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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 June 30, 1996
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 31, 1996: 66,160,481 shares, after deducting 13,577,981
shares in treasury.
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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 June 30, 1996
and 1995, 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, 1995. 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.
Results for the interim periods are not necessarily indicative of the results
for the entire year for most of the Corporation's businesses.
* * * * *
The consolidated ratios of earnings to fixed charges were computed by
dividing income 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.
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TRANSAMERICA CORPORATION AND SUBSIDIARIES
_____________
CONSOLIDATED BALANCE SHEET
Assets
June 30, December 31,
1996 1995
Investments, principally of life
insurance subsidiaries:
Fixed maturities $25,622.8 $26,076.1
Equity securities 829.6 703.2
Mortgage loans and real estate 771.3 594.5
Loans to life insurance policyholders 420.8 426.4
Short-term investments 169.3 226.5
_________ _________
27,813.8 28,026.7
Finance receivables 8,241.7 8,287.8
Less unearned fees ($257.7 in 1996
and $289.7 in 1995) and allowance for
losses 517.5 529.7
_________ _________
7,724.2 7,758.1
Cash and cash equivalents 92.1 67.6
Trade and other accounts receivable 2,016.0 3,130.1
Property and equipment, less accumulated
depreciation of $1,230.9 in 1996 and
$1,140.6 in 1995:
Land, buildings and equipment 443.7 411.5
Equipment held for lease 2,874.4 2,862.0
Deferred policy acquisition costs 2,214.5 1,974.2
Separate account assets 2,836.8 2,533.4
Goodwill, less accumulated amortization of
$137.4 in 1996 and $130.8 in 1995 395.9 402.4
Other assets 812.7 778.5
_________ _________
$47,224.1 $47,944.5
========= =========
(Amounts in millions)
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TRANSAMERICA CORPORATION AND SUBSIDIARIES
_________________
CONSOLIDATED BALANCE SHEET (Continued)
Liabilities and Stockholders' Equity
June 30, December 31,
1996 1995
Life insurance policy liabilities $27,823.5 $27,893.4
Notes and loans payable, principally of
finance subsidiaries, of which $1,492.3
in 1996 and $996.3 in 1995 matures
within one year 10,388.9 10,337.8
Accounts payable and other liabilities 1,624.7 1,672.4
Income taxes 713.1 1,007.6
Separate account liabilities 2,836.8 2,533.4
Minority interest in preferred securities
of affiliate 200.0 200.0
Stockholders' 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 4.04% in 1996 and 4.66% in 1995 225.0 225.0
Outstanding--Series D, 180,091 shares, at
liquidation preference of $500 per share,
cumulative dividend rate of 8.5% 90.0 90.0
Preference Stock (without par value)--
5,000,000 shares authorized; none
outstanding
Common Stock ($1 par value):
Authorized--150,000,000 shares
Outstanding--66,409,256 shares in 1996
and 67,989,508 shares in 1995, after
deducting 13,329,206 shares and
11,748,954 shares in treasury 66.4 68.0
Retained earnings 2,876.9 2,866.0
Net unrealized gain on investments marked
to fair value 409.8 1,079.9
Foreign currency translation adjustments (31.0) (29.0)
_________ _________
3,637.1 4,299.9
_________ _________
$47,224.1 $47,944.5
========= =========
(Amounts in millions except for share data)
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<TABLE>
TRANSAMERICA CORPORATION AND SUBSIDIARIES
_______________
CONSOLIDATED STATEMENT OF INCOME
<CAPTION>
Six months ended Three months ended
June 30, June 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
REVENUES
Investment income $1,036.6 $ 975.2 $ 522.5 $ 495.5
Life insurance premiums and related
income 842.6 930.6 425.2 505.1
Finance charges and other fees 587.1 571.5 293.5 301.4
Leasing revenues 347.7 343.0 173.9 174.0
Real estate and tax service revenues 119.5 93.6 61.5 50.6
Gain on investment transactions 29.6 13.3 16.6 10.2
Other 45.6 74.3 21.8 44.2
________ ________ ________ ________
3,008.7 3,001.5 1,515.0 1,581.0
EXPENSES
Life insurance benefits 1,325.0 1,415.1 659.3 756.0
Life insurance underwriting, acquisition
and other expenses 316.3 279.8 162.9 134.1
Interest and debt expense 352.5 354.1 175.2 185.8
Leasing operating and maintenance costs 183.0 179.3 90.1 90.3
Provision for losses on receivables 101.5 51.4 68.3 25.5
Other, including administrative and general
expenses 394.5 371.8 196.6 190.0
________ ________ ________ ________
2,672.8 2,651.5 1,352.4 1,381.7
________ ________ ________ ________
335.9 350.0 162.6 199.3
Income taxes 114.7 135.9 56.7 81.5
________ ________ ________ ________
Net income $ 221.2 $ 214.1 $ 105.9 $ 117.8
======== ======== ======== ========
Earnings per share of common stock (based
on weighted average number of shares
outstanding for the six months ended
June 30, 1996 and 1995 of 67,477,000
and 69,146,000 and for the three months
then ended of 67,073,000 and 69,146,000
after deduction of preferred dividends):
Income before gain on investment
transactions $2.87 $2.84 $1.36 $1.54
Gain on investment transactions 0.28 0.12 0.16 0.09
_____ _____ _____ _____
Net income $3.15 $2.96 $1.52 $1.63
===== ===== ===== =====
Dividends per share of common stock $1.00 $1.00 $0.50 $0.50
===== ===== ===== =====
Ratio of earnings to fixed charges 1.92 1.95
<FN>
(Dollar amounts in millions except for share data)
</TABLE>
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TRANSAMERICA CORPORATION AND SUBSIDIARIES
____________
CONSOLIDATED STATEMENT OF RETAINED EARNINGS
Six months ended
June 30,
1996 1995
Balance at beginning of year $2,866.0 $2,557.4
Net income 221.2 214.1
Dividends on common stock (66.9) (69.0)
Dividends on preferred stock (8.6) (9.1)
Treasury stock purchased (134.8)
________ ________
Balance at end of period $2,876.9 $2,693.4
======== ========
CONSOLIDATED STATEMENT OF CASH FLOWS
Six months ended
June 30,
1996 1995
OPERATING ACTIVITIES
Net income $ 221.2 $ 214.1
Adjustments to reconcile net income
to net cash provided by operating
activities:
Increase in life insurance policy
liabilities, excluding policyholder
balances on interest-sensitive policies 659.4 524.3
Amortization of policy acquisition costs 118.9 109.0
Policy acquisition costs deferred (177.0) (201.0)
Depreciation and amortization 154.7 149.8
Other (107.7) (67.6)
________ ________
Net cash provided by operations 869.5 728.6
INVESTING ACTIVITIES
Finance receivables originated (8,683.0) (9,169.9)
Finance receivables collected 8,544.1 9,156.6
Purchase of investments (4,222.4) (2,671.0)
Sales and maturities of investments 3,164.6 1,464.5
Purchase of finance receivables and other
assets from ITT Consumer Financial
Corporation (1,027.3)
Other (102.1) (261.8)
________ ________
Net cash used by investing activities (1,298.8) (2,508.9)
FINANCING ACTIVITIES
Proceeds from debt financing 3,062.6 5,313.4
Payment of notes and loans (3,021.3) (4,250.2)
Receipts from interest-sensitive policies
credited to policyholder account balances 2,810.0 2,376.0
Return of policyholder balances on
interest-sensitive policies (2,185.5) (1,476.6)
Treasury stock purchased (169.1) (71.3)
Other common stock transactions 32.6 22.9
Purchase of preferred stock (0.8)
Dividends (75.5) (78.1)
________ ________
Net cash provided by financing activities 453.8 1,835.3
________ ________
Increase in cash and cash equivalents 24.5 55.0
Cash and cash equivalents at beginning
of year 67.6 64.3
________ ________
Cash and cash equivalents at end of period $ 92.1 $ 119.3
======== ========
(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 net income for the first half of 1996 increased
$7.1 million (3%), compared to the first half of 1995. Net income for the
first half of 1996 included net after tax gains from investment transactions
aggregating $19.2 million compared to $8.6 million in the first half of 1995.
In the first half of 1996 Transamerica's income before gain on investment
transactions decreased $3.5 million (2%) due primarily to declines in consumer
lending operating results and higher unallocated interest and expenses.
Substantially offsetting these declines were improvements in life insurance,
real estate services and leasing operating results.
Transamerica's net income for the second quarter of 1996 decreased
$11.9 million (10%) compared to the second quarter of 1995. Net income for
the second quarter of 1996 included net after tax gains from investment
transactions aggregating $10.7 million compared to $6.6 million in the second
quarter of 1995. In the second quarter of 1996 Transamerica's income before
investment transactions decreased $16 million (14%) due primarily to a
decline in consumer lending operating results and higher unallocated interest
and expenses. Partially offsetting these declines were increases in life
insurance, real estate services and commercial lending operating results.
Gain (loss) on investment transactions, pretax, included in consolidated
revenues, comprised (amounts in millions):
Six months ended Three months ended
June 30, June 30,
1996 1995 1996 1995
Net gain on sale of investments $27.6 $22.6 $18.0 $16.3
Adjustment for impairment in value (1.2) (6.7) (1.2) (2.7)
Adjustment to amortization of
deferred policy acquisition
costs for realized investment
transactions 3.2 (2.6) (0.2) (3.4)
_____ _____ _____ _____
$29.6 $13.3 $16.6 $10.2
===== ===== ===== =====
The amortization of deferred policy acquisition costs is adjusted due to
losses or gains realized on the sale of certain investments. The adjustment
to the amortization of deferred policy acquisition costs is included in
investment transactions as an offset to the related gains or losses.
Investment transactions also reflected downward adjustments primarily for
impairment in the value of certain nonperforming fixed maturity investments,
mortgage loans, real estate investments and real estate acquired through
foreclosure.
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<TABLE>
REVENUES AND INCOME BY LINE OF BUSINESS
<CAPTION>
Six months ended June 30, Second quarter
Revenues Income Income
1996 1995 1996 1995 1996 1995
(Amounts in millions)
<S> <C> <C> <C> <C> <C> <C>
Life insurance $1,869.2 $1,898.2 $152.3 $135.1 $ 79.5 $ 71.3
Gain on investment
transactions 25.4 1.5 16.5 1.0 3.7 2.0
________ ________ ______ ______ ______ ______
Total life insurance 1,894.6 1,899.7 168.8 136.1 83.2 73.3
Consumer lending 392.3 375.7 13.1 40.6 (4.7) 22.9
Commercial lending 211.6 217.7 32.7 33.0 18.2 15.0
Leasing 363.8 357.8 37.7 35.1 18.9 18.8
Amortization of goodwill (6.5) (6.5) (3.2) (3.2)
________ ________ ______ ______ ______ ______
Total finance 967.7 951.2 77.0 102.2 29.2 53.5
Real estate services 148.9 101.9 21.3 8.7 11.7 6.0
Gain on investment
transactions 18.1 11.8 11.8 7.6 8.3 4.6
Amortization of goodwill (0.1) (0.1) (0.1) (0.1)
________ ________ ______ ______ ______ ______
Total real estate
services* 167.0 113.7 33.0 16.2 19.9 10.5
Unallocated interest
and other expenses* 13.7 48.0 (48.5) (40.4) (25.1) (19.5)
Consolidation elimina-
tions (34.3) (11.1) (9.1) (1.3)
________ ________ ______ ______ ______ ______
Total revenues and
net income $3,008.7 $3,001.5 $221.2 $214.1 $105.9 $117.8
======== ======== ====== ====== ====== ======
*Certain 1995 amounts have been reclassified between real estate services and unallocated
interest and other expenses to conform to the 1996 presentation.
</TABLE>
Life Insurance
Net income from life insurance operations for the first half and second
quarter of 1996 increased $32.7 million (24%) and $9.9 million (14%) over the
corresponding periods of 1995. Net income included net after tax gains from
investment transactions of $16.5 million and $3.7 million in the first half
and second quarter of 1996 compared to $1 million and $2 million in the first
half and second quarter of 1995.
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Income before investment transactions increased $17.2 million (13%) and
$8.2 million (11%) in the first half and second quarter of 1996 over the
corresponding periods of 1995. The structured settlements, group pension,
and Canadian lines all experienced increases in income before investment
transactions in the first half and second quarter of 1996 primarily as a
result of increased policy related income due to a larger base of interest-
sensitive policies and maintained interest spreads on a growing asset base.
Income before investment transactions for the individual life insurance line
increased slightly during the first half of 1996 compared to the first half of
1995 due primarily to increased fee income on a larger base of interest-
sensitive policies. For the second quarter of 1996, income before investment
transactions for the individual life insurance line decreased slightly
compared to the second quarter of 1995 due primarily to increased operating
expenses. The annuities line benefited from higher interest spreads and fee
income but experienced a decrease in income before investment transactions in
the first half and second quarter of 1996 compared to the corresponding
periods of 1995 primarily as a result of the relocation costs associated with
moving a portion of the operation to Charlotte, North Carolina. Income before
investment transactions for the reinsurance line increased during the first
half and second quarter of 1996 compared to the corresponding 1995 periods
primarily due to improved renewals and a favorable shift in business mix,
which more than offset the lower premium revenues experienced in the first
quarter of 1996 compared to 1995's first quarter. Income before investment
transactions for the corporate and other line increased during the first half
and second quarter of 1996 compared to the corresponding periods of 1995
primarily due to investment income from the amortization of discounts on
securities called during the second quarter.
Investment transactions for the first half and second quarter of 1996
included after tax gains of $13.2 million and $2.7 million realized on the
sale of investments compared to $7 million and $6 million in the first half
and second quarter of 1995. The $13.2 million after tax gain for the first
half of 1996 included an after tax gain of $9.1 million resulting from a
transaction with a special purpose subsidiary of Transamerica Corporation
wherein certain below investment grade bonds were exchanged for collateralized
higher rated bond obligations issued by the special purpose subsidiary. This
transaction had no effect on the consolidated financial statements of
Transamerica Corporation. Investment transactions in the first half and
second quarter of 1996 reflected downward adjustments of $800,000 after tax
compared to $4.3 million and $1.7 million after tax in the corresponding
periods of 1995 primarily for impairment in the value of certain below
investment grade fixed maturity investments.
Net investment income increased $59.1 million (6%) and $25.5 million (5%)
for the first half and second quarter of 1996 over the first half and second
quarter of 1995 due to increased investments.
Premiums and related income decreased $88 million (10%) and $79.9 million
(16%) for the first half and second quarter of 1996 from the corresponding
1995 periods due primarily to a decrease from reinsurance transactions and
reduced premium income from the group pension line. Life insurance benefit
costs and expenses decreased $53.6 million (3%) and $67.9 million (8%) for the
first half and second quarter of 1996 compared to the corresponding 1995
periods principally due to a decrease in benefit expense corresponding with
the reduced premium income from the group pension line.
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Cash provided by operations for the first half and second quarter of 1996
increased $230.1 million (79%) and $66.9 million (55%) over the first half and
second quarter of 1995 principally due to increased investment income from
asset growth and 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.
Consumer Lending
Consumer lending net income for the first six months of 1996 and 1995 was
$13.1 million and $40.5 million. Results for the second quarter of 1996 were
a net loss of $4.7 million compared to net income of $22.9 million for the
second quarter of 1995. Consumer lending income, before the amortization of
goodwill, for the first six months of 1996 and 1995 was $13.1 million and
$40.6 million. Consumer lending results, before the amortization of goodwill,
for the second quarter of 1996 were a loss of $4.7 million compared to income
of $22.9 million in the second quarter of 1995. Consumer lending results,
before the amortization of goodwill, for the first six months and second
quarter of 1996 decreased $27.5 million (68%) and $27.6 million (121%) from
the first six months and second quarter of 1995 due primarily to higher
provisions for losses on receivables.
Revenues increased $16.6 million (4%) for the first half of 1996 over the
comparable period of 1995 reflecting an increase in average net receivables
outstanding for the first half of 1996 over the first half of 1995. The
increase in average net receivables outstanding for the first six months
reflects the impact of the March 31, 1995 acquisition of approximately $1
billion in home equity loans from ITT Consumer Financial Corporation (ITT).
For the second quarter of 1996 revenues decreased $9.8 million (5%) over the
second quarter of 1995 reflecting a decrease in average net receivables
outstanding. The continuing runoff of the ITT portfolio, which included
delinquent accounts purchased at a discount, contributed to the decrease in
average net receivables along with runoff in other portfolios which exceeded
originations.
Interest expense for the first half and second quarter of 1996 decreased
$2.2 million (1%) and $10 million (12%) from the comparable year ago periods
reflecting reduced borrowing rates and in the second quarter of 1996 a reduced
level of borrowings. Other operating expenses for the first half and second
quarter of 1996 increased $13.9 million (12%) and $1.5 million (3%) over the
same periods a year ago reflecting increased expenses on disposition of
repossessed assets and increased advertising costs.
The provision for losses on receivables for the first six months and
second quarter of 1996 increased $51.1 million (120%) and $45 million (206%)
compared to the same periods a year ago primarily in response to recent
increased delinquencies principally in the non real estate loan portfolio and
increased credit losses. Net credit losses for the first six months and
second quarter of 1996 increased $31.6 million (77%) and $16.3 million (74%)
over the comparable periods of 1995. Non real estate losses represented $14.3
million and $6.6 million of the increase in the first six months and second
quarter of 1996 over the comparable periods of 1995 primarily reflecting
increasing levels of consumer bankruptcies. Increased losses from the ITT
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portfolio represented $11.3 million and $3.2 million of the increases for the
first six months and second quarter of 1996 compared to the same periods of
1995. Excluding ITT, real estate losses represented $6 million and $6.5
million of the increases in the first half and second quarter of 1996 over the
same periods of 1995 reflecting increased California foreclosure activity.
Net credit losses as a percentage of average net outstandings were 3.00% and
3.20% for the first six months and second quarter of 1996 compared to 1.76%
and 1.71% for the same periods of 1995. In addition to higher credit losses,
the increase in the percentage for the second quarter of 1996 was affected by
lower outstanding receivables.
Net consumer finance receivables at June 30, 1996 and December 31, 1995
were $4.7 billion and $4.9 billion of which $3.8 billion and $4 billion were
real estate secured loans, principally first and second mortgages secured by
residential properties. Approximately 36% of the real estate secured loans
were located in California. The decrease in net receivables was primarily due
to the continuing liquidation of the ITT portfolio and runoff in other
portfolios which exceeded originations.
Delinquent finance receivables, which are defined as receivables
contractually past due 60 days or more, were $147.3 million (3.02% of finance
receivables outstanding) at June 30, 1996 compared to $143.6 million (2.79% of
finance receivables outstanding) at December 31, 1995. Approximately two
thirds of the increase in the delinquency percentage was due to the effects of
lower outstanding receivables at June 30, 1996 with the remainder caused by an
increase in delinquencies in the non real estate portfolio of $3.1 million
(7%) and in the real estate portfolio of $600,000 (1%). Delinquencies in the
non real estate loan portfolio increased to 5.28% of receivables outstanding
at June 30, 1996 compared to 4.78% at December 31, 1995.
Management has established an allowance for losses equal to 3.76% of net
consumer finance receivables outstanding at June 30, 1996 compared to 3.32% at
December 31, 1995. This increase is in response to recent increased
delinquencies, principally in the non real estate loan portfolio which
represents about 19% of the consumer lending portfolio.
Accrual of interest and other finance charges is suspended on accounts
that become contractually past due more than 29 days. At June 30, 1996 and
December 31, 1995 such nonearning receivables, which exclude accounts in
foreclosure, amounted to $341.8 million and $308 million. Payments received
on accounts while in nonaccrual status are applied to principal and interest
income according to the terms of the loan.
When foreclosure proceedings begin on an account secured by real estate,
the account is moved from finance receivables to other assets and is written
down to the lower of the account balance or the fair value of the collateral
less estimated selling costs. Accounts in foreclosure and repossessed assets
held for sale totaled $191.9 million at June 30, 1996 of which 63% pertained
to California compared to $207.3 million at December 31, 1995, of which 69%
pertained to California.
Since any change in the trends in credit losses, delinquencies, accounts
in foreclosure and repossessed assets may be impacted by factors such as
economic conditions, competition, and for accounts secured by real estate,
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the state of the real estate market, particularly in California, the extent
and timing of any change in these trends is uncertain. Management intends to
accelerate its efforts to reduce exposure to the non real estate loan segment
of the portfolio by further curtailing production in that segment,
liquidating selected portions of that segment and intensifying collection
efforts.
Commercial Lending
Commercial lending net income for the first half and second quarter of
1996 was $27.3 million and $15.5 million compared to $27.6 million and $12.3
million for the corresponding periods of 1995. Commercial lending income,
before the amortization of goodwill, was $32.7 million and $18.2 million in
the first half and second quarter of 1996 compared to $33 million and $15
million in the same periods of 1995.
Commercial lending income, before the amortization of goodwill, for the
first half and second quarter of 1996 decreased $300,000 (1%) and increased
$3.2 million (21%) from 1995's first half and second quarter. The results for
the first half of 1995 included a $2.8 million after tax gain on the first
quarter sale of the consumer rediscount loan portfolio. Excluding the gain on
sale, commercial lending income increased $2.5 million (8%) in the first half
of 1996 over the first half of 1995. The increased income in the first half
and second quarter resulted from higher margins, higher average receivables
outstanding and a lower provision for loss on receivables. Margins were
higher due to the higher spread between the indices at which the commercial
lending operation lent to customers versus the indices at which funds were
borrowed.
Revenues in the first half of 1996 decreased $6.1 million (3%) and
increased $100,000 (-%) for the second quarter of 1996 over the corresponding
1995 periods. The first half decrease was primarily due to the gain on sale
of the rediscount loan portfolio in 1995.
Interest expense decreased $5.5 million (7%) and $3.0 million (8%) in the
first half and second quarter of 1996 over the comparable 1995 periods due to
a lower average interest rate on borrowings. Operating expenses for the first
six months of 1996 increased $1.8 million (2%) and decreased $200,000 (-%)
for the quarter. The first half increase was attributable to expenses
incurred in the equipment finance and leasing division which began operations
during the second quarter of 1995, a $1.3 million ($800,000 after tax)
provision for settlement of a legal matter during the first quarter of 1996,
and increased expenses due to growth in the core businesses. Partly
offsetting these increases were reduced expenses related to the management of
the liquidating receivables and assets held for sale which were disposed of in
late 1995. During the second quarter of 1996 reduced expenses related to the
liquidating portfolios more than offset increased expenses in the core
businesses. The provision for losses on receivables in the first half and
second quarter of 1996 decreased $1 million (12%) and $2.3 million (62%)
compared to the same periods of 1995. Credit losses, net of recoveries, on an
annualized basis as a percentage of average commercial finance receivables
outstanding, net of unearned finance charges, were 0.10% for the first half
and second quarter of 1996 compared to 0.34% and negative 0.03% for the
comparable periods of 1995. The decline for the first half was primarily due
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Page 13
to the relatively higher level of credit losses related to the consumer
rediscount portfolio which was sold during the first quarter of 1995. During
the second quarter of 1995, recoveries on previously recorded losses exceeded
credit losses.
Net commercial finance receivables outstanding increased $215.7 million
(7%) from December 31, 1995. Business credit grew $106 million primarily due
to growth in the equipment finance and leasing operation. Inventory finance
experienced an increase of $80 million primarily due to increased penetration
of existing markets through alliances and other activities. The insurance
premium finance unit grew $33 million principally due to expansion in Europe.
Management has established an allowance for losses equal to 2.53% of net
commercial finance receivables outstanding as of June 30, 1996 compared to
2.51% at December 31, 1995.
Delinquent receivables are defined as the instalment balance for
inventory finance and asset based lending receivables and the outstanding loan
balance for all other receivables over 60 days past due. Delinquent
receivables were $16.5 million (0.49% of receivables outstanding) at June 30,
1996 compared to $11.1 million (0.35% of receivables outstanding) at December
31, 1995.
Nonearning receivables are defined as balances from borrowers that are
over 90 days delinquent or at such earlier time as full collectibility becomes
doubtful. Accrual of finance charges is suspended on nonearning receivables
until such time as past due amounts are collected. Nonearning receivables
were $20.5 million (0.61% of receivables outstanding) at June 30, 1996
compared to $18 million (0.57% of receivables outstanding) at December 31,
1995. The increase in delinquent and nonearning receivables was primarily
attributable to a single account in the insurance premium finance portfolio
which has been fully reserved.
Leasing
Leasing net income for the first half and second quarter of 1996 was
$36.7 million and $18.4 million compared to $34.1 million and $18.3 million
for the first half and second quarter of 1995. Leasing income, before the
amortization of goodwill, was $37.7 million and $18.9 million in the first
half and second quarter of 1996 compared to $35.1 million and $18.8 million in
the corresponding periods of 1995.
Leasing income, before the amortization of goodwill, for the first half
and second quarter of 1996, increased $2.6 million (7%) and $100,000 (-%) over
the first half and second quarter of 1995. Results from operations include
benefits from the favorable resolution of outstanding tax issues totaling $2.6
million in the first quarter of 1996 and $1.8 million in the second quarter of
1995. Excluding these tax benefits, leasing income for the first half and
second quarter of 1996 increased $1.8 million (5%) and $1.9 million (11%) over
the first half and second quarter of 1995. For both the first half and second
quarter, earnings increased due to a larger portfolio of finance leases and
more on-hire units in the refrigerated container, tank container and European
trailer lines of business. These increases were partially offset by lower
earnings resulting from lower standard container and chassis utilization and
per diem rates. The second quarter earnings were also favorably impacted by
lower ownership and operating costs in the rail trailer business.
<PAGE>
Page 14
Revenue for the first half of 1996 increased $6 million (2%) over the
corresponding 1995 period. The first half of the 1996 revenue increase was
primarily due to a larger portfolio of finance leases and a larger on-hire
fleet of refrigerated and tank containers, and European trailers. Partially
offsetting these increases were lower revenues resulting from lower per diem
rates and utilization for standard containers and chassis. Rail trailers also
reported lower revenues due to a smaller fleet size and less on-hire units.
Revenue for the second quarter of 1996 decreased $100,000 (-%) from the
1995 second quarter primarily due to lower revenues resulting from lower
standard container per diem rates and less standard container units on-hire,
offset in part by increased revenue from a larger on-hire fleet of
refrigerated containers and European trailers and a larger portfolio of
finance leases.
Expenses for the first half and second quarter of 1996 increased $7.2
million (2%) and $200,000 (-%) over the corresponding 1995 periods, mainly due
to higher ownership and operating costs associated with larger refrigerated
container, chassis and European trailer fleets, partially offset by lower
ownership and operating costs in the rail trailer business.
The combined utilization of standard containers, refrigerated containers,
domestic containers, tank containers and chassis averaged 82% for both the
first half and second quarter of 1996 compared to 85% and 86% for the first
half and second quarter of 1995. Rail trailer utilization was 80% for both
the first half and second quarter of 1996 compared to 75% and 72% for the
first half and second quarter of 1995. European trailer utilization was 93%
for both the first half and second quarter of 1996 compared to 96% and 95% for
the first half and second quarter of 1995.
Real Estate Services
Real estate services comprise Transamerica's real estate tax, investment
management and other related services.
Net income for the first six months and second quarter of 1996 increased
$16.8 million (104%) and $9.4 million (90%) over the comparable periods of
1995. Net income included after tax gains from investment transactions in the
first six months and second quarter of 1996 of $11.8 million and $8.3 million
compared to $7.6 million and $4.6 million in the comparable periods of 1995.
Net income before investment transactions for the first half and second
quarter of 1996 increased $12.6 million (145%) and $5.7 million (95%) over the
comparable periods of 1995 primarily due to an increase in real estate tax
service revenues caused by higher mortgage refinancings resulting from lower
interest rates.
Revenues for the first six months and second quarter of 1996 increased
$53.3 million (47%) and $33.4 million (55%) over the comparable periods of
1995 as a result of increased business at the real estate tax service
operation and higher investment income.
<PAGE>
Page 15
Unallocated Interest and Expenses
Unallocated interest and expenses, after related income taxes, for the
first half and second quarter of 1996 increased $8.1 million (20%) and
$5.6 million (29%) over the comparable periods of 1995. In 1995, unallocated
interest and expenses included income from Criterion Investment Management
Company (CIMC) of $6.6 million and $5.2 million for the first six months and
second quarter of 1995. Included in CIMC income was a gain of $4.8 million
from the sale of its assets on May 2, 1995. Excluding the results of CIMC,
unallocated interest and expenses increased $1.5 million (3%) and $400,000
(2%) in the first six months and second quarter of 1996 over the comparable
1995 periods primarily due to increased interest expense as a result of higher
outstanding debt.
Corporate Liquidity and Capital Requirements
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 stockholders, purchase shares of its
common stock, reinvest in the operations of its subsidiaries and pay corporate
interest, expenses and taxes. Reinvested funds are allocated among subsid-
iaries on the basis of expected returns, creation of shareholder value and
capital needs. 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 July 25, 1996 Transamerica announced that it had signed a definitive
agreement to acquire Trans Ocean Ltd., a container leasing company, in
exchange for approximately $110 million in shares of Transamerica common
stock. The final purchase price is subject to adjustment and is dependent
upon, among other things, the size of Trans Ocean's fleet as determined at
the closing date. Completion of the transaction is subject to, among other
things, the approval of Trans Ocean's shareholders and receipt of required
regulatory approvals. The acquisition is expected to close early in the
fourth quarter of 1996.
On July 25, 1996, Transamerica announced that its board of directors had
authorized additional purchases of up to 2 million shares of the company's
common stock. As a result of previously announced share purchase programs,
during the first half and second quarter of 1996 Transamerica purchased
2,097,400 shares and 1,494,200 shares for $163.1 million and $117.1 million.
At June 30, 1996, there were 457,600 shares of the company's common stock
remaining to be purchased under previously announced share purchase programs.
Investment Portfolio
Transamerica, principally through its life insurance subsidiaries,
maintains an investment portfolio aggregating $27.8 billion at June 30, 1996,
of which $25.6 billion was invested in fixed maturities. At June 30, 1996,
<PAGE>
Page 16
96.3% of the fixed maturities was rated as "investment grade" with an
additional 2.6% in the BB category or its equivalent. The amortized cost of
fixed maturities was $25.1 billion resulting in a net unrealized gain
position, before the effect of income taxes, of $559 million at June 30,
1996. 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 $2.2 million at June 30, 1996 compared
to $6.9 million at December 31, 1995. Adjustment for impairment in value has
been made to reduce the amortized cost of certain fixed maturity investments
by $67 million at June 30, 1996 and $71.4 million at December 31, 1995.
In addition to the investments in fixed maturities, $771.3 million (2.8%
of the investment portfolio), net of allowance for losses of $46 million, was
invested in mortgage loans and real estate including $720.7 million in
commercial mortgage loans, $83.8 million in real estate investments and
$12.8 million in foreclosed real estate. Problem loans, defined as
restructured loans yielding less than 8% and delinquent loans, totaled
$10.4 million at June 30, 1996 and $3.9 million at December 31, 1995.
Allowances for possible losses of $46 million at June 30, 1995 and
$48.8 million at December 31, 1995 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, warrants and options to enter into interest rate swap
agreements (swaptions).
Derivative financial instruments with a notional amount of $4,818.9
million at June 30, 1996 and $1,000.7 million at December 31, 1995 and
designated as hedges of Transamerica's investment portfolio were outstanding.
In addition, derivative financial instruments with a notional amount of
$3,033.2 million at June 30, 1996 and $3,738.2 million at December 31, 1995
and designated as hedges of Transamerica's liabilities were outstanding. The
change in the notional amount outstanding of both asset and liability hedges
reflects additional derivative contracts entered into and redesignation of
certain of Transamerica's outstanding derivative contracts from liability
hedges to asset hedges to better reflect for accounting purposes the match of
the derivative and the underlying hedged risk.
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, 1996, the derivative
financial instruments discussed above were issued by financial institutions
rated A or better by one or more of the major credit rating agencies. The
fair value of Transamerica's derivative financial instruments at June 30, 1996
and December 31, 1995 was a net benefit of $66.1 million and $79.9 million
<PAGE>
Page 17
comprising agreements with aggregate gross benefits of $106.6 million and
$122.5 million and agreements with aggregate gross obligations of $40.5
million and $42.6 million.
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
11 Statement Re: Computation of Per Share Earnings.
12 Computation of Ratio of Earnings to Fixed Charges.
27 Financial Data Schedule.
(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 9, 1996
<PAGE>
EXHIBIT 11
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
TRANSAMERICA CORPORATION
Six months ended June 30,
1996 1995
(Dollar amounts in millions,
except for share data)
Primary
Average shares outstanding 67.5 69.1
Net effect of dilutive stock options--
based on the treasury stock method
using average market price 1.7* 1.4*
____ ____
TOTAL 69.2 70.5
==== ====
Net income $221.2 $214.1
Preferred dividends (8.6) (9.1)
______ ______
Net income to common $212.6 $205.0
====== ======
Per share amount $3.15 $2.96
===== =====
Fully Diluted
Average shares outstanding 67.5 69.1
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 1.8* 1.8*
____ ____
TOTAL 69.3 70.9
==== ====
Net income $221.2 $214.1
Preferred dividends (8.6) (9.1)
______ ______
Net income to common $212.6 $205.0
====== ======
Per share amount $3.15 $2.96
===== =====
*Not included in per share calculation because effect is less
than 3%.
<PAGE>
EXHIBIT 12
TRANSAMERICA CORPORATION AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
Six Months Ended
June 30,
1996 1995
(Dollar amounts in
millions)
Fixed charges:
Interest and debt expense $352.5 $354.1
One-third of rental expense 12.1 12.7
______ ______
Total $364.6 $366.8
====== ======
Earnings:
Net income $221.2 $214.1
Provision for income taxes 114.7 135.9
Fixed charges 364.6 366.8
______ ______
Total $700.5 $716.8
====== ======
Ratio of earnings to fixed
charges 1.92 1.95
==== ====
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<MULTIPLIER> 1,000,000
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 92
<SECURITIES> 830
<RECEIVABLES> 2,016
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 3,318
<DEPRECIATION> 1,231
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0
315
<COMMON> 66
<OTHER-SE> 3,256
<TOTAL-LIABILITY-AND-EQUITY> 47,224
<SALES> 0
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<TOTAL-COSTS> 1,825
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<INCOME-PRETAX> 336
<INCOME-TAX> 115
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