UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
_________________________
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OF THE SECURITIES EXCHANGE ACT OF
1934.
For the quarterly period ended March 31, 1994.
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
Commission File No.1-7437
The registrant meets the conditions set forth in General Instruction H(1)(a) and
(b) of Form 10-Q and is therefore filing this Form with the reduced disclosure
format.
ITT FINANCIAL CORPORATION
Incorporated in the State of Delaware 43-0815676
(I.R.S. Employer
Identification No.)
(Principal Executive Offices)
645 Maryville Centre Drive, St. Louis, Missouri 63141-5832
Telephone Number: 314-542-3636
_________________________
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, and (2) has been subject to such filing
requirements for the past 90 days. Yes X . No .
_________________________
As of May 2, 1994 there were outstanding ten (10) shares of common stock,
par value $100 per share, of the registrant, all of which are owned by ITT
Corporation.
<PAGE>
TABLE OF CONTENTS
Page No.
________
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements -
Consolidated Income - Three Months Ended
March 31, 1994 and 1993 ................................ 2
Consolidated Balance Sheets - March 31, 1994
and December 31, 1993 .................................. 3
Consolidated Cash Flows - Three Months Ended
March 31, 1994 and 1993 ................................ 4
Notes to Financial Statements ........................... 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations* - Three Months Ended
March 31, 1994 and 1993 .................................... 6
PART II. OTHER INFORMATION:
Item 6. Exhibits and Reports on Form 8-K .................. 8
Signature .................................................. 8
Exhibit Index .............................................. 9
Exhibit 12. Computations of Ratios of Earnings to
Fixed Charges .............................................. 10
*Item prepared in accordance with General Instruction H(2)(a) of Form 10-Q.
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
_____________________________
The following unaudited financial statements, in the opinion of ITT Financial
Corporation, reflect all adjustments (which include only normal recurring
adjustments) necessary for a fair presentation of the financial position, the
results of operations and cash flows for the periods presented. For a
description of accounting policies, see the Notes to Financial Statements in
the 1993 annual report on Form 10-K.
ITT FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED INCOME
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
____________________
1994 1993
________ ________
<S> <C> <C>
Finance Charges and Fees $214,159 $350,745
Interest Expense 140,058 161,783
________ ________
Lending Spread 74,101 188,962
Insurance Premiums 45,560 40,733
Investment Income 40,244 45,975
Servicing and Other Income 38,441 12,333
________ ________
198,346 288,003
________ ________
Operating Expense 110,758 168,746
Provision for Credit Losses 30,564 35,688
Insurance Benefits 15,980 18,697
________ ________
157,302 223,131
________ ________
Income Before Income Tax 41,044 64,872
Income Tax 13,845 21,517
________ ________
Net Income Before Cumulative Effect
of Accounting Change 27,199 43,355
Cumulative Effect of Accounting Change,
net of tax benefit of $3,633 (6,747) -
________ ________
Net Income $ 20,452 $ 43,355
________ ________
________ ________
</TABLE>
2
<PAGE>
ITT FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands except for shares and per share)
ASSETS
<TABLE>
<CAPTION>
March 31, December 31,
1994 1993
___________ ____________
<S> <C> <C>
Finance Receivables (net of unearned income):
Consumer $ 4,087,243 $ 3,272,537
Commercial 4,393,341 4,233,909
___________ ___________
Total Finance Receivables 8,480,584 7,506,446
Reserve for credit losses (229,150) (220,277)
___________ ___________
Finance Receivables, net 8,251,434 7,286,169
Investment Securities 3,006,614 3,097,442
Other Assets 1,469,682 1,329,736
___________ ___________
$12,727,730 $11,713,347
___________ ___________
___________ ___________
LIABILITIES AND STOCKHOLDER EQUITY
Term Debt (including current maturities of
$1,817,393 and $1,775,673) $ 6,279,901 $ 6,247,804
Commercial Paper and Other Debt 3,548,820 2,466,315
Deposits and Certificates 468,635 558,243
Insurance Policy and Claim Reserves 211,460 228,012
Accounts Payable and Accrued Liabilities 885,989 1,098,733
Deferred Income Tax 65,476 55,136
___________ ___________
Total Liabilities 11,460,281 10,654,243
___________ ___________
Stockholder Equity:
Common stock - Authorized 1,000 shares, $100 par value;
Outstanding 10 shares held by ITT Corporation 1 1
Capital surplus 1,289,233 1,099,854
Unrealized gain on securities, net of tax 430 1,916
Retained earnings (deficit) (22,215) (42,667)
___________ ___________
Total Stockholder Equity 1,267,449 1,059,104
___________ ___________
$12,727,730 $11,713,347
___________ ___________
___________ ___________
</TABLE>
3
<PAGE>
ITT FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
_________________________
1994 1993
___________ ___________
<S> <C> <C>
Operating Activities:
Net income $ 20,452 $ 43,355
Cumulative effect of accounting change 6,747 -
___________ ___________
Income before cumulative effect of accounting change 27,199 43,355
Adjustments to income before cumulative effect of
accounting change -
Provision for credit losses 30,564 35,688
Depreciation and amortization 13,221 12,417
Change in accrued and deferred income taxes 8,866 7,583
Decrease in finance charges earned but not collected 760 8,718
Amortization of debt discount and premium, net 684 (136)
(Decrease) increase in accounts payable
and accrued liabilities (44,959) 85,351
Decrease in insurance policy and claim reserves (16,552) (30,455)
Gain on sale of investment securities (2,438) (471)
Other, net (11,164) (3,036)
___________ ___________
Net cash provided from operating activities 6,181 159,014
___________ ___________
Investing Activities:
Finance receivables originated or purchased (5,553,319) (4,395,913)
Finance receivables repaid or sold 4,600,796 4,192,975
Investment securities purchased (2,779,158) (1,806,980)
Investment securities matured or sold 2,863,684 1,828,570
Decrease (increase) in other assets 69,886 (67,141)
___________ ___________
Net cash used for investing activities (798,111) (248,489)
___________ ___________
Financing Activities:
Issuance of term debt 416,413 240,586
Repayments of term debt (385,000) (466,320)
Increase in commercial paper and other debt 1,057,415 184,358
Deposits 672,683 415,350
Withdrawals (762,291) (470,503)
Capital contributions - 186,000
Dividends paid (207,285) -
___________ ___________
Net cash provided from financing activities 791,935 89,471
___________ ___________
Change in cash 5 (4)
Cash-beginning of year 101 263
___________ ___________
Cash-end of period $ 106 $ 259
___________ ___________
___________ ___________
Supplemental Disclosures of Cash Flow Information
Cash paid during the period for:
Interest $ 140,476 $ 172,280
Income tax (refund), net $ 3,553 $ (73,064)
</TABLE>
4
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Finance Receivables
___________________
On June 3, 1993, ITT Financial and its subsidiaries ("Financial") completed the
sale of its domestic unsecured consumer small loan portfolio (consumer loans
held for repositioning). Accordingly, Financial recognized a pre-tax gain of
$95 million in the second quarter of 1993, based on recorded values as of the
closing of the sale and certain costs and restructuring expenses incurred by
Financial as part of the transaction. Financial acquired a 15% equity interest
in the purchasing group at a cost of approximately $29 million.
Finance receivables consisted of the following:
<TABLE>
<CAPTION>
March 31, December 31,
1994 1993
__________ ____________
(In thousands)
<S> <C> <C>
Finance Receivables
Consumer:
Real estate $3,142,816 $2,362,975
Unsecured small loans 1,235,815 1,221,133
Sales finance 36,873 36,448
Accrued interest 24,923 26,082
__________ __________
Total 4,440,427 3,646,638
__________ __________
Commercial:
Inventory financing 1,963,964 1,766,791
Equipment and other loans 1,320,507 1,327,162
Real estate 1,292,875 1,321,578
Accrued interest 7,878 10,727
__________ __________
Total 4,585,224 4,426,258
__________ __________
Finance receivables, gross 9,025,651 8,072,896
Unearned income (545,067) (566,450)
Reserve for credit losses (229,150) (220,277)
__________ __________
Total Finance Receivables, net $8,251,434 $7,286,169
__________ __________
__________ __________
</TABLE>
Change in Accounting Principle:
______________________________
During the 1994 first quarter, Financial adopted Statement of Financial
Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in
Debt and Equity Securities". The new standard requires, among other things,
that securities be classified as "held-to-maturity", "available-for-sale" or
"trading" based on Financial's intentions with respect to the ultimate
disposition of the security and its ability to effect those intentions. The
classification determines the appropriate accounting carrying value (cost basis
or fair value) and, in the case of fair value, whether the adjustment impacts
Stockholder Equity directly or is reflected in Consolidated Income. Investments
in equity securities had previously been recorded at fair value with the
corresponding impact included in Stockholder Equity. Under SFAS No. 115,
5
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
Financial's portfolios are classified as "available-for-sale" and accordingly,
investments are reflected at fair value with the corresponding impact included
as a component of Stockholder Equity designated "Unrealized gain on securities,
net of tax". At March 31, 1994, the unrealized gain on securities, net of tax
was $430 thousand.
In adopting SFAS No. 115, Emerging Issues Task Force ("EITF") Issue No. 93-18
prescribes specific accounting treatment with respect to mortgage-backed
interest-only investments. EITF No. 93-18 reached the conclusion that the
measure of impairment of these instruments should be changed from undiscounted
cash flows to fair value. Accordingly, the amortized cost basis of such
instruments that were determined to have other-than-temporary impairment losses
at the time of the initial adoption of SFAS No. 115 have been written down to
fair value and reflected as a cumulative effect of accounting change as of
January 1, 1994. The writedown totalled $6.7 million after tax.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
________________________________________________________________________________
of Operations
_____________
THREE MONTHS ENDED MARCH 31, 1994 AND 1993
The term "finance receivables" as used under this item includes receivables
relative to ITT Financial's continuing businesses (inventory finance, equipment
finance and leasing, small business finance, commercial real estate, consumer
residential real estate lending and consumer lending in the Caribbean).
Operations
__________
Finance charges and fees were earned as follows:
<TABLE>
<CAPTION>
1994 1993
________ ________
<S> <C> <C>
Continuing businesses $214,159 $228,687
Consumer loans held for repositioning
(sold June, 1993) - 122,058
________ ________
$214,159 $350,745
________ ________
________ ________
</TABLE>
Finance charges and fees on finance receivables decreased 6% in the three months
ended March 31, 1994 compared with the same period in 1993 due to a lower
average portfolio yield, the result of a change in portfolio mix, and asset
securitization, partially offset by the impact of a higher level of average
consumer finance receivables. However, the absence of finance charges relative
to consumer loans held for repositioning, due to the liquidation of the
portfolio, resulted in an overall decline in finance charges of 39%. Reference
is made to the Notes to Financial Statements for further information concerning
the portfolio sale. Similarly, operating expense decreased 34% for the three
months ended March 31, 1994 compared with the same period in 1993 principally
due to exiting the domestic unsecured loan business in 1993 and cost efficiency
programs, partially offset by growth in volume and assets in the continuing
businesses.
6
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
________________________________________________________________________________
of Operations (continued)
_________________________
Interest expense decreased 13% in the three months ended March 31, 1994
compared with the same period in 1993 due to lower interest rates and a decrease
in average borrowings.
Insurance premiums increased 12% in the three months ended March 31, 1994
compared with the same period in 1993 due to increased premiums from non-
captive insurance activities, partially offset by a lower number of captive
policies in force as a result of exiting the domestic unsecured loan business
in 1993. However, insurance benefits decreased 15% in the three months ended
March 31, 1994 compared with the same period in 1993 as a result of the lower
number of captive policies in force, a lower incurred loss experience on the
captive business and improved non-captive reinsurance experience, partially
offset by increased non-captive insurance activities.
Investment income decreased 12% in the three months ended March 31, 1994
compared with the same period in 1993 due to a lower portfolio yield primarily
the result of a change in portfolio mix.
Servicing and other income increased by 212% in the three months ended March 31,
1994 over the comparable period in 1993 primarily due to an increase in
portfolio servicing activities resulting from the securitization and sale of
inventory finance receivables with servicing retained.
The provision for credit losses decreased 14% in the three months ended
March 31, 1994 compared with the same period in 1993 as a result of exiting the
domestic unsecured loan business in 1993, partially offset by increased loss
provision related to earthquake damage to certain California commercial real
estate loan properties.
Income Tax
__________
Income tax on income before cumulative effect of accounting change decreased 36%
for the three months ended March 31, 1994 compared with the same period in 1993
primarily due to a decrease in pre-tax income.
7
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) See Exhibit Index.
(b) ITT Financial Corporation filed the following report on Form 8-K
during the quarter covered by this report:
- Dated January 10, 1994, reporting Item #5 - "Other Events."
________________________________________________________________________________
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ITT FINANCIAL CORPORATION
(Registrant)
Dated: May 2, 1994 By: /s/ Terence L. Payne
_______________________________
Terence L. Payne
Senior Vice President and Controller
(Chief Accounting Officer)
8
<PAGE>
EXHIBIT INDEX
______________
<TABLE>
<CAPTION>
Exhibit
No. Description Location
_______ ___________ _______________
<S> <C> <C>
(2) Plan of acquisition, reorganization, arrangement,
liquidation or succession -
(4) Instruments defining the rights of security
holders, including indentures Not required
to be filed.*
(10) Material contracts -
(11) Statement re computation of per share earnings -
(12) Statements re computation of ratios Filed herewith.
(15) Letter re unaudited interim financial information -
(18) Letter re change in accounting principles -
(19) Report furnished to security holders -
(22) Published report regarding matters submitted to
vote of security holders -
(23) Consents of experts and counsel -
(24) Power of attorney -
(99) Additional exhibits -
</TABLE>
_____________
* The Registrant hereby agrees to file with the Commission a copy of any
instrument defining the rights of holders of the Registrant's term debt upon
request of the Commission.
9
<PAGE>
Exhibit 12.
ITT FINANCIAL CORPORATION AND SUBSIDIARIES
COMPUTATIONS OF RATIOS OF EARNINGS TO FIXED CHARGES
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
____________________
1994 1993
________ ________
<S> <C> <C>
Earnings:
Income before cumulative effect of
accounting change $ 27,199 $ 43,355
Add income tax 13,845 21,517
________ ________
41,044 64,872
________ ________
Add fixed charges:
Interest expense 140,058 161,783
Interest factor attributable to rentals* 1,439 2,264
________ ________
141,497 164,047
________ ________
Income as adjusted, before cumulative
effect of accounting change $182,541 $228,919
________ ________
________ ________
Ratios:
Income as adjusted, before cumulative effect
of accounting change to fixed charges 1.29 1.40
________ ________
________ ________
</TABLE>
__________
*The interest factor attributable to rentals was computed by applying to the
estimated present value of all long-term rental commitments the approximate
weighted average interest rate inherent in the lease obligations, and adding
thereto the interest element assumed in short-term cancellable rentals excluded
from the commitment data but included in rental expense.
10 <PAGE>
