily due to earnings from the Company's new Chilean joint
venture.
Operating expense growth slowed to 5% for the quarter ended March 31, 1997 as
the Company is starting to realize the benefits of its prior investment in
the asset based businesses.
The provision for losses decreased $2 million for the three month period ended
March 31, 1997 as the ongoing portfolio demonstrated continued strong credit
performance with the post-1990 lending assets requiring only $6 million or 30
basis points of writedowns during the quarter. Gross writedowns totaled $27
million and $38 million, while recoveries totaled $6 million and $15 million for
the three months ended March 31, 1997 and 1996, respectively.
The effective tax rate increased to 30% for the three months ended March 31,
1997 from 25% for the same period in 1996. The effective rate for 1997 and 1996
remained below statutory rates due to the effect of earnings from international
joint ventures, the use of foreign tax credits and favorable tax issue
resolutions.
8
<PAGE>
PORTFOLIO COMPOSITION
During the quarter the Company achieved another of its diversification goals
as no individual product group represents greater than 25% of the portfolio.
Total lending assets and investments grew by $176 million or 2% during the first
quarter as the Company continued to effectively grow the lower risk asset based
businesses and reduce the pre-1990 corporate finance and real estate finance
portfolios. Lending assets include receivables and repossessed assets.
<TABLE>
<CAPTION>
Lending Assets and Investments as of
March 31, December 31,
----------------- -----------------
1997 Percent 1996 Percent
------ ------- ------- -------
By Product Category: (dollars in millions)
<S> <C> <C> <C> <C>
Asset based finance.............................. $4,479 46% $4,270 44%
Corporate finance................................ 2,467 25 2,447 26
Real estate finance.............................. 2,038 21 2,062 21
International asset based finance and factoring.. 569 6 609 6
Specialized finance.............................. 243 2 232 3
------ ------- ------- -------
Total lending assets and investments............ $9,796 100% $9,620 100%
====== ======= ======= =======
By Asset Type:
Receivables...................................... $8,673 89% $8,529 89%
Repossessed assets............................... 31 - 14 -
------ ------- ------- -------
Total lending assets............................ $8,704 89% $8,543 89%
Equity and real estate investments............... 410 4 419 4
Debt securities.................................. 251 2 251 3
Operating leases................................. 172 2 135 1
International joint ventures..................... 259 3 272 3
------ ------- ------- -------
Total investments............................... $1,092 11% $1,077 11%
------ ------- ------- -------
Total lending assets and investments............ $9,796 100% $9,620 100%
====== ======= ======= =======
</TABLE>
The asset based lending portfolio is comprised of equipment loans and leases
to end-users, factored accounts receivable, secured working capital finance,
vendor finance program loans and leases, 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,
----------------- -----------------
1997 Percent 1996 Percent
------ ------- ------- -------
(dollars in millions)
<S> <C> <C> <C> <C>
Equipment Finance and Leasing.................... $1,065 24% $ 981 23%
Current Asset Management......................... 935 21 928 22
Business Credit.................................. 894 20 867 20
Vendor Finance................................... 836 19 809 19
First Capital.................................... 477 10 403 9
Sales Finance.................................... 272 6 282 7
------ ------- ------- -------
Total lending assets and investments............ $4,479 100% $4,270 100%
====== ======= ======= =======
</TABLE>
Growth in asset based lending assets and investments of $209 million during
the quarter was distributed among several of the asset based product groups.
Lending assets and investments for equipment finance and leasing, business
credit, vendor finance and first capital increased due to strong new business,
with the Company funding over $650 million of asset based financings during the
first quarter. The Company achieved this level of funding while continuing to
maintain strong credit disciplines in all of its asset based businesses. These
portfolios experienced less than $2 million in net writedowns for the first
three months of 1997. At March 31, 1997, the Company had contractually committed
to finance an additional $1 billion to new and existing asset based borrowers.
9
<PAGE>
Corporate finance lending assets and investments increased by $20 million
primarily due to strong new business fundings offset by runoff in both the pre-
and post-1990 portfolios as well as syndications in the post-1990 portfolio. The
Company funded in excess of $300 million of corporate financings during the
three months ended March 31, 1997 and continues to maintain strong credit
disciplines on average hold size and debt multiples. At March 31, 1997, the
Company was contractually committed to finance an additional $760 million to new
and existing corporate finance borrowers.
The real estate portfolio decreased by $24 million during the quarter. 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 apartments, condominiums and retail property types, of
approximately $190 million during the quarter, were offset by continued strong
liquidity in the post-1990 portfolio and the runoff of pre-1990 accounts.
Unfunded contractual loan commitments to new and existing borrowers were $95
million at March 31, 1997.
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,
----------------------------------------
1997 Percent 1996 Percent
------- ---------- ------- ----------
(dollars in millions)
<S> <C> <C> <C> <C>
Asset based finance.............................. $ 115 45% $ 87 36%
Corporate finance................................ 67 26 85 35
Real estate finance.............................. 59 23 56 23
International asset based finance and factoring.. 19 7 18 7
Specialized finance.............................. (3) (1) (3) (1)
----- --- ----- ---
Total revenues.................................. $ 257 100% $ 243 100%
===== === ===== ===
</TABLE>
Total revenues increased $14 million or 6% from the prior year principally
reflecting an increase in fees and other income and an increase in interest
income. Asset based finance experienced a $24 million increase in interest
income consistent with an increase in lending assets of over $800 million from
March 31, 1996. Corporate finance interest income decreased by $18 million from
the first quarter 1996 principally due to lower levels of lending assets and
investments.
10
<PAGE>
PORTFOLIO QUALITY
The Company's ongoing portfolio continued to demonstrate very strong credit
performance in the first quarter. In addition, the Company continues to resolve
and reduce its exposure to pre-1990 accounts.
<TABLE>
<CAPTION>
March 31, December 31,
--------- ------------
1997 1996
--------- ------------
(dollars in millions)
<S> <C> <C>
Lending Assets and Investments:
Receivables............................................... $8,673 $8,529
Repossessed assets........................................ 31 14
------ ------
Total lending assets.................................... 8,704 8,543
Equity and real estate investments........................ 410 419
Debt securities........................................... 251 251
Operating leases.......................................... 172 135
Investments in international joint ventures............... 259 272
------ ------
Total investments....................................... 1,092 1,077
------ ------
Total lending assets and investments.................... $9,796 $9,620
====== ======
Nonearning Assets:
Impaired receivables...................................... $ 259 $ 264
Repossessed assets........................................ 31 14
------ ------
Total nonearning assets................................. $ 290 $ 278
====== ======
Ratio of nonearning impaired receivables to receivables... 3.0% 3.1%
====== ======
Ratio of total nonearning assets to total lending assets.. 3.3% 3.3%
====== ======
Allowances for Losses:
Allowance for losses of receivables....................... $ 226 $ 225
====== ======
Ratio of allowance for losses of receivables to:
Receivables............................................. 2.6% 2.6%
====== ======
Nonearning impaired receivables......................... 87% 85%
====== ======
Delinquencies:
Earning loans delinquent 60 days or more.................. $ 144 $ 143
====== ======
Ratio of earning loans delinquent 60 days or more to
receivables............................................. 1.7% 1.7%
====== ======
For The Three Months
Ended March 31,
--------------------
1997 1996
------ ------
Net writedowns of lending assets: (dollars in millions)
Net writedowns on receivables............................. $ 21 $ 19
Net writedowns on repossessed assets...................... - 4
------ ------
Total net writedowns.................................... $ 21 $ 23
====== ======
Ratio of net writedowns to average lending assets
(annualized)............................................ 1.0% 1.1%
====== ======
Net writedowns on post-1990 lending assets................ $ 6 $ 5
====== ======
Ratio of post-1990 net writedowns to average total lending
assets (annualized)...................................... 0.3% 0.3%
====== ======
</TABLE>
11
<PAGE>
Nonearning assets remained constant at 3.3% of total lending assets at March
31, 1997 and December 31, 1996 and continue to be comprised primarily of pre-
1990 corporate finance and real estate accounts, which constitute 54% of total
nonearning assets at March 31, 1997. Repossessed assets increased by $17 million
due to the repossession of several pre-1990 real estate properties to more
effectively position them for resolution.
Net writedowns decreased slightly to 1.0% of average lending assets for the
three months ended March 31, 1997 as compared to 1.1% for the same period in the
prior year. Gross writedowns declined to $27 million from $38 million while
recoveries were $6 million as compared to $15 million in the first quarter of
1997 and 1996, respectively. The post-1990 portfolio continued to demonstrate
excellent credit quality requiring only $6 million of net writedowns or 30 basis
points of lending assets during the quarter. Net writedowns totaling $5 million
or 30 basis points of lending assets were taken during the same period in the
prior year.
Loans considered troubled debt restructures were $14 million, unchanged from
December 31, 1996. The Company also had $12 million of receivables at March 31,
1997 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.
Pre-1990 Portfolio Profile
The Company continued its efforts to reduce the pre-1990 corporate finance and
real estate portfolios. The pre-1990 portfolio decreased by $132 million or 13%
due to the resolution or run-off of credits during the quarter ended March 31,
1997. The following table provides a breakdown of the pre-1990 portfolio.
<TABLE>
<CAPTION>
Pre-1990 Portfolio Profile
March 31, December 31,
--------- ------------
1997 1996
---- ----
(dollars in millions)
<S> <C> <C>
Pre-1990 lending assets and investments........................................ $ 847 $ 979
===== =====
Pre-1990 nonearning assets..................................................... $ 157 $ 163
===== =====
Ratio of pre-1990 lending assets and investments
to total lending assets and investments....................................... 8.6% 10.2%
===== =====
For the Three Months
Ended March 31,
1997 1996
---- ----
(dollars in millions)
Net writedowns on pre-1990 lending assets...................................... $ 15 $ 18
===== =====
Ratio of pre-1990 net writedowns to average total lending assets (annualized).. 0.7% 0.8%
===== =====
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
During the first three months of 1997, the Company increased lending assets
and investments by $176 million, retired $394 million of senior notes, and paid
$17 million in dividends to common and preferred stockholders. To meet these
funding requirements, the Company supplemented its cash flow from operations by
issuing $629 million of senior notes and debentures and increasing the level of
commercial paper and short-term borrowings by $7 million.
The ratio of commercial paper and short-term borrowings to total debt was 36%
at March 31, 1997 and 37% at December 31, 1996. Leverage (net of short-term
investments) remained unchanged at 5.0x at March 31, 1997 and December 31, 1996.
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 8, 1997 the Company extended and increased its bank credit facilities
from $2.3 billion to $3.0 billion. The total bank credit facility is comprised
of two equal facilities, a 364-day facility expiring April 7, 1998 and a 5-year
facility expiring April 8, 2002. In addition, at March 31, 1997 the Company had
$147 million (U.S. dollar equivalent) in committed foreign bank credit
facilities for the consolidated international subsidiaries, and $32 million
available under the foreign currency revolving credit facilities. Committed
credit and sale facilities
12
<PAGE>
from unaffiliated financial institutions represent 111% of outstanding
commercial paper and short-term borrowings at March 31, 1997.
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 or reduce exposure to foreign exchange fluctuations. All of the
derivative instruments are related to accomplishing these risk management
objectives. 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 1997 were entirely
related to accomplishing these risk management objectives and consisted of
interest rate swap agreements with aggregate notional amounts of approximately
$289 million.
The Company invests in and operates commercial finance companies
internationally. 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 international 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 periodically enters 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 or effectively hedge the translation of the related foreign currency
income. As of March 31, 1997, the Company held $457 million of forward currency
exchange contracts related to this purpose, including $174 million which were
entered into to hedge the purchase price for the acquisition of our joint
venture partner's interest in Factofrance in April, 1997.
Accounting Developments
Effective January 1, 1997, the Company adopted the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities." This
Statement provides accounting and reporting standards for transfers and
servicing of financial assets and extinguishment of liabilities. After a
transfer of financial assets, an entity recognizes the financial and servicing
assets it controls and the liabilities it has incurred, derecognizes financial
assets when control has been surrendered, and derecognizes liabilities when
extinguished. This Statement provides standards for distinguishing transfers of
financial assets that are sales from transfers that are secured borrowings.
The adoption of this Statement did not have a material impact on the Company's
consolidated financial statements.
Acquisition of Factofrance
Effective April 2, 1997, the Company's subsidiary, Heller International Group
Inc., purchased the interests of its joint venture partner, Compagnie de Suez,
in Factofrance Heller S.A., the largest factoring company in France. As a
result, the Company increased its ownership interest in Factofrance from 48.8%
to 97.6%. Heller International Group has been an owner of Factofrance for over
30 years, using the equity method of accounting for its 48.8% ownership
position. At March 31, 1997, the International Group's investment in Factofrance
is included on the balance sheet in Investments in International Joint Ventures
with its share of earnings included in Income of International Joint Ventures on
the income statement. The joint venture partner's interest in Factofrance was
acquired for $174 million.
The acquisition will result in the consolidation of Factofrance's operations
which had assets and equity of approximately $1.6 billion and $155 million,
respectively, as of April 2, 1997.
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 30, 1997, the Company filed with the U.S. Securities and Exchange
Commission a Current Report on Form 8-K, dated January 27, 1997, to announce the
Company's earnings for the year ended December 31, 1996.
On April 4, 1997 the Company filed with the U.S. Securities and Exchange
Commission a Current Report on Form 8-K, dated April 3, 1997, to announce the
Company's acquisition of Compagnie de Suez' 48.8% share in Factofrance Heller.
On April 24, 1997, the Company filed with the U.S. Securities and Exchange
Commission a Current Report on Form 8-K, dated April 22, 1997, to announce the
Company's earnings for the quarter ended March 31, 1997.
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: Lauralee E. Martin
------------------
Lauralee E. Martin
Executive Vice President and
Chief Financial Officer
By: Lawrence G. Hund
----------------
Lawrence G. Hund
Senior Vice President, Controller and
Chief Accounting Officer
Date: April 30, 1997
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, 1997
--------------
<S> <C>
Net income before income taxes and minority interest in
income of Heller International Group, Inc........................ $ 57
Add-Fixed charges
Interest and debt expense........................................ 116
One-third of rentals............................................. 2
-----
Total fixed charges......................................... 118
-----
Net income, as adjusted............................................ $ 175
-----
Ratio of earnings to fixed charges................................. 1.48x
=====
Preferred stock dividends on a pre-tax basis....................... 4
Total combined fixed charges and preferred stock dividends.. $ 122
-----
Ratio of earnings to combined fixed charges and
preferred stock dividends....................................... 1.43x
=====
</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.
<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, 1997 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-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 0
<INT-BEARING-DEPOSITS> 320
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 29
<INVESTMENTS-HELD-FOR-SALE> 252
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 8,673
<ALLOWANCE> (226)
<TOTAL-ASSETS> 10,128
<DEPOSITS> 0
<SHORT-TERM> 2,752
<LIABILITIES-OTHER> 849
<LONG-TERM> 4,996
<COMMON> 663
0
150
<OTHER-SE> 664
<TOTAL-LIABILITIES-AND-EQUITY> 10,128
<INTEREST-LOAN> 208
<INTEREST-INVEST> 0
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 208
<INTEREST-DEPOSIT> 0
<INTEREST-EXPENSE> 116
<INTEREST-INCOME-NET> 92
<LOAN-LOSSES> 22
<SECURITIES-GAINS> 0<F1>
<EXPENSE-OTHER> 62
<INCOME-PRETAX> 57
<INCOME-PRE-EXTRAORDINARY> 57
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 39<F3>
<EPS-PRIMARY> 0<F2>
<EPS-DILUTED> 0<F2>
<YIELD-ACTUAL> 4.42
<LOANS-NON> 259
<LOANS-PAST> 121
<LOANS-TROUBLED> 14
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 225
<CHARGE-OFFS> 27
<RECOVERIES> 6
<ALLOWANCE-CLOSE> 226
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 226
<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 $17 million income tax provision and $1 million of
minority interest in international income.
</FN>
</TABLE>
