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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 March 31, 1995
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 April 28, 1995: 69,293,626 shares.
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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 March 31,
1995 and 1994, 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, 1994. 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.
On March 31, 1995, Transamerica acquired a portfolio of approximately
40,000 home equity loans from ITT Consumer Financial Corporation for
$1,029.3 million in cash. For a discussion of this transaction see page 10 of
this document.
* * * * *
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 three 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.
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TRANSAMERICA CORPORATION AND SUBSIDIARIES
_____________
CONSOLIDATED BALANCE SHEET
Assets
March 31, December 31,
1995 1994
Investments, principally of life
insurance subsidiaries:
Fixed maturities $22,630.0 $21,037.0
Mortgage loans and real estate 461.1 455.5
Equity securities 488.7 427.2
Loans to life insurance policyholders 407.8 412.9
Short-term investments 194.5 163.7
_________ _________
24,182.1 22,496.3
Finance receivables 8,467.0 7,426.1
Less unearned fees ($278.3 in 1995
and $248.2 in 1994) and allowance for
losses 522.7 455.2
_________ _________
7,944.3 6,970.9
Cash and cash equivalents 85.1 64.3
Trade and other accounts receivable 2,695.3 2,610.3
Property and equipment, less accumulated
depreciation of $1,026.5 in 1995 and
$974.9 in 1994:
Land, buildings and equipment 375.2 360.7
Equipment held for lease 2,702.7 2,606.6
Deferred policy acquisition costs 2,222.9 2,480.5
Separate account assets 1,710.6 1,666.5
Goodwill, less accumulated amortization of
$126.7 in 1995 and $123.2 in 1994 440.2 443.7
Other assets 851.0 694.0
_________ _________
$43,209.4 $40,393.8
========= =========
(Amounts in millions)
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TRANSAMERICA CORPORATION AND SUBSIDIARIES
_________________
CONSOLIDATED BALANCE SHEET (Continued)
Liabilities and Shareholders' Equity
March 31, December 31,
1995 1994
Life insurance policy liabilities $25,448.0 $24,731.7
Notes and loans payable, principally of
finance subsidiaries, of which $2,260.2
in 1995 and $1,684 in 1994 matures
within one year 10,398.5 9,173.1
Accounts payable and other liabilities 1,955.7 1,627.5
Income taxes 361.4 259.2
Separate account liabilities 1,710.6 1,666.5
Minority interest in preferred securities
of affiliate 200.0 200.0
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 4.66% in 1995 and 4.76% in 1994 225.0 225.0
Outstanding--Series D, 180,591 shares in
1995 and 181,642 shares in 1994, at
liquidation preference of $500 per
share, cumulative dividend rate of 8.5% 90.3 90.8
Preference Stock (without par value)--
5,000,000 shares authorized; none
outstanding
Common Stock ($1 par value):
Authorized--150,000,000 shares
Outstanding--69,263,313 shares in 1995
and 69,395,099 shares in 1994, after
deducting 10,475,149 shares and
10,343,363 shares in treasury 69.3 69.4
Additional paid-in capital 86.5 96.5
Retained earnings 2,614.5 2,557.4
Net unrealized gain (loss) from investments
marked to fair value 80.9 (265.1)
Foreign currency translation adjustments (31.3) (38.2)
_________ _________
3,135.2 2,735.8
_________ _________
$43,209.4 $40,393.8
========= =========
(Amounts in millions except for share data)
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TRANSAMERICA CORPORATION AND SUBSIDIARIES
_______________
CONSOLIDATED STATEMENT OF INCOME
Three months ended
March 31,
1995 1994
REVENUES
Life insurance premiums and related
income $ 425.5 $ 330.5
Investment income 479.7 432.0
Finance charges and other fees 270.1 246.3
Leasing revenues 169.0 113.6
Real estate and tax service revenues 43.0 82.2
Gain on investment transactions 3.1 2.6
Other 30.1 28.2
________ ________
1,420.5 1,235.4
EXPENSES
Life insurance benefits 659.1 546.3
Life insurance underwriting, acquisition
and other expenses 145.7 131.0
Leasing operating and maintenance costs 89.0 57.8
Interest and debt expense 168.3 122.6
Provision for losses on receivables 25.9 24.2
Other, including administrative and general
expenses 181.8 188.3
________ ________
1,269.8 1,070.2
________ ________
150.7 165.2
Income taxes 54.4 61.5
________ ________
Income from continuing operations 96.3 103.7
Loss from discontinued operations (0.7)
________ ________
Net income $ 96.3 $ 103.0
======== ========
Earnings per share of common stock (based
on weighted average number of shares
outstanding of 69,201,000 in 1995 and
75,811,000 in 1994 after deduction of
preferred dividends):
Income from continuing operations
before investment transactions $1.30 $1.27
Gain on investment transactions 0.03 0.02
_____ _____
Income from continuing operations 1.33 1.29
Loss from discontinued operations (0.01)
_____ _____
Net income $1.33 $1.28
===== =====
Dividends per share of common stock $0.50 $0.50
===== =====
Ratio of earnings to fixed charges 1.86 2.27
(Dollar amounts in millions except for share data)
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TRANSAMERICA CORPORATION AND SUBSIDIARIES
____________
CONSOLIDATED STATEMENT OF RETAINED EARNINGS
Three months ended
March 31,
1995 1994
Balance at beginning of year $2,557.4 $2,297.9
Net income 96.3 103.0
Dividends on common stock (34.6) (37.9)
Dividends on preferred stock (4.6) (5.9)
________ ________
Balance at end of period $2,614.5 $2,357.1
======== ========
CONSOLIDATED STATEMENT OF CASH FLOWS
Three months ended
March 31,
1995 1994
OPERATING ACTIVITIES
Income from continuing operations $ 96.3 $ 103.7
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 107.6 257.4
Amortization of policy acquisition costs 55.9 53.6
Policy acquisition costs deferred (102.9) (81.8)
Depreciation and amortization 71.4 47.4
Other 85.6 45.9
________ ________
Net cash provided by continuing operations 313.9 426.2
INVESTING ACTIVITIES
Finance receivables originated (4,840.7) (4,135.0)
Finance receivables collected 4,716.5 3,893.2
Purchase of investments (1,407.2) (2,156.3)
Sales and maturities of investments 663.7 1,852.3
Purchase of the container division assets
of Tiphook plc (1,061.4)
Purchase of finance receivables and other
assets from ITT Consumer Finance
Corporation (1,029.3)
Other (173.7) (159.1)
________ ________
Net cash used by investing activities (2,070.7) (1,766.3)
FINANCING ACTIVITIES
Proceeds from debt financing 2,963.2 2,831.6
Payment of notes and loans (1,753.5) (1,610.3)
Receipts from interest-sensitive policies
credited to policyholder account balances 1,372.9 965.8
Return of policyholder balances on
interest-sensitive policies (755.2) (722.4)
Other common stock transactions 9.8 2.7
Redemption of preferred stock (0.5)
Treasury stock purchases (19.9) (75.4)
Dividends (39.2) (43.8)
________ ________
Net cash provided by financing activities 1,777.6 1,348.2
________ ________
Increase in cash and cash equivalents 20.8 8.1
Cash and cash equivalents at beginning
of year 64.3 92.7
________ ________
Cash and cash equivalents at end of period $ 85.1 $ 100.8
======== ========
(Amounts in millions)
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Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Consolidated Results
Transamerica's income from continuing operations for the first quarter of
1995 decreased $7.4 million (7%) compared to the first quarter of 1994.
Income from continuing operations for the first quarter of 1995 included net
after tax gains from investment transactions aggregating $2 million compared
to $1.7 million in the first quarter of 1994. Income from continuing
operations before investment transactions decreased $7.7 million (8%) due
primarily to decreases in real estate services and asset management and
consumer lending operating results and higher unallocated interest and
expenses. Partially offsetting these decreases were improvements in life
insurance, commercial lending and leasing operating results.
Gain (loss) on investment transactions, pretax, included in consolidated
revenues, comprises (amounts in millions):
Three months ended
March 31,
1995 1994
Net gain on sale of investments $ 6.2 $12.9
Adjustment for impairment in value (3.9) (7.5)
Adjustment to amortization of
deferred policy acquisition costs 0.8 (2.8)
_____ _____
$ 3.1 $ 2.6
===== =====
As required by generally accepted accounting principles, the amortization
of deferred policy acquisition costs was adjusted due to losses or gains
realized on the sale of certain investments. The adjustment to the
amortization of deferred policy acquisition costs has been included in
investment transactions as an offset to the related gains or losses.
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.
Operating Income by Line of Business
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.
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REVENUES AND INCOME BY LINE OF BUSINESS
Three months ended March 31,
Revenues Income
1995 1994 1995 1994
(Amounts in millions)
Consumer lending $ 171.8 $ 163.3 $17.7 $ 21.4
Commercial lending 110.8 89.9 18.0 11.4
Leasing 175.7 116.7 16.3 13.0
Amortization of goodwill (3.3) (3.3)
________ ________ _____ ______
Finance 458.3 369.9 48.7 42.5
Life insurance 900.7 767.6 62.8 58.9
Real estate services and
asset management 61.0 99.7 3.9 25.4
Amortization of goodwill (0.2) (0.4)
________ ________ _____ ______
Real estate services
and asset management 61.0 99.7 3.7 25.0
Unallocated investment
transactions, interest
and expenses, less
related income taxes 5.3 (1.8) (18.9) (22.7)
Consolidation eliminations (4.8)
________ ________ _____ ______
Total revenues and
income from continuing
operations $1,420.5 $1,235.4 $96.3 $103.7
======== ======== ===== ======
Consumer Lending
Consumer lending net income for the first quarter of 1995 was
$17.6 million compared to $21.4 million for the first quarter of 1994.
Consumer lending income before the amortization of goodwill for the first
quarter of 1995 decreased $3.7 million (18%) from the first quarter of 1994
mainly due to reduced yields, increased interest expense and an increased
provision for losses on receivables. Reduced yields reflected lower pricing
introduced in mid-1994 to counteract increased competition (principally in
California) and a decline in mortgage refinancing activity which substantially
reduced fee income.
Revenues increased $8.5 million (5%) in the first quarter of 1995
compared to 1994's first quarter mainly due to increased finance charges
resulting from higher average finance receivables outstanding which more than
offset the decline in the yield.
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Interest expense increased $9.8 million (17%) in the first quarter of
1995 over the first quarter of 1994 due to the cost of increased borrowings as
a result of the higher level of finance receivables outstanding and an
increase in short-term interest rates. The provision for losses on
receivables increased $3.5 million (20%) due to growth in finance receivables
compared to 1994's first quarter and increased credit losses mainly due to the
higher level of finance receivables. 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
1.82% for the first quarter of 1995 compared to 1.93% for the first quarter of
1994.
Net consumer finance receivables outstanding, excluding $955 million of
net finance receivables purchased from ITT on March 31, 1995, increased
$59.8 million (1%) in the first quarter of 1995 compared to a decrease of
$24.6 million (1%) in the first quarter of 1994. Net consumer finance
receivables at March 31, 1995, excluding the receivables purchased on
March 31, 1995, included $3.4 billion of real estate secured loans,
principally first and second mortgages secured by residential properties, of
which 44% 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, excluding the receivables purchased
from ITT on March 31, 1995, were $93.5 million (2.12% of finance receivables
outstanding) at March 31, 1995 compared to $90.2 million (2.08% of finance
receivables outstanding) at December 31, 1994. The increase reflects higher
delinquent non-real estate secured receivables offset in part by a decline in
delinquent real estate secured receivables. The increase in delinquent non-
real estate secured receivables reflects the changing mix of products in the
portfolio and the introduction of new products with higher delinquency
experience. Management has established an allowance for losses equal to 2.83%
of net consumer finance receivables outstanding at March 31, 1995 and December
31, 1994, excluding the receivables purchased from ITT on March 31, 1995.
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, excluding $28.7 million of
repossessed assets purchased from ITT on March 31, 1995, totaled
$235.2 million at March 31, 1995 compared to $226.1 million at December 31,
1994. The increase reflects higher inventory in California and in other
states. The increase in California is due to California's continuing weak
real estate market and resultant longer disposal times. The increase in other
states is mainly due to the higher level of finance receivables in such
states. Since future improvement may be impacted by factors such as economic
conditions and the state of the real estate market, the extent and timing of
any change in the trend of foreclosures and repossessed assets remains
uncertain.
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On March 31, 1995, the consumer lending operation purchased from ITT net
consumer finance receivables of $1,011 million with an estimated fair value of
$955 million and repossessed assets at an estimated fair value of $28.7
million for $1,029.3 million in cash. The purchased receivables were all real
estate secured, of which 14% are located in California. As a result, the
total consumer finance portfolio at March 31, 1995 included $4.4 billion of
real estate secured loans, of which 37% are located in California. The
purchased receivables included $145.5 million of receivables contractually
past due 60 days or more with an estimated fair value of $107.6 million,
representing 10.87% of the purchased finance receivables outstanding. An
allowance for losses of $52.5 million has been established for the purchased
receivables. The $109.1 million excess of the cash purchase price over the
estimated fair value of the acquired assets (net of assumed liabilities of
$11 million associated with the portfolio) has been included in other assets
as customer renewal rights. The consumer lending operation did not assume any
borrowings, tax liabilities or contingent liabilities of ITT. The purchase
price has been allocated to the assets acquired based on the best information
currently available as to the fair value of those assets. Investigations and
evaluations to be carried out subsequent to the acquisition may provide a more
accurate assessment of those fair values, in which case some modification of
the allocation will be required.
Commercial Lending
Commercial lending net income for the first quarter of 1995 was
$15.3 million compared to $8.7 million for the first quarter of 1994. Income
before the amortization of goodwill for the first quarter of 1995 increased
$6.6 million (58%) over the first quarter of 1994. The increase, which
resulted mainly from stronger margins, included a $2.8 million after tax gain
from the sale in 1995 of a portfolio of consumer rediscount loans. Stronger
margins, which continued into the first quarter, were a result of the higher
spread between the indices at which the commercial lending operation lent to
customers and the indices at which funds were borrowed. Lower operating
expenses and a lower provision for losses on receivables also contributed to
the increase.
Revenues in the first quarter of 1995 increased $20.9 million (23%) over
the first quarter of 1994 mainly due to a higher average portfolio yield
attributable to higher interest rates and the gain on sale of the rediscount
loan portfolio.
Interest expense increased $13.2 million (54%) in the first quarter of
1995 over the first quarter of 1994 due to an increased average rate on
borrowings resulting from higher short-term interest rates. Operating
expenses declined $1.2 million (3%) mainly as a result of the elimination of
expenses incurred in the management of the rent-to-own receivables portfolio
which was sold, at no gain or loss, in January 1995. The provision for losses
on receivables declined $1.8 million (26%) principally due to the sale of the
consumer rediscount loan portfolio, which allowed current reserve levels to
cover existing receivables. Credit losses, net of recoveries, on an
annualized basis as a percentage of average commercial finance receivables
outstanding, net of unearned finance charges, were 0.71% for the first quarter
of 1995 compared to a negative 0.08% for the first quarter of 1994 when
recoveries on previously recorded losses exceeded credit losses.
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In February 1995, commercial lending sold for cash a portfolio consisting
of consumer rediscount loans with a net outstanding receivable balance of
$118 million. The transaction resulted in an after tax gain of $2.8 million.
Also, in February 1995, the commercial lending operation amended its existing
securitization arrangement under which it had previously securitized, with
limited recourse, an interest in a $375 million pool of insurance premium
finance receivables by securitizing an additional $100 million and increasing
the eligible pool to $475 million for a three year term. These
securitizations have been accounted for as sales. In March 1995, the
commercial lending operation made a decision to exit its operations in Puerto
Rico. This decision resulted in the reclassification of $47.5 million of net
finance receivables to assets held for sale which is included in other assets
in the consolidated balance sheet. Amounts for prior periods have not been
reclassified.
Net commercial finance receivables outstanding decreased $4 million (-%)
in 1995 from December 31, 1994 due to the sale of the consumer rediscount
portfolio, the reclassification of Puerto Rico receivables to assets held for
sale, and the securitization and sale of an additional $100 million of
insurance premium finance receivables. These decreases were offset by
receivable growth in inventory finance due to increased volume. Management
has established an allowance for losses equal to 2.41% of net commercial
finance receivables outstanding at March 31, 1995 compared to 2.96% at
December 31, 1994. This decrease is primarily the result of reclassifying the
Puerto Rico receivables, which had a larger reserve requirement, to assets
held for sale.
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 $10 million (0.33% of
receivables outstanding) at March 31, 1995 compared to $19.1 million (0.62% of
receivables outstanding) at December 31, 1994. Delinquent receivables
declined primarily due to the reclassification of the Puerto Rico receivables
portfolio to assets held for sale.
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 $16.6 million (0.54% of receivables outstanding) at
March 31, 1995 compared to $23.3 million (0.75% of receivables outstanding) at
December 31, 1994. Nonearning receivables declined primarily due to the
reclassification of the Puerto Rico receivables portfolio to assets held for
sale.
Assets held for sale at March 31, 1995 totaled $34.7 million net of a
$42.7 million valuation allowance, and consisted of rent-to-own finance
receivables of $6.1 million, Puerto Rico assets of $56.9 million and other
assets of $14.4 million. Assets held for sale at December 31, 1994 totaled
$10.9 million, net of a $65.1 million valuation allowance, and consisted of
rent-to-own finance receivables of $72.4 million and other assets of
$3.6 million. Of the finance receivables held for sale at March 31, 1995,
$7.9 million were classified as delinquent and $5.8 million were classified as
nonearning compared to $24.5 million classified as both delinquent and
nonearning at December 31, 1994.
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Leasing
Leasing net income for the first quarter of 1995 was $15.8 million
compared to $12.5 million for the first quarter of 1994. Leasing income
before the amortization of goodwill for the first quarter of 1995 increased
$3.3 million (26%) over the first quarter of 1994 mainly due to more on hire
standard and tank containers and European trailers. In addition, higher gains
were experienced on the sale of equipment and increased earnings in the
finance lease business due to a larger lease portfolio. Partially offsetting
these increases were lower earnings in the rail trailer business, which
experienced a downturn in utilization.
Revenues for the first quarter of 1995 increased $59 million (51%) over
the first quarter of 1994. The increase was primarily due to a larger
standard and tank container fleet, principally as a result of the acquisition
of the container division assets of Tiphook plc in March 1994, and higher
utilization in the standard and tank container lines.
Expenses for the first quarter of 1995 increased $53.2 million (55%) over
the first quarter of 1994 mainly due to higher ownership and operating costs
due to the larger container fleet.
The combined utilization of standard containers, refrigerated containers,
domestic containers, tank containers and chassis averaged 84% for the first
quarter of 1995 compared to 82% during the first quarter of 1994. Rail
trailer utilization was 78% for the first quarter of 1995 compared to 90% in
the first quarter of 1994. European trailer utilization was 96% for the
first quarters of 1995 and 1994.
Life Insurance
Net income for the first quarter of 1995 increased $3.9 million (7%)
compared to the first quarter of 1994. Net income included net after tax
losses from investment transactions of $1 million in the first quarter of 1995
compared to net after tax gains from investment transactions of $3.3 million
in the first quarter of 1994. Income before investment transactions for the
first quarter of 1995 increased $8.2 million (15%) over the first quarter of
1994. The individual life insurance, structured settlements, living
benefits, group pension and reinsurance lines all experienced increases in
income before investment transactions in the first quarter of 1995 primarily
as a result of maintained interest spreads on a larger asset base, increased
charges on a larger base of interest-sensitive policies and favorable
mortality experienced in the reinsurance line.
Investment transactions for the first quarter of 1995 included after tax
gains of $1 million realized on the sale of investments compared to $8 million
in the first quarter of 1994. To the extent the investments sold relate to
interest-sensitive insurance products an adjustment to deferred policy
acquisition costs is also made. The adjustment to deferred policy acquisition
costs is recorded as an offset to the related investment losses or gains. In
the first quarter of 1995 investment transactions related to interest-
sensitive products resulted in a loss, and the adjustment to the amortization
of deferred policy acquisition costs reduced the loss by $600,000. In the
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first quarter of 1994 investment transactions related to interest-sensitive
products resulted in a gain, and the accelerated amortization of deferred
policy acquisition costs reduced that gain by $1.8 million. Investment
transactions also reflected loss provisions of $2.6 million and $2.9 million
in the first quarters of 1995 and 1994 primarily for impairment in the value
of certain below investment grade fixed maturity investments.
Premiums and other income increased $94.9 million (29%) in the first
quarter of 1995 over the first quarter of 1994 primarily due to higher sales
of annuity products, an increase in reinsurance assumed and an increase in
charges on interest-sensitive policies.
Net investment income for the first quarter of 1995 increased $44.7
million (10%) over the first quarter of 1994 due primarily to increased
investments. Net investment income included $4.6 million of income in 1994
related to the accelerated accretion of discounts on securities called or
expected to be called compared to a $100,000 downward adjustment in 1995.
Life insurance benefit costs and expenses increased $127.6 million (19%)
in the first quarter of 1995 over the first quarter of 1994 principally due to
increases in benefits paid or provided attributable to the larger base of life
insurance and annuities in force and higher amortization of deferred policy
acquisition costs (exclusive of amortization adjustments related to
investment gains or losses).
Cash provided by operations for the first quarter of 1995 was
$73.4 million above the 1994 first quarter amount primarily as a result of the
timing in the settlement of certain receivables and payables, including
reinsurance receivables and payables. The life insurance operation continues
to maintain a sufficiently liquid portfolio to cover its operating
requirements, with remaining funds being invested in longer term securities.
Real Estate Services and Asset Management
Real estate services comprise Transamerica's real estate tax, property
management and other related services.
Income for the first quarter of 1995 decreased $21.5 million (85%) from
the first quarter of 1994 primarily due to a significant decline in real
estate tax service revenues caused by lower mortgage refinancings resulting
from higher interest rates.
Revenues for the first quarter of 1995 decreased $38.7 million (39%) from
the first quarter of 1994 as a result of decreased business at the real estate
tax service operation.
On May 2, 1995 Transamerica sold the assets of its asset management
subsidiary, Criterion Investment Management Company for gross proceeds of
approximately $60 million. The transaction resulted in a small gain.
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Unallocated Investment Transactions, Interest and Expenses
Unallocated investment transactions, interest and expenses, after
related income taxes, for the first quarter of 1995 decreased $3.8 million
(17%) from the first quarter of 1994. The decrease was principally due to
gains on investment transactions aggregating $3 million in 1995 compared to
investment losses of $1.6 million in 1994.
Corporate Liquidity
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 capital
requirements and expected returns. 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 31, 1995, Transamerica acquired a portfolio of approximately
40,000 home equity loans from ITT Consumer Financial Corporation (ITT) for
$1,029.3 million in cash which was funded primarily with long-term debt with
the remainder funded by short-term bank financing. For a discussion of this
transaction see page 10 of this document.
Investment Portfolio
Transamerica, principally through its life insurance subsidiaries,
maintains an investment portfolio aggregating $24.2 billion at March 31,
1995, of which $22.6 billion was invested in fixed maturities. At March 31,
1995, 96.3% of the fixed maturities was rated as "investment grade," with an
additional 2.7% in the BB category or its equivalent. The amortized cost of
fixed maturities was $22.8 billion resulting in a net unrealized gain
position, before the effects of income taxes, of $145 million at March 31,
1995. Fixed maturity investments are generally held for long-term investment
and used primarily to support insurance reserves. The amortized cost of
delinquent below investment grade securities, before provision for impairment
in value, was $9.9 million at March 31, 1995 compared to $12.4 million at
December 31, 1994. Adjustment for impairment in value has been recorded to
reduce certain fixed maturity investments by $87.5 million at March 31, 1995
and $92.1 million at December 31, 1994.
The net unrealized gain/loss from investments marked to fair value, after
related taxes and deferred acquisition cost adjustments, which is included in
shareholders' equity improved $346 million and $174.7 million during the
first quarters of 1995 and 1994. The 1994 improvement includes the effect of
adopting Statement of Financial Accounting Standards No. 115.
<PAGE>
Page 15
In addition to the investments in fixed maturities, $461.1 million (1.9%
of the investment portfolio) was invested in mortgage loans and real estate
including $381.7 million in commercial mortgage loans, $102.2 million in real
estate investments, $22.3 million in foreclosed real estate and $400,000 in
residential mortgage loans. Problem loans, defined as restructured loans
yielding less than 8% and delinquent loans, totaled $5.9 million at March 31,
1995. Problem loans decreased $1.8 million from December 31, 1994 to
March 31, 1995. Allowances for possible losses of $49.4 million at March 31,
1995 and $49.7 million at December 31, 1994 have been established to cover
possible losses from mortgage loans and real estate investments.
Derivatives
The operations of Transamerica are subject to risk of interest rate
fluctuations to the extent that there is a difference between the cash flows
from Transamerica's interest-earning assets and the cash flows related to its
liabilities that mature or are repriced in specified periods. In the normal
course of its operations, Transamerica hedges some of its interest rate risk
with derivative financial instruments. These derivatives comprise primarily
interest rate swap agreements, interest rate floor agreements, interest rate
cap agreements and options to enter into interest rate swap agreements
(swaptions).
Derivative financial instruments with a notional amount of $906.1 million
at March 31, 1995 and $835.3 million at December 31, 1994 and designated as
hedges of Transamerica's investment portfolio were outstanding. In addition,
derivative financial instruments with a notional amount of $2,411.5 million at
March 31, 1995 and $1,800.6 million at December 31, 1994 and designated as
hedges of Transamerica's liabilities were outstanding. The increase in the
notional amount outstanding of both asset and liability hedges in the quarter
ended March 31, 1995 reflects additional derivative contracts entered into due
to growth in the balances of the underlying hedged instruments.
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 March 31, 1995, the interest
rate swap, floor, cap and swaption agreements are with financial institutions
rated A or better by one or more of the major credit rating agencies. At
March 31, 1995 the fair value of Transamerica's derivative financial
instruments was a net benefit of $5.3 million comprising agreements with
aggregate gross benefits of $40.6 million and agreements with aggregate gross
obligations of $35.3 million.
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders.
At the Corporation's Annual Meeting of Stockholders held on April 27,
1995, its stockholders approved a number of proposals and nominations.
Results of these proposals and nominations were:
<PAGE>
Page 16
<TABLE>
<CAPTION>
Votes Votes Votes Broker--
For Against Withheld Abstentions Non--Votes
<S> <C> <C> <C> <C> <C>
Nomination for director:
James R. Harvey 57,776,287 600,107
Gordon E. Moore 57,792,044 584,350
Condoleezza Rice 57,757,426 618,968
Ratification of auditors 57,762,281 303,255 310,858
Approval of adoption of
the 1995 Performance
Stock Option Plan 46,334,544 5,242,427 1,125,037 5,674,386
</TABLE>
A total of 58,376,394 shares were present in person or by proxy at the Annual
Meeting.
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.
EX-27 Financial Data Schedule.
(b) Reports on Form 8-K. During the quarter ended March 31, 1995,
Transamerica filed a report on Form 8-K, dated March 3, 1995, announcing that
its board of directors had approved, subject to shareholder approval, the 1995
Performance Stock Option Plan.
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: May 10, 1995
<PAGE>
EXHIBIT EX-11
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
TRANSAMERICA CORPORATION
Three months ended March 31,
1995 1994
(Dollar amounts in millions,
except for share data)
Primary
Average shares outstanding 69.2 75.8
Net effect of dilutive stock options--
based on the treasury stock method
using average market price 1.3* 1.4*
____ ____
TOTAL 70.5 77.2
==== ====
Net income $ 96.3 $103.0
Preferred dividends (4.6) (5.9)
______ ______
Net income to common $ 91.7 $ 97.1
====== ======
Per share amount $1.33 $1.28
===== =====
Fully Diluted
Average shares outstanding 69.2 75.8
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 1.7* 1.4*
____ ____
TOTAL 70.9 77.2
==== ====
Net income $ 96.3 $103.0
Preferred dividends (4.6) (5.9)
______ ______
Net income to common $ 91.7 $ 97.1
====== ======
Per share amount $1.33 $1.28
===== =====
*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
Three Months Ended
March 31,
1995 1994
(Dollar amounts in
millions)
Fixed charges:
Interest and debt expense $168.3 $122.6
One-third of rental expense 6.0 7.5
______ ______
Total $174.3 $130.1
====== ======
Earnings:
Consolidated income from
continuing operations $ 96.3 $103.7
Provision for income taxes 54.4 61.5
Fixed charges 174.3 130.1
______ ______
Total $325.0 $295.3
====== ======
Ratio of earnings from continuing
operations to fixed charges 1.86 2.27
==== ====
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1995
<CASH> 85
<SECURITIES> 489
<RECEIVABLES> 2,695
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 3,078
<DEPRECIATION> 1,026
<TOTAL-ASSETS> 43,209
<CURRENT-LIABILITIES> 0
<BONDS> 0
<COMMON> 69
0
315
<OTHER-SE> 2,751
<TOTAL-LIABILITY-AND-EQUITY> 43,209
<SALES> 0
<TOTAL-REVENUES> 1,420
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,076
<LOSS-PROVISION> 26
<INTEREST-EXPENSE> 168
<INCOME-PRETAX> 150
<INCOME-TAX> 54
<INCOME-CONTINUING> 96
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 96
<EPS-PRIMARY> 1.33
<EPS-DILUTED> 1.33
</TABLE>
