<PAGE>
Page 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________
FORM 10-Q
( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Quarterly Period Ended June 30, 1994
Commission File Number 1-2964
__________________
TRANSAMERICA CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 94-0932740
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
600 Montgomery Street
San Francisco, California 94111
(Address of principal executive offices)
(Zip Code)
(4l5) 983-4000
(Registrant's telephone number, including area code)
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
Number of shares of Common Stock, $1 par value, outstanding as of close
of business on July 29, 1994: 70,408,403 shares, after deducting 9,344,787
shares in treasury.
<PAGE>
Page 2
TRANSAMERICA CORPORATION
FORM 10-Q
Part I. Financial Information
Item 1. Financial Statements.
The following unaudited consolidated financial statements of
Transamerica Corporation and Subsidiaries, for the periods ended June 30, 1994
and 1993, do not include complete financial information and should be read in
conjunction with the Consolidated Financial Statements filed with the
Commission in Transamerica's Annual Report on Form 10-K for the year ended
December 31, 1993. The financial information presented in the financial
statements included in this report reflects all adjustments, consisting only
of normal recurring accruals, which are, in the opinion of management,
necessary for a fair statement of results for the interim periods presented.
In the first quarter of 1994 Transamerica adopted Statement of Financial
Accounting Standards No. 115, Accounting for Certain Investments in Debt and
Equity Securities. This new standard requires Transamerica to report at fair
value those investments which it does not have the positive intent and ability
to hold to maturity. There is no effect on the income statement. To the
extent the securities marked to fair value relate to interest sensitive
insurance products an adjustment to deferred policy acquisition costs is also
made. The effect of these adjustments, net of federal income taxes, is
recorded in a separate component of shareholders' equity. All of
Transamerica's investments in debt securities have been classified as
available for sale at June 30, 1994. As of that date the unrealized loss
included in shareholders' equity as a result of adopting this new accounting
standard was $14.9 million.
On March 15, 1994, Transamerica acquired substantially all the operating
assets of the Container Operations of Tiphook plc ("Tiphook"), a London-based
transportation equipment rental company, including certain dry cargo
containers, tank containers, tank chassis, operating leases and other assets
of Tiphook for $1,065 million in cash. For a discussion of this transaction
see Item 2 on Page 8 of this document.
On April 13, 1994, Transamerica sold its remaining 21% ownership interest
in Sedgwick Group plc. Proceeds from the sale were $326.4 million and
resulted in no gain or loss. Transamerica's investment in Sedgwick and its
share of Sedgwick's operating results and related goodwill amortization have
been separated from those of Transamerica's continuing operations and are
classified as discontinued operations. Prior period financial statements have
been reclassified accordingly.
On June 6, 1994, Transamerica completed a "Dutch Auction" self tender
offer by purchasing 4.5 million shares of its common stock, at a price of
$54.75 per share. Transamerica used a portion of the net proceeds from the
sale of its remaining 21% ownership interest in Sedgwick Group plc to purchase
such shares.
* * * * *
<PAGE>
Page 3
The consolidated ratios of earnings to fixed charges were computed by
dividing income from continuing operations before fixed charges and income
taxes by the fixed charges. Fixed charges consist of interest and debt
expense and one-third of rent expense, which approximates the interest factor.
Results for the six months are not necessarily indicative of the results
for the entire year for most of the Corporation's businesses. This is
particularly true in the life insurance field, where mortality results in
interim periods may vary substantially from such results over a longer period.
<PAGE>
Page 4
TRANSAMERICA CORPORATION AND SUBSIDIARIES
_____________
CONSOLIDATED BALANCE SHEET
Assets
June 30, December 31,
1994 1993
Investments, principally of life
insurance subsidiaries:
Fixed maturities--held for investment $18,553.0
Fixed maturities--available for sale $20,527.3 872.4
Mortgage loans and real estate 485.7 493.0
Equity securities, at fair value 405.6 466.1
Loans to life insurance policyholders 399.9 396.5
Short-term investments 391.2 190.8
_________ _________
22,209.7 20,971.8
Finance receivables 7,002.6 6,908.5
Less unearned fees ($240.6 in 1994
and $240.8 in 1993) and allowance for
losses 435.7 426.0
_________ _________
6,566.9 6,482.5
Cash and cash equivalents 125.1 92.7
Trade and other accounts receivable 2,479.6 2,015.4
Net assets of discontinued operations 310.2
Property and equipment, less accumulated
depreciation of $879.4 in 1994 and
$831.6 in 1993:
Land, buildings and equipment 354.0 345.7
Equipment held for lease 2,529.9 1,306.5
Deferred policy acquisition costs 2,011.5 1,929.3
Separate accounts administered by life
insurance subsidiaries 1,424.4 1,366.5
Goodwill, less accumulated amortization of
$120.8 in 1994 and $113.4 in 1993 488.0 495.4
Other assets 767.4 734.5
_________ _________
$38,956.5 $36,050.5
========= =========
(Amounts in millions)
<PAGE>
Page 5
TRANSAMERICA CORPORATION AND SUBSIDIARIES
_________________
CONSOLIDATED BALANCE SHEET (Continued)
Liabilities and Shareholders' Equity
June 30, December 31,
1994 1993
Life insurance policy liabilities $23,410.3 $21,951.8
Notes and loans payable, principally of
finance subsidiaries, of which $1,647
in 1994 and $2,023 in 1993 matures
within one year 8,758.3 7,704.0
Accounts payable and other liabilities 1,916.4 1,352.4
Income taxes 341.0 312.3
Separate account liabilities 1,424.4 1,366.5
Shareholders' equity:
Preferred Stock ($100 par value):
Authorized--1,200,000 shares; issuable
in series, cumulative
Outstanding--Dutch Auction Rate Trans-
ferable Securities, 2,250 shares, at
liquidation preference of $100,000
per share, weighted average dividend
rate of 3.58% in 1994 and 3.05% in 1993 225.0 225.0
Outstanding--Series D, 400,000 shares,
at liquidation preference of $500 per
share, cumulative dividend rate of 8.5% 200.0 200.0
Preference Stock (without par value)--
5,000,000 shares authorized; none
outstanding
Common Stock ($1 par value):
Authorized--150,000,000 shares
Outstanding--70,393,675 shares in 1994
and 76,398,888 shares in 1993, after
deducting 9,344,787 shares and
3,339,574 shares in treasury 70.4 76.4
Additional paid-in capital 152.1 475.2
Retained earnings 2,421.8 2,297.9
Net unrealized gain from investments
marked to fair value 72.7 124.1
Foreign currency translation adjustments (35.9) (35.1)
_________ _________
3,106.1 3,363.5
_________ _________
$38,956.5 $36,050.5
========= =========
(Amounts in millions except for share data)
<PAGE>
Page 6
<TABLE>
TRANSAMERICA CORPORATION AND SUBSIDIARIES
_______________
CONSOLIDATED STATEMENT OF INCOME
<CAPTION>
Six months ended Three months ended
June 30, June 30,
1994 1993 1994 1993
<S> <C> <C> <C> <C>
REVENUES
Life insurance premiums and related
income $ 739.5 $ 606.4 $ 409.0 $ 314.1
Investment income 864.0 862.1 432.0 436.7
Finance charges and other fees 508.0 493.7 261.7 247.4
Leasing revenues 278.2 183.7 164.6 94.0
Real estate and tax service revenues 149.3 136.4 67.1 69.2
Gain on investment transactions 7.4 32.2 4.8 27.9
Other 52.0 48.0 23.8 24.2
________ ________ ________ ________
2,598.4 2,362.5 1,363.0 1,213.5
EXPENSES
Life insurance benefits 1,169.9 1,046.5 623.6 535.2
Life insurance underwriting, acquisition
and other expenses 256.7 245.7 125.7 123.3
Leasing operating and maintenance costs 144.7 87.8 86.9 44.9
Interest and debt expense 265.1 263.5 142.5 130.4
Provision for losses on receivables 48.0 49.7 23.8 28.6
Other, including administrative and general
expenses 378.6 336.4 190.3 166.1
________ ________ ________ ________
2,263.0 2,029.6 1,192.8 1,028.5
________ ________ ________ ________
335.4 332.9 170.2 185.0
Income taxes 126.0 122.6 64.5 67.7
________ ________ ________ ________
Income from continuing operations 209.4 210.3 105.7 117.3
Income (loss) from discontinued operations (0.7) 5.4 6.6
________ ________ ________ ________
Net income $ 208.7 $ 215.7 $ 105.7 $ 123.9
======== ======== ======== ========
Earnings per share of common stock (based
on weighted average number of shares
outstanding of 74,984,000 in 1994 and
79,328,000 in 1993 after deduction of
preferred dividends):
Income from continuing operations
before investment transactions $2.57 $2.23 $1.30 $1.16
Gain on investment transactions 0.06 0.27 0.04 0.24
_____ _____ _____ _____
Income from continuing operations 2.63 2.50 1.34 1.40
Income (loss) from discontinued operations (0.01) 0.07 0.09
_____ _____ _____ _____
Net income $2.62 $2.57 $1.34 $1.49
===== ===== ===== =====
Dividends per share of common stock $1.00 $1.00 $0.50 $0.50
===== ===== ===== =====
Ratio of earnings to fixed charges 2.19 2.20
==== ====
<FN>
(Dollar amounts in millions except for share data)
</TABLE>
<PAGE>
Page 7
TRANSAMERICA CORPORATION AND SUBSIDIARIES
____________
CONSOLIDATED STATEMENT OF RETAINED EARNINGS
Six months ended
June 30,
1994 1993
Balance at beginning of year $2,297.9 $2,100.2
Net income 208.7 215.7
Dividends on common stock (72.9) (79.1)
Dividends on preferred stock (11.9) (11.9)
________ ________
Balance at end of period $2,421.8 $2,224.9
======== ========
CONSOLIDATED STATEMENT OF CASH FLOWS
Six months ended
June 30,
1994 1993
OPERATING ACTIVITIES
Income from continuing operations $ 209.4 $ 210.3
Adjustments to reconcile income from
continuing operations to net cash
provided by operating activities:
Increase in life insurance policy
liabilities, excluding policyholder
balances on interest-sensitive policies 504.2 485.1
Amortization of policy acquisition costs 93.8 85.8
Policy acquisition costs deferred (186.1) (167.8)
Other 85.6 160.2
________ ________
Net cash provided by operating activities 706.9 773.6
INVESTING ACTIVITIES
Finance receivables originated (8,455.5) (6,322.6)
Finance receivables collected 8,295.4 6,214.1
Purchase of investments (3,986.5) (4,055.9)
Sales or maturities of investments 2,864.2 2,653.1
Purchase of the container division assets
of Tiphook plc (1,065.0)
Proceeds from disposition of discontinued
operations 326.4 680.9
Cash transactions with discontinued operations 5.4 (498.3)
Other (271.5) (267.3)
________ ________
Net cash used by investing activities (2,287.1) (1,596.0)
FINANCING ACTIVITIES
Proceeds from debt financing 4,764.3 2,600.3
Payment of notes and loans (3,728.2) (2,624.0)
Receipts from interest-sensitive policies
credited to policyholder account balances 2,171.2 2,086.0
Return of policyholder account balances on
interest-sensitive policies (1,180.8) (1,112.3)
Dividends (84.8) (91.0)
Common stock transactions (329.1) (34.0)
________ ________
Net cash provided by financing activities 1,612.6 825.0
________ ________
Increase in cash and cash equivalents 32.4 2.6
Cash and cash equivalents at beginning
of year 92.7 22.0
________ ________
Cash and cash equivalents at end of period $ 125.1 $ 24.6
======== ========
(Amounts in millions)
<PAGE>
Page 8
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Transamerica Corporation receives funds from its subsidiaries in the
form of dividends, income taxes and interest on loans. The Corporation uses
these funds to pay dividends to its shareholders, reinvest in the operations
of its subsidiaries and pay corporate interest, expenses and taxes.
Reinvested funds are allocated among subsidiaries on the basis of
profitability and capital requirements. Reinvestment may be accomplished by
allowing a subsidiary to retain all or a portion of its earnings, or by
making capital contributions or loans.
The Corporation also borrows funds to finance acquisitions or to lend to
certain of its subsidiaries to finance their working capital needs.
Subsidiaries are required to maintain prudent financial ratios consistent
with other companies in their respective industries and retain the capacity
through committed credit lines to repay working capital loans from the
Corporation.
On March 15, 1994, Transamerica acquired substantially all the operating
assets of the Container Operations of Tiphook plc ("Tiphook"), a London-based
transportation equipment rental company, including certain dry cargo
containers, tank containers, tank chassis, operating leases and other assets
of Tiphook (collectively the "Container Operations"). Transamerica assumed
certain specified liabilities of the Container Operations including trade
accounts payable. Transamerica did not assume any borrowings, tax liabilities
or contingent liabilities of Tiphook. Transamerica paid to Tiphook
$1 billion, with further payments of $14.3 million to be made upon delivery of
bills of sale and releases of liens, and delivered $50.7 million to escrow
agents for the establishment of a general escrow account ($40.4 million) and a
repairs escrow account ($10.3 million).
Adjustments to the purchase price, if any, will be determined on
completion of examination of the closing balance sheet of the Container
Operations as of March 15, 1994 by Transamerica's auditors and Tiphook's
auditors. Unresolved disputes, if any, will be referred to a third
independent auditor.
On April 13, 1994, Transamerica sold its remaining 21% ownership interest
in Sedgwick Group plc. Proceeds from the sale were $326.4 million and
resulted in no gain or loss. Transamerica's investment in Sedgwick and its
share of Sedgwick's operating results and related goodwill amortization have
been separated from those of Transamerica's continuing operations and are
classified as discontinued operations. Prior period financial statements have
been reclassified accordingly.
On June 6, 1994, Transamerica completed a "Dutch Auction" self tender
offer by purchasing 4.5 million shares of its common stock, at a price of
$54.75 per share. Transamerica used a portion of the net proceeds from the
sale of its remaining 21% ownership interest in Sedgwick Group plc to purchase
such shares.
<PAGE>
Page 9
In the first six months of 1994 Transamerica's income from continuing
operations before investment transactions increased $15.5 million (8%) due
primarily to increases in commercial lending, life insurance, leasing, asset
management and real estate services operating results. Partially offsetting
these improvements were declines in consumer lending and higher unallocated
expenses. Transamerica's income from continuing operations for the first six
months of 1994 decreased $900,000, less than 1%, compared to the first six
months of 1993. Income from continuing operations for the first six months of
1994 included net after tax gains from investment transactions aggregating
$4.8 million compared to $21.2 million in the first six months of 1993.
In the second quarter of 1994 Transamerica's income from continuing
operations before investment transactions increased $3.7 million (4%) due
primarily to increases in commercial lending, leasing, life insurance,
consumer lending and asset management operating results. Partially offsetting
these improvements was a decline in real estate services and higher
unallocated expenses. Transamerica's income from continuing operations for
the second quarter of 1994 decreased $11.6 million (10%) compared to the
second quarter of 1993. Income from continuing operations for the second
quarter of 1994 included net after tax gains from investment transactions
aggregating $3.1 million compared to $18.4 million in the second quarter of
1993.
Gain (loss) on investment transactions, pretax, included in consolidated
revenues, comprises (amounts in millions):
Six months ended Three months ended
June 30, June 30,
1994 1993 1994 1993
Net gain on sale of investments $23.3 $87.6 $10.4 $47.4
Adjustment for impairment in value (9.8) (46.5) (2.3) (15.6)
Accelerated amortization of deferred
policy acquisition costs (6.1) (8.9) (3.3) (3.9)
_____ _____ _____ _____
$ 7.4 $32.2 $ 4.8 $27.9
===== ===== ===== =====
As required by generally accepted accounting principles, the amortization
of deferred policy acquisition costs was accelerated due to gains realized on
the sale of certain investments. The accelerated amortization of deferred
policy acquisition costs has been included in investment transactions as an
offset to the related gain. Investment transactions also reflected loss
provisions primarily for impairment in the value of certain nonperforming
fixed maturity investments, mortgage loans, real estate investments and real
estate acquired through foreclosure. The net gain on sale of investments was
higher in 1993 primarily because of bond call activity.
Transamerica Corporation's continuing operations, principally through its
life insurance subsidiaries, maintain an investment portfolio which aggregated
$22.2 billion at June 30, 1994. Of this amount $20.5 billion represents its
investment in fixed maturities. At June 30, 1994, 95.9% of the fixed
maturities was rated as "investment grade" with an additional 3.2% rated in
<PAGE>
Page 10
the BB category or its equivalent. Fixed maturity investments are generally
held for long-term investment and used primarily to support life insurance
policy liabilities. The amortized cost of delinquent below investment grade
securities, before provision for impairment in value, was $30.2 million at
June 30, 1994 compared to $31.1 million at December 31, 1993. Provision for
impairment in value has been made to reduce the amortized cost of certain
fixed maturity investments by $103.1 million at June 30, 1994 and $104 million
at December 31, 1993.
Additionally, $485.7 million (2.2% of the investment portfolio), net of
allowance for losses of $62.1 million, was invested in mortgage loans and real
estate including $363.2 million in commercial mortgage loans, $34.1 million in
residential mortgage loans, $109 million in real estate investments and
$41.5 million in foreclosed real estate. Foreclosed commercial real estate
decreased $11.8 million (22.1%) from December 31, 1993 to June 30, 1994 due
primarily to the sale of foreclosed properties. Problem loans, defined as
delinquent loans and restructured loans yielding less than 8%, totaled
$23.8 million at June 30, 1994. Problem loans increased $5.3 million from
December 31, 1993 to June 30, 1994. Allowances for possible losses of
$62.1 million at June 30, 1994 and $70.7 million at December 31, 1993 have
been established to cover possible losses from mortgage loans and real estate
investments.
In the normal course of its operations, Transamerica hedges some of its
interest rate risk with financial instrument derivatives. Such derivatives
comprise primarily interest rate swap agreements and interest rate floor
agreements. The operations of the Company are subject to risk of interest
rate fluctuations to the extent that there is a difference between the cash
flows from the Company's interest-earning assets and the cash flows related to
its liabilities that mature or are repriced in specified periods. While
Transamerica is exposed to credit risk in the event of nonperformance by the
other party, nonperformance is not anticipated due to the credit rating of the
counterparties. At June 30, 1994 the interest rate swap and floor agreements
are with banks rated A or better by one or more of the major credit rating
agencies.
Transamerica enters into interest rate floor agreements, which provide
for the receipt of payments in the event interest rates fall below specified
levels, and interest rate swap agreements, which generally provide that one
party pays interest at a floating rate and the other party pays interest at a
fixed rate. Interest rate floors are intended to mitigate the Company's risk
of reinvesting the cash flow it receives from calls and redemptions on its
investment portfolio at lower interest rates. Interest rate swap agreements
are intended to help the Company to more closely match the cash flow received
from its assets to the payments on its liabilities.
The interest rate floor contracts and certain of the interest rate swap
contracts are designated as hedges of a portion of the investment portfolio
and to the extent those investments are marked to market, the hedge agreements
are also marked to market. At June 30, 1994, such interest rate swap
contracts comprise agreements in which Transamerica receives floating rate
interest and pays a weighted average fixed rate of 6.32% on a notional amount
of $133 million and had agreements whereby it receives fixed rate payments, at
a weighted average rate of 5.22%, and pays floating rate interest to the
<PAGE>
Page 11
contracting party on the notional amount of $30 million. The interest rate
floor agreements at June 30, 1994 were on a notional amount of $560.5 million
with a weighted average interest rate of 6.22%. The fair value of these
agreements at June 30, 1994, determined on a net present value basis, was a
net benefit from counterparties of $3.7 million comprising a gross benefit of
$12.8 million and a gross obligation of $9.1 which resulted in a $2.4 million
unrealized after tax gain recorded in shareholders' equity.
The remaining interest rate swap contracts are designated as hedges of a
portion of Transamerica's liabilities and outstanding indebtedness. These
agreements are accounted for as hedges, and their cost is amortized over the
shorter of the lives of the contracts or the lives of the related liabilities.
At June 30, 1994 such contracts comprise agreements in which Transamerica pays
floating rate interest and receives fixed rate payments, at a weighted average
rate of 5.88%, on the notional amount of $591.5 million; agreements whereby it
makes fixed rate payments, at a weighted average interest rate of 6.84%, and
receives floating rate interest on the notional amount of $850 million and
had agreements whereby it makes floating rate payments referenced to one index
and receives floating rate interest referenced to another index on the
notional amount of $101 million. The net present value of these interest
rate swap agreements, which offset changes in the fair value of the hedged
liabilities and indebtedness, which in accordance with generally accepted
accounting principles are also carried at amortized cost, resulted in a net
obligation to counterparties of $27.6 million comprising a gross obligation of
$36.7 million and a gross benefit of $9.1 million.
In the first quarter of 1994 Transamerica adopted Statement of Financial
Accounting Standards No. 115, Accounting for Certain Investments in Debt and
Equity Securities. This new standard requires Transamerica to report at fair
value those investments which it does not have the positive intent and ability
to hold to maturity. There is no effect on the income statement. To the
extent the securities marked to fair value relate to interest sensitive
insurance products an adjustment to deferred policy acquisition costs is also
made. The effect of these adjustments, net of federal income taxes, is
recorded in a separate component of shareholders' equity. All of
Transamerica's investments in debt securities have been classified as
available for sale at June 30, 1994. As of that date the unrealized loss
included in shareholders' equity as a result of adopting this new accounting
standard was $14.9 million.
The net unrealized gain from investments marked to fair value, after
related taxes and deferred acquisition cost adjustments, which is included in
shareholders' equity decreased $51.4 million during the six months ended
June 30, 1994 and increased $19.6 million during the first six months of 1993.
The net unrealized gain decreased $226.1 million and increased $5.9 million
during the second quarters of 1994 and 1993. As discussed in the preceding
paragraph, 1994 amounts reflect the adoption of Statement of Financial
Accounting Standards No. 115.
Changes in the earnings, capital requirements and liquidity of the
Corporation's consolidated operations are best understood by considering the
Corporation's separate business segments, which are discussed below.
<PAGE>
Page 12
<TABLE>
REVENUES AND INCOME BY LINE OF BUSINESS
<CAPTION>
Six months ended June 30, Second quarter
Revenues Income Income
1994 1993 1994 1993 1994 1993
(Amounts in millions)
<S> <C> <C> <C> <C> <C> <C>
Consumer lending $ 338.4 $ 322.9 $ 45.7 $ 47.7 $ 24.3 $ 23.5
Commercial lending 185.0 187.5 25.4 16.7 14.0 9.1
Leasing 285.2 193.3 28.7 26.9 15.7 13.7
Real estate services 164.4 147.7 40.5 39.2 15.9 19.6
Amortization of goodwill (6.6) (6.5) (3.3) (3.3)
________ ________ ______ ______ ______ ______
Finance 973.0 851.4 133.7 124.0 66.6 62.6
Life insurance 1,606.4 1,494.9 121.9 134.2 63.0 75.7
Asset management 21.1 22.1 1.6 0.1 0.8 0.3
Amortization of goodwill (0.8) (0.8) (0.4) (0.4)
________ ________ ______ ______ ______ ______
Insurance 1,627.5 1,517.0 122.7 133.5 63.4 75.6
Unallocated investment
transactions, interest
and expenses, less
related income taxes (2.1) (5.9) (47.0) (47.2) (24.3) (20.9)
________ ________ ______ ______ ______ ______
Total revenues and
income from continuing
operations $2,598.4 $2,362.5 $209.4 $210.3 $105.7 $117.3
======== ======== ====== ====== ====== ======
</TABLE>
Consumer Lending
Consumer lending income, before the amortization of goodwill, for the
first half of 1994 decreased $2 million (4%) from the first half of 1993 and
for the second quarter of 1994 increased $800,000 (3%) over the second quarter
of 1993. Excluding a $5.3 million benefit ($3.1 million after tax) recorded
in the second quarter of 1993 from the reversal of reserves related to a 1990
securitization and sale of receivables, results for the first half and second
quarter of 1994 increased $1.1 million (2%) and $3.9 million (19%) over the
corresponding 1993 periods due to higher revenues and lower interest expense
that more than offset increased operating expenses and an increased provision
for losses on receivables.
Revenues increased $15.5 million (5%) and $12.4 million (8%) in the first
half and second quarter of 1994 over the corresponding periods of 1993 mainly
due to increased finance charges resulting from higher average owned finance
receivables outstanding and higher fees due to an increased volume of real
estate secured loans.
<PAGE>
Page 13
Interest expense for the first half and second quarter of 1994 declined
$4.5 million (4%) and $1.4 million (2%) from the corresponding periods of 1993
due to lower average interest rates. Operating expenses for the first half
and second quarter of 1994 increased $17.7 million (20%) and $11.7 million
(27%) over the corresponding periods of 1993. Excluding the $5.3 million
reserve reversal recorded in the second quarter of 1993, operating expenses in
the first half and second quarter of 1994 increased $12.4 million (13%) and
$6.4 million (13%) mainly due to an increase in the number of branches, from
534 at June 30, 1993 to 582 at June 30, 1994, and costs of developing new loan
products. The provision for losses on receivables for the first half of 1994
increased due to increased credit losses and increased growth in net finance
receivables over the first half of 1993. The provision for the second quarter
of 1994 increased due to increased growth in net finance receivables over the
second quarter of 1993 which more than offset a reduction in the provision
requirement due to slightly lower credit losses in the 1994 period. The
provision for the first half and second quarter of 1994 increased
$7.2 million (24%) and $1.8 million (10%). Credit losses, net of recoveries,
on an annualized basis as a percentage of average consumer finance receivables
outstanding, net of unearned finance charges and insurance premiums, were
1.84% and 1.75% for the first half and second quarter of 1994 compared to
1.56% and 1.87% for the first half and second quarter of 1993. Credit losses
increased in the first half of 1994 mainly due to continued sluggishness in
the California economy and a continued weak California real estate market.
Net consumer finance receivables at June 30, 1994 included $3.2 billion
of real estate secured loans, principally first and second mortgages secured
by residential properties, of which approximately 48% are located in
California. Company policy generally limits the amount of cash advanced on
any one loan, plus any existing mortgage, to between 70% and 80% (depending on
location) of the appraised value of the mortgaged property, as determined by
qualified independent appraisers at the time of loan origination.
Delinquent finance receivables, which are defined as receivables
contractually past due 60 days or more, were $83.7 million (2.07% of finance
receivables outstanding) at June 30, 1994 compared to $78.8 million (2.01% of
finance receivables outstanding) at December 31, 1993 and $74.8 million (1.92%
of finance receivables outstanding) at June 30, 1993. Management has
established an allowance for losses equal to 2.83% of net consumer finance
receivables outstanding at June 30, 1994, December 31, 1993 and June 30, 1993.
Generally, by the time an account secured by residential real estate
becomes past due 90 days, foreclosure proceedings have begun, at which time
the account is moved from finance receivables to other assets and is written
down to the estimated realizable value of the collateral if less than the
account balance. After foreclosure, repossessed assets are carried at the
lower of cost or fair value less estimated selling costs. Accounts in
foreclosure and repossessed assets held for sale totaled $236.1 million at
June 30, 1994 compared to $214.7 million at December 31, 1993 and
$190.3 million at June 30, 1993. The increases primarily reflect higher
inventory in California due to its continuing weak real estate market.
<PAGE>
Page 14
Commercial Lending
Commercial lending income, before the amortization of goodwill, for the
first half and second quarter of 1994 increased $8.7 million (52%) and
$4.9 million (54%) over 1993's first half and second quarter. The increases
were primarily due to a lower provision for losses on receivables and stronger
year-to-date margins. Stronger margins were a result of the higher spread
between the indices at which the commercial lending operation lends to
customers and the indices at which funds are borrowed.
Revenues in the first half of 1994 decreased $2.5 million (1%) and
increased in the second quarter of 1994 $1.8 million (2%) from the
corresponding periods of 1993. This was primarily a result of reduced yields
attributable to the low interest rate environment during the first quarter of
1994, which was partially offset by increased yields during the second quarter
of 1994 as a result of rising interest rates.
Interest expense declined $4.9 million (8%) compared to the first half of
1993 primarily as a result of a lower average interest rate. Interest
expense increased $400,000 (1%) during the second quarter of 1994 compared to
the second quarter of 1993 primarily as a result of the current rising
interest rate environment. Operating expenses declined $2.2 million (3%) and
$100,000 (-%) during the first half and second quarter of 1994 from the same
periods in 1993 primarily due to reduced expenses incurred relating to the
management of the liquidating portfolio. The provision for losses on
receivables in the first half of 1994 was $8.9 million (45%) less than in the
first half of 1993 principally due to lower credit losses and lower nonearning
and delinquent receivables. The provision for losses on receivables in the
second quarter of 1994 was $6.7 million (64%) less than the second quarter of
1993 principally due to lower nonearning and delinquent receivables, offset in
part by slightly higher credit losses. Credit losses, net of recoveries, on
an annualized basis as a percentage of average commercial finance receivables
outstanding, net of unearned finance charges, were 0.26% and 0.60% for the
first half and second quarter of 1994 compared to 1.01% and 0.45% for the
comparable periods of 1993.
Net commercial finance receivables outstanding decreased $35.7 million
(1%) from December 31, 1993 primarily attributable to a decline in the
liquidating portfolio while aggregate receivables in the core businesses
remained level. The allowance for losses was 2.96% of net commercial finance
receivables outstanding as of June 30, 1994 compared to 2.71% at December 31,
1993 and 3.32% at June 30, 1993.
Delinquent receivables, which are defined as the instalment balance for
inventory finance and business credit receivables and the receivable balance
for all other receivables over 60 days past due, were $20.9 million (0.71% of
receivables outstanding) at June 30, 1994 compared to $28.9 million (0.96% of
receivables outstanding) at December 31, 1993 and $49.8 million (1.70% of
receivables outstanding) at June 30, 1993.
<PAGE>
Page 15
Nonearning receivables, which are defined as balances from borrowers that
are over 90 days delinquent or at such earlier time as full collectibility
becomes doubtful, were $27.6 million (0.93% of receivables outstanding) at
June 30, 1994 compared to $33.6 million (1.12% of receivables outstanding) at
December 31, 1993 and $68.8 million (2.35% of receivables outstanding) at
June 30, 1993.
Assets held for sale as of June 30, 1994 totaled $55.7 million, net of a
$153.1 million valuation allowance, and consisted of rent-to-own finance
receivables of $91 million, repossessed rent-to-own stores of $106.6 million
and other repossessed assets of $11.2 million. Assets held for sale at
December 31, 1993 totaled $90.1 million, net of a $157 million valuation
allowance, and comprised rent-to-own finance receivables of $120.5 million,
repossessed rent-to-own stores of $107.2 million and other repossessed assets
of $19.4 million. Assets held for sale at June 30, 1993 totaled $152.2
million, net of a $108.5 million valuation allowance, and comprised rent-to-
own finance receivables of $136.9 million, repossessed rent-to-own stores of
$103.3 million and other repossessed assets of $20.5 million. Of the rent-to-
own finance receivables, $26.1 million were classified as both delinquent and
nonearning at June 30, 1994 compared to $27.5 million at December 31, 1993 and
$27.4 million at June 30, 1993.
Leasing
As previously discussed on Page 8, on March 15, 1994, the leasing
operation purchased substantially all of the assets of the container rental
businesses of Tiphook plc for $1,065 million in cash. The acquired fleet of
standard containers and tank containers totaled 363,000 units. The
transaction has been accounted for as a purchase and the operations of the
business acquired have been included in the results of the leasing operation
from the date of acquisition.
Leasing income, before the amortization of goodwill, for the first half
and second quarter of 1994, increased $1.8 million (7%) and $2 million (16%)
over the first half and second quarter of 1993 principally due to a larger
fleet size, higher fleet utilization in the rail trailer, chassis and European
trailer lines and an increased finance lease portfolio, partially offset by
lower gains on disposal of units and lower utilization and rates in the
standard container line.
Revenues for the first half and second quarter of 1994 increased
$91.9 million (48%) and $70.1 million (71%) over the corresponding 1993
periods. The increases were due to the Tiphook acquisition of standard and
tank containers, a larger fleet of new standard and refrigerated containers,
higher utilization in the rail trailer, chassis and European trailer product
lines and a larger finance lease portfolio.
Expenses increased $88 million (58%) and $66.1 million (86%) in the first
half and second quarter of 1994 over 1993's first half and second quarter
mainly due to higher ownership and operating costs of a larger fleet.
<PAGE>
Page 16
The combined utilization of standard containers, refrigerated containers,
domestic containers, tank containers and chassis averaged 81% for the first
half and 80% for the second quarter of 1994 compared to 82% for both the first
half and second quarter of 1993. Rail trailer utilization was 92% and 94% for
the first half and second quarter of 1994 compared to 88% and 89% for the
first half and second quarter of 1993. European trailer utilization was 96%
for both the first half and second quarter of 1994 compared to 87% and 89% for
the first half and second quarter of 1993.
Real Estate Services
Real estate services comprise Transamerica's real estate tax, property
management and other services.
Income for the first half of 1994 increased $1.3 million (3%) over the
first half of 1993 primarily due to high levels of mortgage refinancings and
higher levels of home sales in the first quarter of 1994.
Income for the second quarter of 1994 decreased $3.7 million (19%)
primarily due to a significant reduction in mortgage refinancings resulting
from higher interest rates.
Revenue for the first half of 1994 increased $16.7 million (11%) over the
comparable period of 1993 primarily as a result of increased business in the
first quarter of 1994 at the real estate tax service operation where new tax
service contracts were 9% higher in the first half of 1994 compared to the
corresponding period of 1993. Revenue for the second quarter of 1994
increased $300,000, less than 1%, over the second quarter of 1993 as increased
revenue from the other operations within the real estate services segment more
than offset a 15% decline in new tax service contracts.
Life Insurance
Income before investment transactions increased $5.7 million (5.3%) and
$1.9 million (3.6%) in the first half and second quarter of 1994 over the
comparable periods of 1993. The life insurance, living benefits, group
pension and reinsurance lines all experienced increases in income, excluding
net gains from investment transactions, resulting primarily from asset growth,
improved or maintained interest spreads and expense control. Net income for
the first six months and second quarter of 1994 decreased $12.3 million (9%)
and $12.7 million (17%) compared to the corresponding periods in 1993. Net
income included net after tax gains from investment transactions totaling
$7.1 million and $3.8 million in the first half and second quarter of 1994
compared to $25.1 million and $18.4 million in the same 1993 periods.
Investment transactions for the first six months of 1994 included after
tax gains of $13.7 million realized on the sale of investments compared to
$53.8 million for the corresponding period of 1993. As required by generally
accepted accounting principles, the amortization of deferred policy
acquisition costs was accelerated by $4 million in the first half of 1994 and
$5.9 million in the first half of 1993 due to the investment gains. The
accelerated amortization of deferred policy acquisition costs has been
included in investment transactions as an offset to the related gain.
Investment transactions in the first half of 1994 also reflected a downward
<PAGE>
Page 17
adjustment of $2.7 million after tax, compared to $22.8 million in the first
half of 1993, primarily for impairment in the value of certain nonperforming
fixed maturity investments.
Investment transactions for the second quarter of 1994 included after tax
gains of $5.7 million realized on the sale of investments compared to
$31.4 million for the corresponding period of 1993. The accelerated
amortization of deferred policy acquisition costs was $2.2 million and
$2.6 million in the second quarter of 1994 and 1993, respectively. The
adjustment for impairment in the value of certain nonperforming fixed maturity
investments was $10.4 million after tax in the second quarter of 1993.
Premiums and related income increased $133.1 million (22%) and
$94.9 million (30%) for the first six months and second quarter of 1994
compared to the corresponding periods in 1993 primarily due to higher sales of
traditional life insurance and annuity products, an increase in reinsurance
assumed and an increase in charges on interest sensitive policies.
Net investment income for the first six months and second quarter of 1994
increased $14.7 million (2%) and $2.5 million (1%) over the comparable 1993
periods due primarily to increased investments. Net investment income for the
first half and second quarter of 1994 included a $5.6 million and $1 million
addition to investment income related to the accretion of discounts on
securities called or expected to be called, compared to $23.6 million and
$8 million for the corresponding periods of 1993. The 1993 amounts were
offset in part by charges of $14.6 million and $6.1 million in the first half
and second quarter of 1993 and are included in other expenses which are
discussed in the following paragraph. Investment income for the first half of
1993 also included a $4.7 million reversal of accrued investment income on
defaulted securities.
Life insurance benefits and expenses increased $134.4 million (10%) in
the first half of 1994 compared to 1993's corresponding period principally due
to increases in policy reserves and benefits paid or provided attributable to
the larger base of life insurance and annuities in force, higher commission
expense on increased life insurance and annuity sales, and higher amortization
of deferred policy acquisition costs (exclusive of accelerated amortization
related to investment gains). Life insurance benefits and expenses increased
$90.9 million (14%) in the second quarter of 1994 compared to 1993's
corresponding period principally due to increases in policy reserves and
benefits paid or provided attributable to the larger base of life insurance
and annuities in force and higher commission expense on increased life
insurance and annuity sales. Other expenses include charges of $14.6 million
in the first six months of 1993 and $6.1 million in the second quarter of 1993
primarily attributable to the establishment of an allowance for possible loss
related to the sale of a business unit in 1991, anticipated guaranty fund
assessments and an additional provision for the realignment and relocation of
certain back office support functions to Kansas City.
Cash provided by operations for the first six months of 1994 was
$167.8 million which was $293.8 million (64%) below the 1993 amount primarily
as a result of the timing in the settlement of certain receivables and
payables, including reinsurance receivables and payables. The company
continues to maintain a sufficiently liquid portfolio to cover its operating
requirements, with remaining funds being invested in longer term securities.
<PAGE>
Page 18
Asset Management
Asset management income, before goodwill amortization, for the first six
months of 1994 was $1.6 million compared to $100,000 for the first six months
of 1993 and for the second quarter of 1994 was $800,000 compared to $300,000
for the comparable period of 1993. The improvement was due primarily to
higher revenues from increased assets under management.
Unallocated Investment Transactions, Interest and Expenses
Unallocated investment transactions, interest and expenses, after
related income taxes, for the first six months of 1994 decreased $200,000 (-%)
from the first six months of 1993. The decrease was principally due to lower
interest expense on lower outstanding debt, offset in part by higher salary
and benefit costs as a result of centralizing certain administrative
functions.
Unallocated investment transactions, interest and expenses, after taxes,
for the second quarter of 1994 increased $3.4 million (16%) compared to the
second quarter of 1993. The increase was principally due to higher salary and
benefit costs as a result of centralizing certain administrative functions and
an after tax provision for possible losses on notes receivable of
$1.7 million.
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
EX-11 Statement Re: Computation of Per Share Earnings.
EX-12 Computation of Ratio of Earnings to Fixed Charges.
(b) Reports on Form 8-K. None.
Signatures
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.
TRANSAMERICA CORPORATION
(Registrant)
Burton E. Broome
Vice President and Controller
(Chief Accounting Officer)
Date: August 11, 1994
<PAGE>
EXHIBIT EX-11
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
TRANSAMERICA CORPORATION
Six months ended June 30,
1994 1993
(Dollar amounts in millions,
except for share data)
Primary
Average shares outstanding 75.0 79.3
Net effect of dilutive stock options--
based on the treasury stock method
using average market price 1.4* 1.2*
____ ____
TOTAL 76.4 80.5
==== ====
Net income $208.7 $215.7
Preferred dividends (11.9) (11.9)
______ ______
Net income to common $196.8 $203.8
====== ======
Per share amount $2.62 $2.57
===== =====
Fully Diluted
Average shares outstanding 75.0 79.3
Net effect of dilutive stock options--
based on the treasury stock method
using the market price at quarter end
if higher than the average market
price for three months 1.4* 1.6*
____ ____
TOTAL 76.4 80.9
==== ====
Net income $208.7 $215.7
Preferred dividends (11.9) (11.9)
______ ______
Net income to common $196.8 $203.8
====== ======
Per share amount $2.62 $2.57
===== =====
*Not included in per share calculation because effect is less
than 3%.
<PAGE>
EXHIBIT EX-12
TRANSAMERICA CORPORATION AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
Six Months Ended
June 30,
1994 1993
(Dollar amounts in
millions)
Fixed charges:
Interest and debt expense $265.1 $263.5
One-third of rental expense 15.6 14.3
______ ______
Total $280.7 $277.8
====== ======
Earnings:
Consolidated income from
continuing operations $209.4 $210.3
Provision for income taxes 126.0 122.6
Fixed charges 280.7 277.8
______ ______
Total $616.1 $610.7
====== ======
Ratio of earnings from continuing
operations to fixed charges 2.19 2.20
==== ====
